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One more textile major collapses due to credit crisis

13
Dec '08

The economic meltdown and the consequent recessionary trends in the global markets are making basket cases out of the best of organizations. One more company which has reported to have collapsed under the strain of the recession is Zhejiang Zongheng Group in Shaoxing which collapsed due to financial constraints.

Industrial experts say, most domestic textile enterprises have grown their scale of operations and were increasing their capacities under breakneck speed due to the unprecedented growth of the last few years, but neglected to improve the capabilities at the management levels and also their fundamentals.

The other major reason forwarded by the experts is that these additional capacities created in the last few years is now the very cause of collapse of these companies now, as recession has brought about a slowdown in consumption of all materials.

Just a few weeks back the biggest PTA manufacturer in Asia, Hualian Sanxin had completely stopped production and now it is the turn of another major company to report a shutdown. The main reason citied by the markets for Zhejiang is a lack of working capital and the company is supposed to have accumulated debts of Yuan 2-3 billion.

Economies in some regions with relatively larger proportions of textile industry have been seriously affected since the beginning of 2008 such as Shaoxing, Zhejiang, Jiangsu, Dongguan and Guangdong. Many leading enterprises have been caught in whirlpool of the crisis and are shutting production or just collapsing.

Most of these companies have expanded by borrowing heavily from the banks who lent them when times were good for the industry. But since the crisis has unfolded the operating capabilities of these big companies are being stretched to their limits, due to the serious liquidity crisis arising from the slowdown.

Fibre2fashion News Desk - China

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