New WARNING for China Textile Industry: RMB Appreciation (04/20/2010)

Updated: 2010/4/20 9:29:00

The past year 2009 has already been a difficult year for China´s textile industry. Increasing labor costs, a rising exchange rate, and price hikes for raw materials have all helped lift the industry´s production costs by 20% to 30%. Prices that seemed fair during negotiation have gradually turned into loss makers for Chinese producers as the RMB appreciates at a rapid pace.

China´s textile and clothing exports in January and February grew by 8.19%, a 30.9 percentage points drop over the same period last year.

Attempting to enlarge production under present market situation has been equated to financial suicide by many inside the Chinese textile industry. A survey conducted by the Chinese Chamber of Commerce for the Imp & Exp of Textiles has revealed that 90% of textile producing enterprises in several major textile producing regions are having a hard time.

With the subprime crisis affecting America´ s economic outlook, China´ s textile export growth has had its largest drop ever. Textile export growth has been falling since the third quarter last year, from 31.39% in July 2007 to -5.85% in November, 23.97% in December, and -17.60% in February 2008. This goes to show the extent to which China´s exports and the textile industry have become victims of the US economic slowdown. With the US dollar depreciating, Chinese textile exports to the US have become more expensive. Allowing for the extra cost incurred by the exchange rate hike, China´ s exports to Europe, the US, and Japan still continue their downward trend.

With the US dollar depreciating, Chinese textile exports to the US have become more expensive. Allowing for the extra cost incurred by the exchange rate hike, China´s exports to Europe, the US, and Japan still continue their downward trend.

China´ s textile and clothing exports to the US for the month of February of 2010 were valued at $1.386 billion, a 17.60% decrease. Textile exports dropped by 8.23% to 524 million Dollars while clothing exports fell 22.41% to 862 million Dollars.

Among the major textile producing regions, Guangdong, -23.81%, and Shanghai, -23.69%, suffered the largest decrease in textile exports growth.

Meanwhile, China´s apparel fabric exports are growing rapidly. They are first processed in China, then transported to franchise stores all over the world and neighboring countries such as, Vietnam, Laos, and Cambodia.

Disputes over Currency of Settlement
Before 2004, China´s huge amount of textile products exports was the highest net foreign exchange earners among all exported products. The development of the textile industry for export purposes has allowed the country to accumulate a large amount of foreign exchange, made considerable contributions to the stability of the RMB exchange rate, and helped increase the foreign exchange reserve. However, textile products contribution as a percentage of China´s foreign exchange reserve earnings hasn´t stopped decreasing since 2004. The price of the US dollar is seen as the key factor in this change.

More and more Chinese textile export enterprises are now asking clients to avoid paying with the US dollar. However, most US, and even European clients are unwilling to pay with Euros and prefer using American Dollars.

In Zhejiang province, one of China´s textile export production zone, the profit for export enterprises is usually about 3%. But in recent times, the exchange loss for an order using the three-month delivery cycle has often been over 3%. With the growing risk of an unfavorable settlement, many enterprises have had no choice but to give up orders.

However, many export enterprises worried about losing important clients, have accepted such orders despite the possible losses. Many experienced export focused companies believe that the RMB appreciation will not last forever; the loss of an important client may take five or ten years to redeem thus making the short term-loss worthwhile.

Although exports to Europe and the US have been falling, China´s textile exports in 2008 are still expected to grow slightly. After all, China´s huge production capacity still exists. In at least the next three to five years, China´s textile industry won´t be threatened by textile enterprises in other Southeast Asian countries, as they are only capable of dealing with some low-end orders.

Besides, Chinese enterprises still maintain their dominance over the Japanese market, accounting for nearly 90% of the country´s total imports. A stable supply, flexible ways of dealing with smaller orders, a

Authority in Charge: China National Textile and Apparel Council (CNTAC)

Sponsor :China Textile Information Center (CTIC)

ISSN 1003-3025 CN11-1714/TS