Source: The Stitch Times: March 2009

The Chinese textile industry has indeed hit a bad patch with several factors working against its competitive edge that it has all along enjoyed and helped it to position itself as numero uno in the world of textiles and apparels. But things have changed a lot for sometime; in fact ever since the economic meltdown cast its influence over the apparel demand the world over.

This has forced the Chinese industry to realign and reposition itself. The transformation of China's textile and apparel industry is likely to continue for some time, cutting jobs by the hundreds of thousands- the restructuring of Weiqiao alone, China's largest cotton textile enterprise, rendered 17, 000 workers redundant. But then, many people see this as an opportunity to trim and gear itself to take on the new scenario. It is widely believed that the present crisis will result in a more efficient apparel industry, better adjusted to meeting demand in foreign and domestic markets.

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.