Weiqiao Textile Company Limited, the world's largest cotton textile producer, has announced its first half 2012 financial position, and the results reaffirm news reports this summer detailing how the Chinese economy has struggled across many sectors.
The company’s exports continued to rise, albeit at a slower pace than during the same six months in 2011, but weak demand throughout the global textile market held revenue to remembi 7,709 million, about 4 percent below the January-June 2011 period. Gross profit fell to remembi 419 million, which representated a decline of no less than 58.8 percent on the year.
In its semi-annual financial report Weiqiao noted that the textile industry in China was significantly affected by the weak global macroeconomic situation. Factors such as soft demand in both overseas and domestic markets, the cotton price gap between domestic and overseas markets, and intensified international competition caused a decline in the textile industry in China. Consequently, the entire industry experienced a slowdown in production growth and domestic sales, greater downward pressure on exports and declining earnings.
The report noted that exports of China's textile products during the first six months of the year continued to increase, though at a much lower rate. It cited statistics from the Administration of China Customs that showed exports of textile products in the first half of 2012 were approximately 1.3 percent higher, compared with the corresponding period of 2011, at around US$46.5 billion. The growth rate declined by approximately 27.5 percentage points from approximately 28.8 percent in the corresponding period of 2011.
During the first half of 2012, Weiqaio's production volume of cotton yarn, grey fabric and denim were approximately 206,000 tonnes, 498 million meters and 42 million meters, respectively, which represented a declince of about 37.6 percent, 14.1 percent and 16.0 percent, compared with the corresponding period a year earlier.
Commenting on the first half of 2012 interim results performance, Ms. Zhang Hongxia, Chairman of Weiqiao Textile, said:
"During the period, cotton prices in the domestic market remained at a low level while declining sharply in overseas markets, making overseas cotton much cheaper than domestic cotton, which led to greater competition pressure on the domestic textile industry. Therefore, it was difficult to lift the prices of textile products, which significantly affected the Group's overall profitability."
In the future, Ms. Zhang said the company will continue to face challenges, but there is reason for a modicum of optimism.
"Looking ahead, we expect the global economy to continue to pose challenges, and this will likely cause demand from international markets to remain weak,” she said. “On the domestic front, surging labor and other production costs, funding difficulties, and other issues are not expected to be resolved in the near future. The trend for the cotton price gap between domestic and overseas markets remains uncertain. As such, the operating environment for the textile industry in China will most likely remain challenging.
“With growing domestic consumption, demand for various middle and high-end textile products and apparel is expected to grow. And following recent reserve requirement ratio and interest rate cuts, it is expected that more favorable policies to stabilize the economy will be issued in the second half of 2012, which would support the steady development of the textile industry in China,” said Ms. Zhang.
“Although the operating environment for China's textile industry in the second half of 2012 will remain challenging, we believe the industry will show low, but positive growth."