Textile and Apparel Weekly November 19, 2010 EXTRACT

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1 Textile and Apparel Weekly November 19, 2010 EXTRACT Content: Report warns of China's export dependency Cotton subsidies to rivals affect earnings of West African farmers Cotton halts slide on China Demand Outlook China's urbanization to fuel domestic demand of 30 trillion yuan by 2030 China Fashion Week 2011 Spring/Summer oncluded Listed textile companies Report Gains in Q3 Seven Government departments regulate Cotton Price Analysis of economic performance of China's cotton spinning industry in Q1-Q3 Gap enters the most populous country in the world Report warns of China's export dependency DATE: A Chinese academic paper published Thursday warns the country is over-reliance on exports, despite its success in warding off the worst effects of the global economic downturn. The Chinese government had been composed in dealing with the downturn and the Chinese economy had taken the lead in the economic revival, said the report from the Beijing-based Social Sources Academic Press. Last year, the most difficult year for China this century, the country achieved an 8.7-percent increase in GDP, worth 33.5 trillion yuan (5 trillion U.S. dollars), said the report titled "BLUE Book of Development and Reform -- Report on China's Economic Development and Institutional Reform: China Stood the Test of Global Financial Crisis ( )." The was achieved despite the first ever contraction of the global economy since the end of the World II and worst downfall in world trade in 60 years, it said. The paper, however, warned of China's "serious reliance on the international market and mammoth foreign exchange reserves," noting the latter were an enormous risk to the country's economic development. The global financial turmoil was affecting China through international trade because the world market has been crucial to the economic stability of China, it said. Source: Xinhua via CNTEX Cotton subsidies to rivals affect earnings of West African farmers DATE: Subsidies paid to rival growers in the EU, US, China and India takes its toll on the earnings of West African cotton farmers, said Fairtrade Foundation. As per the calculations of the foundation, during the past ten years, the US, the European Union, China and India have paid about $47 billion ( 29 billion) as subsidies, in total, to their cotton farmers. This has pushed the global prices of cotton down for the competitors, particularly in West Africa, wherein the farmers of the four biggest countries are losing around millions of dollars every year, according to an estimate by the charity Oxfam. On the United Nations Human Development Index, these four West African countries rank between 134 and 163 out of 169 countries. This index measures income, life expectancy and - 1 -

2 education. Cotton constitutes around 5 to 10 percent of their economies and most of their exports, which are shipped to the manufacturing units in China and India. Source: Fibre2fashion News Desk-India via CNTEX Cotton Halts Slide on China Demand Outlook DATE: Cotton futures halted their biggest three-day decline in almost two years on speculation that China may boost imports. Orange juice also gained. China, the biggest user of the fiber, may buy 20 million bales this year to meet rising demand from domestic textile mills, Olam International Ltd. said today. The amount would be a record. Cotton prices have climbed 78 percent this year on concern that shrinking global supplies won't meet demand in the Asian nation. We've still got the same bullish fundamentals that we've had for months, said Mike Stevens, an independent trader in Mandeville, Louisiana. Cotton futures for March delivery advanced 0.2 cent to settle at $1.342 a pound at 2:44 p.m. on ICE Futures U.S. in New York. The commodity had dropped 8.8 percent in the previous three sessions, the biggest such slide since December Earlier, the fiber fell as much as 4.3 percent, to $1.2838, the lowest level since Nov. 1. The commodity reached $ on Nov. 10, the highest price since trading began 140 years ago. Adverse weather damaged crops in China, Pakistan and the U.S. earlier this year. Market Stabilizing The market appears to be stabilizing now, Stevens said. We've had a very healthy correction. The U.S. Department of Agriculture on Nov. 9 forecast China may import 15 million bales in the season ending July 31, up 38 percent from 10.9 million last year. U.S. export sales of upland cotton totaled 432,236 bales for the week ended Nov. 4, down 19 percent from the previous six-week average and five times the level from the same week last year, the USDA said on Nov. 12. Export demand is