China's textile industry is losing its competitive advantage in costs to other Asian countries such as Bangladesh, Vietnam and India. Many mills have been forced to switch from exports to domestic sales, which now account for 79 per cent of production.

Rapid expansion of textile investment in many developing countries in the last two years has led to oversupply. The surplus in supply has led to falling prices for some years. Many textile mills in China, Pakistan and India are operating at small margins or even at a losses. Many mills in China may even close down in one or two years, especially small mills doing export business.

Oversupply has depressed prices along the entire supply chain, hitting yarn prices in China, India and Pakistan. Mills in China have found their plight worsened by the growth of cost-effective super-large textile mills. China’s industry has been reeling from an 18 per cent rise in the value of its currency since 2005 as well as higher costs of labor, fuel, electricity and chemicals, along with a cut in domestic tax rebates.

China had been the one bright spot in the growth of world textile and garment industry, with double-digit annual growth.