A recent research report showed that in China’s textile industry, two-thirds of companies are having an average operating margin of only 0.62%. If these companies fail, it will affect 15 million jobs.
Textile is one of the most representative exports of China, with a trade surplus of US$150 billion last year. But the Chinese RMB has gone up 14% against USD since the currency reform, and the US subprime crisis is spreading to other countries. As a result, the whole Chinese exporting sector is surrounded by a pessimistic atmosphere.
High level action
“One third of textile companies will go PERFORMANCE FABRIC broke in 2008,” such a rumour was circulating the internet in China in early January, and it caught the attention of the Ministry of Commerce of China and China National Textile and Apparel Council (CNTAC). Therefore in March, 6 research groups were sent to the top 6 textile provinces in China, namely Jiangsu, Zhejiang, Shandong, Guangdong, Fujian and Hebei, as they have a collective textile export share of 85% nationally.
What the research groups want to find out include impacts from the rising currency, raw material costs, rising labor costs, reduction of export rebates, increase in export duties, etc. In light of the intensive policy adjustments and environment changes, how are Chinese textile companies coping? What more can they afford?
No one knows exactly the number of textile companies in China. The official statistics show that there are currently more than 40,000 companies with annual sales above 5 million yuan (US$660,000), based on export statistics. But CNTAC said that there are hundreds of thousands of smaller players.
According to Mr Sun Huaibin, Director of China Textile Economic Research Centre, 80% of profits in the Chinese textile industry were contributed by 1/3 of the companies in 2007. These companies have a profit margin of 6%-10%, against the industry average of 3.9%. But even this profitable one-third is having a hard time now. “Due to various factors, long term sales contracts are no longer easy to get now,” said Mr Sun.
Another rumour has been circulating since January that export rebates will be cut by a further 4%. Although this has not been officially confirmed, many companies are already factoring into this effect when negotiating export prices. And investment bank analysts are also predicting that RMB will rise another 10% this year.
China exported US$176 billion worth of textile products in 2007, up 19% from 2006, the lowset growth rate since 2003. In the first two months of 2008, China exported US$16.4 billion clothing and accessories, up only 5.7% from previous comparable period (pcp).