Strengthening Both Ends, Consolidating the Middle,

Wu Jingen

Chairman of Zhejiang Provincial Silk Association

President of Zhejiang Cathaya Group

Distinguished guests and friends:

Good afternoon!

Thank the sponsor to let me make the speech here by representing Chinese silk enterprises. On this forum assembly, I would like to share our status analysis on the  silk industry and the related strategic measures.  

The former of Zhejiang Cathaya Group was Zhejiang Provincial Silk Company. It was founded in May 1950 and it has a history of more than 60 years till now. Currently Zhejiang Cathaya Group is a share ownership enterprise group specializing in silk fabrics and focusing on industrial and scientific research and trade, including 7 business divisions, more than 20 holding enterprises, annual sales income more than RMB8.0 billion and total import and export amount more than US$0.9 billion. Zhejiang Cathaya Group is the largest silk broadcloth product export enterprise of China, one of the Top 500 enterprises of China in the service industry, the silk supplier of the significant activity, such as G20 Hangzhou Summit Meeting, Being Olympic Games, Shanghai World Expo, the chairman company of Zhejiang Provincial Silk Association and International Silk Union, the member of the secretariat of National Silk Technical Committee for Standardization of China and silk color research base of Chinese Fashion Color Association.

I. Status analysis of silk industry  

1. Production. Firstly it is the silk yield. As the project of transferring sericulture and mulberry cultivation from eastern to western China is implemented, the total volume of the cocoon silk is maintained on a basically stable level. We estimate that the yield of cocoon silk is around 600,000 tons, and the filature silk yield is around 70,000 tons. As the advanced production equipments are introduced and used, the silk fabric weaving efficiency is improved hugely, which maintains the total volume of silk fabric at a stable level of 650,000,000 meters approximately. Currently the silk fabric of China is transferring from the eastern China to the western China, and the silk cloth dying volume declines as the terminal consumption reduces,  and the real silk dyeing and finishing plants  are always “on short commons” Secondly it is the quality. The cocoon silk yield in the old silkworm cultivation zones, such as Zhejiang, Jiangsu and Shandong, is decreasing, so the overall quality of silkworm cocoon and raw silk deteriorates accordingly, the pass rate of silk cocoon of Zhejiang in the recent three years was always less than 80%  Thirdly it is the variety. Due to the large development and input and product variety protection difficulty, there are still many old silk products on the market, such as crepe satin plain, twill silk, but there is hugely lack of new silk product variety. Certainly the quality and product variety is the first problem before the silk industry.

2.  Price. Due to the influences caused by four dominating factors, such as low efficiency of traditional breeding style, new round of rise in price of domestic raw materials, internal devaluation and external appreciation of Renminbi currency and increase of domestic silk consumption (including storage), the price of cocoon silk is continuously rising. The high price of silk contains the consumption of the middle class on silk product, and thence results in the shrink of traditional market. As the huge decline in a short time, there is almost impossible to let the price of silk material recover to the level of RMB300,000 per tons that was available two years ago. Certainly, the cost control and price rise are the second problems before the silk industry.

3. Trade. The silk is becoming more and more expensive for the traditional import countries as the Renminbi is getting internal devaluation and external appreciation. In addition to the raw materials and silk fabrics that are produced for meeting the demands of luxury products and light luxury products, Chinese silk export is difficult to get rid of its decrease tendency in view of its current situation, especially the silk garment. As the original trade channels are shattered, the exports of Chinese silk garments to USA have reduced from US$571 million to US$380 million in the recent five years. Certainly the decreasing export volume is the third problem before the silk industry.

4. Consumption. Since the year of 2007 in which USA hit the subprime crisis and Europe hit the debt crisis, the consumption concept, consumption level and consumption channel of the people of European and American countries, especially of their middle class people, have changed deeply, where the fast fashion is popular throughout the world. However the fast fashion uses less silk fabrics, so the silk consumption in America and Europe reduces hugely. In China, as the middle class people expand increasingly (the outbound travel volume hits 100,000,000 person ·time, and the travel volume in Hangzhou hits 100,000,000 person ·time), their consumption is increasingly improving and their awareness of brand is increasingly becoming mature, so their consumption on silk products is increasing too (the tourist silk consumption market of Hangzhou is upgrading); however the ability of silk enterprise for running a brand is not yet mature, and thence the pains caused by the change in the consumption market are the fourth problem of the silk industry.

