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Impact of Yuan on Sweater Industry

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by Jaya Krishnan , Senior Research Analyst, CapEx and MRO
11 August 2016

Abstract:

China has a predominant global impact when it comes to sweater industry. This is because China alone holds more than 48% of export market for sweater globally followed by Bangladesh and Vietnam. China and Bangladesh have low cost of production because of cheap labor rates, economies of scale and availability of feedstock (Cashmere). China’s central bank on 11th August 2015 shocked markets when it devalued yuan by lowering its daily mid-point trading price to 1.87% weaker against the U.S. dollar. A day later, the central bank again devalued for the second time pushing down the price by another 1.62% against the U.S. dollar. This was intended to make Chinese products more competitive in the international market, which eventually boosts exports and the economy. Because of volatile exchange rate the sourcing and production contracts between Chinese suppliers and foreign buyers have to be reviewed over a short period of time.

In this article, we will assess the overall impact of yuan devaluation on sweater market and also understand who will benefit or who will lose due to this devaluation.

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