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BIZCHINA> News
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Yuan appreciation impacts textiles
By Tang Fuchun (China.org.cn)
Updated: 2006-05-29 10:24 "We produced low-end products. But now, from the point of view of a development strategy, we aim to produce products with higher added-value, raising profits to 10 dollars per garment," Zhang said. From manufacturing low-end, low-priced clothes, Topnew switched to producing outdoor leisure gear. The company now manufactures for Columbia, the largest sportswear brand in the US. It also has orders from Swedish fashion retailer, H&M. Modifying business strategies is essential for textile manufacturers, particularly those with an international trade business. The appreciation of the yuan will have a long-term effect on such companies, according to Zhu Yuhe, secretary of the board of directors of Zhejiang-based Zhongda Group, in a China Business News interview on May 16. The textiles sector, with average gross profits of five to 10 percent will cease to be as lucrative once the yuan appreciates by 5 percent, he said. Moreover, since the majority of Chinese products are low-end and easily replaced, it would be difficult to expect foreign customers to absorb any extra costs. In fact, many foreign customers have already placed orders with China's Southeast Asian neighbors such as Vietnam and Myanmar. Sun Huaibin, spokesman for the China National Textile Industry Council (CNTIC), said that many Chinese companies could find themselves in the red as a result. Textiles account for a high proportion of China's export volume and value. In 2005, the sector reported a trade surplus of US$100.4 billion and 24 percent of China's international trade. If the yuan appreciates by 1 percent, the growth rate of textile exports will decrease by 1.5 percent, Sun said, quoting research estimates. But, this isn't necessarily a bad thing because it would force a shift towards increasing the added-value of products. "Enterprises should gradually change their business models from the high-quantity, low-price model to high-value, brand-creation model. This would help ensure that they get comparatively high returns while fending off risks like currency fluctuations," Sun said. The current situation is that Chinese firms only manage the manufacturing process, while their foreign customers manage branding and sales functions. This is why China enjoys only a small share of the international trade value chain, Sun said, adding that this must change. (For more biz stories, please visit Industries)
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