Everybody and his uncle - government officials, bankers, economists and garmentos - are all locked in the latest China debate. But what David Birnbaum wants to know is whether the revaluation of its currency will reduce China's apparel exports?

The focus of the latest China debate is the revaluation of the renminbi (RMB) or yuan: Will she or won't she, revalue the RMB?

Being somewhat sceptical I tend towards the negative side. China's offer to raise the value of its currency against the US dollar will turn out to be so much fluff.

However, underneath this debate is a second, somewhat more meaningful, discussion where few professionals want to go. Assuming that China does increase the value of its currency, will the revaluation reduce US imports?

Here too, I take the negative side, at least as far as concerns the all-important garment industry.

The whole thing will be a washout. Other than some secondary increases in US textile exports to DR-CAFTA, any reduction in China's garment exports will be off-set by increased exports from other Asian countries.

However, underneath this second debate is yet a third, more fundamental debate which only a very small group dares argue.

Assuming that China does increase the value of its currency, will the revaluation reduce China's exports?

Here, I am undecided. Despite the all the hoopla, there is a real possibility that, at least as concerns the garment industry, a higher valued yuan will have minimal or even no-effect on China's garment exports.

Look at the past data.

From July 2005 to July 2008 China revalued the yuan by a whopping 21%, an amount far greater than we can expect this time around. From January 2006 to January 2009, China's FOB prices rose by an even more whopping 27%.

However, when the value of the yuan stabilised at its new level, a funny thing happened. FOB prices, rather than remaining steady, fell by 11%.

Clearly, the value of the yuan has some effect on FOB prices. However, equally clearly, that effect appears to be temporary. Once the currency stabilises, other factors allow FOB prices to decline.

US Garment Imports

More telling is the effect of a higher valued yuan and rising FOB prices on China's market share. Based on previous revaluation the answer appears to be: no effect whatsoever.

From the graph above, it is clear that after allowing for seasonal changes, Chinese market share has been moving upward in a straight line from 1 January 2005, the day global garment quotas were phased out, to the present time.

It were as if there had been no change in the value of the yuan and no change in made-in-China garment FOB prices.

US Garment Imports: China

It appears that China's garment exports defy not only the laws of economics, but the laws of gravity as well.

How do the Chinese consistently manage to do the impossible? Well, that is the subject of the all important fourth debate, which is currently taking place in an empty room.

David Birnbaum is the author of The Birnbaum Report, a monthly newsletter for garment industry professionals. Each issue analyses in-depth US garment imports of four major products from 21 countries, as well as ancillary data such as currency fluctuations, China quota premiums and clearance rates.