China's government last week issued its new five-year plan for modernizing domestic textile and clothing industries. The plan includes shifting to more value added products, developing technology, supporting mergers, creating international brands, using alternative fibers and reducing energy consumption.

On 20 June 2006, the China top economic body NDRC (National Development and Reform Commission) and nine other central government departments have issued a joint circular calling for the accelerated restructuring of the country's textile industry, as part of the eleventh Five-year National Program.

According to the plan, at the end of next five-year period, textile fibre production will increase to 3.6 million tons, 35% more than planned in the current five-year-plan, per capita productivity should be up 60%, energy consumption and water consumption should be down 20%.

China's government aims also building internationally reknowned brands, improving innovation, making the whole industry more concentrated, building several giant company groups.

Why particularly encouraging the textile industry?

The development of textile industry is very important for the whole Chinese economy, the NDRC reports. Textile and clothing exports are accounting for 24% of world's total textile exchanges.

But now, facing more international competition, a lot of issues have blocked China's textile development.

Most severe problems are:

1. Lack of innovation motivation and capacity.

Research and development accounts for less than 1% of total sales. The products are too often made and sold under foreign brands. China's groups are not yet able creating their own international brands.

2.The industrial structure

The proportion of high-end production is too low. The average company is too small, having not enough financial and technical support to really innovate.

Large companies do not care enough about new technologies. Regional disparity between the central and the western part of the country is adding to difficulties.

3. Restriction of resources and environment

The NDRC reports raw material shortages, especially the lack of cotton and chemical fibers, an increasing level of textile water consumption and poor water recycling.

4. Insufficient labour regulations, too much unfair competition.

Those are two obstacles to further development. There is too much unfair competition currently in China.

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How to handle with all these issues?

1. Concentrating on high-tech development, increasing the added value of textile production

Spreading modern systems like ERP, e-business. Setting up a dynamic monitoring system to release trends on market supplies and industrial operations in an attempt to strengthen guiding and pre-alarming for the industries.

Make the research results more rapidly available for the market.

Make new taxation policy to encourage companies to carry out technical innovation. Direct enterprises and the public to increase input of funds into technical development. Encourage enterprises to set up technical R/D centers.

The report also suggests further reducing value-added tax.

Innovative companies should benefit from tax holidays in the first two years after they are created, before being subject to a maximum 15% tax after this period.

2. Speeding up construction of textile raw materials bases (PX/MEG/CPL)

Diversifying the raw materials by deepening the research on the use of linen, bamboo and other alternative materials as well as recycled fibers.

3. Optimizing regional distribution of textile production

China aims to control expansion of production capacity of cotton and chemical textiles in coastal areas and central cities, and to shift them to central and western regions by making use of local resources. 80% of textile companies are currently located in coastal areas.

4. Continuing the strict control of investment and banning relocation of outdated equipment.

Textile is considered as an industry with potential overcapacity. Textile investment rose 80% in 2003, falling to 30.18% in 2004 and 36.22% in 2005 after a strict control was imposed. Investment is still too rapidly rising, compared with textile exports and domestic consumption.

5. Strongly supporting the development of large companies

They will not only have advanced technology and equipment, but they will also develop their own brands on the international market.

6. Promoting practices of clean production and cut energy consumption.

Counting on new tech to protect environment and improve the efficiency of energy consumption.