Textile And Garment Industry: Exports For The First Time Under 20% Appreciation Of The Most Difficult Year

After several years of continuous growth, China's traditional and comparative advantages of textile and garment industry began to encounter unprecedented difficulties, industry turning point looming.

Since the beginning of this year, the physical and capital performance of the textile and garment industry has not been satisfactory.

The real economy is affected by the appreciation of the renminbi and the high price of upstream oil products. In the capital market, almost all the textile and garment stocks that gained the biggest proportion in March were due to external concepts, such as Jiangsu's sunshine rising from 30% in a single month.

Financial Weekly reported on the status and development of the textile and garment industry, exclusive interview with Li Zhixian, chief researcher of Guotai Junan.

Li Zhixian said that since joining the WTO in 2002, China's textile and garment industry has maintained a relatively high speed of development.

Since 2002, the textile and garment industry has maintained a relatively good boom. The growth rate of the industry in 2002-2005 years has been maintained at over 20%, and the profit growth in 2005-2007 years has been increasing for 3 years.

However, the growth rate of main revenue and operating profit of the listed textile and garment companies decreased significantly last year.

In addition, data show that the export growth rate of textile industry in 2007 was lower than 20% for the first time since 2003.

This year's growth rate has further declined, of which textile and clothing investment in fixed assets in 1-2 months decreased by 6.4% and 10.9% respectively.

Some experts pointed out that, because of the obvious role of the textile industry's export promotion and the steady growth of domestic sales, this year will be the most difficult year for textile operation in the past 10 years.

The differentiation of textile and garment industry is obvious.

Li Zhixian said that due to the characteristics of the industry, most of the enterprises are in a poor state of profitability. "About 2/3 of the enterprise's small profit operation, only 30% or even 20% of the enterprises belong to enterprises with higher concentration and faster profit growth".

Li Zhixian believes that the textile and garment industry reached a relative peak in 2007. In 2008, it was affected by the accelerated appreciation of RMB, the decline in exports and the increase in labor costs, and began to enter a "very difficult" stage of development.

The most important factors affecting the industry this year include: the continued appreciation of the Renminbi; the significant increase in labor costs after the introduction of the new labor law; the decline in the export tax rebate rate of the state; and the new entry standards for the printing and dyeing industry.

Li Zhixian said that the first factor affecting the textile and garment industry is export.

As an industry with high dependence on exports, the export price has increased and profits have been greatly eroded by the continued appreciation of the RMB against the US dollar.

"For example, upstream cotton spinning industry, this year's development will be very difficult."

The downstream exports of products were affected by the US subprime mortgage crisis and the slowdown in economic development. "Exports to the United States did not grow in the first quarter of this year."

Another factor is the rise in labour prices.

The textile and garment industry has an annual labor price rise of around 20%, and the average wage of the industry is 70% of the national manufacturing average wage.

Since the introduction of the new labor law, labor costs have risen significantly as a labor-intensive industry.

"Some companies that specialize in processing orders need to work overtime.

The current situation is that there is no order to pay the wages of employees, while overtime must pay double wages.

Compared with the predicament of the textile industry, the brand clothing listed companies with some unique business models have a bright future.

"The prosperity of clothing is obviously better than that of textile.

When exports enter the downstream channel, the advantages of domestic enterprises, brands and channels are obvious, "Li Xian said." 002029.SZ, the most typical manufacturer of casual wear, has an annual profit growth of more than 50%.

In 2007, the main business revenue of the seven wolves was 869 million yuan, and the profit was 123 million yuan, an increase of 79.82% and 85.51% respectively, and the gross gross profit margin was 35.68%.

The data showed that the sales channels of seven wolves were growing rapidly, and 519 new stores were added in 2007.

In addition to the seven wolves, Li Zhixian believes that YOUNGOR 600177.SH, an old clothing company, is also growing very well.

Under the diversified structure of textile, clothing, real estate and equity investment, the company achieved a profit of 3 billion 643 million yuan in 2001 and a net profit of 2 billion 476 million yuan, an increase of 259.87% and 220.45% respectively over the same period.

In 2007, the sales revenue of all kinds of clothing products increased, compared with the previous year, of which shirts and Western-style clothes increased by 31.75% and 13.88% respectively, and the gross margin of products increased from 35.65% in 2006 to 36.55%.

In addition, there is also concern about the growth rate of gross profit margin faster than 002154.SZ and 002003.SZ.

Li Zhixian believes that the best textile enterprise in the textile industry is A (000726.SZ), which mainly produces and sells various kinds of textile and clothing products, including cotton yarn, colored woven fabrics and shirts.

The company realized its main business income of 3 billion 811 million yuan in 2007 and net profit of 460 million yuan, up 26.9% and 35.2% respectively over the same period.

With the continuous expansion of production scale, in 2007, the company increased its production capacity of 20 million Beige weaving and 2 million shirts.