Chinese T&C investments in ASEAN carry inherent risks

08 Mar '10

2 min read

The Free Trade Agreement (FTA) between China and the countries of the ASEAN came in to effect beginning from January 1, 2010. This measure has created zero duty facility for exports of various goods including textile and garments for both.

The establishment of the FTA has brought and can bring in the future, numerous benefits to the Chinese textile and clothing sector, but can also bring with it a number of risks, which still need to be carefully evaluated.

For example, the Vietnamese central bank has announced another VND devaluation by 3.4 percent on February 11, 2010, which is the second VND devaluation since November 2009 when it was devaluated by 5.4 percent.

VND depreciation on one hand weakens China's competitiveness of textile exports to Vietnam; but on the other hand, it also enhances Vietnam's product competition with China in developed markets like Europe and America.

Similarly, the current inflation rate in Vietnam has reached 7.1 percent in January 2010, while that of Thailand has touched 4.1 percent in January 2010. High inflation results in higher production costs and wages, leading to greater risks in investment.

Some ASEAN countries lack advantages of supporting facilities to textile industry chain, industrial intensity is lower, infrastructure remains to be improved. All these factors put together, can increase investment costs of China's textile enterprises.

Moreover, political and security risks in the ASEAN countries and aversion to the Chinese dominating the markets could also become important constraint factors for the future course of China's textile industry in the ASEAN region.

When China's textile enterprises embark on creating investment opportunities, they need to carefully study the economic and political situation in the country, in order to avoid mistakes in investment decisions.

Fibre2fashion News Desk