US textile lobby rails against bailout

The leading textile industry organisation in the United States yesterday called for penalties and countervailing duties against China after the five billion yuan bailout of a giant state textile producer.

It was reported on Thursday that China Chengtong Group would take over China Worldbest Group - the country's biggest textile and pharmaceutical producer which is crippled with 25 billion yuan of debt - with a loan of five billion yuan from China Development Bank in the largest takeover involving state-owned firms.

Set up in Shanghai in 1992, Worldbest has 60,000 employees and revenue last year of 49.46 billion yuan, making it the 29th largest conglomerate in the country.

The takeover drew an angry reaction in Washington, where the National Council of Textile Organisations (NCTO) denounced it as showing China's "wholesale disregard of [sic] free-market principles and its World Trade Organisation commitments".

"China agreed to operate state-owned enterprises in accordance with the rules of the market economy but today the Chinese government again demonstrated that when push comes to shove, its WTO commitments are not worth the paper they were written [on]," the lobby group said.

Since the end of the multi-fibre agreement last December, China has flooded the world with apparel, with its share of the US market in categories where there are no protections rising from 12 per cent to 42 per cent in a single year, resulting in the closure of 31 US textile plants, NCTO said.

It called for penalties against China for manipulating its currency and said US firms should be allowed to bring countervailing duty cases against its subsidies.

The collapse of Worldbest is a result of its runaway expansion under chairman Zhou Yucheng, 60. Beginning as a producer of textiles, it has taken over nearly 90 companies since 1992, raising its assets from an initial 140 million yuan to 57.2 billion today, moving into agricultural machinery and pharmaceuticals but accumulating enormous debt along the way.

In September this year, the Bank of Shanghai and the Shanghai Pudong Development filed lawsuits against Worldbest, claiming debts of 1.065 billion yuan and 164 million yuan respectively.

The debt reached such a level that the government felt forced to take action to prevent the collapse of such a major company which controls eight companies listed on domestic stock markets.

Set up in 1992, Chengtong is one of China's biggest logistics firms. The takeover was ordered by the State-owned Assets Supervision and Administration Commission, the ultimate owner of the firms.