Her Campus, the reason that I've been so absent from my beloved feelings forum. Fear not, I present to you the links to my past articles as well as the link to my most current. Thanks for reading :) and please comment !
Most recent: http://hercampus.com/school/texas/fashion-classroom-what-guys-really-think
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Wednesday, November 24, 2010
Sunday, November 21, 2010
Yuan, Dollars, and F21
Labels:
China,
currency,
IB350,
manipulation,
manufacturers,
money,
Random,
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So...I wrote a paper for Global Trade on the effects of foreign monetary inflation on the apparel manufacturing industry. The issue has been consuming my mind ever since. Did you know that (while I think these statistics may be slightly skewed) if the value of the Yuan rises by 5% nearly half of all Chinese domestic producers will go into bankruptcy? Did you know that China has been accused of (and probably is) pushing the value of their currency down to maintain stability in their economy? Before people run to point fingers at China as a currency manipulator, maybe we should consider the devastating effects of what happens if they don't push the value of their currency. Also, by injecting billions of dollars into our own economy, we are just as guilty of currency manipulation as anyone else.
If you're bored enough to read this excerpt from my paper, think about this:
What happens if Chinese manufacturing takes a turn for the worst and domestic producers start to fail. Who suffers in the end?
China has managed to maintain a stiff trade surplus in a neo-mercantilist fashion for many years. For example in 2005, the Chinese cumulative trade surplus reached nearly $50 billion (29.98) within the first seven months of the year (Pacific Shipper, 2005). But recently, due to the rising value of the RMB and the weakening of the American dollar, there has been a notable decrease in the Chinese trade surplus since 2007. According to Liu, Liu and Pannell, “The average monthly trade surplus in 2009 has dropped to $15.4 billion, compared to $24.5 billion in 2008 and $21.8 billion in 2007” (Liu, Liu and Pannell, 2009). The weakening of a U.S. dollar and strengthening of the RMB means that less designers and businesses come to China to produce goods since it is more expensive. However, the decrease in trade from the 2008 financial crisis overall may also be to blame. Liu, Liu and Pannell also state in their report The Global Economic Crisis and China’s Foreign Trade, “Trade also has been severely impacted, as exports of goods and services, the main method that countries use to earn foreign exchange to pay for imports and international debt, has declined in advanced economies and emerging markets. (Liu, Liu and Pannell, 2009)” The decrease in trade results in the decrease in trade surplus seen above.
Although the effects of this decrease in trade and decrease in profits for Chinese apparel manufacturers may not seem treacherous when compared viewed in shadow of China’s $15.4 billion trade surplus, the effects are daunting. According to China’s National Textile & Apparel Council Vice President Gao Yong, “a 5 percent currency appreciation could cause half of the country's textile companies to go bankrupt” and that “the bankruptcies would be spurred by the industry's thin profit margins of around 3 to 5 percent” (WWD, 2010). This possibility of the danger of an appreciating Yuan (which according to WWD, also rose 21% against the dollar from 2005 to 2008) when combined with definite decreases in profit margins due to “rising raw material and labor costs” (WWD, 2010) creates a dangerous mix for the Chinese apparel industry.
The solutions to these issues and dangers are rarely simple. On one hand the Chinese economy’s growth relies on continuous industry growth, such as the apparel industry, which accounts for just more than 11% of China’s total gross domestic product (WWD, 2010). However, the growth of the economy and resulting appreciation of currency against other nations may also stifle and damage the industries which have contributed to that very growth. Domestic manufacturers do not singularly compete with only domestic competitors – the textile and apparel-manufacturing industry is cutthroat and competitive worldwide. Companies looking to produce finding costs too high in China may turn to a nearby nation like Vietnam or India to fill the gap. Without further cost cutting and profit growth measures, the Chinese Textile and Apparel industry may inevitably end up with a drastic reduction in the number of competitors in the domestic Chinese market.
If you're bored enough to read this excerpt from my paper, think about this:
What happens if Chinese manufacturing takes a turn for the worst and domestic producers start to fail. Who suffers in the end?
China has managed to maintain a stiff trade surplus in a neo-mercantilist fashion for many years. For example in 2005, the Chinese cumulative trade surplus reached nearly $50 billion (29.98) within the first seven months of the year (Pacific Shipper, 2005). But recently, due to the rising value of the RMB and the weakening of the American dollar, there has been a notable decrease in the Chinese trade surplus since 2007. According to Liu, Liu and Pannell, “The average monthly trade surplus in 2009 has dropped to $15.4 billion, compared to $24.5 billion in 2008 and $21.8 billion in 2007” (Liu, Liu and Pannell, 2009). The weakening of a U.S. dollar and strengthening of the RMB means that less designers and businesses come to China to produce goods since it is more expensive. However, the decrease in trade from the 2008 financial crisis overall may also be to blame. Liu, Liu and Pannell also state in their report The Global Economic Crisis and China’s Foreign Trade, “Trade also has been severely impacted, as exports of goods and services, the main method that countries use to earn foreign exchange to pay for imports and international debt, has declined in advanced economies and emerging markets. (Liu, Liu and Pannell, 2009)” The decrease in trade results in the decrease in trade surplus seen above.
Although the effects of this decrease in trade and decrease in profits for Chinese apparel manufacturers may not seem treacherous when compared viewed in shadow of China’s $15.4 billion trade surplus, the effects are daunting. According to China’s National Textile & Apparel Council Vice President Gao Yong, “a 5 percent currency appreciation could cause half of the country's textile companies to go bankrupt” and that “the bankruptcies would be spurred by the industry's thin profit margins of around 3 to 5 percent” (WWD, 2010). This possibility of the danger of an appreciating Yuan (which according to WWD, also rose 21% against the dollar from 2005 to 2008) when combined with definite decreases in profit margins due to “rising raw material and labor costs” (WWD, 2010) creates a dangerous mix for the Chinese apparel industry.
The solutions to these issues and dangers are rarely simple. On one hand the Chinese economy’s growth relies on continuous industry growth, such as the apparel industry, which accounts for just more than 11% of China’s total gross domestic product (WWD, 2010). However, the growth of the economy and resulting appreciation of currency against other nations may also stifle and damage the industries which have contributed to that very growth. Domestic manufacturers do not singularly compete with only domestic competitors – the textile and apparel-manufacturing industry is cutthroat and competitive worldwide. Companies looking to produce finding costs too high in China may turn to a nearby nation like Vietnam or India to fill the gap. Without further cost cutting and profit growth measures, the Chinese Textile and Apparel industry may inevitably end up with a drastic reduction in the number of competitors in the domestic Chinese market.
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