China Textile Industry Economic Research Institute: Guide To The Macroeconomic Environment Of The Textile Industry

Uncertainty factors such as banking turbulence and stubborn inflation increased the risk of economic recession, and the balance sheets of residents, enterprises and other departments were damaged. Demand side pressure has not eased since the second quarter. The OECD consumer confidence index was 98.2, the highest level in 15 months, but still within the contraction range for 21 consecutive months. From the supply side, the global manufacturing boom has been in a contraction range for nine consecutive months. The J.P. Morgan Manufacturing Purchasing Manager Index (PMI) has remained at 49.6 from March to May, of which the index of new export orders is only 47.3, falling to a new low in nine months; Among the developed countries with records, only Japan's PMI in May was in the expansion range. The WTO goods trade barometer index released in May was 95.6, a slight increase of 3.4 percentage points over the first quarter, still below the 100 trend level. The global inflation level remained high and falling. In May, the IMF commodity price index was 158.3, a sharp drop of 67.8 percentage points compared with the same period of the previous year, and basically returned to the level of the same period in 2021.

Figure 1: Trends of major global macroeconomic indicators

Data source: IHS Markit, WTO, OECD, IMF

The overall recovery of China's macro-economy continued. The growth rate of production and domestic and foreign sales slightly accelerated compared with that of the first quarter, and the decline rate of profits slightly narrowed compared with that of the first quarter. However, compared with the same period last year, only the growth rate of domestic sales indicators increased, and the growth rate of other major operating indicators slowed. Statistics show that from January to April, the industrial added value, total retail sales of social consumer goods and total export volume (denominated in US dollars) of enterprises above designated size increased by 3.6%, 8.5% and 2.5% respectively year on year, 0.6, 2.7 and 2 percentage points higher than the growth rate in the first quarter. Since the second quarter, the problem of insufficient orders in domestic and foreign markets has become prominent. The improvement of corporate profits has been weak and the willingness to invest has been sluggish. From January to April, the total profits of enterprises above designated size decreased by 20.6% year on year, only 0.8 percentage points lower than that in the first quarter. The completed amount of fixed asset investment (excluding farmers) increased by 4.7% year on year, 0.4 percentage points lower than that in the first quarter. The prosperity of China's manufacturing industry fell into the contraction range for two consecutive months. In May, the purchasing manager's index (PMI) of the manufacturing industry was 48.8%, the lowest level since this year. The number of enterprises reflecting "insufficient market demand" accounted for nearly 60%.

Figure 2: Cumulative year-on-year growth of major indicators of China's national economy

Data source: National Bureau of Statistics, China Customs

The textile industry as a whole is under pressure. Thanks to the rebound growth of domestic demand, the industry's domestic sales achieved a good growth. The scale of other operating indicators decreased year on year, and the quality and efficiency of operations declined. The performance of the market in the peak season was lower than expected, which failed to change the industry's low operating situation. From the perspective of monthly trend, the decline of industrial production, export and benefit scale from January to April was slightly narrower than that in the first quarter, and the growth rate of domestic sales was slightly accelerated, but the decline of investment continued to deepen compared with that in the first quarter. Since the second quarter, textile enterprises have generally fed back the problem of insufficient orders in domestic and foreign markets. In the context of loose supply, market competition has intensified, it is difficult to raise the prices of finished products, and cash flow has deteriorated significantly. The current market is characterized by a significant off-season, the speed of product shipment has slowed down, the loom start-up load in some regions has slightly decreased, the inventory of cotton textile products has accelerated to accumulate, and enterprises generally reduce their future market expectations.

Looking forward to the whole year, the market demand environment faced by the textile industry is still complex. There are many positive factors for the growth of domestic demand. Factors such as the recovery of China's macro-economy, signs of improvement in residents' consumption confidence, and better vitality of online clothing consumption are all conducive to the recovery of domestic sales in the industry. However, the "scar effect" of the epidemic has not been completely eliminated, and the current recovery momentum still needs to be further stabilized. The external demand market environment is relatively severe. The industry's export faces multiple challenges, such as the damaged consumption capacity of foreign consumers, the slow purchase of buyers, and the deterioration of the trade environment. However, the export pressure is expected to ease slightly with the reduction of the inventory level of brand names. In addition, the price of bulk commodities has fallen and the terminal demand has been sluggish. The approximate price rate of industrial finished products has remained weak. In addition, the price of raw materials is relatively strong and the risk of inventory depreciation is high. All these will make it difficult for enterprises to improve their cash flow. If the terminal consumption demand has not been significantly boosted, the pressure on industry profits will run through the whole year. Enterprises in the textile industry need to strengthen the management of raw material procurement and finished product inventory, defuse the risk of price fluctuation, pay attention to the change of cash flow, further develop the international market, grasp the consumption hot spots in the domestic market, and smoothly pass the recovery period.

(Source: Niu Shuangxin, Zhang Qian, China Textile Industry Economic Research Institute)