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Waning demographic dividend affects Chinese garment sector

April 01, 2014 (China)

Last year, the international sportswear giant Adidas closed its last affiliated manufacturing unit in China, which points to a trend of ‘Made in China’ giving way to ‘Made in America’.
According to experts, cost factor is the biggest reason for withdrawal of manufacturing by foreign enterprises from China. In the past, foreign firms opened export-oriented garment units in China because of availability of low cost labour.
Textile and clothing manufacturing in China grew very fast by employing low-cost, plentiful labour from the farm. But, as the wages have started to rise, it becomes less profitable for companies to continue operating, unless they come up with own technology. This is termed as Lewis Turning Point, which China is fast approaching, according to economists.
The demographic dividend that China enjoyed, especially in textile and garment manufacturing, is fast waning, as Chinese economy approaches the Lewis turning point. Plus, the Chinese currency RMB has maintained a slight appreciation trend for the seven consecutive years, resulting in a significant decrease in China’s traditional advantage for both domestic and foreign-invested apparel manufacturing units, aver experts.
On the other hand, Vietnam, Myanmar and other Southeast Asian countries have relatively low labour costs, forcing a large number of firms to transfer manufacturing from China. The average monthly wage in Chinese textile and apparel manufacturing is about RMB 1450-2320 (€188-300), while it is only €80 in Bangladesh and €120 in Vietnam.
In comparison to the wages in the United States, China might have an advantage, but some experts point out that the US labour productivity is about four times that of China, so the lower labour costs in China do not necessarily mean cheaper cost of labour than the US.
At the same time, the Obama administration is trying to attract domestic enterprises to bring back manufacturing to the country, and create more jobs.
In such a situation, the ‘Made in China’ tag is losing sheen, aver some experts.

Fibre2fashion News Desk - India
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