China's Clothing and Textile Sector Hurts

South Africa
It seems that the great Chinese dragon[1] is wounded and its shadow over the global apparel and textile industries (T & A) has diminished albeit only slightly. Injured in the collective repercussions of the economic turmoil the world is experiencing it will retreat, develop new strategies and incentives to reappear once again in the hope of retaking through its new found power and manipulation diminished markets to feed its nation and avert any social unrest due to massive job losses in its export orientated industries.[2]

The Chinese National Bureau of Statistics reflects a decline in its textile profit for 2008 by nearly 2% compared to the same period for 2007. According to statistical data this is the first time the industry has show a negative profit growth in ten years. A collective decrease in garment and textile exports had dropped by 30%.[3] A Reuters report in January 2009 stated "Chinese factories [had] slashed output and workers at a record pace in December 2008."

In 2007 exports in textile and apparel reached US$171.17 Billion. The same report states factory output grew just under 6% from January to November 2008 and that the Chinese economy is close to "technical recession." [4] Further statistics reflect a down-turn in China's textile and apparel market showing that the mighty dragon is hurting. Between January to February 2008 production of "large-scale textile enterprises" was 16.55% an 8.05 percentage point loss for the same month in 2007. For the first ten months of 2008 total textile production was 14.73% the "sharpest contraction in five year."

Textile and garment exports between January to October 2008 were $157.413 billion a growth of 8.43% which is 12.09% lower than 2007. Textile exports for the same period Jan-Oct 2008 was $59.146 billion an increase of 2.94% from 2007 while garment exports dropped by 20.1 % for the same period equating to $98.267 billion.[5] While the global market is in a slum many textile and garment businesses in China have begun to look inward with domestic sales equating to 76.50% of China's total textile sales.

The depreciation of China's Renminbi is an added burden on the industry so is the increased cost in labour.[6] In response the Chinese government has lifted the tax rebate for both textiles and clothing enterprises twice during 2008 from 11% to 14%. It is expected the clothing export tax rebate of 17% will come into effect early this year. China will also be implementing numerous policies to reinvigorate the textile sector such as technical innovation in the early part of 2009. Industry trade specialist say the first half of 2009 will be a critical period for the textile and clothing sector to regroup. These industries will be looking for alternative markets. At the moment the sector is still very dependent on America the European Union and Japan for exports[7].

A study of the operating margin of textile operations in China indicates that two-thirds of textile companies operate on a 0.62% margin and have a direct influence on the livelihood of 15 million people. It is estimated that there are more than 20 million workers in the (C & T) industry sectors with 13 million rural migrant workers making up the bulk of the labour force. The China National Textile and Apparel Council (CNTAC) is extremely concerned about factory closures, and the ability to absorb job losses mostly among the migrant workers.[8] Official figures in 2008 indicate that there are 40,000 textile companies in China with annual sales higher than US$660.000 and there are hundreds of thousands of smaller operations.[9]

Like South Africa the US is also concerned about the possible re-flooding of apparel imports as certain quota limitations have also expired. The American apparel industry faces a threat of more job losses at a time when America cannot afford such retrenchments. In 2005 when China flooded the market nearly 55,000 jobs were lost in one year. The Chief Executive Director of the American Manufacturing Trade Action Coalition said the industry could face another 50,000 lost jobs during 2009. Between 2002 and 2008 there was a 33% "decrease in textile and apparel jobs."[10] American manufacturers said that the industry has recalibrated to compete on an even footing with China considering their low wages but could not compete when the Chinese government subsidises the industry to such an extent that China can "sell finished products for less than the fibre costs in the US."

While the Chinese dragon is licking its wounds the textile and clothing industry in Vietnam has grown. In 2007 the Vietnam industry grew by 33.4% to become in 2008 the USA's second largest foreign suppliers of textiles and clothing. China still maintains their position of the largest exporter to America. Exports from Vietnam to the European Union have also grown. In the first six months of 2008 exports to the EU grew by 8.4%. Chinese exports to the EU during the same period increased by 5.1%.

The Indonesian market saw a moderate increase in exports during the first six months of 2008, with domestic demand growing. The Malaysian textile and clothing industry saw a 3.2% decrease in 2007 while the Philippines faced heavy competition from China. Thailand's industry grew during the same period during 2008 in comparison to the same period for 2007. Bangladesh clothing exports for the financial year 2007-June 2008 rose by 16.2% and India's textile exports saw a 16.7% increase between 2007/08 while clothing exports only grew by 6.8%. The industry in Sri Lanka saw an increase of 8.5% in exports. In 2007 global fibre production increased by 6.0% the growth rate stemmed from an 8.5% increase in global man-made fibre mostly from China and India. Natural fibres saw a 2.6% growth during 2007.[11]

During the period of South Africa's quotas on Chinese imports[12] Mauritius, Malaysia and Bangladesh increased their exports to South Africa by at least 345%, 680% and 2076% respectively. Imports from Vietnam equated to 388%, Thailand by 39% and [13]Myanmar 197%.[14] The now open South African market could result in a mini trade war between China wanting to recapture market loss during the quota period and some of the countries who gained market share during the same period. The result may see even cheaper clothing enter South Africa of which South African cash-strapped consumers will benefit at the detriment of the local clothing and textile sector as South African retailers exploit the competition between foreign apparel and textile suppliers.

Written by Renato Palmi

[1] The Chinese dragon is recognised as a powerful symbol of auspicious power.
[2] Zhejiang Jianglong-China's largest textile dye company with four factories, 4000 employees and US$110 million in sales for 2007 closed in October 2008. In early 2008 The Wall Street Journal indicated that over 6000 Hong Kong-owned companies in China's Pearl River Delta would close during 2008.
[3] Xinhuanet January 1, 2009
[4] www.nakedcapitalism.com
[5] http://www.ccpittex.com Source: CNTEX: 6/1/09
[6] Labour Contract Law which took effective on Jan 1, 2008
[7] http://en.puworld.com/news_article.asp?ArticleID=69998700

[8] http://EzineArticles.com/?expert=Face_Zhang
[9] Ministry of Commerce of China and China National Textile and Apparel Council (CNTAC).

[10] U.S. import limits on some Chinese textiles end Thursday. By LISA ZAGAROLI ; McClatchy Newspapers.
December 29th 2008.
[11] http://www.textilesintelligence.com

[12] The quotas official ended on 31 December 2008.
[13] The industry in Myanmar and its market share in South Africa suffered due to a report by this author.
For more click here.
[14] Import figures: January 2005-2006 compared to January 2008 to June 2008. Stats calculated from
SARS and World Trade Atlas.