JOHANNESBURG (Reuters) - South Africa unveiled a plan on Thursday 21 May to help the struggling textile sector, a key employer, to better compete with cheap Chinese imports.

Textile workers march on Parliament in Cape Town to demand the scrapping of a drop in import tariffsphoto Photo : Mike Hutchings/Reuters

The department of trade and industry (DTI) said in a statement it would grant loans with preferential lending rates to textile firms wanting to upgrade equipment and would encourage cost-sharing within the industry.

It would also crack down on illegal imports of cheap textiles from Asia, which have already put several South African companies out of business and forced others to cull jobs, and would cut import duties on specialist fabrics.

The Southern African Clothing and Textile Union (SACTWU) said the plan to allow local companies to import some fabrics used in clothing and home textile manufacturing duty free will help keep production costs down.

South Africa, which is widely expected to have fallen into its first recession in nearly two decades in the first quarter, has opposed direct bailouts of companies but has said it will help certain vulnerable industries via state institutions in order to protect jobs.

The government views the vehicle manufacturing industry and textiles, one of the biggest employers in the country's second richest regions centred around Cape Town, as crucial for economic growth.

Africa's biggest economy introduced quotas to restrict Chinese textile and clothing imports in January 2007 after unions complained the cheaper products were hurting local manufacturers, but these were scrapped at the end of 2008, SACTWU said.

Listed textile companies include Seardel and Rex Trueform.