Two Adversities Cornering Many China Textile SMEs

According to the latest statistics released by China´s National Bureau of Statistics, the CPI in May rose 5.5 percent year-on-year, which hit the record high level over the past 34 months.

Day by day, the adverse influence of inflation to China textile industry is emerging. Many textile mills believed that the current situation is even worse than the year 2008 when the economic meltdown began. International market demand waned suddenly in 2008 causing severe orders plunge. Contemporary situation is quite the opposite, orders are not that inadequate, but the inflation has to a large extent cornered the profit margin. Get the orders and satisfy the customers, then deficit is inevitable, for a great number of companies. Impacted recently by China´s frequent natural disasters, inflationary expectations ascended against all the policies issued by the government. Presumably, many believed that the situation won´t see a radical change in a short period of time.

The continuous appreciation of RMB to US dollar puts extra burdens to many textile mills. Expected appreciation of RMB has noticeably shortened the trade cycle and put potential risks to trade business with offshore companies. Currently, only a very limited number of raw materials imported could benefit from the RMB appreciation. For most of the small-and-medium-sized enterprises, inflation and the appreciation of RMB bring forward two adversities for China textile industry: inflation encroaches on the profit margin and the RMB appreciation lowers down the competitive edge of domestic products.

Many professionals believed that the aforementioned two disadvantageous factors won´t fade out soon this year. On the contrary, there is high possibility that the situation could exacerbate leaving textile companies no alternative but pacing up the adjustment.