Danger and opportunity of debt of textile and garment industry

Since 2018, the outbreak of bond default events of private enterprises has attracted extensive attention in the market. The default subjects are scattered in a number of industries, and the default number of textile and clothing industry subjects is larger than that of most industries. By combing the credit qualification of the issuing subject in the textile and garment industry, it is expected to identify the risks and opportunities of the industry. This series focuses on the analysis of the running situation of the textile and clothing industry and the fundamentals of the main body of debt in the textile and clothing industry.



1. Textile and clothing industry chain

Since 2018, the outbreak of bond defaults by private enterprises has attracted extensive attention in the market. The defaults are mainly distributed in several industries, including the textile and clothing industry. On April 23, 2018, fugui bird failed to pay back the principal and interest of the sale, resulting in a substantial default.

From the perspective of the number of historical defaulters, as of October 12, 2018, a total of 5 textile and clothing subjects in the inter-bank and exchange markets had defaulters on bonds, namely, huazhu shoes, aifu leather, daehong textile, li hua jieyu and fuguiao. The default number of textile and clothing subjects was larger than that of most industries. By combing the credit qualification of the issuing subject in the textile and garment industry, it is expected to identify the risks and opportunities of the industry. This article is an industry chapter, focusing on the analysis of the textile and clothing industry operation situation

The textile and garment industry chain is composed of three basic industrial chains: upstream raw materials manufacturing, midstream textile manufacturing and downstream garment manufacturing. The upstream raw and auxiliary material manufacturing industry chain is the basis and premise of textile and garment industry chain, including natural fiber and chemical fiber. Among them, natural fiber includes plant fiber cotton, hemp, animal fiber wool, silk, etc. Chemical fiber includes synthetic fiber polyester, cotton fiber, spandex, acrylic fiber, man-made fiber viscose fiber, new environmental protection fiber. Middle reaches textile manufacturing industry includes spinning, weaving, printing and dyeing, finishing and so on. Downstream clothing manufacturing includes clothing manufacturing and clothing retail, processing readymade garments, home textiles and other finished products, forming brand clothing home textile products for consumers.

Considering that the upper reaches of plant and animal fibers are more involved in agricultural production and the products of chemical fibers and chemical industries are more comparable, we mainly discuss the middle reaches of the industrial chain of textile manufacturing and the lower reaches of the industrial chain of clothing manufacturing.

2. Overview of textile and garment industry

In the framework of manufacturing credit analysis, profit is the core factor. The profit of the textile and clothing industry is made up of the cost at the income end minus the cost at the income end. In the income end, changing supply and changing demand jointly determine the price change. The factors affecting the demand end are mainly domestic sales and export, while the factors affecting the supply end are mainly fixed asset investment, product output and inventory. Cost side includes upstream raw material cost, labor cost, machinery depreciation, fuel cost and channel cost.

2.1 demand analysis: domestic sales and export

In terms of demand, the demand of China's textile and garment industry mainly includes domestic sales and export, which accounts for a large proportion and is a traditional export-oriented industry.

In terms of domestic demand, in recent years, with the rise of labor costs and the rising of international trade protectionism and other reasons, the retail sales of apparel of enterprises above the quota grew more slowly, but the retail sales of apparel grew faster than the overall growth. In August 2018, the overall retail sales increased by 5% year on year, and the retail sales of clothing increased by 7.0% year on year.

In terms of foreign demand, China is the world's largest textile exporter. Since 2017, the textile export has recovered somewhat. However, this trend will be restrained due to the impact of the escalation of trade friction between China and the United States.

Since 2015, China's textile export has shown a negative growth trend, but this trend has been improved in 2017. In 2017, the global economy has recovered and foreign demand has improved. In 2017, the export delivery value of large-scale textile manufacturing enterprises is 344.52 billion yuan. The textile export quantity index keeps rising, reaching 120.83 in the first quarter of 2018 and slightly decreasing in the second quarter. The export price index basically remains stable, except that it is slightly higher than the export quantity index in 2015, and then it is generally low. This shows that the export of textile manufacturing industry is subject to the decline in price, and the export growth mainly depends on the increase in quantity. Affected by the sino-us trade friction, the textile industry will be somewhat restrained. By the end of August 2018, China's textile and apparel exports totaled us $181.4 billion, up 3.0% year on year, with a slower growth rate.



