Snags In Textile Exports Threaten Industry

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Last updated at: (Beijing Time) Friday, June 13, 2003

Snags In Textile Exports Threaten Industry

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"We've earned no money for six months," said an employee of the Shuangyinrong Industrial Co. in Shenzhen, Guangdong Province."Because of SARS, all our export orders have suspended production, our products cannot be sold and the clients are afraid to check the goods here. And there are no new orders."

Shuangyinrong Industrial is an enterprise mainly engaged in textile production and 70 percent of its products are exported, mainly to Eastern Europe and the United States.

The United States has reportedly severed contact with processing trade enterprises in Hong Kong, the Chinese mainland, Singapore and Viet Nam.

Business magnates denounced the use of the epidemic as excuse for imposing trade barriers at the Asia-Pacific Economic Cooperation(APEC) meeting, which concluded in Tokyo on May 16. The WHO has also stated clearly that there is no necessary link between SARS infection and imports. Yet in reality, some China exporters are being battered.

Generally speaking, exports of foodstuffs, animal and plant products, textiles, light industry and handicraft products have been hit the hardest. These products account for around 40 percent of China's total foreign trade volume.

SARS and Trade Barries

On April 20, the Swiss Government announced that to prevent the spread of SARS, firms from four countries and regions, including the Chinese mainland and Hong Kong, should not participate in the Basel Watch, Clock and Jewelry Fair. The Hong Kong Trade Development Council estimated that the ban brought about HK$50 million of direct losses to local industry. As this year's orders in the jewelry and timepieces industries decreased 20-30 percent consequently, the indirect losses might exceed HK$10 billion. More than 40 mainland enterprises having the same ill luck also suffered losses��each having at least 100,000 yuan of direct losses in fees and fares for the show.

Hong Kong authorities accused the Swiss Government of "making a fuss by seizing upon the pretext of SARS." As Switzerland does not forbid the entry of people from Hong Kong, the prevention of SARS is merely a pretext for suppressing competition, they charged.

"We're negotiating with relevant Swiss authorities on compensation," said Ji Qinzhi, Chairman of the Horology Association of China.

Similar cases have emerged. The Shanghai Entry-Exit Inspection and Quarantine Bureau has heard complaints from enterprises that some importers to present official disinfection certificates for products such as garments, rubber and cardboard boxes.

Spain announced in April that textiles from the Chinese mainland, Hong Kong and Taiwan, as well as Viet Nam, Singapore and Canada, should submit official certificates of disinfection and pesticide presented by the health authorities of the export country or region. For those failing to present the certificates, "customs shall not allow the delivery of goods and let the goods into the country" and "the goods shall be destroyed."

The United States and some European countries even announced that they would not consider importing any textile from China in the foreseeable future.

"SARS has caused a big panic within China too, so it is understandable that some countries have raised relevant requirements or adopted rather drastic measures," noted Li Yushi, Deputy Director of the Research Institute of International Trade and Economic Cooperation under the Ministry of Commerce. "Along with our gradual control of the epidemic, such a situation won't last long. Our top priority at present is to raise standards and strengthen quarantine. "

As to whether some countries will impose trade barriers by taking advantage of SARS, an official with the State General Administration for Quality Supervision, Inspection and Quality said, "If any country engages in improper practices under the pretext of SARS, we'll take countermeasures."

Hardest Hit: The Textile Industry

"Supply fell short of demand for our products before the May 1 holiday, but now we have to look for buyers," said Mao Zhiyan, General Manager of the Hong Kong-invested Puning Xiangyu Textiles Co. Ltd. Previously the enterprise had over 50 percent of its products headed for export, but after the May 1 holiday, all its export orders have been suspended, and new ones are not being signed.

Although Guangdong has reported no new SARS cases for quite a few days, the epidemic, which has lasted for nearly six months in the province, has dealt a heavy blow to the local textile industry, the products of which are mainly for export. Guangdong's export of textiles accounts for 25-30 percent of the national total, ranking first among all provinces.

Apart form the loss of a large number of overseas orders, the available orders also face difficulties in fulfillment. Some enterprises complain that some textiles exported to the United States stay at the ports for an entire month, which increases the costs substantially. Meanwhile, textiles destined for the Middle East may be charged an extra $3,000 per container as quarantine fee, which greatly weakens the original low-cost advantage of Chinese textiles.

