Overview of the Chinese wool industry
AWI provides a thorough understanding of some of the key factors to operating in China that are relevant to the wool industry.
Introduction
China's wool textile sector is mainly situated around the eastern coastal provinces of Jiangsu, Shanghai and Zhejiang. There are three expanding economic processing centres around Changjiang estuary, Zhujiang esturary and the Bohai Sea where investment is growing in particular.
The major carpet and blanket production areas are further north with Tianjin, Beijing and Shandong being major centres for knotted carpet manufacture.
The wool sector is comprised of 1,349 enterprises, which includes combers, spinners, weavers and dyers. The compares with just 1,107 enterprises in 2001.
The market system has been the driving force behind China's growing wool textile processing base with new investment arriving from both private and foreign ownership.
The changing pattern of ownership has resulted in an evolution in the financial structure of the wool industry. Over the last three years the industry has begun moving away from the heavy influence of State and Collective ownership, which accounted for 42 per cent of capital investment in 2001.
Such has been this diminishing importance in State and Collective capitalization that their share had decreased to just 24 per cent by the end of in 2003 and this trend is expected to continue under current government policies.
A similar trend in financial capitalization can be observed within the knitwear sector, which comprised 1,101 enterprises in 2003 (600 knitters are using wool), compared with 808 in 2001. Back in 2001, 27 per cent of the sector was capitalized through State and Collective enterprises, which had fallen to a 13 per cent share by 2003.
Overseas capital investment and import of technology and management expertise has improved both China's domestic and international competitiveness.
One of the most recent examples has been within the combing sector where investment has been most pronounced, benefiting from several joint ventures.
The relocation of industry towards China's low cost production base and away from traditional processing bases within Far Asia and Western Europe has seen several new and large enterprises open in the last 18 months.
Altogether there are currently some 172 comber/top-makers with a combined total of 5,517 installed combing machines by the end of 2003. Although this represents a decline in machinery numbers since its peak in 1996 (7,965 number) China has benefited from investment in more modern and efficient operating machinery.
China's wool top capacity is estimated to be 330 mkg with production likely to be in the range of 170-180 mkg in 2004 which implies average capacity utilization of around 55 per cent. The larger scale and more modern combing plants are achieving much higher capacity levels in the range of 85 per cent-90 per cent.
From a global perspective China has around 36 per cent of the installed world's total combing capacity and accounts for around 35 per cent of global wool top production.
In 2003, there were 3,855,000 wool spindles in China, of which 1,144,000 were for knitting wool, 2,073,000 were for worsted yarn and 583,000 for woolen yarn. All sectors recorded increased installations in 2003, but the worsted sector has shown steady growth for all the eight years since 1995.
Over this period there has been a relative decline in knitting yarn spindles, and steadier installations of woolen spindles. This more recent growth in the latter stages of the Chinese industry is being spurred on by processors relocating their operations from Japan, Korea and Western Europe to counter rising raw material costs at a time when customers are resisting higher prices for yarn and fabric.
Industry bodies
Chinese government has greatly reduced its authority over the textile industry in the past 15 years or so.
One outstanding change was the elimination of the Ministry of Textile Industry, which had been in charge of planning, production as well as policy-making for the national textile industry. The government is now mainly responsible for setting guidelines for the industry development, and exercising macro control and adjustment over the industry.
Currently, State Development and Reform Commission (SDRC) is responsible for monitoring and adjusting the economic operations of the industry, as well as establishing industry development plans.
Ministry of Commerce (MOFCOM) is in charge of areas for textile trade policy, and State-owned Assets Supervision and Administration Commission (SASAC) is managing and supervising the state-owned assets in the textile industry, particularly the restructuring and rationalization of state-owned enterprises.
China National Textile Industry Council (CNTIC) was transformed from former Ministry of Textile Industry to become a non-government intermediate organization, mainly responsible for guiding the industry for its performance and providing consultancy services for the industry.
Elements of government policy that specifically affect particular sectors of the wool industry
China's wool spinning technologies lag behind the international standards. There are still faults in quality such as whiteness, more neps and vm in the top, poor evenness and knots of the wool yarn.
In addition, labor productivity is low, requiring 600 people for each 10,000 spindles of worsted spinning in China as opposed to abut 100 people in some foreign countries.
Therefore, the government has set out a plan for readjusting the technology and product mix for spinning and weaving sectors. Emphasis is put in following areas:
- Continue to eliminate or scrap backward wool spindles, and speed up renovating the production techniques and equipment to achieve high-speed and high efficient production;
- Actively adopt new spinning technologies such as Sirospun, Sirofil, and Wrap-spinning for increasing the product varieties;
- Focus on increasing the overall level of wool fabric, developing new products of high count and light weight, so as to increase the ratio of high-grade wool fabric to 70 per cent, and upgrade the product quality for overseas market.
The government continues to encourage the elimination of backward wool spindles as well as wool textile machines that have been in use for more than 20 years.
