However, the declining international competitiveness of the
Chinese apparel industry is in marked contrast to that of the country's economy
as a whole. According to the Global Competitiveness Report 2008-2009 from the
World Economic Forum, China entered the Top 30 in 2008, up four places from the
year before. The country benefits from its large and rapidly growing foreign
and domestic markets, allowing for significant economies of scale. Macro-economic
stability also remains a source of competitive advantage, while innovation is
becoming a new one.
But as far as the apparel industry is concerned, there's
unanimity that it's losing its edge.
Negative factors
At last autumn's lntertextile Shanghai Apparel Fabrics trade
fair, representatives from the clothing industries in Vietnam, Cambodia and Laos, all said they expect to benefit from China's declining competitiveness.
Indeed, a number of factors are undermining China's competitive superiority,
which together have been responsible for blunting the competitive edge that the
Chinese products enjoyed over their competing economies.
Rising labour costs
First of all, it is the question of rising labour costs.
According to Textiles Intelligence, Werner International data shows the average
annual increase in Chinese labour costs over 2004-2007 was 11.8% in the coastal
region and 14.6% inland. In 2008, Chinese labour costs are expected to have
risen by 20-25%. Stringent labour laws introduced in January 2008 stipulate a
minimum wage and fixed overtime, severance pay, health and accident care and a
pension plan for workers. Credit Suisse estimates that these laws alone add
15-20% to the cost of running a labour-intensive industry, and for small and
medium-sized apparel exporters they come at a rough time.
Appreciation of Yuan
The Chinese industry has so far been used to a frozen
foreign exchange rate of Yuan, which gave much of leeway to them to compete
with other countries which were suffering from the appreciation of their
countries. This had given an undue and undeserving edge to Chinese product
prices all over, which helped them to emerge the world leaders in export. The
situation is no longer the same, as; Chinese had to allow Yuan to float on its
own strength; of course with the Government support available at all times by
restricting the free rise or appreciation of Yuan. But this could not be
managed for all times under the pressure from the US, the EU and other
countries. From the beginning of July until the end of October 2008, the Yuan
rose almost 24% against the Euro. As most Chinese apparel exporters apply razor-thin
profit margins, such changes in foreign exchange have proved highly injurious
to their competitive edge.
