Textile Industry &Nbsp With Internal And External Shocks; Risk Of Capital Chain Breakage

"Orders for the whole industry this month are about 30%~40% more than that of last month, but about 20% less than last year."

Most of the enterprises in the Pearl River Delta have fallen into the same vicious circle as the three dimensional digital textile company.

No profit for orders

Mr. Yuan Yuan in Hongkong has been running a garment factory in Guangdong for nearly 20 years. His factory is located in Zengcheng, the largest cowboy garment production base in the world, producing jeans and 100% exports in factories.

"Now the order can not be earned, so we can do it if we can feed workers."

Mr. Yuan reluctantly said, "now do not dare to talk about profits, and customers sign a single time, there is a 5% profit, but after paying interest, domestic inflation, RMB appreciation, and finally become zero profit."

In fact, the price of overseas orders is not low at the moment, and the high cotton price that has troubled most textile enterprises has come down since the end of last year. Therefore, overseas customers still want to lower the price of orders.

At the present stage, the key to the problem is: domestic inflation, workers' wages have risen sharply, and the appreciation of RMB has been too fast, leaving factories with no profit margins.

"There is only a little profit for large enterprises operating well."

Mr. Yuan said.

However, the difficulty faced by the textile and garment industry is not the same, which reflects that the profits of the upstream and downstream enterprises are different.

At present, the spinning mills are facing greater difficulties. The cotton they are using at the present stage is imported at high prices, which will be stored in the warehouse for several months, and the cotton prices are falling. These enterprises are losing money.

The apparel manufacturers in the downstream of the industrial chain are relatively better. At present, some of the better run enterprises still have profits, and the gross margin is 10%~12%. However, the profit has not yet taken into account the impact of RMB exchange rate fluctuations.

"In the early months, the RMB exchange rate is 6.45, and now it is more than 6.3. It is estimated that it will eventually be lower, and will reach 6.2 at the end of the year."

Zeng Xiang said.

In addition, according to the enterprises in Jiangsu and Zhejiang, Guangdong and other places, factory recruitment is only seven or eight of the previous year, or less than 50%.

After last year's massive wage increase, the Yangtze River Delta and the Pearl River Delta have seen a general wage increase of 20%~30% this year.

Worried about inflation and the appreciation of the renminbi, the textile and garment industry now only orders short orders, mostly one or two months.

Data show that at this stage, China's export orders exceed 6 orders in March.

Such short orders and small orders also make enterprises unable to plan their production in a planned way.

Capital pressure increases

The biggest problem facing textile and garment enterprises is the shortage of funds.

Mr. Yuan said that in the past, cloth suppliers could give enterprises a month's account, and now they are "delivering the money hand in hand," and pay 30% deposit in advance more than 10 days.

However, the payment to the garment manufacturer is usually one month after delivery.

This makes clothing production enterprises cash flow very tight.

Moreover, as a small and medium-sized enterprise, Mr. Yuan's enterprises can not borrow money from banks.

Even in the 4 trillion yuan lending period, Mr. Yuan's loan from the bank is only a personal real estate mortgage rather than a small business loan.

At present, with the tight banking position, such loans are also hard to get.

"The friends around me basically did not get loans from SMEs."

This year, the upstream and downstream funds of the entire textile and garment industry are very tight. Cloth suppliers must pay cash for cotton, while garment manufacturers must pay cash for cloth.

"The most important reason for the failure of enterprises now is the breakup of capital chain."

Huang boss of a garment factory in Dongguan said.

Data show that in 2011 1~5 months, China's textile industry accounts for an increase of 36.64% year-on-year cost, much higher than the same period main business revenue growth (31.14%) 5.59 percentage points.

Interest expense accounts for more than 80% of the cost.

At the same time, the investment in textile industry has been affected by the tight funding environment, and the new industrial projects have obviously slowed down.

In the first half of the year, the number of new construction projects in the textile industry was 4257, which was reduced by 3.14% over the same period.

"Most of the loans for small and medium enterprises now come from relatives and friends or private usurious loans (more than 50% of the sample survey). The monthly interest rate of 5 points is a popular market for private lending, with an annual interest rate of 60%."

Foreign trade enterprises have undergone a series of shocks.

Yuan said that in 2008, the financial crisis broke out, foreign trade orders were reduced, and his clothing factory began to cut production in 2009. At that time, a large number of textile and garment enterprises went bankrupt.

By the end of 2010, prices of raw materials had risen sharply, and banks began to tighten credit, and a number of foreign trade enterprises had stopped production.

"Recently, the market is not good, and some enterprises have gone bankrupt."

Mr. Yuan said, "all the stops are almost stopped, and the rest of the enterprises will try their best to sustain them."

The textile and garment industry is at a critical stage of survival of the fittest.

Compared with the 3 years before the financial crisis, Yuan's clothing export decreased by 50% this year and the number of workers from 300~400 to more than 100 now.

Huang told reporters that over the past two months, the small shops in the clothing industry have been shut down.

"They are hopeless this year."

Guangdong is the largest clothing production province in the country. However, in the first half of this year, the situation of Guangdong's clothing industry is not optimistic.

Guangdong clothing and Apparel Industry Association conducted a questionnaire on the whole industry in Guangdong in mid and late 7.

Liu Yueping, President of Guangdong clothing and apparel industry association, gave the data from abroad: this year, the starting rate of garment factories is 71%, while that of export enterprises is only 63%.

What is more serious is that the domestic textile industry is facing some low-end orders in the near future due to the rising cost, especially the fact that clothing products orders are being robbed by countries such as Vietnam, Bangladesh and Indonesia. These countries have lower production costs. At present, the domestic labor cost is much higher than that of India and Vietnam.

Wang Qianjin believes that in the second half of 2011, the growth rate of textile exports will drop significantly. The price increase will become the main driver of export growth, and the growth of export volume will significantly slow down to less than 5%.