China's fledgling eco-textile companies are facing slowing growth as Western brands cut back on expensive fabrics. But environmentally friendly products still present better opportunities than mainstream textiles, as Dominique Patton reports.

Hemp Fortex, a producer of hemp yarn, fabric and garments, is one of the longest established suppliers of natural fabric and now counts major brands like Patagonia and Adidas as clients.

Revenues grew from $350,000 in 1999 to almost $10m last year, as companies sought to boost their environmentally credentials.

"I believe the first reason for their use of hemp is environmental concern. Polyester is still a cheaper, more versatile fabric for sportswear," said president Ding Hongliang, even though hemp has some good functional properties such as strength and anti-bacterial.

For Chinese companies, offering organic or environmentally friendly fabrics improved wafer-thin margins.

Tian Lun, based in Hebei province, introduced a limited range of organic cotton in 2000 and by last year had shifted entirely to the more environmentally friendly fibre.

It has also added bamboo fibre and Modal, the wood pulp-based cellulosic fibre developed by Lenzing

"For regular kinds of cotton fabrics, profit margins are only 2-3%. For these new products, the margin is around 10%," said Mao Jian Chun, manager of Tianlun's import and export department.

However sales are now slowing. Hemp Fortex's annual growth rate of 25-30% may be difficult to achieve this year, said Ding.

"Some customers really have financial problems. We'll still grow but not as much as last year. We're trying for 15%," he said.

Lu Thai, a Shandong fabric mill doing a small amount of organic cotton, says its customers are asking for a lower percentage of the expensive fibre in fabrics, perhaps 12% instead of 15% previously.

"The organic cotton business is a high-end market and like other high end markets it is affected a lot in this crisis," said Wang Zhong Xiang, marketing manager.

Cost constraints
Cost remains a significant barrier to the market's growth. Lu Thai imports 80% of its organic cotton from the US.

"Most of China's cotton cannot meet organic standards. If it does, the cost of growing it is as much as importing it from the US," said Zhang Jian Xiang, the company's R&D director.

Producing organic yarn and fabric is also pricy.

"The whole process needs to be controlled to make sure the organic cotton isn't contaminated. And we need to import certified dyes and other processing ingredients. Organic cotton fabric is at least three times the price of normal cotton," said Zhang.

But natural and organic fibres are a point of differentiation in a crowded market.

"Our organic range is really more about creating an image of our company as environmentally friendly than increasing profits," said Zhang.

Increasingly popular
An eco-friendly product range, though increasingly popular, is still rare in a country where most factories are focused on large volumes of cheap garments.

"We started with very small numbers, like 1,000 or 2,000 yards of fabric. That's just a sample for most companies here. But we're quite confident with the direction we're going in," said Ding.

"When I look at our customer list I can see bigger companies like Gap and Adidas. Other firms will follow their lead."

Hemp Fortex has an advantage over suppliers of organic cotton who need to import their key raw materials because of insufficient quality at home.

They compete with major producers like India and Turkey but for hemp, China, the world's leading producer, has the edge. The plant also grows well in poor conditions without pesticides.

Yet other mills producing organic cotton say the fabric has good prospects too.

Zhang Hong Lin, manager of international business at Shandong Mengyin, says her firm's organic cotton sales are holding up better than standard cotton or other fabrics.

"We starting producing organic cotton three years ago and sales have grown 20-30% each year. For 2008 they will remain at the same level. For Western companies the environment is really important."

Demand for bamboo fibre, though slowing slightly too, is also benefiting from the trend in natural fibres. Tian Lu sells bamboo fibre to Puma and Li Ning for use in socks and tightly fitting clothes, promoting its anti-bacterial quality.

"Though it's a time of crisis, people may be more likely to invest in quality and think about their health," said Qiao Ya Li, international business manager at Dreamfox, another bamboo fibre supplier.

Long-term investment
Companies focused entirely on eco-friendly textiles are counting on a permanent shift in thinking and investing for the long-term. Hemp Fortex already has a designer in Seattle.

"Some big brands buy our fabric because of the combination of environmental concerns and fashion. They don't have to compromise either way."

To counter the slowdown, it is boosting its marketing activities and has taken on a new agent to develop its European business. Europe may lag the US but is showing promise, says Ding.

"When we went to Texworld Paris two years ago, no-one knew about organics. This year they were everywhere." The company already sells organic linen to UK retailer M&S and is eyeing other British names.

The company even sees potential on its home turf and plans to launch a local brand in Shanghai next month.

"Chinese consumers are getting more and more into organic food so we thought why shouldn't they wear the clothes too?"

The new brand will target women interested in "special fabrics and an original look".