good, said Sid Love, the president of Joe Kropf and Sid Love Consulting Services LLC in Overland Park, Kansas. Export controls by India, the second-largest exporter, have raised concerns about its reliability as a supplier, resulting in many importers turning to the United States, the USDA's Foreign Agricultural Service said in a report on Nov. 9. The U.S. is the largest seller of the fiber and thirdbiggest grower, behind China and India. Stockpiles held in warehouses monitored by ICE rose 97 percent last week to 37,086 bales. Inventories fell as low as 8,910 bales on Oct. 8. As of Nov. 14, 78 percent of the U.S. crop was harvested, according to the USDA. Orange-juice futures for January delivery gained 1.5 cents, or 1 percent, to settle at $1.575 a pound at 2 p.m. on ICE. Source: bloomberg via CNTEX China's urbanization to fuel domestic demand of 30 trillion yuan by 2030, official says DATE: China's urbanization would boost domestic demand by 30 trillion yuan (4.5 trillion U.S. dollars) by 2030, an official from a top think tank said Saturday. The country's urbanization expansion promises a huge potential in domestic demand, which will assure a stable economic development for China even if exports decline, Han Jun, vice director with the State Council's Development Research Center (SCDRC), said at a forum, adding that the urban migrants' demand for housing is likely to become the largest driving force for China's economic growth in the future. Additionally, Han noted that the core issue in China's urbanization is to allow farmers-turned-migrant workers to become permanent urban residents. In the Communist Party of China (CPC) Central Committee's Proposal for Formulating the 12th Five-Year Program for China's Economic and Social Development ( ), which was issued last month, authorities stressed that accelerating urbanization would be an - 2 -

3 important mission during the next five years. Data from the SCDRC indicates that China's urbanization rate hit 46 percent by the end of 2009, and will reach 63.6 percent by 2030, with the urban population standing at 930 million. China Fashion Week 2011 Spring/Summer Concluded The nine-day China Fashion Week 2011 Spring/Summer concluded successfully in Beijing Hotel on Nov. 1st. The overall level of Chinese designers have obvious raising, no matter from catching of international trend, or from the designs themselves. There are less shows this year, but more designers participating. This is a sign that the old OEM brand mode will not be leading in the market any more, while design-oriented brands are springing up. The brands participate in this fashion week including: lady's wear brands BOTAO, NETIGER, KAVON, Donoratico, EACHWAY, YH:ZH, MiiDii, DORANHO, JEFEN, Lea Seong, SCFASHION, S DEER, Rutisher, bellbird, TSE; man' wear Cabbeen, Fengfei z, Beauty Berry, LXF, VLOV, F Z L, Cnhss; knitting wear brands Mihuang, DENGHAO, GIOIA PAN, Rabbit Warm; wedding wear brands TsaiMeiyue, JOOOYS; underwear brand Aimer, sportswear Qiaodan; jeans brand JASONWOOD;children's wear brand Khunone and fabric brand Ashhi-kasei BEMBERG. Seven male designers launch their shows. This makes a record with most man's wear brands staged in China Fashion Week's history, and is a good news for the active development of Chinese man's wear. Another phenomenon is the crossing boundary of fashion and art. Some fashion designers such as Tony, Li Dangqi, Zheng Wei and Zhang Zhaoda bring three corssing boundary shows as fashion & sculpture, fashion & drawing, and fashion & tea ceremony. Several professional contests are held during fashion week, including Qiaodan Sportswear Design Contest, Ordifen Underwear Design Contest, Jeans West Leisure Wear Design Contest, and Yingdak Fashion Leather Wear Design Contest. With the sponsor from China Designer Asscoation, China Fashion Weekly ogranizing committee and famous brands, those contests also get highlights from the visitors. Listed Textile Companies Report Gains in Q3 With the major listed companies releasing their third quarterly report of 2010, the performance of listed textile companies are also starting to appear. Although those companies have suffered from RMB appreciation and soaring cotton price, most of them maintaine good gains. Some companies even report 10%~30% reveune gains in Q3, including FUANNA, Luolai Home Textile, Mendale Home Textile, Meters Bonwe, Laofengxiang, Toroad, Saturday and Weixing Group. Manufacturing related companies generally have better performance than estimated. Brand related companies keep stable growth. Home textile companies witness quick extension. While clothes companies gain profits from domestic sales. Different sections in textile industry have different performance. Clothes companies feature with consumption upgrading and brand added-value, such as septwolves, Hongdou and Baoxiniao. Of which, septwolves report billion yuan reveune in first nine months, rising 8.37% from the same period last year. The profit was 180 million yuan, rising 35.9%. And the sales reveune and net profit - 3 -

