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China cotton textile companies struggle to boost sales

China cotton textile companies struggle to boost sales Source:
Date: 29-07-2013
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China's cotton textile industry is facing difficult challenges, as sales have been poor amid the weak recovery of the international market, as well as domestic factors.

The Fujian Hongyuan Group, located in southeast China's Fujian Province, is the largest cotton textile enterprise in the province, with an annual output value of 1 billion yuan (163 million US dollars).

"Cotton textile sales have not been desirable so far this year, especially those of foreign trade enterprises," said Chen Cangsong, vice president of Hongyuan.

Statistics released by the National Bureau of Statistics showed that the added value of the textile industry from January to June was greater than that of the same period last year. However, exports to Europe, Japan and other major overseas markets have plunged.

"Although a rebound in textile product exports has been seen in the past six months, things do not look optimistic for the second half. It may be worse than the first half and could plunge even further in the future," Chen said.

Chen, also the general-secretary of the Fujian Business Association of Textile and Apparel Export Base, said sluggish demand from the global market, soaring cotton prices, high labor costs and the appreciation of the yuan have led to fewer overseas orders.

The Chinese government started purchasing cotton for temporary state reserve in 2011 in order to protect cotton farmers' interests. As a result, domestic cotton prices became higher than those of the global market.
Domestic cotton prices stood at about 19,000 yuan per tonne this year, 3,500 to 4,000 yuan higher than the price of imported cotton.

However, imported cotton has been hit with high tariffs and enterprises who want imported cotton must abide by a strict quota system.

"The company took a turn for the better in April and May. The rebound in those two months was due to inventory supplements from the European market, but we don't think orders will keep increasing in the future," said Chen.

Since southeast Asian nations like Vietnam, Bangladesh, India and Cambodia can freely purchase cotton at a price of about 13,000 yuan per tonne and have lower labor costs, those countries are seeing an increasing number of orders from European markets that used to order from China.

Since May, small and medium-sized enterprises (SMEs) have found it hard to raise funds for their businesses due to a liquidity crunch that led Chinese banks to tighten lending, Chen added.

"Although these companies have received orders, their profits are still slim. But they have to keep taking orders so that their business can move on," said Chen.

The industry has also been dealing with a loss of skilled personnel.

"At foreign trade companies, workers are paid in accordance with how much work they have done. They usually earn more income if they do more work than others. But since orders have decreased, workers' earnings have been cut sharply, so they have to find other jobs," said Zhou Yuegui, a Hongyuan employee.

Although it was initially done to protect domestic interests, the government's temporary stockpiling policy has widened the price gap between the domestic and international markets.

The policy will erode the competitiveness of China's textile industry, said Zhu Hongren, chief engineer at the Ministry of Industry and Information Technology.

Some textile companies have tried to fix the problem by replacing cotton with substitute products. Hongyuan, for example, is busy working with newly introduced bamboo fiber.

"Since cotton prices are fluctuating, we've been speeding up the expansion of our bamboo fiber production. Bamboo fiber output is expected to rise from the current 5,000 tonnes to 50,000 tonnes," Chen said, adding that the company has spent 170 million yuan over the last two years to develop bamboo fiber products.

It is believed that enterprises that develop new, environmentally friendly products like bamboo fiber will be able to enjoy greater support from the government, as these products are popular in the international market.

Chen said bamboo fiber production accounts for 10 percent of the company's total output, adding that the company is still making efforts to shift production toward an emphasis on new textile materials.

"We hope we can get rid of the current dilemma by introducing new technology and products, as well as find a creative and technical path to develop the company," Chen said.
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