Monday, 3 March 2008

The truth about profits in China

It is about time that this article was written. For all the talk of China's new billionaires it is clear that many firms are not making profits and that the roads are not paved with gold.

Buying shares in Chinese firms is not a licence to print money - margins are being squeezed and will continue to be so. Once you examine low wage, low skill sectors the problem worsens.

The FT reports:

Margins squeeze bites into China textiles [FT]

One in six Chinese textile companies lost money last year even though prices for the country’s clothing exports increased 8 per cent, according to the chairman of the China National Textile and Apparel Council.

At an industry conference in the southern province of Guangdong, where much of the textile industry is concentrated, Du Yuzhou said 17 per cent of the 44,200 textile companies tracked by the council lost money over the first 11 months of last year. This was in spite of companies benefiting from a fifth ­consecutive year-on-year rise in export prices for textiles.


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