By staff reporters Yan Jiangning and Song Yanhua

China's textile industry is facing a tough period marked by shrinking demand and rising costs. The latest data from the recent 103rd China Import and Export Fair in Guangzhou showed that export deals for yarn and fabric products fell 6 percent on the fair's first day and 24 percent on the second day, compared with the same days last year.

The fair is seen as a trade barometer, and the slowdown reflects declining overseas demand for China’s export-oriented textile industry. Fan Min, president of textile maker Setways Group, predicted Chinese textile and apparel exports would grow nearly 10 percent this year, far short of the 20 percent growth reported last year.

Fan thinks nearly 90 percent of textile enterprises may face difficulties this year. Small companies will have to fight for survival, while large enterprises must adjust operations and export structures in a tough environment.

Vice Minister of Commerce Gao Hucheng recently warned Chinese textile exporters to prepare for possible friction with trade partners this year.

Demand for Chinese textiles is shrinking in the recession-hit U.S. market. Data from industry tracker Webtextiles.com showed that China's textile exports to the United States dropped 5 percent last November and 23 percent in December year-on-year.

The latest statistics from China's General Administration of Customs said that during the first two months of this year, textile exports to the United States declined 7.5 percent year-on-year to US＄ 3.46 billion. And the mainland's textile exports to Hong Kong, an important transfer port for exports, fell 14.7 percent from last year to US＄ 2.11 billion.

One industry insider predicted a steady stream of negative impacts on the Chinese textile sector in the future tied to the slowing U.S. economy.

At the same time, textile makers are feeling more confident about exports to the European Union, since EU quota restrictions on Chinese textiles have been canceled, driving a trade rebound. Chinese customs data showed that, in the first two months of 2008, China's textile exports to the EU reached US＄ 5.99 billion, up 27 percent from the same period 2007.

However, the customs administration warned that if exports surge after the quota cancellation, the EU may implement other restrictions such as anti-dumping and anti-subsidy investigations, increasing risks of trade barriers.

Alongside of shrinking overseas demand, the traditionally labor-intensive industry -- which enjoys only an average 4 percent profit margin -- has been further squeezed by rising labor costs, the yuan's appreciation, fewer export tax rebates, and financial pressures linked to the government's tightened monetary policy.

Webtextiles.com data said companies in the industry lost a combined 4.87 billion yuan in the first two months this year. Cotton enterprises suffered the most, with combined losses of 1.52 billion yuan.

An unnamed source from an apparel company told Caijing that many small apparel manufacturers in Guangdong have been driven to the brink of bankruptcy. Wu Di, deputy director of China Textile Economy Research Center, said many textile enterprises now are hard pressed to obtain loans, since banks have been restricting loans for low-tech, low value-added industries.

1 yuan = 14 U.S. cents

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