In the first half of 2006, the textile industry, upholding the principle of indigenous innovation, strengthened the structural adjustment, had overcome a number of side-impacts in price fluctuation of raw material, maintenance of appreciation of RMB, diversification of conflicts in trade as well as shortage of cotton, and kept a benign momentum in terms of economic performance. However, the following four major problems still existed.

I. Because the cotton price rises, textile enterprises have to face up with the pressure from deduction of import cotton, maladjustment of supply and demand for domestic cotton, which in turn accelerate the rise of domestic cotton price and aggravate the situation of textile enterprises.

II. Rapid increase of investment brings about operation risks for textile industry. In recent years, textile industry witnessed a boom in investment. From January to June, 28.5 billion Yuan has been invested in textile industry, with a 42% increase over last year; 1,018 projects have been launched, accounting for 31% of the total. The investment mainly gathered in regions abound in resources, and the investment in textile industry of Shandong, Jiangsu, Henan, Hebei, Hunan and Zhejiang took up 78% of the total amount of the nation. With the intensified restriction of cotton resources and falling back of export toward Europe and American, the expansion of production capacity is likely to aggravate the operation risks of enterprises and excessive competition on the market.

III. The slow down of export toward Europe and American. Since 2006, under the impact from the restriction of Europe and American and high quota cost, the export toward the European and American countries has declined considerably compared with Viet Nam, Pakistan, Cambodia, India, etc, whose export margin toward the United States exceeding that of China, and Indian, in particular, boasting a higher export margin over18% toward the United States. The order transfer resulting from environment shift of trading greatly impacted the export volume of China toward Europe and America, a trend apt to expansion. In view of this, the Ministry of Commerce issued an emergency notice, calling upon export enterprises to make every bit to increase quota utilization rate, and put forward concrete penalties toward enterprises wasting quotas.

IV. The influence of policy adjustment on export enterprises. At present, the average profit margin of textile industry is merely 3%. Under the background of the increase mode of foreign trade, the continuing appreciation of and adjustment of export VAT rebate policy will impact the operation and production of enterprises to some extent. The transformation of China into a textile giant and the enhancement of the comprehensive competitiveness of the industry can be realized under the premise of stable market quota, rapid structural adjustment of industry, upgrading of industry, emphasis on innovation, increasing input of newly-developed products, cultivation and building up of brands, formulation of environmental protection regulations, as well as guarantee of labor forces and social security, etc.