4 grew 4.86% and 47.87% respectively in third quarter. The recent brand campaign and sales channel extension are major reasons for this rapid growth. Septwolves anticipate a 20%~40% growth in profit this year. It is anaylzed that the upstream industries, like chemical fiber industyr make profit through neutralizing the cost rising with higher sales prices and active domestic market consumption. In the cotton textile related companies, Henan Xinye Textile ranks No. 1 in profit growth. Xinye reports that its sales reveune in third quarter is 607 million yuan, rising 23.35% year over year. From Jan. to Sep., its gross income is 1.67 bilion yuan, rising 28.74%; with net profit million yuan, rising %. The main reasons for profit soaring are bigger sales volume and higher prices. Xinye anticipates its net profit might gain 1.8 to 2 times from last year. Seven Government Departments Regulate Cotton Price The National Development and Reform Commission, the Ministry of Agriculture, the Ministry of Railway and other four departments jointly released a notice for new cotton purchase. Besides ensuring of cotton purchase fund and transportation arrangement, cracking down the cotton speculation is also the main work. Cotton prices continued to rise since the end of It has become the focus of the regulatory authorities. The Ministry of Agriculture held a meeting on September 27 with other six departments to propose some meatures including throwing reservoir to the market, ensuring the new cotton transport, and increasing imports. Otherwise in October, the cotton price continued to rise. According to statistics of China Cotton Network, the price rised 5301 yuan per ton at the end of October comparing to that in September, or an increase of 23.34%. Referring to the regulation, the fight against hoarding and speculation are main focus. "Notice" clearly require to guide enterprises to rationally determine the purchasing price of cotton, processing quickly then selling quickly, to avoid blind buying and hoarding, and guide enterprises do not participate in speculation, and severely crack down on price rising information, as well as maliciously hoarding. Analysis of economic performance of China's cotton spinning industry in Q1-Q3 Indeed, Chinese cotton spinning industry was still posting bullish growth during the first three quarters of 2010, though a number of uncertainties linger on. Since 2010, cotton prices have been increasing at an unprecedented level in China. Cotton spinning mills faced a challenging environment in high purchasing prices where they have to pass higher material costs on to higher yarn prices. Besides, yuan appreciation, Currency War and "Trade War" could may pull down the performance of the industry in Q4. Output surged China's cotton spinning industry saw a sharp increase in the output in the first eight months this year, according to data collected from statistics-worthy Chinese textile enterprises surveyed by National Bureau of Statistics of China. Looking further, from January to August, yarn output of the industry reached million tons, up per cent from the previous year's period; fabric billion metres, up 17.43% year-on-year. In Jan.-Aug., Shandong province ranked first in term of yarn output, followed by Jiangsu and Henan, whose output accounted for 58.5% of China s total; - 4 -

5 Zhejiang province ranked first in term of fabric output, followed by Shandong and Jiangsu, whose output accounted for 59.8% of China s total. Trade surplus climbed Cotton textile and apparel export was on its way to recovery, as it was rapidly returning to its precrisis highest level. According to China Customs, the exports value of Chinese cotton textile and garment amounted to $49.41 billion in the first eight months of 2010, up per cent y/y. On the other hand, the imports value of cotton textile and garment amounted to $4.08 billion in the first eight months of 2010, registered a growth of 16 percent y/y. That said, China posted a $45.33 billion trade surplus for the period of Jan.