Chinese Textile Firms Battling Multiple Challenges

　　“Almost 70% of textile firms in China are having to curtail or limit production, and only a handful of large companies can probably survive the harsh conditions for a longer period,”Zhou Jun, deputy manager of a Shandong-based textile company, told the 21st Century Business Herald.

　　Shandong and Jiangsu provinces are homes to a large number of textile firms, many of which are finding the challenges too overwhelming to cope.

　　“Most of us are facing a shortage of capital and a heavy inventory of high-price cotton at a time when bank loans are being squeezed, yet we have to find ways to pay off previous loans,”said Li Fei, general manager of a Jiangsu-based textile company.

　　Cotton Prices Plummeting

　　Prices of cotton -- a material which accounts for 70% of textile production costs -- skyrocketed between September and March, hitting a high of RMB 34,000 per ton before falling by around 30% to RMB 24,000 per ton in May.

　　“As cotton prices are falling, textile firms are getting more cautious in [cotton] purchases, and those with high inventories of previously expensive [cotton] purchases are bound to endure big losses,”said Sun Huaibin from the China National Textile & Apparel Council.

　　According to Zhou, many textile firms reserved cotton at RMB 30,000 per ton at the end of 2010, and their stockpiles are yet to be completely consumed.

　　“Worse still, while textile firms had been able to make a fortune out of rising cotton prices last year, most had used the money to expand production capacity without assuming fluctuations in prices later,”Zhou said.

　　“Production [at some firms] has had to be suspended until they consume part of their cotton inventories,”Zhou added.

　　Tightened Bank Loans

　　So far this year the People’s Bank of China has raised banks’reserve requirement ratio 6 times and hiked interest rates twice, making it much harder for small and medium-sized enterprises to obtain bank loans.

　　“Now that previous loans are due for payment, and we can’t obtain new loans to sustain our business, many textile firms are turning to private lending for financing,”according to Li of the Jiangsu-based firm.

　　Data from the Wenzhou Council for Promotion of Small-and Medium-Sized Enterprises showed that private lending in the city has exceeded RMB 100 billion in less than 6 months this year -- total private lending in 2010 was only RMB 80 billion.

　　“More businesses, due to difficulties in acquiring bank loans, either halted their production or asked for money from private lenders, which will probably affect their finances later,”a source from a listed textile company told the 21st Century Business Herald.