Higher costs may drive manufacturers with low margins out of China, dampening investment in factories that has helped push inflation to a 10-year high. A large number of manufacturers have already moved some of their business to nearby countries with cheaper labor.

The rising yuan and lower tax rebates on exports will also hurt textile exports. According to Webtextile.com, every one-percent rise in the yuan will cause a two-percent to six-percent drop in textile commodity profits. The China National Textile and Apparel Council estimated that the yuan's appreciation deprived Chinese exporters of a profit of about 8.9 billion yuan in the first eight months of 2007.

Textiles have always been China's biggest export industry, with 50 percent of manufacturers relying heavily on exports.

China exported US$156.6 billion worth of clothing and textile products in the first 11 months of last year, up 20 percent from a year earlier, the top economic planning body, the National Development and Reform Commission, said on December 21.

China's growth in exports of apparel may slow after 2010, and its purchases of shoes and clothing from overseas may rise as domestic consumers become more affluent, Robert Antoshak, president of Nashville-based cotton information provider Globecot Inc, said in an earlier report.

Booming domestic demand is expected to balance the loss to some extent. Besides, the European Union has lifted the quotas of 10 categories of textiles imported from China starting this year.

With the quota lifted, China's textile exports will grow by 15 percent this year, said Li Xin.

"Although we estimate exports will maintain a stable growth this year, we are still confident about the domestic market," Li said. Sectors likely to grow include sportswear, women's clothing and baby products, Li said.

Guotai & Jun'an Securities Co estimated that the textile industry had to pay an extra 8.9 billion yuan in the first eight months of 2007 because of rising interest rates.

In the first 11 months of 2007, fixed-asset investment in the textile industry expanded 27 percent to 137.6 billion yuan, while FAI in the apparel industry rose to 65.7 billion yuan in the first 11 months.

(Shanghai Daily, February 27, 2008)