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Apparel firms face closure if RMB appreciates higher
05
Jan '11
Cotton prices have started rising since last October and fabric prices rose more than 60 percent in the second half of 2010, generating increased pressures on enterprises, according to Liu Yue Ping, chairman of the Garment Industry Association of Guangdong.

Fabric cost accounts for 30 percent of a children's clothing enterprise and despite business turnover in the second half rose 30 percent year on year, profits of the enterprises fell by 20 percent.

Most companies chose to digest price pressure through various ways. Some companies used more nylon in winter clothing rather than cotton. Some companies have strengthened production cost control and put rising labor costs under control through organizational restructuring.

A few enterprises have transferred their factories to Jiangxi, Anhui and other inland provinces as labor costs are lower here, while some enterprise already working on meager profits or in losses, have suspended operations.

Although global economic rebounded in 2010, foreign orders gradually increased, export orders of garment enterprises generally achieved low profit margins. Some companies accepted orders at cost level or even loss level in order to retain customers, but did not dare to take large orders.

After the RMB appreciation, some exporters will shift their focus to the domestic market; which may also increase competition in domestic market. Therefore, the garment industry is expected to become one of the industries, which will be largely and negatively impacted by the appreciation.

Liu Yue Ping says, according to estimates by experts, garment enterprises in Guangdong generally earned profits of about 3 percent from garment products.

As small firms have low bargaining power, nearly 20 percent of the enterprises will enter the critical point of break, if the RMB appreciates by 1 percent and more than half of the enterprises are estimated to face closure, if the appreciation reaches 5 percent.

RMB appreciation will make the apparel industry undertake massive adjustments and enterprises will be eliminated if they do not conduct industrial upgrading and structural adjustment. However, it will also help advantaged enterprises expand their market share.

Fibre2fashion News Desk - China

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