The Stitch Times, have been discussing threadbare what is troubling the garment exporters all over the world; more particularly the biggest among them, China. It is well known that China has been suffering for quite sometime in the past from a number of problems like credit squeeze, withdrawal of benefits available to garment exporters, increasing cost of labour, which had either driven out a number of garment exporters from garment exports or other exporters being driven to new locations in the interior where labour is available at reasonable wages even now.

Then there has been an inevitable damage caused by the appreciation of Yuan vis--vis dollar and other currencies. All these factors had a negative impact on China's garment exports which set the Chinese Government really worried, forcing them to review its decision on matters relating to garment exports.

Almost as a U-turn, the Chinese Government has not only just restored its full VAT rebates on clothing and textile exports, but it has gone to the extent of issuing a fiat freezing any more increases in minimum wages, suspended deposits on raw material imports and directed the State-owned businesses not to fire staff and insisted unemployment benefit is used to retain staff while they are still at work. All this started showing results, which, however, left much to be desired. For example, Chinese garments exports declined in the month of October 2008 by over 2%; though its exports to the US increased. Further, its vast domestic market still managed to expand by 20%, which is however less than 30% growth, which it registered for several months in the past.

Will China be able to bounce back?

For this, we need to take a hard look at the competition that China faces in this fast changing, dynamic world of international garment trade. Though there are several countries in the run and in competition with China like India, Pakistan, Sri Lanka, Bangladesh, Turkey, Vietnam and Cambodia, but of these, the more potential rivals are essentially Bangladesh, Turkey, Cambodia and Vietnam.

First, the Bangladesh which is so flushed with orders that its knitwear exports had not only grown at an extraordinary 45% on year-on-year basis from July to September, but also a number of its largest businesses practically turned customers away. Thus, Bangladesh should constitute a genuine threat for China's unchallenged supremacy.

Turkey's performance in exports was unenviable, some time back. Reportedly, a number of Turkish factories had been closed and half of the clothing and textile workforce in South eastern city of Adiyaman had been laid off this year with the closure of 50% factories located in the area. However, Jak Eskinazi, President of Aegean Garment Exporters' Union (EHKIB) said that orders from Europe have started coming in, in larger number in October. He anticipates that export orders from Europe would keep on flowing in, as the European retailers affected by the financial crisis have stopped buying in big quantities and are shifting orders from China to Turkey. While Turkish garment exports will get good orders from Europe; things may not be very different in case of the US, too.

In so far as Cambodia is concerned, it has so far remained somewhat immune from the financial crisis looming large over the world. Its Prime Minister, Hun Sen said only last month, "Cambodia's garment sector will not be seriously impacted by the global financial crisis. I think that there has been no serious impact on the garment sector." But this needs to be juxta-positioned with the fact, as brought out by one union leader who admitted that 35 garment factories have been closed down in Cambodia this year and these closures were caused by the pullout of some investors, who have moved on to avoid legal conflicts over labour issues with the workers. The point which seemed to be made out by the said union leader was the closure of factories had nothing to do with the collapse of orders, both domestic and export. Granting that there could be some cases where some factories have been closed down, but it is also a fact that the Cambodian exports have not suffered any serious adverse impact. Thus Cambodia continues to be a potential rival to China, which is surrounded by a number of adverse factors.


Perhaps, the most potential competitor is Vietnam, whose exports to the US increased by a mighty 21.9% between January-September this year, up from $3.3bn. to $4.08 bn. This performance is only next best to China and today Vietnam is credited with being the second largest garment exporter to the US, next only to China.

The Chinese Strength

The status of China, which was known as Workhorse or Manufacturing Workshop of the world stands diluted to quite an extent, for a number of reasons as already referred to above followed by what corrective measures have been taken by the Chinese Government to help garment export industry retrieve its earlier position.

Having said that, I find, on balance, that Chinese garment exports have not faired badly nor are likely to fare badly though its cutting edge in pricing has certainly been blunted. One proof of the same lies in the fact that while Americans are importing lesser number of garments this year, as compared to last or even earlier years, import of Chinese garments has only increased. This underscores the vitality and viability of Chinese garment imports in to the US. Yet it is also a fact that Chinese exports of garments in the world garment exports, has declined. This should be attributed to two reasons: First, there has been a perceptible decline in demand in foreign countries and second, China's cost has risen, admitted by 2.6% this year alone.

If Chinese garment manufacturers are trying to save on labour costs by moving to the interior of the country, where labour costs are lower, they have to pay more for transportation of their cargoes to the ports which are now more distant than before. Further, the cost of logistics would have also gone up. How much? Nobody seems to have worked out that way; and probably, it is too early to do so. Nonetheless, it would be safe to say that not much savings can be brought about by just relocation of manufacturing units in the interior as is being made out sometimes.

While piling up sops by redrawing the incentive schedule for garment exports would certainly have given some of much needed succour to Chinese exporters, but then, one should not forget that the American cap on quota of Chinese apparel still is in place and in all probably, would continue to be so, even if its format may undergo a change. Even the American demand for garments is more likely to come down, rather sharply, as the now-admitted recession is known to have just started. It rigour and intensity is likely to increase, notwithstanding the help that the US Administration is willing to extend. This cannot but impact the US demand for apparel too.

What will massive, even colossal, manufacturing infrastructure that China had created to meet the hypothetical astronomical world demand, do? The production has to be tampered down, which would in any case, increase the overhead costs, both in absolute and relative terms. What would happen to the repayment of large amounts of loans taken by Chinese manufacturers to set up these world class and world-scale facilities that have been set up? The fact of the matter is that the odds are heavily loaded against China.

On the other hand, the smaller, upcoming and developing countries with the clear advantage of lower labour costs and the availability of benign special concessions in terms of import duties available to them from the Western countries, would certainly steal a march on Chinese exports of garments and textiles.

Originally published in "The Stitch Times": December, 2008