Hongjing

Currently, there's been a significant decrease in orders. All orders from July and August have been shipped, but clients haven't placed any additional orders. The peak season was in March and April, when orders were at their highest. On August 13th, Mr. Lu, a Guangdong Shantou-based apparel manufacturer, told the Times Finance that the booming apparel exports in the first half of the year seem to have cooled down.

According to data from the China Chamber of Commerce for Import and Export of Textiles, from January to June 2021, textile and apparel exports totaled US\$1400.86 billion, representing a year-on-year increase of 11.9%. According to incomplete statistics from Times Finance, approximately 43 listed companies in the textile and apparel industry recently released their first-half performance or performance forecasts, with 38 showing an increase in performance, upward trends, or a return to profitability.

Among them, Shenzhen Textile A (000045) is expected to have a net profit attributable to shareholders of listed companies of between 63 million and 90 million yuan in the first half of the year, representing a year-on-year increase of 8650% to 12400%; Xin Fengming (603225) is expected to achieve a net profit attributable to the parent company of 1.3 to 1.35 billion yuan in the first half of 2021, representing a year-on-year increase of 549%-574%; Bailong Oriental (601339) achieved a net profit attributable to the parent company of 550 million yuan, representing a year-on-year increase of 304%...

The global order return to China due to the pandemic, which began last year, has continued this year. On August 13th, Jiansheng Group (603558), a knitwear and sportswear exporter, released its semi-annual performance report, showing a net profit of 108 million yuan in the first half of the year, a year-on-year increase of 96.4%. The report attributes this significant increase in performance to the "return of orders".

Currently, the situation is changing.

Data recently released by the General Administration of Customs shows that apparel and textile exports both declined in July. In terms of RMB settlement, textile and apparel exports totaled 181.39 billion yuan, down 18.24% year-on-year but up 1.82% month-on-month, and down 4.21% compared to the same period in 2019; textile exports totaled 75.06 billion yuan, down 33.73% year-on-year and down 6.90% month-on-month, but up 1.30% compared to the same period in 2019; apparel exports totaled 106.33 billion yuan, down 2.08% year-on-year but up 9.03% month-on-month, and down 7.76% compared to the same period in 2019.

In fact, since the second quarter, the monthly growth rate of textile and apparel exports has gradually fallen, with a 16.8% decrease in May and a continuous decrease in June, although the decrease was significantly smaller than in May, at only 3.7%.

The significant decrease in textiles and apparel is largely due to the recovery of textile exports from some Southeast Asian and South Asian countries, particularly India and Bangladesh. Some of the orders that had "returned" to China have now gone back. On August 13th, Bai Ming, deputy director of the Market Research Institute of the Academy of International Business, pointed this out in an interview with Times Finance.

Mr. Lu, the apparel manufacturer, also agrees, saying that in the first half of this year, whenever the epidemic situation eased in other Southeast Asian countries, domestic orders would decrease, and raw material Prices would then fall.

Image source: Tu Chong Creative

The slowdown in the return of orders is clearly evident.

Although the first-half Achievements of listed textile and apparel companies have been frequently reported, in terms of RMB settlement, the total amount of textile exports in the first half of the year was lower than in 2020. According to data from the General Administration of Customs, from January to July, the cumulative export of textiles and apparel totaled 1090.21 billion yuan, down 0.93% year-on-year; textile exports totaled 519.89 billion yuan, down 17.94%, while apparel exports totaled 570.32 billion yuan, up 22.17%.

In terms of US dollar calculations, the situation for apparel exports is slightly better, but textile exports also saw a double-digit decline. From January to July, the cumulative export of textiles and apparel totaled US\$1683.51 billion, up 7.73%; textile exports totaled US\$802.52 billion, down 10.80%; and apparel exports totaled US\$880.98 billion, up 32.89%.

China's textile and apparel exports are concentrated in the European, American, and Japanese markets. With the increase in vaccination rates and the normalization of herd immunity in these countries, imports of textile-related epidemic prevention products have significantly decreased, and some developing countries have also gradually resumed production, leading to a return and transfer of orders. In addition, due to China's faster resumption of work and production, the base for related textile exports last year was relatively large, so the year-on-year decrease in exports of these products is inevitable. This analysis was provided by Lan Qingxin, a researcher and doctoral supervisor at the National Institute for Opening Up to the Outside World at the University of International Business and Economics, to Times Finance.

