More than half of garment enterprises estimated to face closure on 5 percent RMB appreciation
According to Liu Yue Ping, chairman of the Garment Industry Association of Guangdong, cotton prices have started rising since last October, fabric prices rose more than 60 percent in the second half of 2010, providing increased pressures to enterprises.
Fabric cost accounts for 30 percent of a children's clothing enterprise in Dongguan, profits of the enterprise fell by 20 percent, despite its business turnover in the second half rose 30 percent year on year.
Most companies choose to digest price pressure through various ways by itself. Some companies use more wool, nylon in winter clothing rather than cotton; designers will consider more concise cutting in terms of clothing style; some companies have strengthened production cost control and put rising labor costs under control through adjusting personnel and organizational structure; some enterprises have transferred their factories to Jiangxi, Anhui and other inland provinces; some enterprise already with meager profits have been overwhelmed, as they think suspension is better than losing money in operation.
Although global economic rebounded in 2010,foreign orders gradually increased, export orders of garment enterprises generally achieve low profit margins, some companies have to accept orders at cost level or even loss level in order to retain customers, meanwhile they dare not to take large orders.
After the RMB appreciation, some export products will be transferred to domestic market; it may also increase competition in domestic market. Therefore, the garment industry is expected to become one of the industries that are largely and negatively impacted by the appreciation.
Liu Yue Ping says, according to estimates by experts, garment enterprises in Guangdong generally earn profits of about 3 percent from garment products. As domestic firms have low bargaining power, nearly 20 percent of the enterprises will come to the critical point of break, if the Renminbi appreciates by 1 percent by now, more than half of the enterprises are estimated to face closure, if the appreciation reaches 5 percent.
RMB appreciation will make the apparel industry face a passive adjustment, RMB appreciation will form a forced mechanism to enterprises, enterprises will be eliminated if they do not conduct industrial upgrading and structural adjustment; it will also help advantaged enterprises expand their market share. The industry will re-shuffle in the future.
Fabric cost accounts for 30 percent of a children's clothing enterprise in Dongguan, profits of the enterprise fell by 20 percent, despite its business turnover in the second half rose 30 percent year on year.
Most companies choose to digest price pressure through various ways by itself. Some companies use more wool, nylon in winter clothing rather than cotton; designers will consider more concise cutting in terms of clothing style; some companies have strengthened production cost control and put rising labor costs under control through adjusting personnel and organizational structure; some enterprises have transferred their factories to Jiangxi, Anhui and other inland provinces; some enterprise already with meager profits have been overwhelmed, as they think suspension is better than losing money in operation.
Although global economic rebounded in 2010,foreign orders gradually increased, export orders of garment enterprises generally achieve low profit margins, some companies have to accept orders at cost level or even loss level in order to retain customers, meanwhile they dare not to take large orders.
After the RMB appreciation, some export products will be transferred to domestic market; it may also increase competition in domestic market. Therefore, the garment industry is expected to become one of the industries that are largely and negatively impacted by the appreciation.
Liu Yue Ping says, according to estimates by experts, garment enterprises in Guangdong generally earn profits of about 3 percent from garment products. As domestic firms have low bargaining power, nearly 20 percent of the enterprises will come to the critical point of break, if the Renminbi appreciates by 1 percent by now, more than half of the enterprises are estimated to face closure, if the appreciation reaches 5 percent.
RMB appreciation will make the apparel industry face a passive adjustment, RMB appreciation will form a forced mechanism to enterprises, enterprises will be eliminated if they do not conduct industrial upgrading and structural adjustment; it will also help advantaged enterprises expand their market share. The industry will re-shuffle in the future.
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