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China's textile firms may face bankruptcy on yuan appreciation
Published on: 2010-07-13
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BEIJING, July 13 (Xinhua) -- Half of China's textile firms may risk going bankrupt if the value of the Chinese currency yuan rises 5 percent against the U.S. dollar given the industry's thin profit margins.

Profit margins for the country's textile companies stands at 3 to 5 percent, which has been squeezed by the the appreciation of the yuan, rising raw material and labor costs, Tuesday's China Daily quoted Gao Yong, vice-president of China National Textile and Apparel Council, as saying.

The government conducted a yuan stress test in March, which showed profit margins of labor-intensive textile companies would drop by 1 percentage points if the yuan appreciates by 1 percent, according to the newspaper.

A large upward revaluation of the yuan could cost millions of jobs, said the newspaper, cited a source from the Ministry of Commerce by saying that currently, more than 20 million people are directly employed in China's textile industry, while a further 140 milion are involled in cotton farming.

The yuan rose 21 percent against the US dollar from 2005 to 2008, which has helped push up prices of Chinese textile products, thus the price advantage of Made-in-China textiles has almost vanished compared with products from Vietnam, Indonesia and other Southeast Asia countries, said Zhang Bin, an analyst at Sinolink Securities.

"Since Chinese textile companies are facing rising labor costs after labor discontent at Foxconn, further appreciation of the yuan will make the situation even worse," said Zhang.


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