In the first half of this year, textile manufacturers above the designated size—annual revenues of 20 million yuan ($3.1 million)—reported combined output value of 2.4 trillion yuan ($372.1 billion), soaring 30 percent from a year ago, said the Ministry of Industry and Information Technology (MIIT).

Their added value went up 9.9 percent year on year, 2.3 percentage points slower than the same period last year.

As the world's biggest supplier of clothing and shoes, China's textile industry accounts for more than 10 percent of the country's total exports and provides millions of jobs.

"The once-fragile industry is steering a steady course of recovery," said the MIIT. "But clouds are gathering over its exports prospect due to costs inflation, weak overseas demands and the appreciation of the yuan."

Signs are emerging that Chinese textile exporters are losing competitiveness. For example, the United States increased its imports of wool products in the first five months by 12.7 percent from the previous year. The amount from China, however, fell 5.7 percent.

More disturbing is a lack of financing as policymakers twist harder on the country's credit screws to tame inflation, said Sun Weibin, Director of Economic Research Center of China National Textile and Apparel Council.

It is imperative for manufacturers to forge ahead with product innovations and expand marketing and branding campaigns, he said.