-Aug., capping the largest excess since Looking further, the exports value of cotton yarn amounted to $1.57 billion in the first eight months of 2010, up per cent y/y. The average unit value registered a growth of percent y/y. Cotton prices have been increasing at an unprecedented level in China. Prices have been going up internationally as well. Cotton spinning mills faced a challenging environment in high purchasing prices where they have to pass high material costs on to higher yarn prices. The exports value of cotton fabric amounted to $6.52 billion in the first eight months of 2010, up per cent y/y. The average unit value registered a growth of percent y/y. Of which 100% cotton fabric exports accounted for 86.7% of total cotton fabric exports. In Jan.-Aug., China accumulated raw cotton imports amounted to million tons, up nearly 100 per cent y/y. China's raw cotton imports reached 240,000 tons in Aug. and 200,000 tons in Sep. In Jan.-Aug., China accumulated cotton yarn and thread imports amounted to 733,000 tons, up per cent y/y. In Jan.-Aug., China accumulated cotton fabric imports amounted to 550 billion metres, down 6.14 per cent y/y. Of which, 100% cotton fabric imports had been registering a negative growth of 8.8% while cotton blended fabric imports had been registering a positive growth of 11.34%. New trade structure For exports, China Hongkong and ASEAN have been the Mainland's number one cotton textile and apparel export destination. Export to ASEAN was leading the 1st, with a growth rate of 41.88%. The trade rise was due to their stimulus packages which raised their global purchasing power as well as and China's Free Trade Agreement with ASEAN. The China-ASEAN Free Trade Area, the world's largest free trade area of developing countries, covers a population of 1.9 billion and accounts for about 4.5 trillion U.S. dollars in trade volume. China-ASEAN free trade agreement resulted in huge growth in bilateral trade between China and ASEAN, especially since the demand from the United States and Europe has plummeted during the global financial crisis. For imports, China's cotton textile and apparel imports from Hongkong, ASEAN, the United States, the EU and Japan accounted only 27.9% of China s total, which shows China has created the new multiple-source environment. by Gracie Guo Gap enters the most populous country in the world DATE: Gap Inc announced the debut of its first four wholly owned contemporarily designed Gap stores in China, bringing Gap's modern, accessible style to Chinese consumers for the first time. Each store will house all Gap collections: Gap, GapKids, baby gap and Gap Body. An online retail store is also launching making Gap clothes immediately available to all customers throughout China. Gap is the first American retailer in China to offer a single style destination for the entire family. We are excited to introduce Gap's cool, modern American designs to Chinese consumers. I believe customers will be extremely pleased with fit, quality and the affordable style of our clothes, including - 5 -

6 our newest and most successful product, the 1969 Premium Jean, said Redmond Yeung, President of Gap China. Shanghai: Gap is opening its first flagship store in Shanghai on November 11. This is a 1,140 square meter space in Hong Kong Plaza on Mid Huaihai Road, one of Shanghai s premier shopping high streets. A second flagship store, occupying two floors in the Venture Tech building on the premier Nanjing West Road, will open in the next several weeks. Beijing: Gap will open two stores in Beijing on November 13. The first is a two-storied flagship store spanning 1,165 square meters in the APM Building on Wanfujing Street, and a second 1,800 square meter store in Chaobei Joy City, located in the eastern part of Beijing. Each store offers customers great service by a team of highly-trained staff. Greeters welcome Gap customers at the entrance and each collection has dedicated specialists to assist shoppers. All four stores offer Denim Fit sessions by appointment, noted Lorenzo Moretti, Managing Director of Gap China. Gap is opening the stores around the theme of Let's Gap Together, celebrating the coming together of China and the U.S., and our shared spirit of creativity and individual expression. To commemorate this special occasion, world-famous photographer, Annie Leibovitz photographed a series of portraits pairing iconic Chinese and American leaders in their fields such as Zhou Xun, a Chinese actress who is devoted to sustainable development and Philippe Cousteau Jr., an environmentalist and grandson of Jacques Cousteau. These images can be seen in the stores and on outdoor advertising in each city. The arrival of Gap stores in China, the most populous country in the world, is a cornerstone of Gap Inc.'s global expansion strategy. Gap invested in extensive, multiyear market research and this entry marks the beginning of a long-term, multi-channel strategy that will eventually result in more stores throughout the country. Source: Gap Inc via CNTEX - 6 -