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Smaller players reeling from bale of bad news

By Zhan Lisheng in Guangzhou and Zhou Yan in Shanghai (China Daily)
Updated: 2008-07-18 07:56

"It's all our unsold stock," said He Suwei, Weibang's proprietor.

"There is still a lot more in our warehouses."

Like many other textile manufacturers in the Yangtze River Delta, Weibang is taking a big hit from dwindling export sales, thinning profit margins and ballooning stock.

"Our sales revenue is likely to suffer a 25 percent slump this year. And the profit margin probably will shrink to 2 percent from last year's 4 percent," He said.

He said his company, which made a profit of 80 million yuan ($11.7 million) last year, is facing its leanest time since it was established in 2001.

Although the cost of labor and raw materials rose 15 percent as of June from one year ago, He is fighting a price war with other local manufactures in a bid to grab the dwindling buying orders from the overseas buyers.

Within the district, about 70 percent of airflow spinning (a textile operation) companies had already shut down, he said.

Xiaoshan district is also known as one of the world's largest production centers of synthetic fiber.

Local textile operations reported a total output of 128 billion yuan last year, a growth of more than 20 percent over the previous year. Its production of synthetic fiber was more than 4 million tons, accounting for more than 15 percent of the nation's total.

However, huge "to-let" banners now hang out of many buildings in the main streets of what was once a boomtown.

The district's small textile companies have suspended almost 60 percent of its product lines this year, the Xiaoshan Textile and Printing/Dyeing Association said.

Even fairly large companies are feeling the pinch.

Zhejiang Huangmin Keer Textile Co., which covers an area of more than 120 hectares and saw a sales revenue of more than 700 million yuan last year, is also saddled with unsold stock stuffed in its all warehouses.

Huang Guogang, a senior executive of the company, told China Daily: "Our 16,000-sq-m warehouse was emptied of stock two years ago, but now its filled to the brim with 4,000 tons of unsold products."

The company admitted that its production lines and workers are working under capacity.

A source familiar with the industry said that a number of Xiaoshan textile workers had already been told not to go back to work, with each paid 25 yuan as daily compensation.

The latest report compiled by the Zhejiang provincial economy and trade commission said that 10,700 companies, or nearly 20 percent of the relatively large enterprises in the affluent province, reported losses during the January-May period, with energy and raw material prices spiking 11.4 percent, higher than the national average by 0.8 percentage points.

As a result, the light industry and textile industry, two cornerstones of Zhejiang's economy, suffered a total loss of 1.55 billion yuan in the first five months.

The future seems bleak for companies like Huang's.

"It's going to be the first time that our sales revenue is expected to see zero growth this year since our company was established in 2002," he said.

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