"Now even express samples to the United States are detained at customs for a couple of days," said Xuan Jiyong, General Manager of the Xinfangzheng International Trade Co. in Zhejiang Province.

According to Xuan Zhiqiang, an engineer in the Guangdong Textile Industry Council, April and May used to be a busy time for foreign firms to negotiate on orders in China, with the number of orders at the highest level for the year. But this year, the number of orders has decreased at least 20 percent.

At the Canton Commodity Fair in April, the orders received were only 14 percent of the figure last year.

The setbacks in exports have affected the entire chain of the textile industry. According to statistics of the China Chemical Fiber Economic Information Network, owing to the impact of SARS, the overall operating rate of weaving machines has fallen to 20 percent in Guangdong, with 90 percent of small weaving factories halting production and only a few large factories still in normal operation. During the May 1 holiday, more textile enterprises suspended production and the depression soon expanded nationwide. Currently, the domestic overall operating rate has dropped to around 30 percent.

Two major domestic distributing centers, the Town of Textiles and Other Light Industrial Goods and the Oriental Silk Market in Shaoxing, Zhejiang Province, have seen shrinking daily transactions. The Wholesale Market of Cotton and Other Textile goods in HuZhou, Zhejiang Province, has only a quarter of last year's sales. In the area of Guli, Changshu City, Jiangsu Province, 70-80 percent of the production plants have suspended production because orders are cancelled or postponed, while most selling firms have halted business.

The suspension of production not only decreases revenue but also increases cost. When production suspends, all machines must stop operation, which means they must be cleaned and tested when they are put into operation again. So even though the plants are not making money, they must pay more in maintenance.

"The current impact of SARS on enterprises is as serious as that of the Asian financial crises in 1997, and the longer the epidemic lasts, the bigger the impact," said one worried insider.

At the time, India, Turkey, Pakistan, Bangladesh and Sri Lanka are increasing their export shares in the U.S and European markets, by taking advantage of China's setbacks, disclosed the China Chamber of Commerce for Textile Import and Export.

India has reportedly announced that because of the spread of SARS in China, European Union (EU) exporters will shift a large number of orders to India. So far, at least 5 percent of orders have been drained from China to India. As India has almost used up its original quotas, Indian textile manufacturers and exporters will be unable to take new orders unless the EU loosens the quota restrictions. In early May, an Indian delegation comprising top officials visited Brussels in an attempt to look for extra quotas and increase export to the EU. Moreover, the Indian Government is in active negotiation with the United Sates on solutions to the undertaking of additional orders.

Save the Exports

"We'll exhibit some products abroad so that through the combination of online trade and realistic exhibition, we can get more orders from international buyers," said Zhang Ji, who is in charge of an e-business program for promoting surface cloth export sponsored by the China Textile Information Center. Thus far, a few dozen enterprises like the Luoyang White Horse Group have applied for participating in the exhibition to be launched in the United States in mid-June.

In Zhejiang Province, a major exporter of textiles in China, large foreign trade enterprises are required to fulfill available contracts while communicating with clients about the epidemic to dispel their misgivings. In short, they should take all possible measures to boost export.

On May 18, the State General Administration for Quality Supervision, Inspection and Quarantine put forward 10 emergency measures to strengthen the entry-exit inspection and quarantine as an attempt to reduce the adverse effect of SARS and fully support exports.

Relevant government departments encourage enterprises to adopt substitute methods like e-business to solve problems in import and export. But in the textile industry, according to insiders, overseas buyers are accustomed to feeling the fabrics by hand or examining the fabrics with their own eyes so as to give advice for improvement. So negotiation via the Internet is often impossible. Moreover, being afraid of the transmission of SARS virus by means of exported goods, more buyers refuse to accept goods made in the Chinese mainland, especially those made by hand.

Domestic Sales

Baffled in exports, many enterprises have shifted their focus to the domestic market as the way out. The common practice is to increase the number of agents or directly send salespeople to terminal consumers. To their dismay, the domestic market is not their straw either.

The Shenzhen Beinisi Industrial Development Co. Ltd. Is a producer of high-end apparel, with market mainly in Beijing and Shandong. ��The company's monthly sales stood at 40,000-50,000 yuan in the past two months, compared with 200,000-300,000 yuan during the same period last year," revealed Tong Yan, one of its top executives.

