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Chinese Textile profits shrinking

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China's textile industry, which contributes significantly to the country's exports, experienced a slowdown in the first five months of 2012, mainly due to weakening global demand and decreasing competitiveness compared to other Southeast Asian countries, industry experts said Sunday.

Domestic textile companies with annual revenue of at least 20 million yuan ($3.14 million) saw total gross profit of 91.7 billion yuan from January to May, down 2.4 percent year-on-year, the Ministry of Industry and Information Technology (MIIT) said in a statement on its website Friday.

Among them, 18.6 percent of companies reported losses during the period, up 5.4 percentage points from a year earlier, it said.

The decline in industrial profit was mainly due to sluggish domestic and overseas orders, a widening price gap between domestic and international cotton prices, increasing competition from Southeast Asian countries, and high financing costs for domestic textile companies, the ministry said.

"Cotton prices usually account for 40 to 60 percent of textile companies' total costs. A price gap below 1,500 yuan per ton is sustainable for domestic textile companies, but currently a ton of international cotton is 4,500 yuan cheaper than the domestic product," Sun Liwu, an industry analyst at Sublime China Information, told the Global Times Sunday.

The widening price gap was partly due to State procurements of cotton between September 2011 and March 2012, which prevented domestic cotton prices from slumping amid the global downturn, Sun noted.

Sun said the cotton price gap has weakened Chinese manufacturers' competitiveness in the global market. Meanwhile, labor costs in the country's textile industry are also rising fast, and are now five to 10 times those in certain other Southeast Asian countries, spurring some foreign clothes brands to move some of their operations from China to lower-cost countries.

"When I went to foreign clothing stores such as Zara and H&M this weekend, I noticed many garments were made in Vietnam and Bangladesh instead in China," Wang Rui, a 29-year-old woman who works in a State-owned company in Beijing, said Sunday.

From January to April of 2012, textile products imported from China accounted for 36.1 percent of all textile imports in the US, down 4.04 percentage points from a year earlier, while imports from India, Vietnam and Bangladesh increased, according to US customs data.

The MIIT estimated that the situation in the textile industry is not likely to improve in the second half of 2012, given the pessimistic outlook for the global economy, and warned that more small and medium-sized textile companies may close.

Wang Qianjin, chief editor at textile sector information provider webtex.cn, expects that the government might help Chinese textile companies by increasing import quotas.

"Besides policy stimulus, domestic textile companies need to develop some key technologies and homegrown brands that are recognized worldwide," Sun noted.

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