By: H.K.Sehgal


The global economy had witnessed recently recession, which was only next to Great Depression of 1930s, which badly mauled many economies - probably all the economies, even if the difference between different countries varied. The national governments, one after another, hurriedly unfolded the stimulus packages to revive their economies.


Most of the economies responded to these packages and the clouds of recession have withered away in most of the economies, but the fact remains that no economy has attained the buoyancy that in enjoyed before the recession made its ugly presence felt.


True, the global economy suffered and its suffering was triggered by the sub-prime rate syndrome in the US, which saw a large number of financial institutions including banks going down like a house of cards. The employment fell in most of the economies with the US leading the pack with over 10% unemployment - highest in 26 years. The reduction of demand for all consumer goods went down and retailers including and particularly in garment sector hit air pockets. This phenomenon particularly hit the developing countries, whose major source of foreign exchange earnings and employment depended on exports that declined sharply. Inevitably, the American and European retailers were confronted with reduced demand, and therefore placed fewer orders for garments with the garment exporters from most of the developing countries.


However, a closer look at the world garment trade reveals that all that is being credited to the recession actually does not belong to it alone.


A fact that went by without making a striking note is that there was a general decline of 12.5% in garment exports during 2009 to the Western countries by most of garment exporting countries, except China and Vietnam, while China's share garment exports went up significantly from 41.3% in 2008 to 46% in 2009. Thus it would be clear that while there was not only a decline in orders from international retailers due to sagging internal demand, but also China and Vietnam gobbled up a larger share than ever before by increasing their exports in real and percentage terms. It has been estimated that about 60% of the average garment exporter's sales loss was due to growing Chinese and Vietnamese competition, rather than falling demand. It is also important to note that the impact of reduced demand and therefore imports in the US and EU from the developing world (i.e. other than Vietnam and China in this case) was further aggravated by increased share of China and Vietnam's exports to the Western countries.


Why Chinese garments have edged out others? The reasons are simple. Chinese goods including garments are cheaper because of not only massive and quick support from the Government by way of heavy subsidies, but also due to fettered Yuan exchange rate. This was further accentuated by withdrawal of quotas against China by both US and EU in 2009. The formidable combination of all these factors was deadly, resulting in mauling up garment exports from other countries.


What future holds forth for garment exporters, particularly from India?


There are hardly any hopeful signs for the garment exports to pick up from the developing countries, including India, for the simple reason that I do not see any massive or even major or even notable change in the global apparel trade scenario. No Government in any developing country, much less India, would be ever able to match Chinese Government's total and quick support to the garment exports. This has been manifested in the number of quick revisions of subsidies, whenever Chinese garment exports showed inclination for decline. So quick and adequate has been the Chinese Government response that many garment exporters and their associations have only winced at the utter apathy that the Government of India has shown to the serious concerns of Indian garment exporters, who have only wished - I suppose only wishfully - that they be provided with level playing field with China. This has been ruled out by person no less than Pranab Mukherjee, who holds the financial strings of the Government. In fact, efforts are afoot to roll back the stimulus packages that were only of marginal help to the garment exporters.


Second, Chinese have scoffed at unfettered free float of Yuan and have rebuffed the Western overtures in this regard recently as they have done it earlier on all occasions. They know it too well that an unfettered Yuan can seriously erode their export margins, which has played indeed an important role in elevating them to the unique position of Numero Uno as the largest exporter in the world.