BEIJING — China’s textile industry could face serious repercussions if the value of the yuan appreciates 5 percent against the dollar, state media reported Tuesday.

This story first appeared in the July 14, 2010 issue of WWD. Subscribe Today.

China National Textile & Apparel Council vice president Gao Yong told the China Daily that a 5 percent currency appreciation could cause half of the country’s textile companies to go bankrupt. He said the bankruptcies would be spurred by the industry’s thin profit margins of around 3 to 5 percent. The textile industry output in 2009 accounted for just more than 11 percent of China’s gross domestic product, a Ministry of Commerce report said.

The Chinese government conducted a yuan stress test in March that indicated textile manufacturers’ profit margins would decline 1 percent if the currency appreciates by 1 percent, according to the newspaper.

China’s central bank announced last month it would allow greater flexibility in the value of the yuan against the dollar, amid pressure from the U.S. and other trading partners. The People’s Bank of China did not say how far the currency might fluctuate.

Analysts told state media that textile industry profit margins already have been affected by rising raw material and labor costs, together with an appreciating yuan, which rose 21 percent against the dollar from 2005 to 2008.

Zhang Bin, an analyst with Sinolink Securities, said textile products have become more expensive, resulting in diminishing price advantages compared with Vietnam, Indonesia and other Southeast Asian countries. China’s textile manufacturers could further be squeezed by rising labor costs, Zhang said. Demands from factory workers for higher wages have become a central focus around the country after a spate of suicides at Foxconn Technology, a hardware producer in the southern city of Shenzhen.

As a result of the suicides, the company has offered employees wage increases.

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