Regarding the slowdown in the return of orders in July and August, Bai Ming stated that the epidemic situation in India was quite severe in the first half of the year, and many orders were transferred to China in April and May. In the second half of the year, some industries in India and Bangladesh have also recovered, resulting in a shift in the "return" of orders in July and August.

Lan Qingxin further stated that in addition to the return of orders being an important factor affecting export growth, rising costs and slow economic recovery suppressing demand are also major factors.

Regarding the decline in textile exports reflected in the General Administration of Customs data, Mr. Lu, who works in production, has a more intuitive understanding. Mr. Lu stated, "In the first half of this year, whenever the epidemic situation eased abroad, foreign trade orders would decline."

When Times Finance asked Mr. Lu and other small and medium-sized business owners whether they were worried about a lack of orders, Mr. Lu frankly stated, "The Price of raw materials recently has been the highest in two years. Not receiving orders is fine; otherwise, we would lose money, as the apparel industry is a low-profit industry."

Regarding listed companies, there have also been reports of reduced orders. On August 13th, a Times Finance reporter contacted the investor relations department of Xin Fengming (603225), a modern large-scale joint-stock enterprise integrating polyester, polyester filament, texturing, and import and export trade, and the staff member stated that the export situation in July did indeed decline, "The epidemic situation will certainly have some impact."

When Times Finance asked whether this was due to rising ocean freight Prices, the Xin Fengming staff member stated, "There are also factors such as rising ocean freight Prices, which may hinder commodity exports to some extent, but our domestic sales are mainly higher, and the proportion of exports is relatively small."

Still facing many uncertainties and risks.

The search for alternative orders due to the pandemic is not destined to last.

Bai Ming pointed out, "Over the years, China has transferred orders outward, but last year's situation was special. Many Chinese factories were among the first to resume work and production, while many countries were still experiencing severe epidemics, affecting their textile exports. Customers couldn't wait and came to China to buy textiles. Now that those countries have restored their production capacity, customers have gone back."

Large domestic textile and apparel companies are also "aware" of the temporary nature of the return of orders. Jiansheng Group's semi-annual report, in the third section "Management Discussion and Analysis," points out that "the transfer of low-end production capacity to Southeast Asian countries with lower factor costs and less disturbance from tariff disputes is still a major trend."

As global epidemic prevention and control gradually enters normalization, the trade demand for epidemic-related goods weakens, and many manufacturing countries have restarted production. Li Xingqian, director of the Department of Foreign Trade of the Ministry of Commerce, stated on July 22 that this is both a challenge and an opportunity for China's foreign trade.

On the one hand, China's exports will face intensified market competition; on the other hand, the resumption of production in various countries also requires a large number of raw materials and production equipment, significantly increasing the demand for capital goods and intermediate goods in China.

Regarding the potential impact of many manufacturing countries restarting production, Li Xingqian stated, "Currently, we are closely monitoring changes in the foreign trade situation. In the second half of the year, we will focus on the prominent difficulties and problems faced by enterprises and, together with relevant departments and localities, formulate more targeted policies and measures to effectively reduce the comprehensive costs of foreign trade enterprises."

The textile industry is closely related to the macroeconomic environment and national policies. At present, the global epidemic alert brought about by the Delta variant has not yet been lifted, and a variant called "Lambda (λ)" has emerged, leading to numerous uncertainties and risks for the development of the domestic textile industry.

Lan Qingxin suggested that in the second half of the year, export enterprises should further tap their potential, reduce costs by increasing efficiency, diversify export markets, and make greater use of cross-border E-Business methods to actively develop overseas demand. At the same time, production capacity should be adjusted appropriately, and production should not be blindly expanded, leading to increased inventory.

It is worth mentioning that, according to data from the China Chamber of Commerce for Import and Export of Textiles, as of the end of July, the phenomenon of rising freight rates and port congestion has not been fully alleviated, becoming the biggest uncertain factor affecting exports in the second half of the year. The rise in the Price of upstream raw materials caused by global inflation has not been passed on to a corresponding increase in the sales Price of downstream finished products, and the export Price of knitted and woven garments in the first half of the year fell slightly by 0.8% year-on-year.

In addition, the scissors difference between domestic CPI and PPI has been running at a high level for nearly half a year. Under the dual impact of rising raw material Prices and weak consumer demand, downstream clothing enterprises, especially small and medium-sized enterprises, may be in a situation where their profits are continuously being squeezed.