The global textile sector has also seen certain aspects that are not working and is not afraid to change it. These factors have benefited some countries while posing a threat to the dominance of certain other countries. Business experts are largely questioning if China is among the countries that will ultimately suffer following this gradual transition being experienced by the textile sector.
The developed countries have been gravitating around China with regard to textiles in search of cheap labor and better working conditions. Nevertheless, the rising wages of laborers are playing a spoilsport for China's textile and garment industry. It has been reported that labor costs in China have witnessed a rise of 20 percent in the past four years.
Companies from the United States, India, the European Union are increasingly losing their inclination to establish textile manufacturing units in China. The apparel sector is labor-intensive, and the wages in China's coastal areas, where most of the textile industries are set up, are higher than in India, Pakistan, Bangladesh, and even Indonesia. Also, the present trend involving labor's wages in China suggests that wages will keep growing by more than 10 percent annually for the next few years.
Meanwhile, India has already started attracting investments in the textile sector as China experiences a fallout in outsourcing. The fact is that China's textile and garment industry's current dominance was largely because of low production cost, and now with the growing wealth of the country, labor, land, and regulatory costs are all showing a noticeable rise.
Also, the "China plus one" strategy might result in a loss for the country. As per this strategy, companies establish their bulk textile and garment production units in China along with establishing random units in some other country. This strategy helps developed countries explore opportunities in places apart from China. Thus, in the coming years, if China's labor cost continues to rise, it is going to have a deep impact on the garment sector.
The Chinese currency has also gone through an appreciation, which has in turn contributed to raising the labor costs further. Yuan witnessed an appreciation of almost 8 percent in the last couple of years, which has made Chinese textile products more expensive in the international market.
As per a report by the China Banking Research Centre, in the textile and apparel sector only 44.5 percent industrial units can survive a 2 percent appreciation in currency. The report also mentioned that with 1 percent appreciation of the Chinese currency, the overall profits of textile industry decline between 2 percent and 6 percent. The increasing cost of overall transportation including shipping has also gone against the Chinese textile and garment sector.
The only positives for China is that despite the rising costs of labour and land, the network created by China with regard to its supply chain is still strong and the countries of South Asia will take at a minimum of five plus years to come up with same supply chain as that of China. It will be difficult to replicate these benefits that the textile and garment manufacturers enjoy in China.
This apart, it has also been observed that even though the apparel sector is labour intensive, the textile manufacturing is capital intensive, following which, it is not easy to shift the textile manufacturing units to other countries. The regulations are different everywhere and before shifting the manufacturing the companies have to assess all the possibilities and costs. The productivity and flourishing domestic market of the country also go in its favour, even as, other countries are giving a tough competition to China as far as domestic market growth and rise in productivity are concerned.
As per the current data available, developing countries produce half the world's textile exports and almost three-quarters of the world's clothing exports. But, textile and garment manufacturers of developed countries are quick to respond to any factor that increases the overall manufacturing cost. There have been some dramatic shifts in textile and garment manufacturing with rise in labour cost and changes in law of the land.
The preference of textile manufacturing units moved away from United States of America and Europe to Japan where machinery was advanced and cheaper in comparison to these two countries. Later on, the shift was from Japan to Hong Kong, Taiwan and South Korea. The final move in preference was from these three nations to South Asian countries including mainland China, but also to Indonesia, Malaysia, the Philippines, Sri Lanka and Thailand.
The recent developments that China's textile sector is going through have made it clear that another shift in global textile and garment industries from China to other countries is likely to happen eventually. The inclination of the global textile industry will be towards Vietnam, Indonesia and Cambodia along with India, Pakistan and others. But, only China's future course of actions to control the rising labour cost in order to allow the textile industry to flourish will decide how accelerated the entire process will be. Yet, this change in preference is unavoidable for China's textile sector, even if it is being predicted that it will take some time for the developed nations to move bases from China to other countries.
References:
1. Anzbusiness.com
2. Businesstoday.intoday.in
3. Economictimes.com
4. Worldsavvy.org
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