Zhang Li, vice-director of the Economic Administration Bureau under the State Economic and Trade Commission and the person in charge of overseeing China's textile industry, said she was not optimistic about the industry's performance over the next six months.

The slowdown in the United States and Japan has caused a sharp drop in demand for textiles in the first half of the year and Zhang said she feared the situation would worsen in the second half.

The Chinese textile industry is highly dependent on the international market, exporting a full one-third of its products. Japan is the biggest importer of Chinese textiles and garments, accounting for about one-quarter of the country's exports.

In the first six months, China's textile exports edged up just 2.96 percent to US$24.5 billion, down sharply from 29.39 percent in the same period last year.

Making the situation worse were domestic cotton prices, which were currently higher than the global average, Zhang said.

During the January-June period, domestic cotton prices have hovered around 13,000 yuan (US$1,570) per ton, 2,000 yuan to 3,000 yuan (US$242-US$362) higher than the international cotton price.

"The high costs have been sapping the competitiveness of Chinese-made textiles," Zhang said.

Pestered by falling demand and expensive raw materials, many textile companies have been forced to sell their products below cost to reduce inventories.

"High domestic cotton prices have long been a key factor affecting the performance of China's textile companies. Price reform would allow domestic cotton prices to settle down to world levels," Zhang said.

In July, the government announced it would reform the cotton circulation system and allow prices to be determined by the market.

"But it takes time for the reform to have noticeable effects and difficulties in the reform could also hurt the industry in the next half year, before new cotton enters the market," she said.

All of this means the poor performance of the chemical fiber sector, a key part of the domestic textile industry, will have an increasingly strong impact on the entire industry, Zhang added.

Among the state-owned enterprises that suffered losses from January to June, chemical fiber enterprises accounted for 70 percent.

These losses were caused by a blind expansion of production capacity resulting from big profits of last year, said Du Yuzhou, chairman of the China Textile Industry Association.

Enthusiasm drove production way beyond demand, he explained.

"To cut its losses, the chemical fiber industry needs to cut way down on its production capacity," Du said. "Companies in other textile sectors also should refrain from increasing their output hastily for the pleasure of the moment."

The once debt-laden textile industry had just begun to make a sound profit last year after three years of loss making and employee lay-offs.

Du urged domestic textile enterprises to place more importance on the development of high value-added products such as decorative and industrial-use textiles that require more advanced technologies and have higher profit margins.

China was losing its low-price advantage to developing countries that were rapidly developing their own textile industries, Du observed.

On the list of textile exporters to the United States, Pakistan has replaced China to rank third with India nipping at China's heels in fifth place.

In the first half of the year, the industry reported earnings of 11.4 billion yuan (US$1.38 billion), up only 2.89 percent from the same period in 2000.

(China Daily 08/30/2001)