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Abstract
This paper examines the currency exposure and exchange rate risk management at Chinese textile and apparel exporters. Chinese exporting firms have large net exposure to the US dollar. On average a 10 percent increase in the value of the renminbi against the dollar would reduce net revenues by 5.4 percent if the firms left prices unchanged. This large exposure is driven heavily by the choice of export pricing currency by the firms. The regional distribution of sales is more balanced across the major export markets of the US, EU, and Japan. However many firms are unaware of their indirect currency risk to currencies other than the dollar and most firms undertake little or no activities to hedge their foreign currency exposure, direct or indirect. The large dollar exposure of Chinese exporters may help explain the reluctance of the People's Bank of China to allow the RMB to undergo a rapid appreciation against the dollar.
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