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Against rising shipping costs and an appreciating yuan, China’s textile industry is seeing profits shrink despite a rebound in overseas orders in 2020

By Chen Weishan Updated Apr.1

A worker operates machinery at a textile company in Taierzhuang Economic Development Zone, Zaozhuang, Shandong Province, February 28, 2020

China’s foreign trade surplus totaled US$75.4 billion in November 2020, a record high. Exports increased 21.1 percent over the same month in 2019. Back in May 2020, export growth remained in negative territory. In June, the State Council, China’s cabinet, encouraged the industry to expand domestic demand for export-oriented products. 　

“Though we resumed work in March 2020, we hardly had any orders in March and April. But business picked up in May, with annual sales even better than 2019,” a sales agent in Yiwu, East China’s Zhejiang Province who helps European buyers connect with Chinese suppliers told NewsChina. 　

According to the agent, export volumes of some products have surged, such as humidifiers. According to November 2020 data from China’s General Administration of Customs (GAC), yarn, fabrics and textile exports from January to November increased 31 percent over the same period in 2019, second only to medical appliances and instruments at 42.5 percent. 　

Textile Surge

On the surface, textile exports saw positive growth as early as April 2020. Exports exceeded US$20 billion in May, up 77.3 percent from the previous year. The reality was not that simple. “In the first half of 2020, textile exports were driven mainly by demand for masks rather than conventional textile products,” said an anonymous textile company source in charge of foreign trade. According to the GAC, China’s exports of masks to the US accounted for over 30 percent of China’s total textile exports to the country, 40 percent of its textile imports to Japan, and more than 50 percent to Europe. 　

“As demand declined, the prices of masks plummeted 90 percent compared with the first half of 2020,” the source said, “The recovery of textile exports in the second half of last year was definitely driven by the revived market demand for traditional textile products.” 　

As one of the largest exporters of household textiles in China, Sunvim Group exports up to 85 percent of its products, with sales in the Americas reaching US$270 million. 　

According to Yu Conghai, deputy general manager of Sunvim Group, in the second half of 2020, export volume to the American market grew 15 percent every month. In the fourth quarter, exports of towels to the US amounted to US$50 million – a lofty sales target even before the pandemic. “The factory has been operating at full capacity since the second half of last year, and we’ve even had to do some outsourcing,” Yu said. “We expect the momentum to continue through the first quarter of 2021.” 　

According to the National Bureau of Statistics, from January to September 2020, the value of exports from household textile manufacturers with an annual revenue of more than 20 million yuan (US$3.08m) fell 6.05 percent year-on-year, but the growth trajectory reversed in Q3, with a positive increase of 9.34 percent. In September alone, the increase hit 19.6 percent. 　

Additionally, fabric export orders are surging. “Since August, monthly exports started to grow compared to the same period last year, making up for some of the previous losses from earlier this year, with exports growing up to 50 percent per month,” Yan Liangmin from Haoze Trade Company in Shaoxing, Zhejiang Province, told NewsChina. Despite the increase, he said exports are still down about 6 percent compared to the first half of 2020. 　

“Even with retaliatory growth in H2, they barely make up for H1 losses. In particular, the second quarter year-on-year decline was huge,” Yu Conghai added. 　

Returning Customers

With rising labor costs and the prolonged US-China trade war, many international buyers have opted out of China in recent years. “Buyers have been looking to other countries since 2018, and some companies simply stopped placing orders with Chinese companies,” the source with the foreign trade department at the textile company told NewsChina. 　

However, industry insiders believe the recent upsurge in textile orders is partially driven by returning overseas customers. 　

“Indian companies are our major competitors. Now under the stress of the ongoing pandemic, only a few large factories are operating at full capacity in India, while some smaller factories have shut down, resulting in more orders coming back from India to China in H2 2020,” a manager at a household textile company told NewsChina during a recent interview. “So far, we’ve learned from some customers that they are still placing orders with Indian companies, but as they are considering the potential risks [of Indian companies failing to fulfil orders in time], they are choosing China as a backup.” 　

“We have very few new customers now. They are mainly former customers who switched to India and are now returning to us,” said Wang Qijun from Sunvim Group. According to Wang, orders began coming in July and August last year, and the trend was even more salient in October due to seasonal Christmas demand. “Some orders that returned to China had already been placed with Indian enterprises, with some having even been sampled. Indian enterprises were unable to deliver on time, and Christmas products are time sensitive,” Wang said. 　

“Indian companies have always been at a disadvantage when it comes to fulfillment. It used to take two months. Now it takes up to three months. Some American buyers with urgent orders may even demand a turnaround of less than two weeks after samples are finalized. This puts a lot of pressure on the factory and adds extra costs. The main reason we’re taking these orders is to prove our fulfillment capabilities,” Wang Qijun said. “After the pandemic, some of these returning orders will disappear, particularly for pricesensitive products, and we’ll be ready when that happens,” he added. 　

According to Wang, the other main reason for the increase in US orders was the rebound in demand. “Christmas orders from the US increased by about 20 percent, especially for kitchen towels,” said Yu Conghai. 　

However, in contrast to the unexpected upsurge in demand in 2020, exporting textile companies are barely seeing a profit. 　

Razor-thin Profits

Along with the mounting orders for textile products come skyrocketing freight prices and over-demand for shipping containers. 　

“In October 2020, the price of a 40-foot container to Europe was stable at around US$3,000, even dropping to around US$2,000. Prices have gone up since then,” a source from a Chinese freight company told the reporter. “Prices reached US$4,700 by November, and even US$7,500 to US$7,700 by mid-December.” 　

Shipping costs to the US began to rise in September 2020, which coincided with orders returning to China. “Before that, it cost over US$2,000 a container from China to the US. Now the prices are US$6,000, and they’re still going up.” 　

On New Year’s Eve 2020, the China Containerized Freight Index (CCFI), which measures changes in spot freight rates, based on shipping rates and volumes of 12 major routes, hit a record high of 1,658.58. Five months earlier, the index was 65.55. Container shortages were behind the price increase. “Containers have been hard to get since late November 2020,” the freight company agent said. “Lack of containers caused warehouse overstock.” 　

In October 2020, the Port of Los Angeles experienced the busiest month in its 113-year history, handling more than 980,000 TEUs (Twenty-Foot Equivalent Units, a standardized maritime industry measurement used to count cargo containers of different lengths.) 　

The most challenging situation is that shipping capacity has not returned to prepandemic levels, while exports are greater than normal. “Many routes that had three ships in operation now only have one,” said the freight agency source. “In Q2 2020, there was nothing for freight companies to ship. Now the price increases aim to make up for previous losses, which is understandable,” he said. 　

However, the price hikes in freight have impacted textile exports. “It’s been terrible. It’s been eating into profits,” Yan Liangmin, head of logistics at a textile company, told NewsChina. “Textiles take up more space, but the added value of one container of textile products is not high. A container of machinery and equipment could be valued in the hundreds of thousands of dollars, but the value of a container of textiles is only around US$30,000,” Yan said. 　

Fluctuations in currency exchanges are also to blame. Appreciation of the Chinese yuan cut into H2 2020 profits by seven or eight points while competing manufacturers in countries such as Turkey saw their currencies depreciate, giving them an advantage. In the last three years, the Turkish lira depreciated three points against the US dollar to 7.8, while the yuan increased to 6.5 against the dollar over the same period. 　

Profits have been largely swallowed up by rising shipping costs and the appreciation of the yuan. Facing additional pressures, such as rising cotton prices, Chinese textile companies are operating at increasingly narrow margins.　

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