China's textile industry will start to lose money if the yuan continues to appreciate, the country's top economic planner warned yesterday.

"With their average profit margin currently at 3 per cent, textile companies will no longer be able to absorb the cost of the rising yuan," said the report by the National Development and Reform Commission (NDRC).

The dire prediction came as the Chinese currency yesterday hit a new high against the US dollar since a revaluation a year ago.

The People's Bank of China set the reference rate for the renminbi against the greenback at 7.9499 yesterday. It closed at 7.9385 at 5:30 pm in Shanghai.

It was a record after China allowed its currency to appreciate by 2 per cent in July last year to 8.11 against the US dollar and linked it to a basket of currencies instead of the greenback alone.

The reference rate is an indicative mid-point for the yuan exchange rate, from which the currency can move within a 0.3 per cent floating band, either up or down, each day.

The currency has been strengthening gradually over the past 13 months and rose by a further 2 per cent since the revaluation.

The market forecast is that the yuan would appreciate by another 3 per cent against the US dollar, to 7.72, over the next 12 months.

Top Goldman Sachs economist Sun-Bae Kim has made an even bolder prediction, saying that the yuan would rise 6 per cent in 12 months.

"If the appreciation continues, the profit margin (of textile exporters) will be eaten up within a year," the NDRC report said.

Chinese textile manufacturers have been marking down their prices this year to sustain exports and offset the negative impact of the rising yuan, said the report.

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