Warp Knitting Enterprises: Where To Go In The Economic Crisis?

There is no doubt that the rare financial crisis in developed countries has spread to the real economy.

According to reports, the US economic growth in the third quarter of 2008 dropped 0.3 percentage points over the same period last year, the worst quarter since the third quarter of 2001.

Consumer spending, which accounts for the largest share of the US economy, has also experienced its first decline in 17 years, indicating that the US economy may be in the worst recession in nearly 30 years.

The corresponding Dow Jones index also showed a significant decline.

Meanwhile, the UK's economic data also showed that the country's GDP fell by 0.5% in the third quarter, the first negative growth in 16 years.

What is the impact of this crisis on our warp knitting industry?

How should the warp knitting enterprises respond?

The future trend of export decline is even more dramatic. Due to the decline of European and American economies and the decline in consumption level, China's export of warp knitted fabrics and garments to developed countries in Europe and America has dropped to a certain extent.

According to the IMF, the growth of imports and services in developed economies dropped from 4.5% in 2007 to 1.9% in 2008, due to the downturn in the US and Europe, and will further decline to 1.1% by 2009.

It is estimated that imports of textile and clothing products from developed countries in Europe and the United States will decline more sharply in the coming period.

Take the knitted swimsuit as an example (a lot of warp knitted fabrics used in knitted swimsuits). The export of swimsuit in China is mainly oriented to the developed countries in Europe and the United States. The export volume of 1~8 this year decreased by 22.39% compared with the same period last year, and the downward trend is very obvious.

Besides the impact of the real economy in developed countries, economies in developing countries such as Africa, East Asia and Eastern Europe are also very fragile, which may lead to great difficulties in the export of warp knitted fabrics and garments to these countries.

Although the economies of these developing countries do not suffer from too great a crisis, the foreign exchange reserves of these developing countries will be depleted rapidly when the financial crisis of the developed countries leads to the withdrawal of large amounts of foreign capital.

The depletion of foreign reserves in some developing countries and the depreciation of their currencies have made China's already difficult export situation worse.

The impact of this situation on China will be manifested in two aspects: first, the price advantage of our warp knitted fabrics will be weakened due to the appreciation of the RMB against the currencies of these countries; secondly, the depletion of foreign exchange reserves in these countries may weaken the payment capacity of the existing orders.

Taking woven lace as an example, Togo is the third largest export destination for woven lace in China. However, the export of woven lace to Togo decreased by 42.87% over the same period of 1~8 this year, while the growth rate of China's lace export also dropped by 0.71% over the same period.

Overall, the demand for warp knitted fabrics and warp knitted garments will be further reduced in the future international market, and the export situation of our warp knitting industry is not optimistic.

How long will the crisis last?

Now, it seems that this is not the time to discuss the impact of the international financial crisis on China's economy. We should be more concerned about how long the crisis will last.

Because the length of duration is directly related to the "retention and absence" of some enterprises.

Under the impact of the crisis, some enterprises will fall down because of their lack of support. The enterprises that are still struggling to support will pay more attention to how long it will take for the dawn to come, and the corresponding site will be their own granary.

At present, according to the analysis of relevant economists, the duration of the economic crisis depends mainly on whether the "crisis isolation network" in developed countries such as the United States can play a role in a short time.

The crisis is mainly originated from the financial market, and now the rescue measures taken by all countries are to establish a "crisis isolation network" to prevent the crisis from being pmitted to other sectors of the national economy through the credit chain of the financial sector.

Unfortunately, the United States has not been able to boost market confidence and increase the credit of financial institutions.

We should pay close attention to the change of overnight lending rates among financial institutions such as the United States and Britain. If the interest rate falls sharply, it will indicate the easing of the credit crisis.

In terms of specific forecasts, the international monetary economic organization said that the world economic crisis will show some signs of recovery in the second half of 2009.

At the same time, the international monetary economic organization believes that the recovery of the world economy relies mainly on three aspects of power, which should be the focus of attention of our warp knitting enterprises.

First, the downward trend of international raw material and commodity prices.

Take oil as an example, in October this year, international oil prices fell by more than 30% in a single month, creating the largest monthly decline in international crude oil futures prices, and once dropped to 70 US dollars / barrel.

(see chart 4) because chemical fibers occupy a large proportion in the raw materials of warp knitting enterprises. Therefore, the fall in oil prices will play a key role in reducing the cost of warp knitting enterprises; second, the trend of us real estate prices.

It is well known that the rebound in US house prices will ease financial institutions' losses in the subprime crisis.

According to experts, the US real estate prices will be at the bottom of 2009.

