The growth rate of sales of Chinese textiles slowed significantly last year, dropping by almost 20 percent, due to a higher valued Chinese currency, a cut in export tax rebates and higher labor costs, according to Guotai Junan Securities.

Textile enterprises reported sales of 2.42 trillion yuan (318 billion U.S. dollars) in 2006, 21.33 percent higher than the previous year but five percentage points lower than the growth rate in 2005.

After-tax profits reached 88.3 billion yuan, a rise of 27.96 percent but eight percentage points lower than in 2005.

Fixed asset investments in the industry totaled 203 billion yuan (25.3 billion U.S. dollars) in 2006, a year-on-year rise of 21 percent, but 17 percentage points lower than the previous year.

Industry profits declined for the sixth straight month, according to the report, which was published in China Securities Journal.

China's exports of textile, clothing and accessories in January grew 18.55 percent compared to the same month last year. The growth rate was 12.3 percentage points lower than the growth rate in November, 12.2 percentage points lower than December's rate of growth, according to statistics of China's General Administration of Customs.

Chinese textile and clothing companies have enjoyed sustained rapid export growth following the country's accession to the World Trade Organization (WTO) in 2001.

However, Chinese textile and clothing exports have encountered criticism from Europe, the United States and some African countries.

The U.S. government filed a complaint with the WTO in early February, alleging that China is using export subsidies to help its companies, including those in the clothing sector, to compete in world markets.

The United States, the largest destination of China's textile and clothing exports, could impose a 27.5 percent tariff on China's clothing exports if negotiations and discussions on the issue produce no results.

Chinese industrial insiders say in this market environment, China's textiles are likely to see a further decline in their rate of growth.

According to the China Chamber of Commerce for Import and Export of Textiles (CCCIET), China's direct textiles and attire exports to the United States reached 21.9 billion U.S. dollars in 2006, making up 15.24 percent of the United States market, a drop of 1.42 percentage points from the previous year.

The Chinese government began lowering export tax rebates for textiles last year. The CCCIET and other relevant institutions have established a mechanism to monitor exports of certain commodities to control growth rates.

Shi Hongmei, an analyst with the Oriental Securities, said the appreciation of RMB and cut in export tax rebates would have a negative effect on domestic textile enterprises. Changes in the market environment would also boost industrial adjustment and integration, such eliminating small and less competitive enterprises, and spurring mergers to form large textile conglomerates.

Guotai Junan Securities report shows that overall retail sales in China rose by 14.7 percent in the first two months in 2007 compared to the same months last year. Sales of clothing, shoes and caps rose by 27.9 percent year-on-year, 8.6 percentage points higher the grow over the same period last year. The report did notreveal total sales volume.

Sales of textiles and clothing have been picking up on the domestic market in recent years and the trend is expected to continue if not increase, said Shi.