China's textile SMEs continue to face problems

27 Mar '14

2 min read

Small and medium enterprises (SMEs) in the Chinese textile industry are continuing to face problems and are operating at only 65 percent of capacity, according to the China Textile Industry Association.

After the Spring Festival, a research team visited about 100 domestic textile enterprises in 21 cotton regions across six Chinese provinces. The research found that overall the large enterprises were running smoothly with 80 percent operating rates, but small and medium enterprises were facing serious loss of orders and were operating at only 65 percent due to impact of increased foreign competition in cotton yarn, deterioration of business conditions, and other reasons.

Most of the cotton spinning businesses had inventory of less than 30 days, as they have basically stopped buying cotton as they are expecting a decrease in cotton prices after the Government announces its new policy.

Market analysts are expecting the Government to slash the price for its cotton reserves, and also implement a quota system wherein enterprises purchasing four tons of cotton reserves would be allowed to import one ton of cotton.

In such a situation, there will be immediate decline in cotton prices and the value of inventories of raw cotton lying with textile enterprises would also decrease accordingly.

In addition to the fear of losing value of their cotton stock, SMEs are facing the problem of decline in cotton yarn orders due to fierce competition from Indian and Pakistani cotton yarn.

Another problem is the continuation of recruitment difficulties and labour shortages. The average age of a worker in the Chinese cotton textile industry is around 35 years, and many of them do not want to work in night shifts.

Moreover, as SMEs are not making profits, there is lack of motivation for them to invest in technical inputs. At the same time, the quality of cotton from state reserves is also an issue.

Compared to the existing situation, with the arrival of new cotton in market from September 2014 onwards, the Chinese cotton textile industry is likely to face a more complex situation, according to analysts.

Fibre2fashion News Desk - India

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