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Textile Slump
Special> Textile Slump
UPDATED: May 5, 2008 NO.19 MAY 8, 2008
Textiles in Bind
The profit margin of textile exporting companies has shrunk greatly, challenging the very survival of those companies

Sun explained that textile enterprises are confronted with growing polarization. Although aggregate exports are increasing, many small and medium-sized textile enterprises are on the brink of bankruptcy.

Xi Guoying argued that the export increase has been in quantity, but not in profit. Many companies have tried to grasp as much market share as possible without caring about profits, expecting a time when the trade environment would turn for the better. Under such hasty export circumstances, foreign dealers seized a large proportion of profits.

Chances to see a turn for the better look slim. At the 103rd China Import and Export Fair (Canton Fair) opened in late April, the exhibition hall for textile and apparel products only had a few foreign visitors. Guangdong Customs calculated that Guangdong Province exported $6.93 billion worth of textiles and apparel in the first quarter, a growth of 0.5 percent from the same period last year.

Mei Xinyu, researcher at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce, pointed out that the real export value has actually declined due to foreign exchange losses. Mei said that this is because the Chinese currency appreciated 8.6 percent against the U.S. dollar this March compared with the figure of March last year. Because a majority of Chinese exports are settled in the U.S. dollar, Mei argued the currency factor must be taken into consideration.

A number of reasons

As for the reasons why there have been profit drops, Xi Guoying attributed them mainly to renminbi appreciation.

On April 24, the middle price of the renminbi against the U.S. dollar was 6.9890 yuan, appreciating nearly 5 percent from the beginning of this year. This means profits would drop 5 percent if companies exported the same quantity of products at the same price.

"Judging by the current situation, the textile industry brings in a large amount of foreign exchange, while the profit margin is very small. This makes the industry most fragile to renminbi appreciation," said Sun Huaibin.

The U.S. subprime mortgage crisis also hit hard Chinese exports. The European Union (EU), the United States and Japan are the top three textile and apparel export destinations for Chinese exporters. In the first few months this year, EU imports from China grew to some extent because it canceled the Chinese textile import quota, whereas China's textile exports to the latter three destinations all dropped.

The General Administration of Customs of China revealed that in the first two months of this year, China exported $5.99 billion worth of textile products to the EU--a significant rise of 27 percent--accounting for 23.4 percent of the country's total textile exports. Exports to the United States were down 7.5 percent to $3.46 billion; exports to Japan dropped slightly by 0.8 percent to $2.95 billion.

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