According to recent information, put out by China's Ministry of Commerce, the profit margins in the export sector (for all industries) in China fell to 1.44% in February 2011 from 1.47% in 2010. In Guangdong, the major southern industries province, local media has reported that the profit margins in some clothing exporting companies are as low as 2%. There have been a number of problems that the Chinese garment exporters have been facing for quite some time. The major problems confronting the Chinese exporters are appreciation of Yuan, high and volatile material costs and soaring labour costs. These accretions in costs have outpaced the subsidy that the Chinese Government has been offering from time to time. And the competition for pie in the world garment export trade is become fiercer by the day. Will China, which has been the world leader in garment export, be able to maintain in supremacy in the global garment trade?
A recent Chinese report speaks of "the clothing factories of Shenzhen have been hit by a "perfect storm", battered by rising labour costs, unstable prices for raw materials, currency appreciation and dipping demand. By year's end, more than half of the once bustling businesses could be shuttered." The report goes on to add that "One by one, the garment factories of Shenzhen are shutting down. Industry analysts say that by Christmas, 60% will be gone. A business that was once worth 150 billion RMB (23 billion dollars) per year has been battered on all sides: rising costs of labor and raw materials, an appreciating currency, inflation, and a slump in demand."
"Wang, an exporter in Shenzhen, who used to receive massive orders to supply brand-name retailers, invited me onto his empty factory floor. He said the greatest difficulty the business faces is the continuing appreciation of the Chinese currency, RMB, which intimidates factories from taking orders. He now accepts only urgent and short-term contracts. Wang pointed to the hundreds of automatic sewing machines sitting idle, noting that his garment production capacity used to be hundreds of thousands of pieces annually. Since January this year, production volume has not even reached 5,000 pieces. The factories used to hire thousands of workers. Now they employ just a few dozen. And even with these workers, the factory is only in operation for less than 10 days a month. Wang told me that if the situation does not improve, his factory will eventually collapse altogether. For now, he is one of the luckier ones, able to maintain a skeletal operation; large numbers of smaller enterprises are already doomed no matter what happens.
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