But unlike several years ago when government set the number for and subsidized scrapping, there are no specific policies for implementing this. As a matter of fact, the scrapping of wool spindles in the past was not as successful as that of cotton spindles because the subsidies were not fully in place.
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Government policy towards state-owned mills in the textile industry
In wool textile industry, the number of above-scale mills (consisting of toping-making, spinning and weaving mills) is 1349 in 2003, with 116 mills being state-owned and having state held stock, while the above-scale knitwear mill number is 1101 in 2003, with 34 mills being state-owned and having state-held stock.
"Above-scale" designates all state-owned and state-held-stock mills as well as non-state-owned mills with annual sales revenue above 5 million Yuan.
State-owned economic component has a diminished role in China's textile industry. In 2002, state-owned enterprises in the whole textile industry are 2,723 in total, accounting for 11.5 per cent, whereas non-stat-owned enterprises are numbered at 20,877, occupying 88.5 per cent.
The performance of textile enterprises varied geographically and across sub-sectors. Profits earned in western and central China were much lower than those earned in the eastern China. Non-state-owned enterprises tend to perform better than state-owned enterprises.
The government is aware of the textile industry's problems, but has withdrawn the subsidies for the loss-making state-owned enterprises. The overall principle of industry restructuring is:
- Inefficient and unprofitable state-owned enterprises in all sectors of the textile industry are being phased out.
- Big and medium sized state-owned enterprises are able to be transformed into joint stock enterprises by listing on the stock market, joint venturing with foreign investment as well as mutual share holding. Overtime, this will help develop an economy with mixed ownership.
- For medium and small sized enterprises with high debt ratio, but with advanced equipment, good management and market for their products, the government encourages to revitalize them through assets restructuring to reduce the debt ratio.
The government is also encouraging advantageous and backbone enterprises, the government encourages to help them become more competitive by means of foreign trade development fund as well as discount interest rate for technological renovation.
Foreign trade development fund comes from the revenue of electronic bidding for textile quota. With the bidding system coming to an end as of 2005 when global quota is eliminated, the fund will gradually be exhausted.
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Provincial governments support for wool textile mills
Local provincial governments in China would normally map out their textile industry development plan according to the national one. Whether it is wool textile mills or mills using other fibers, so long as they enjoy comparative advantages and benefit local economic development, the provincial governments will provide necessary support for further development.
For example, Zhejiang province is a place where textile industry, including wool sector, concentrates. High-grade fabrics of all fibers, garment manufacturing as well as decorative and industrial textiles are priority areas for further development.
The provincial government has been offering preferential treatment for new projects by way of exemption of income tax, import duties as well as VAT within the legal framework of national law.
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Chinese government's policy on domestic wool usage
Although China itself has the world's largest sheep population (143 million), it is strongly reliant (70 per cent) on imported wool for its wool textile industry as it produces a variety of coarse and semi-fine wool types that are generally of a low quality and are used mainly for carpet manufacture.
It is said that Ministry of Agriculture wishes to see more domestic wool to be used by state-owned wool textile mills, but this is just wishful thinking given that 95 per cent of wool textile mills are non-state-owned. So there are no specific favorable policies in place for domestic wool usage.
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Chinese wool industry remains in good condition across for January-June 2005
Production continuously growing: From January to June 2005, production in wool industry has increased year on year, with accumulated production of wool yarn increasing moderately by 3.5 per cent and wool fabric growing by 17.7 per cent respectively.
Economic results rising steadily: In the same period, sales revenue of 1233 above-scale wool spinning and weaving mills and 1523 above-scale wool knitting mills have strongly lifted by 32.3 per cent, 32.1 per cent year on year; total value of export shipments have increased by 25.0 per cent, 27.3 per cent and 10.8 per cent respectively; accumulated production/sales ratio reached to 95.94 per cent, 98.52 per cent; profits gains sharply increased by 40.4 per cent and 40.7 per cent as well. This in general has reflected that the industry moves in good direction.
Domestic sales being the key driver for industry development: The industry's growth rate of sales revenue has exceeded that of export value, indicating a stronger domestic market for the industry sectors.
Exports remaining a high growth: In the six months of 2005, the export volumes of scoured wool, tops, wool fabrics, cashmere sweaters, wool woven apparels have maintained a high growth rate of 21 per cent, 55 per cent, 22 per cent, 78 per cent and 30 per cent respectively. In contrast, exports of wool yarn and wool knitwear have slowed down, with traditional destinations of Hong Kong and Japan taking lower volumes. For the same time, imports of wool totaled 123,200 tons, increasing by 3.2 per cent year on year. Growth of major wool exports is also an important factor for industry development.
Outlook for the second half of 2005: The second half will be selling season for wool products, so domestic market will remain the key driver. Exports of some products will be restricted in certain overseas markets, but it will not have much impact on the growth of production. Electricity shortage and RMB appreciation will put some exporters under pressure. In general, industry operations will remain stable.
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