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Textile industry fights in gloomy

By Diao Ying (China Daily)
Updated: 2008-05-12 10:41

Margins squeezed

His clients, Chinese textile companies, have been hurt more directly. There have been reports about small textile enterprises in southern China closing down. A report by China Chamber of Commerce for Import and Export of Textiles show the profit margin of textile companies is now as thin as 3.9 percent.

Continuous yuan appreciation has further eroded that margin. There is generally a two-three month lag between the time a contract is signed and the money is paid, allowing for time for manufacturing and shipment. "Because of yuan appreciation in the interim, we end up losing millions," laments a trader.

"This is the toughest year for China's textile industry," says Zhang Xi'an, a spokesman for the chamber. Citing data from research by the chamber, Zhang says many small textile companies are closed down, laying off workers or have suspended their business.

Even the big companies have suffered. According to Dai Minjun, a sales manager with Hongdou, one of China's largest textile companies, its exports have fallen in the first quarter of this year. "Exports to US, in particular, have plunged. There are less contracts, and contract values have also become smaller," says Dai.

But some companies see an opportunity in this crisis, a chance for industry consolidation and introduction of more advanced management. The majority of China's textile manufacturers have long been competing in the low end of the market. As foreign buyers look to other countries for even cheaper options, the local industry is realizing that it needs to compete on quality and design, not price, if it has to survive.

Quality is king

Li Xiang, a sales executive of Trans-America Co, the largest trading company in East China's Jiangsu province, one of China's major export bases, recounts how hat designs determined their prices at his booth in the recent Canton Fair. Hats with simple patterns wouldn't fetch much as the customers can easily get those made in Vietnam or Indonesia. "But for more sophisticated hats with delicate embroidery or good design, the buyers would finally accept the prices we offered since they cannot find them elsewhere," says Li.

Companies that realized the importance of quality years ago are in a good position now. Jiangsu Sunshine, a large Chinese textile company that supplies materials to the likes of Armani and Hugo Boss, saw its business growth slow down a bit this year, but still remaining stable. "We have the best quality in the world, and we won't give in if we think the price offered is too low," says Pan Jinshan, general manager of the company. "Our clients understand our position and often accept it."

As for losses because of yuan appreciation, big companies often manage to negotiate prices with suppliers by factoring in anticipated appreciation and share the burden together. "We have our own distributors in over 40 countries, and we face the challenge together," says Huang from SBS.

Some Chinese companies have also transferred their production lines to neighboring countries, hoping to stay competitive with the lower labor cost there. Hongdou has set up several factories in Cambodia, where wages are around 500 yuan a month, less than a third of China's, says sales manager Dai.

The current situation has also prompted some enterprises to explore the domestic market deeper. Wu Liying, from Beyond Garments Co Ltd, one of the biggest exporters of jackets and men's suits in Jiangsu, says his company has only been exporting but has now started to set up stores in China. Hongdou's Dai says while exports drop, the domestic market is doing well. Sales of men's suits in China, for instance, went up over 40 percent this year.

The textile industry is labor-intensive in China, employing about 25 million workers across the country, mostly migrant workers. That means any slight drop in exports can have a major impact on tens of thousands of workers.

"We support industries like textile by providing information and services, and will ensure the stability of these industries," says Commerce Minister Chen Deming, making it clear the government would not endanger the livelihood of the army of textile workers.

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