From the perspective of export regions, the main export countries and regions of China's textile and garment industry are still the United States, Japan, the European Union, Hong Kong and South Korea, accounting for more than 50%. Among them, the European Union, the United States and Japan are the three export regions of China's textile and apparel products, accounting for 18.39 percent, 16.52 percent and 7.67 percent respectively. The export amount of China's textile and clothing products to Japan continues to decline, and the export amount of European Union market reached the peak of 56,855,200 us dollars in 2014, and has been declining ever since. 2016 and 2017 were basically flat. The export of textile and apparel products in the United States has basically maintained a rising trend, with the growth rate slowing down in the past two years

2.2 supply analysis: output and inventory

In terms of supply, the textile and garment industry is now a perfectly competitive market with a large number of enterprises, low market entry barriers, low industry concentration and a large number of private enterprises. Among the 29 textile and garment industry debt issuers, 22 are non-state-owned enterprises, accounting for 76%. Textile and clothing industry complete amount of investment in fixed assets increasing continuously in recent years is the basic trend of the economic downturn in 2012 quickly lead to textile and garment industry investment growth is a significant decline, textiles and clothing apparel industry in 2013 were recovered, then produce a downward trend, complete the forehead slowing growth of investment in fixed assets in recent years.

In terms of output, the output of cloth and yarn declined somewhat. In August 2018, the output of cloth and yarn in the same month were both negative, with year-on-year growth of -0.9% and -1.1% respectively. In terms of inventory, the inventory of cloth and yarn in August 2018 also declined month on month.

According to the distribution of production capacity, most of China's textile enterprises and production capacity are concentrated in 7 provinces, namely jiangsu, zhejiang, shandong, guangdong, fujian, hubei and hebei. By the end of 2016, the cloth output of these seven provinces accounted for 88% of China's total output, and the yarn output accounted for 79%. Jiangsu and zhejiang region mainly to textile raw materials, home textile cloth products, woolen sweater, down jacket, casual men's clothing and footwear. Shandong mainly for cotton textiles and home textiles; Guangdong is a gathering place for casual wear, shoes, fabrics, sweaters, women's wear and underwear. Jinjiang, fujian province, is home to the sportswear and menswear industries.

2.3 cost analysis: cotton price

In terms of cost, cotton is the main raw material in the textile and garment industry, and its purchase cost has a great influence on its total cost and product price. The dominant factor of cotton price is the relationship between supply and demand in the market, and other factors affecting cotton price include industrial policy (agricultural supply-side reform), import quota management, national reserve, etc.

From the perspective of domestic cotton price trend, before 2010, the price fluctuated around 15,000 yuan/ton. In 2010, there was a sharp rise (the cotton price at home and abroad rose due to the expectation of production reduction in that year). Then, the state issued the policy of purchasing and stockpiling to stabilize the cotton price, and then the domestic cotton price stabilized around 20,000 yuan/ton. In 2014, the state introduced a direct subsidy policy, which promoted the marketization of cotton price, showed a continuous decline, and gradually brought it into line with the international cotton price. In the first half of 2016, due to the delayed impact of selling and storage, it rose somewhat, and now it is maintained at about 16000 yuan/ton。

2.4, summary

In conclusion, the textile and garment industry belongs to a perfectly competitive market with low barriers to entry. However, China's textile and garment industry has a low concentration degree and low added value of products, so the industry competition is particularly fierce.

In 2017, domestic sales of the textile industry continued to improve, and exports recovered. However, in 2018, affected by sino-us trade frictions, the industry recovery trend will be restrained. Domestic cotton production and demand gap for a long time will promote cotton prices stable belt rise; The overall profitability of the textile and clothing industry is relatively stable, and the industry concentration will be further improved. There are more private enterprises in the textile and garment industry, and the external financing pressure is great.