Chinese Textile Industry Struggles to Survive

Declining dollar reduces Chinese product competitiveness

Textile firms, once an export engine of China, are fighting for their survival this year with rising costs and dismal overseas market hit by the subprime crisis.

Those firms wooing foreign buyers at the 103rd China Import and Export Fair, the largest trade fair in the country also called the Canton Fair, felt the pinch. Few buyers visited their exhibition stall, and fewer still signed contracts.

William Lowry, an American clothing buyer, came to the fair for the 20th time this year. It was different from previous years because this time he just looked, he did not buy.

“Chinese product competitiveness was not much as it was. I’m thinking of buying from other countries. The reduction in tax rebates and the devaluation of the dollar have made Chinese products 20 percent higher than what it was.”

“Twenty percent means I’m looking elsewhere,” William said.

The Chinese currency has ventured below the seven yuan mark since the government loosened the unit’s peg to the dollar in 2005. The yuan has gained about 18 percent since then.

This has made Chinese textile products more expensive and its price advantage has almost vanished compared with products from Vietnam and India.

The yuan appreciation, together with the rising material and labor costs, has driven some textile firms to the brink of bankruptcy.

The Lanyan Group, the largest denim products manufacturer based in the eastern Shandong Province, received only one million-meter cloth order this year, one fifth last year’s total.

In the area where Lanyan is, only 70 out of over 100 textile factories are working normally. Even those still operating are finishing their previous orders, said Zhang Meng, a manager with the Lanyan Group.

Anyway, the textile firms are finding ways to survive.

Changing the price tag is sure to be the first choice for many of the textile exhibitors on the fair.

“Our quoted price is 10 percent higher than last spring. Our labor cost increased 10 percent and dyeing costs rose eight percent last year,” said Yang Hongchang, a sales manager of Ningbo Yongnan Knitting Co Ltd, a major knitted coat and T-Shirt exporter to Europe, Canada, New Zealand and Russia.

However, the price rise has made foreign buyers hesitate before making their decision.

“Australia is a small country in population and we are a small company. We’re affected by the States and people don’t want to spend now.

“The price is seven to ten percent higher than last year. I have to look and see,” said a manager with Des Rowe, an Australian footwear agency, without giving his name.

Setting contracts in euros or British pounds to avoid foreign exchange losses or setting up a higher long-term exchange rate is another approach the textiles firms are using.

“We set up the exchange rate with dollar at 6.2 when we sign agreements on the fair,” said Yang Hongchang.

Those companies with their own brand were less affected. Busen Group, a major men’s wear manufacturer in Zhejiang Province, received normal orders this year. Some 70 percent of products for export from the company belonged to its own brands so it had the right to fix the price, said Wu Yongjie, deputy executive manager of the company.

However, to Yang Hongchang, maintaining the factory to operate is his goal. He is ready to receive orders without profit. “As a saying goes, only by breaking your arm can you survive. As long as our factory is working, opportunity will definitely come,” he said.

Via China Daily