The company is making plans for sales in autumn and winter. Tong said that they have two plans, one being more optimistic on condition that SARS is brought under control and the other as a contingency. The management, being prudent, has decided to increase only 5 percent of materials over last year��the usual increase used to be 20 percent.

A survey shows that 100 stores across the country had a 35 percent average drop in sales during May 1-5, compared to the same period last year. Except for 14 stores (14 percent), 86 stores saw a loss of sales, of which 7 percent reported a decrease of less than 10 percent, 48 percent a decrease of 20-50 percent, and 31 percent a decrease of 50-90 percent. The biggest drop reached 89 percent.

The decreased demand is only part of the story when cross-regional transportation barriers are taken into consideration. Take Guangdong as an example. As Guangdong is the main SARS-affected area, it has been almost isolated in personnel, commodity and information communication over the past two months. Xuan Zhiqiang disclosed that drivers of Guangdong's transport firms are usually quarantined for 14 days when they take delivery of goods to other provinces, while drivers who transport goods to Guangdong are also quarantined for 14 days when they come back. This has greatly increased the costs of transport companies and consequently Guangdong companies are unwilling to send drivers to other provinces while few drivers in other provinces are willing to go to Guangdong.

"Scarce contact between south and north, together with small demand for textiles, make domestic sales extremely difficult. Competition in the domestic market has become fiercer, given the fact that the domestic market always has more competitors than in international market," complained a manager of Guangdong Shaoshan Xinsanlian Cotton Textiles Co. Ltd.

Mao Zhiyan of Puning Xiangyu said that the company's domestic sales are confined to some old clients because they've got no way to develop new clients. The indirect economic losses caused by SARS in May are estimated at 600,000 yuan.

The impact has extended to upper stream industries. With textile enterprises bogged down, cotton price in the domestic market slumped after four months of rise. In half a month, the price tumbled by nearly 50 percent.

The demand for medical articles like facemasks has been brisk as a result of the outbreak of SARS. But according to insiders, as medical articles like facemasks only make up a tiny portion in the textile industry demand. Last year, Guangdong's exports of textiles were valued at $14.27 billon. Apparently, sales growth contributed by facemasks and other medical articles is like a drop in the ocean.

Lingering Impact

In the view of Xuan Zhiqiang, SARS has a lagging impact on the economy. In February and March, when SARS was at its worst in Guangdong, the market made little response to it. Tangible impacts surfaced in April, when the epidemic was basically brought under control in the province. If this pattern continues, the difficulties of Guangdong's textile industry will get worse before they get better.

The textile industry is peculiar in that buyers need to see real products, and even suggest improvement on the spot. Previously, U.S. companies would travel all the way to China to visit the suppliers, but for the moment most of the companies have cancelled such visits.

Investment in the industry has also been affected. Shaxi Town of Zhongshan City is known as "the first town of casual wear in China." An official in charge of the town's foreign investment revealed that the town has received no investors over the past months.

Taiwan's Zhonghe Woolen Industrial Co. had planned to invest $2.5 million in a joint venture with the mainland's Xin'ao Co., which was expected to go into operation in the first quarter of next year. The plan has been delayed because the 10-plus Taiwanese technicians postponed their travel to the mainland to install equipment. The Wisher Industrial Co. Ltd., another Taiwanese firm, had planned to form an alliance with Guangdong's Shenglong Textiles Co. In addition to the expansion of production capacity and the integration with upper-stream raw materials, they also planned to invest in a chemical fiber plant. Although 300 machines have been installed, which were expected to reach 1,200 by the end of the year, the plan is now put off indefinitely.

Shortly after China's entry into the World Trade Organization (WTO), some countries began to restrict its export of textiles by means of technical barriers. Insiders predict that textile enterprises will encounter more "green" adjustments because more quarantine-related requirements will come out following SARS.

The danger is that of the spread of SARS cannot be brought under effective control, Asia will eventually lose its laurel as the world's clothes processing center. If the processing center shifts to South America, the Asian economy will be affected deplorably.

"Even with the control of SARS, we will strive to increase our international credibility and enhance our competitiveness," Mao Zhiyan said.

Du Yuzhou, President of the China National Textile Industry Council, said that the Chinese textile industry would undertake restructuring with respect to technical equipment, household textiles and industrial textiles in a bid to enhance its adaptability.

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