China's Textile Sector Squeezed

SHANGHAI — China’s economy might be growing faster than almost any other country’s, but the mood within the nation’s textile and apparel sector is decidedly somber.

Last month, China said its economy grew 7.1 percent in the first half to 13.99 trillion yuan, or $2.06 trillion at current exchange rates. While most countries would celebrate such figures, for the Chinese government they represent a challenge: the nation’s target is 10 percent growth a year.

Moreover, one of its key sectors, fashion-related manufacturing, is seeing a significant contraction. China’s textile exports fell 15.2 percent in the first half to $26.94 billion, while those of apparel dropped 8.5 percent to $45.86 billion. Scores of companies have closed their doors and thousands of workers have returned to their homes within the interior of the country.

“Textile and apparel exports showed a historical decrease in the first half year of 2009,” said Sun Huabin, a spokesman for the China National Apparel and Textile Council.

According to China’s General Administration of Customs, China’s total exports decreased 21.8 percent year-on-year to $521.53 billion, while imports fell 25.4 percent to $424.59 billion.

Along with the global financial crisis, Sun blamed the declining exports on regional protectionism against Chinese products, the yuan’s appreciation against the U.S. dollar and the euro, and the depreciation of the currencies of its manufacturing competitor countries. However, “Compared with our competitors, such as India and Pakistan, we remain stronger in terms of comprehensive competitiveness, including the quality and price of our products, and quick market response. Also, qualified companies can consider exploring new markets, like in Latin America, the Middle East and Africa.”

Apparel and textile exports appeared to pick up a little in June. Although they were still down in year-on-year terms, apparel exports in June rose 21.9 percent from May levels to $9.04 billion. Textile exports were basically flat from May, increasing just 0.3 percent to $4.91 billion.

“I don’t think the little increase June saw over May marks a sign of recovery,” said Sun. “It is still too early to say when the industry will step out of its current difficult situation. I hold a negative outlook towards textile and apparel exports for the rest of the year.”

Liu Qin, Shanghai editor of domestic publication T&A Weekly, voiced a similar view. “I think the slight increase in textile imports in June is not evidence of a turning point,” Liu said. “Instead, it is the result of seasonal demand. However, domestic sales showed a positive trend in the first half, as domestic needs increased.”

Liu argued that high-end international brands are feeling the economic pinch more than Chinese producers. “Our country’s textile and apparel products target the middle and low ends, and the general public has a demand for clothing despite the financial crisis. However, since the textile industry relies largely on exports, any recovery depends on the general economic situation.”

Wang Hua, an economics professor at the Textile School at Shanghai’s Donghua University, expressed similar medium-term skepticism, although he predicted that home textiles will improve soon along with the real estate market. “I cannot say with any confidence that the textile and apparel sectors will see any general increase in the next one or two years.…In general, with exports plus domestic sales, this year’s situation will be a little bit better than that of last year, but not significantly. It is expected that the industry may show some improvement only by the end of next year.”

China’s GDP growth in the second quarter was 7.9 percent, an increase over 6.1 percent for the first quarter. Most attribute the improvement to the government’s 4 trillion yuan ($586 billion) stimulus package and measures to encourage domestic consumption. While comparing second quarter GDP growth to the first quarter is perfectly valid, GDP does tend to be seasonal and it often makes more sense to compare it with the same quarter the previous year. Most reports indicate China’s GDP growth in the second quarter of 2008 was 10.1 percent.

“I think China’s economic bailout has begun to work, and anticipate that it will not be difficult for the GDP growth to exceed 8 percent this year,” said Wang Hua.

Many Chinese companies have begun shifting away from the export model to focus more on growing domestic demand. A spokeswoman for Youngor, one of China’s top domestic apparel brands, expressed cautious confidence for the company’s prospects. Youngor has already established a 1:1 ratio of domestic to international sales, and saw the former increase 20 percent in the first half. She added that Youngor enjoys a wider national sales network than its domestic competitors, and continues to adjust its brand positioning along with the changing market. “For exports, because we purchased Smart, a famous American shirt giant, in 2007, there are still plenty of orders for us even after the financial crisis,” she said.

“Currently, a lot of famous foreign brands want to be purchased by us, and we are choosing carefully,” the spokeswoman added. Chinese companies have been encouraged to buy international brands to reduce their dependence on low-end manufacturing.

T&A Weekly’s Liu Qin highlighted Youngor as a model for how the industry must evolve. “Traditionally, China’s textile industry is about export and low-end products, which is low profit as well as environmentally unfriendly,” Liu said. “To create added value for the products is the key.”

Wang Hua also touted the importance of adding value to products and said China needs to do a better job of cultivating design talent.

“A lot of graduates who major in textiles find jobs in other industries, because the companies are located in remote areas, and the salaries are too low,” Wang explained. “However, what we really need are more designers, especially in industrial and product design.”