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Textile Manufacturers Weather the Storm

Gu Jieping could have saved her company Zhejiang Huagang Dyeing & Weaving 130,000 yuan (US$15,660) if she was not so quick to pay export tax on May 30.


Less than an hour after she made the payment, the government announced the scrapping of the tax. "I hit my head every time I think about it," she said.


The amount lost is small for a company with annual turnover of more than US$20 million. But like thousands of other textile manufacturers in the Yangtze River Delta region, Zhejiang Huagang is operating with razor-thin profit margins and "every yuan counts," said Gu.


More importantly, the lesson she learned from that incident goes beyond mere money. It has brought into sharp focus for Gu and other business people in the textile manufacturing heartland of the country how vulnerable their firms are, being on the lowest rung of the value added chain of the global textile trade.


"We have to widen our profit margins to cushion against future shocks from changes in trade policies as well as market conditions," Gu said.


Time is not on their side. Rising protectionism in the United States and European Union is threatening their survival, forcing many textile manufacturers to review their operations and formulate new strategies amid the present confusion.


"I am so confused about our prospects. I hesitate to take large orders now as nobody can tell whether there will be further policy changes later," said Gu, 30, a graduate in international trade from the renowned Zhejiang University.


The company, set up in l965 in Zhejiang Province, the mainland's biggest exporter of textiles and garment products, recently invested several million yuan to introduce new production lines and double its production site in the hope of boosting business this year as global textile quotas were lifted.


The quota-free system did help at first. The company's overseas sales grew by 40 per cent in the first quarter and as a result Gu decided to increase stakes in the US and EU markets which have accounted for 90 per cent of the company's total overseas sales until now.


"It seems I was too optimistic about the quota-free system. It turns out to be more risky than ever before," said Gu.


Looking forward, Gu said she will partially retreat from the US and European markets and instead expand further to Asian countries such as Japan and Malaysia. Japan ordered half of the firm's products last year.


"Never put all your eggs in one basket. We should not neglect Asian and other emerging markets like the Middle East and Africa," said Gu. Huagang will also turn to making products such as gowns, which are not affected by the United States' safeguard quotas.


Meanwhile, Gu said she would take the initiative to enhance corporate management, improve product quality and retain well-trained workers.


"We are not offering stock options and 13-14 month salaries to superior workers. The longer they stay with us or the better job they do, the more they can earn," she said.


The labour-intensive textile industry has suffered from a shortage of skilled workers over the past year. Huagang, as well as many other Shaoxing-based companies, has to look for workers in inner provinces such as Anhui.


(China Daily June 7, 2005)


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