The first half of 2020 textile industry leverage analysis report: to enhance the awareness of risk prevention and control, to maintain the leverage ratio is basically stable.

The asset-liability ratio of most links in the industrial chain was flat or lower than that of the same period last year, and the debt ratio of a few industries increased. Among them, the asset-liability ratio of the hemp textile, wool textile and textile machinery industries increased rapidly, at 55.8, 58.6 and 57.9, respectively, 5.6, 1.9 and 1.3 percentage points higher than the same period last year. The asset-liability ratio of the home textile and cotton textile industries decreased significantly, lower than 1.3 and 0.8 percentage points respectively in the same period last year. Although the asset liability ratio of chemical fiber, filament weaving and printing and dyeing industry is flat or decreased compared with the same period of last year, it is still higher than 60%. There is certain operational risk pressure, which needs to be paid attention.

In the first quarter of 2020, due to the impact of the new coronary pneumonia epidemic, the production and operation activities of textile enterprises were hindered and the benefits fell sharply. In addition, the cost burden of water, electricity and other expenses and employee wages is high, and financing channels are restricted. The problem of enterprise capital chain tension is highlighted. Through borrowing to stabilize operation, the asset-liability ratio has increased. According to the results of the first-quarter China Textile Union survey, the number of enterprises with asset-liability ratios below 60 percent in a reasonable range accounted for only 75.1 percent, and the number of enterprises below 50 percent accounted for 39.9 percent, down 6.1 and 15.9 percentage points, respectively, from the results of the fourth-quarter 2019 survey. 28.3 percent of companies reported an increase in their balance sheet, up 19.2 percentage points from the Q4 2019 survey.

Entering the second quarter, with the steady progress of the resumption of work and production, business activities accelerated the recovery. According to the survey results, in the second quarter of 2020, 77.5 per cent of the surveyed enterprises had an asset-liability ratio of less than 60 per cent and 46.4 per cent of enterprises had an asset-liability ratio of less than 50 per cent, an increase of 2.4 and 6.5 percentage points respectively over the first quarter; only 13.2 per cent of enterprises reported an increase in their debt ratio.

In terms of enterprise size, the level of assets and liabilities of small and medium-sized enterprises is higher than that of large enterprises, and the proportion of large, medium and small enterprises with an asset-liability ratio of less than 60 per cent in the second quarter was 80 per cent, 76.9 per cent and 74.2 per cent, respectively, and 81 per cent, 72.7 per cent and 73.8 per cent, respectively, in the first quarter. From the perspective of industrial chain structure, the asset-liability level of cotton textile, printing and dyeing and textile machinery industries with capital and technology intensive characteristics is relatively high, reflecting that the proportion of enterprises surveyed with asset-liability ratio higher than 60% accounts for more than 20%; the terminal home textile industry reflects that the number of enterprises surveyed with asset-liability ratio of more than 60% accounts for a relatively high proportion, reaching 30.3, an increase of 0.7 percentage points over the first quarter.

In the investigation of the reasons affecting the change of enterprise's asset-liability ratio (multi-choice), the key enterprises participating in the survey reported that "the increase or decrease of accounts receivable" and "the market expectation is unknown, and the investment in capacity expansion and technological transformation fluctuates" are the most important reasons. According to the survey, 54.9 per cent and 34.7 per cent of companies chose these two options in the first quarter and 44.7 per cent and 37.9 per cent, respectively, in the second quarter. In addition, "restricted financing channels" is also the main reason for the fluctuation of asset liability ratio. The proportion of enterprises choosing this option is 15.2, up 1.3 percentage points from the first quarter.

According to the statistical data and the survey of key enterprises, the leverage ratio of the textile industry is basically stable at this stage, and the operational risk is generally controllable. It is worth noting, however, that as a result of the epidemic, the financing needs generated by textile companies are based more on short-term liquidity needs of a bail-out nature, such as paying workers' wages, than on the expansion of long-term production and business activities. There is a certain degree of mismatch between the steadily rising asset-liability ratio and the economic activity that is significantly lower than in previous years, which indicates a certain degree of asset risk. In difficult situations, it is recommended that companies pay close attention to the safety of the capital chain, stabilize the level of leverage, continue to improve the level of comprehensive management, and enhance the development resilience against downside risks.