The onshore renminbi fell below the 6.77 mark against the U.S. dollar, and the profit statements of textile foreign trade enterprises are being recalculated. On July 24, the closing rate of 6.7744 dropped another 38 pips from the previous day, while the central bank set the midpoint at 6.7939, up 33 pips, marking the largest single-day depreciation since June 18. The signal is clear: the renminbi is under short-term pressure, and the dollar-denominated receipts of exporters are yielding more in local currency terms.
Dual Signals of Depreciation and Liquidity Tightening
The depreciation is not an isolated event. In the same week, the central bank net withdrew 843 billion yuan through reverse repo and medium-term lending facility (MLF) operations. Specifically, 1,963.5 billion yuan in reverse repos and 400 billion yuan in MLF matured this week, while only 1,020.5 billion yuan in reverse repos and 500 billion yuan in MLF were rolled over. This 'scale-down' rhythm means that interbank liquidity is being gently withdrawn.
On July 24, the central bank conducted 89 billion yuan in 7-day reverse repos at a rate of 1.40%, unchanged, and injected 500 billion yuan in 1-year MLF at the same rate. However, with 450.5 billion yuan in reverse repos maturing that day, the net injection was only 39.5 billion yuan, far from reversing the weekly net withdrawal. For textile enterprises, tighter liquidity often means marginally higher financing costs, especially for small and medium-sized fabric traders that rely on short-term loans.
Industry Transmission Channels of Renminbi Depreciation
The benefit of renminbi depreciation for textile exports is direct but not unlimited. At current exchange rates, exporters can gain about 0.03 yuan per dollar when converting, which, for orders with thin margins of 5%-8%, translates to a 3-4 percentage point boost in profitability. However, whether this benefit is realized depends on three variables:
- Order pricing cycle: If companies use forward hedging, the immediate gain from depreciation is partially offset.
- Imported raw material costs: Polyester, viscose, and other chemical fiber raw materials rely heavily on imported PX and wood pulp. Renminbi depreciation raises the local currency cost of these inputs, eroding finished product margins.
- Customer bargaining power: Overseas buyers often demand renegotiation of long-term contract prices, potentially forcing exporters to share the price advantage.
From a supply chain perspective, midstream weaving mills are most exposed to the dual impact—they benefit from export-side exchange rate gains while bearing the cost of imported raw materials. In contrast, pure export garment manufacturers benefit more directly, especially on dollar-denominated orders with production cycles of 30-60 days.
Regional Divergence in Industry Data
Responses in the textile clusters of Keqiao, Shengze, and Nantong are already diverging. According to publicly available industry data, since mid-July, the frequency of price inquiries from foreign trade companies in Keqiao has increased markedly. Some firms have shifted from weekly to daily pricing to lock in profits from exchange rate fluctuations. In Shengze, chemical fiber weaving mills are more cautious, as the import prices of PTA and ethylene glycol have risen simultaneously, prompting greater use of futures markets to hedge raw material costs.
Home textile enterprises in Nantong face a slightly different situation. Their export orders, mainly bedding and curtains, have longer delivery cycles (60-90 days), creating larger exchange rate risk exposure. Some companies have raised their forward settlement ratio from a baseline of 50% to 70% to hedge against further renminbi depreciation.
Linkage Effects of Monetary and Exchange Rate Policies
The central bank's net withdrawal this week is not an isolated case. Since mid-June, open market operations have consistently featured a 'short-term easing, long-term tightening' pattern—reducing long-term liquidity via MLF while maintaining short-term stability with reverse repos. This balancing act reflects the central bank's trade-off between stabilizing the exchange rate and supporting growth: moderate liquidity tightening helps alleviate depreciation pressure but also raises real financing costs.
For textile companies, this policy mix implies two things: first, the renminbi is likely to remain weak in the short term, keeping the settlement window for exporters open through the end of the third quarter; second, companies should avoid over-reliance on short-term borrowing to expand capacity, as funding costs may continue to rise.