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Textile & apparel sector to endure declining margins
11
Sep '08
When a survey on the performance of 47 listed textile and garment enterprises in the first half of this year was conducted, the results did not seem very encouraging. Most of the companies showed unsatisfactory performance despite a number of support policies promulgated by the Government for the sector.

Of the 47 companies, 34 enterprises had their performance declining in the first half, accounting for 72.34 percent of the those 47 enterprises. The hardest hit sectors are mainly concentrated in cotton spinning, chemical fiber and export processing garment enterprises. About 9 of the remaining were identified as loss making enterprises most of which were engaged in rayon & polyester spinning industry.

Moreover, profit margins of the listed textile enterprises in the medium term did not reflect the actual conditions as income from non-related businesses such as transfer of shares, real estate, electrolytic aluminum investment or other cross-sectoral investment were also included in the calculations for returns from textile business. As such they extensively covered up difficulties faced by the textile industry thereby enshrouding the real picture.

Except for a handful of apparel brands in the domestic market who have still managed to secure gains, declining profitability of the textile enterprises has pervaded the entire industrial chain making operations an extremely difficult undertaking.

Investigations made into the existing crisis revealed that the average cost of textile manufacturing enterprises has increased by 20 percent to 30 percent this year. But the textile and apparel products in the market have not undergone a similar price adjustment and as such, profit margins of the enterprises are being squeezed continually putting them under inevitable pressure.

Experts do not foresee the present situation to change in the short term and industry would have to bear with the same for at least another one or two year.

Fibre2fashion News Desk - China

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