New Yuan Policy,China Currency Policy,China Currency Exchange Rate,Bank of China Currency Exchange Rate

China'sdeclaration to make the Yuan more flexible is likely to boost shares. What willbe its impact in the textile sector?

The People's Bank of Chinaannounced earlier on June that it will increase the exchange rate flexibilityof the Yuan. Official rate of Yuan was kept at 6.83 per Dollar since July 2008.Attempting to assuage the swell of fear regarding the strengthening of Yuan,the Central Bank announced to keep a stable exchange rate. This is believed tocontribute to the economic stability, and aid in restructuring the Chineseeconomy with an emphasis on consumption, and services.

A few analysts predict thatstrong Yuan value will bring a positive upshot for the A-share market in China(China's stock exchange has two share markets; A & B. A-share markets aredenominated in Yuan, and B share markets are denominated in foreign currency. Ashare market is usually closed for foreign investors, while B share market isopen only to foreigners). China's Yuan denominated A-share market is predictedto become the third largest in the world, in the next 10 years, reaching avalue of $10 trillion by 2020.

China ended its 14 years of pegagainst the US Dollar in 2005, after receiving threats from the latter.However, when the economic turmoil shook the globe, the Central Bank of China re-pegged the Yuan around 6.82 for a Dollar to maintain the competitiveness of itsexports. After the advent of President Obama reign, series of rough tradepenalties were imposed for Chinese goods.

Chinesecurrency appreciation against international currencies

(Values stated inYuan against one unit of foreign currency)

China is the largest exporter of textiles and textile products in the world. The country's stance of restricting Yuan appreciation is likely to help the textile exporters in maintaining the lead in the global market. This will facilitate the exporters to quote prices that are constantly competitive. Stronger Yuan value would help the Chinese companies by augmenting their purchasing power, and simultaneously benefit the foreign investors who prefer to buy Yuan denominated stock. The declaration of China is also likely to motivate Indian textile industry, by making its exports more competitive. But this only depends upon the extent; China is putting it into practice.

While some of the exporters are concerned about the extent to which China will be serious in implementing its announcement, a few others are also optimistic and expect more orders in the coming months.

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