The profit growth of China's textile industry is not as sanguine as it looks because textile firms have been making more money out of investments than out of their core business, industrial analysts have claimed.

 

Wang Qianjin, a senior industrial analyst with Webtextile.com, said that capital investment contributed nearly half of the profits achieved by many profitable textile companies during the first five months.

 

"If you scrutinize the figures, you see that many clothing and cotton businesses, the major engine of the textile industry, registered less profits than in the same period last year," Wang said.

 

Official data from the National Development and Reform Commission indicates that textile companies generated 38 billion yuan in profit from January to May, up 43.5 percent year-on-year.

 

Shi Hongmei, an analyst with Orient Securities Company Limited, said that chemical fiber was the only traditional business that did better this year than last.

 

Quite a number of textile companies have relied on capital gains from investments in real estate, securities, banking and pharmaceutical companies, she said.

 

Citing a previous report by Orient Securities, Shi said that the industry had actually reported declines in both gross and net profit margin over the first quarter from last year to 10.21 percent and 3.26 percent respectively.

 

Factors sustaining profits, she said, were relatively cheaper raw materials and higher prices for end-products.

 

"If you focus on their business only, textile companies have shown weaker profitability and cannot afford to be optimistic," Shi said.

 

Analysts say that the profit rise doesn't mean a better business environment for the textile industry. Higher production costs triggered by expensive labor and raw materials, vicious competition, price wars, trade disputes and the rising yuan are problems to be faced.

 

"Industrial upgrading is essential if a textile firm wants to survive," said Wang Qianjin.

 

(Xinhua News Agency July 3, 2007)