The investment in fixed assets within the textile industry is typically modest, and many companies maintain a low debt ratio. As such, a 0.25 percentage point increase in interest rates is unlikely to have a significant impact on this relatively non-capital-intensive sector. However, several textile and apparel companies that the author interviewed shared concerns about rising costs, particularly from raw materials and labor, which are already putting pressure on their operations. The recent interest rate hike, they argue, only exacerbates these challenges.
Bao Song, General Manager of Ningbo Tianhui Textile Co., Ltd., explained that even though the number of affected companies is not large, the rise in interest rates still adds to their operational burden. This is especially true as the 108th Canton Fair approaches on October 31st, with the company expecting increased difficulties in securing and fulfilling export orders. Rising material costs, exchange rate fluctuations, and current order pricing have made it increasingly difficult to sustain profitability. To cope, the company is planning to raise prices during the fair, with the strategy nearly finalized. However, integrating the impact of higher interest rates into their pricing strategy remains a complex decision that requires careful evaluation.
“This year, we’ve had to adjust our prices frequently due to rising raw material costs,†Bao said. “Customers are starting to complain that if unit prices keep going up, they may shift their orders to Bangladesh, India, or Vietnam. It’s no longer necessary for Chinese factories to produce these items. Our price competitiveness is weakening, and further price increases carry significant risks.â€
This year has been a mixed bag for China’s textile and clothing companies. While domestic and international markets have shown signs of growth, the rapid rise in raw material prices has put pressure on profit margins. Many firms have seen their profits shrink despite an increase in orders.
Cotton, one of the key raw materials in the textile industry, has experienced a sharp price surge. According to the China Cotton Price Index, cotton prices reached a new peak in September. On September 1, the price was 18,002 yuan per ton, and by September 30, it had jumped to 22,684 yuan per ton—an increase of nearly 5,000 yuan. In the five days following the National Day holiday, the price rose another 13%. As of October 19, the price had climbed to 24,526 yuan per ton. Prices for other materials like polyester, chemical fibers, rayon, and wool have also risen sharply, with viscose staple fiber recently breaking through a historical high of 22,000 yuan per ton.
Wang Yisheng, head of Lotte Children's Wear, noted that raw material costs have surged by over 30% in recent months, but the company has only passed on about 10% of that increase to customers, absorbing the rest internally. Both domestic and foreign markets are now extremely challenging when it comes to raising prices. Products like jeans are often sold at a loss, and the additional cost from higher interest rates will only further strain the already thin profit margins of the industry.
The effects of the interest rate hike extend beyond just production costs. Xu Yuping, General Manager of Shenzhen Guller Fashion Co., Ltd., highlighted two main impacts: first, the increase in interest rates leads to higher operating costs, which in turn reduces profits—especially for companies with long-term contracts. Labor costs in the Pearl River Delta have risen by 20% to 30% this year, and raw material prices have skyrocketed, causing overall profits in the textile and apparel sector to decline. Second, higher interest rates place more pressure on domestic mortgages, potentially reducing consumer spending on clothing and dragging down the domestic apparel market.
As the industry faces mounting pressures, companies are forced to navigate a delicate balance between maintaining competitiveness and managing rising costs. With the global economic climate uncertain, the textile and apparel sector must adapt quickly to survive in an increasingly competitive environment.
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