Therefore, our warp knitting enterprises will have more expectation on this. Third, the growth rate of the emerging economies will slow down, but the growth trend is beyond doubt.

The longer the financial crisis continues, the slower the growth of the emerging economies will take, and the longer the world economy will be free from the crisis.

Thirty years after the reform and opening up, China's economy has become more and more closely linked with the world economy.

However, most of our warp knitting export enterprises have not really experienced such a global economic crisis at present. Therefore, some enterprises lack proper coping strategies and ideas.

We suggest that we should be more cautious and prudent.

Maintain a high cash holding rate.

The main reason for the bankruptcy of some enterprises in the crisis is not the decline of orders, but the breakup of capital chains, especially for enterprises with higher export proportion.

In the crisis, enterprises should change their business ideas and recover the fixed costs as far as possible under the premise of recovering variable costs, instead of aiming at achieving much profit.

Although there is a partial loss in the book business, it can increase the proportion of cash in the assets of enterprises, and reduce the inventory with weaker liquidity.

At the same time, reduce borrowing and lending, so that the assets and liabilities ratio of enterprises is below 30%, while cash (or cash equivalents) account for more than 15% of assets.

In addition, enterprises should also actively reduce inventories, reduce the proportion of inventories in assets, and increase the collection of accounts receivable.

Through a large amount of cash recovery, reducing liabilities, reducing inventories and accounts receivable, at least guarantee that enterprises will not go bankrupt in the crisis and accumulate strength to wait for economic recovery.

Suspend investment in fixed assets.

The investment of fixed assets often takes up a lot of funds from enterprises, making it difficult for enterprises whose financial situation is not optimistic, and increasing the probability of bankruptcy.

At present, the price of means of production is relatively high, so it is not a good time for enterprises to expand their capacity through direct investment.

Moreover, the vast majority of our products are overcapacity. When the export situation is reversed, the problem of excess capacity will become more prominent.

The sensible thing to do is to store up strength and wait for the crisis to go ahead and buy foreign troubled assets.

Reduce production costs.

Although export demand has declined in the current circumstances, consumer demand for textile and clothing will not be substantially reduced, but will be more sensitive to price.

Therefore, enterprises should invest more time and energy in cost savings.

The most effective way to save costs at present is to pfer production to cheaper areas or to import low priced raw materials abroad.

The appreciation of RMB against other developing countries' currencies is beneficial to our import of cheap raw materials, and with the decline of global raw material market prices and the decline of shipping prices, enterprises are fully able to seize the opportunity to reduce production costs.

Effective allocation of resources on a global scale is the most important way for enterprises to survive at low cost.

Improve the safety of enterprise products.

In recent years, consumers are increasingly concerned about the safety and environmental protection of products, both domestic and international.

If the safety of an enterprise's product is questioned by consumers, it is likely that the enterprise will disappear in a very short time.

Recently, China's exports of textiles and apparel products to Europe and the United States have been recalled or warned by European and American countries. The problem is mainly focused on infant products.

In this regard, our warp knitting enterprises should realize that the importance of product safety is not only an important means to deal with trade protection, but also an important way for Chinese warp knitting enterprises to achieve product differentiation.

Extension of product value chain.

One of the most important reasons why our warp knitted products are vulnerable to international economic shocks is the low profit level of our warp knitting products.

In the division of international trade, China's enterprises are often located in the last link of the value chain, that is, the production link, which accounts for about 1/6 of the value chain.

That is to say, with a US $six product sold in the US as an example, China's exporters can only earn one dollar.

Therefore, if our warp knitting enterprises want to gain a high proportion of profits for a long time, an important way is to occupy the lower reaches of the industrial chain. This financial crisis is a good opportunity for some of our advantageous enterprises to extend the industrial chain.

Because, in this crisis, many downstream enterprises in Europe and the United States also have problems such as financial difficulties. Chinese enterprises can quickly seize the downstream of warp knitting industry through acquisition and merger, and get the resources we lack in design, marketing, logistics and management.

Pay attention to the marketing of domestic rural market.

Expanding domestic demand is one of the effective means for many warp knitting enterprises to cope with the impact of the international economic crisis, but even in the face of the domestic market, enterprises should also focus on it.

According to the State Council's deployment of the domestic economic tasks for the fourth quarter of this year, China will introduce more and more powerful policies to support agriculture and benefit farmers.

It is estimated that in recent years, the disposable income of our farmers will increase rapidly.

After the increase of disposable income, because of its high marginal propensity to consume, it is one of the main forces to stimulate domestic demand in the future.

Therefore, the domestic warp knitting enterprises should adjust their product structure timely to adapt to the consumption of the middle and low grade products in the rural market, and increase the marketing investment that is compatible with the farmers' consumption concept.