5. Investment. The industrial development can not be realized without the investment. In recent years, the stagnant silk industry has been being accompanied with the low investment and the shortage of the ability for seeking financing by listing on the stock market (few enterprises in the industry have issued IPO on the stock market till now). In recent years, some reeling mills have only been invested as the project of transferring sericulture and mulberry cultivation from eastern to western China is implemented, the project with the industrial investment more than tens of missions or even one hundred million is very seldom; certainly the shortage of industrial investment is the fifth problem of the silk industry.

From our perspectives, all these problems are the new situations and new normals before the silk industry nowadays.

II. Strategic measures of Cathaya 

Eariler in the year before last, Cathaya started its cooperation with the School of Economics and Management of Fudan University to work out our development strategy. By highlighting the primary business of silk and strengthening both ends, Cathaya's development strategy is improving its weak links. With the traditional advantages of Cathaya on the aspects of export trade, garments, dyeing and finishing, we made up our weak links four years ago. Nowadays,we have recongized deeply that the improvement of the first workshop of the silk industry, namely mulburry cultivation and silkworm breeding, can only improve efficiency and help to control the cocoon silk cost, and the standardized scientfiic breeding (cooperative rearing of young silkworm) can improve silk quality. The one to consolidate the middle links is to conform to the supply side reform, provide the product variety and quality needed by the market, especially to adapt to the demands of luxury products and fast fashion on silk fabrics. With the aim of optimizing the strategic layout of silk industry, we determine our key works and measures every year.

Following, I would like to report our on-going measures to all of you:

1. Consolidating both ends and promoting the cocoon silk base construction. Firstly we participate in the mixed ownership reform of Chun’an Cocoon Silk Fabric Parent Company and have reached a consensus for the concepts of the future cocon silk industry, namely “stabilizing silk yield by one region and two zones, improving silk quality by three new popularization engineering and stabilizing market by five system engineering”. It is estimated that the holding share acquisiiton will be completed in November and we are aiming at maintaining the mulberry field of 50,000 mu through three-year construction. Secondly, we shall increase the capital to become the first majority shareholder of Yunnan Dehong Zhengxin Company, and wil contribute the capital in this month to construct the existing mulberry field of 50,000 mu of Yunan and Burma into the mulberry field of 200,000 mu through three years’ input; thirdly we shall cooperate with Zhejiang Provincial Academy of Agricultural Sciences (Silkworm Breeding and Mulberry Growing Institution) and Hangzhou Silkworm Seed Station to to tackle hard-nut problems in science and technology of silkworm and mulberry resoruces.

2. Enhanding the middle links and promoting the silk variety quality engineering. Firstly we shall give full play to the role of Cathaya Design Institution to develop new silk fabric variety and new color to adapt to the demands of fast fashion and domestic brands. By keeping on designing new style of garments, we shall meet the demands of customers and the self-owned brands. Secondly, we shall insist in the technical improvement, equipment imrpovement and workmanship optimization. In recent two years, we have established and started 27 garment-hanging lines. Thirdly, we shall advocate the craftsman spirit and insist in the strategy of success through quality to adapt to the demands of European market on high-quality silk fabrics. Last year, we produced the red Cathaya brand.

3. Enhancing both ends and promoting brand system construciton. Firstly we shall take advantage of our industry chain advantages to promote brand system construction and share internal resources. Secondly, we shall improve our capability of integrating external resources to use our particular workmanship in our own brands, such as Taizhou embroidery etc. Thirdly, we are trying to promote the brand year and “capsule product”. The theme of the brand year of Cathaya this year is the butterfly culture, and the theme of the silk threads formum is the cloud. Our "capsule" products include the “kiss of throns”, "My favorate Valentine’s Day", "A Letter for My Mother" etc. Fourthly, we shall focus on the featured fabricsand particular technologies to expedite the personalized and custmoized early project construction. This year, the domestic retail volume of Cathaya garments in China will hit the amount of RMB100,000,000.

We shall strengthen both ends, consolidate the middle links, optimize the industry chain and enlarge our input. Our investment on our on-going resource integration project will reach the amount of RMB300 million. In order to realize our strategic target, we shall possibly increase our investment in future. Through the investment, integration, improvement and optimization of our industry chain, we shall have the target to meet market and customer demands better.

Cathaya believe the input will drive the development and no pays no gains. Facing with the new situations and new normal, our silk industry needs a "metamorphosis".

Thank you.