Trade & Investment

Jinjiang's footwear and garment industry grappling with financial crisis

Updated: 2014-10-16
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A worker on a production line at a sneaker factory in Jinjiang, Fujian province, June 26. (Photo/Xinhua)
The footwear and garment industry in Jinjiang in southeast China's Fujian province is grappling with a financial crisis much more serious than it has previously experienced and the situation could worsen further next year, reports Guangzhou-based Southern Metropolis Daily.

Jinjiang is known for being home to a large number of foreign-backed factories, especially for clothing and brand name footwear.

It has been a choppy year for the industry as reports of factory managers going to ground to avoid paying their debts, employees not being paid and even closures have plagued several companies including fast fashion brand Hope Royce, Singapore-listed Eratat, and Fujian Nuoqi, which were listed in Hong Kong last year, said business operator Chen Cheng.

Chinese footwear firm Ultrasonic announced in September that its chief executive and chief operating officer had disappeared along with most of the company's cash. A series of scandals involving local city contractors has resulted in branded footwear and clothing suppliers losing trust and patience.

Meanwhile, contractors are seeking to speed up the pace at which their receivables are converted into cash to cope with their operational difficulties. One contractor revealed that last year, the company's receivables peaked at 9 million yuan (US$1.47 million) but this year, the figure didn't even reach the 3 million yuan (US$490,000) mark.

Some suppliers were asked to trade in cash as some contractors are facing growing pressure for capital supply. Local companies in Jinjiang are now mainly relying on banks, private institutions and getting publicly listed to generate capital.

Despite the current financial problems, which locals describe as similar to a crisis that plagued the area for 20 years starting in the early 1990s, the city is still a niche space for China's footwear and clothing industry.

It was dubbed "the base of the Chinese textile industry," and "the jacket capital." During its peak in 2011, the industry's annual footwear and clothing output accounted for 40% of China's national total and 20% globally, with the industry's cumulative value touching 60 billion yuan (US$9.5 billion), the city government's official website said.

Companies started spending generously on advertising and celebrity endorsements to boost their businesses. Some of them also became increasingly involved in speculation. Before 2007, only five companies were listed on the stock market, since then more and more have sought to go public in a bid to get bigger.

Many companies though, do not have a clear plan about the direction of their future operations, ways to cope with competition and transformation, or a clear marketing strategy before going public. One company that spent 140 million yuan (US$22.85 million) to qualify for getting listed only raised 230 million yuan (US$37.54 million) after going public.

The latest crisis in the industry has erupted due to the impact of the e-commerce and fast fashion sectors, as well as soaring production costs, labor shortages and declining demand.
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