Review of 2004
I. Trends and Features of China’s International Trade in Textile and Apparel in 2004
The year 2004 has seen the total value of export and import of Chinese textile and apparel at 111.97 billion dollars, up 18.5%, accounting for 9.7% of the country’s total trade of goods. Respectively, export and import stood at 95.13 billion and 16.85 billion dollars, up 20.6% and 7.8%, accounting for 16% and 3% of the country’s total export and import of goods.
1. The peak of export appeared in Q3 while that of import appeared at the mid-year and the year-end
Export of textile and apparel showed incremental growth in the first 3 quarters with the average monthly export value of 6.27 billion in Q1, 7.6 billion in Q2 and 9.16 billion dollars in Q3. Though export in Q4 slowed down a bit, it still stood at 8.67 billion dollars. Value of import did not show much difference from month to month. Peaks of import appeared in July and December.
2. Aggregated export surpassed 95 billion dollars, which almost doubled in the past 5 years.
2004 witnessed unprecedented achievements in China’s textile and apparel trade, with the total value of import and export surpassing 100 billion dollars, 1.7 times that of 2000. Value of export stood at 95.13 billion dollars, surpassing the threshold of 95 billion dollars, 1.8 times that of 2000. Value of import only increased 20% from that of 2000, which was not a big change.
3. 78.3 billion dollars of surplus in textile and apparel trade was 2.4 times that in the country’s total trade in goods, which played an important role in achieving balance of the country’s total trade in goods.
Textile and apparel trade achieved a surplus of 78.3 billion dollars in 2004, up 23.8% from the last year and almost equaling the total export value of textile and apparel in 2003. Apparel contributed 18.2 billion dollars, up 43%, while the relative figures for apparel were 60.1 billion dollars and 19%.
4. Export increased to all major markets while some developing economies became new engines.
China Hong Kong, Japan, the EU, the U.S. and Russia were the 5 biggest exports markets for China’s textile and apparel in 2004, accounting for nearly 2/3 of the total. The export growth margins for the 5 markets were all above 10%, with Russia as high as 55%, taking place of South Korea as the 5th biggest export market. Export to the biggest 40 export markets also achieved remarkable growth. Such developing economies as South Africa, India, Kazakhstan and Romania became new engines for China’s export of textile and apparel with the growth margins over 50%.
Japan, Taiwan Province of China, South Korea and China Hong Kong were still the major import resources. Except China Hong Kong from where China’s import dropped, China’s import from the other economies all increased steadily.
5. Export of made products and fabrics achieved relatively bigger growth margin, and unit export price of major products increased over the whole range.
As the biggest export catalogue, made clothing (excluding accessories) achieved 55.78 billion dollars of export in 2004, accounting for 59% of the total export of textile and clothing, and representing a 17.6% increase with woven products up 14% and knit products up 24%. Export of yarns stood at 4.41 billion dollars, up 15% with wool, silk and synthetic fiber yarns all achieving fast growth. Due to problems occurring in the purchase and circulation of cotton in 2003~2004, such as a sluggish market and big drop of cotton price, the production and export of cotton textile products were affected negatively. In particular, export of cotton yarns as the primary products decreased 3%.
Export of fabrics and textile made products increased 24% and 30% respectively£¬ which were better than the average growth margin of the export of textile and apparel, thus a new growth engine. Export of silk, wool and synthetic fiber fabrics and textile made products for household and industrial use increased the fastest.
Except for the good performances in both export volume and value, unit prices for various major catalogues also showed an upward trend. Specifically, except synthetic yarns and carpets whose unit prices dropped a bit, unit prices of the other major export products all increased. Figures for knit clothes, woven clothes, yarns, cotton fabrics and synthetic fabrics were 4%, 8%, 5.6%, 17% and 9% respectively.
6. Fastest import growth showed in made clothes while the biggest import value in fabrics
Among the 16.85 billion dollars of textile and apparel import in 2004, fabrics and yarns were the two biggest catalogues with a value of 8.86 billion and 4.06 billion dollars respectively and growth margin of 8.3% and 3.3%. In fabrics and yarns, import of silk, wool and cotton fabrics and silk yarns increased the fastest, the growth margin of which were all over 10%. Import value of made clothes and made products of clothing stood at 1.28 billion and 2.62 billion dollars. Import of clothing showed the biggest growth margin of 17.8%, 10 percentage points more than the average import growth margin, in which import of knit clothes and woven clothes increased 16% and 15% respectively. Import oftextile made products increased 8%, in which textile for household use, the major product in the catalogue, increased 6%.
7. Over 80% of the country’s provinces and cities achieved export growth with Zhejiang Province as the biggest exporter and Hebei Province as the fastest.
Since the beginning of the year, Zhejiang Province has been the biggest exporter in China, overtaking Guangdong Province. Guangdong, Jiangsu, Shanghai and Shandong were the other 4 provinces and cities in the leading 5 Chinese exporters, and the five’s aggregate export value accounted for more than 3/4 of the country’s total. The status of the eastern coastal area as the major textile and apparel exporter in China has not been changed although this area has been facing such problems as narrowing cost advantage, lack of labour and electricity.
Among the 31 provinces and autonomous cities (excluding Taiwan Province and Hong Kong and Macau SARs), only 6 saw their export to decrease in 2004. Hebei Province, with its 62% growth margin, took the first place in terms of the growth rate.
Guangdong, Jiangsu and Shanghai, as the leading importers, achieved import increase. Import of Jiangsu Province even increased by more than 20%.
II. Factors behind the sustainable growth of import and export of China’s textile and apparel in 2004
The pace of import and export of China’s textile and apparel did not slow down in 2004 achieving over 20% growth after a sustained growth in 2003. In spite of many difficulties and disadvantages, favorable world and domestic economy, strong demand for textile and apparel on the international market, and end of quota for some catalogues were all advantageous factors for the sustainable growth of China’s textile and apparel trade.
1. Domestic economy maintained a stable and fast growth, which created a favorable environment for the development of enterprises.
2. World economy recovered at a faster pace, which provided bigger market for textile export.
3. Expansion of production capacity and registry system of international trade injected vigor into enterprises for export.
4. Confronted with serious international trade situation, domestic textile and apparel enterprises united unprecedentedly and took active measures against foreign restrictions and anti-dumping cases, which has yielded good results.
Confronted with ever serious international trade situation, with strong support of the Ministry of Commerce and initiated by the China Chamber of Import and Export for Textiles, China’s textile and apparel enterprises reached consensus on the sector’s self discipline, and for the first time advocated for strengthening self management. The sector’s awareness of self discipline would guarantee a healthy and sustainable development for China’s textile and apparel industry in the post-quota era.
III. Major problems in 2004
1. End of quota caused fight for interest of international trade in textile and apparel and worsening of trade environment
Since end of quota was approaching, the international trade system and pattern would change significantly and China had been exaggerated by some foreign organizations and media as the biggest winner in the post-quota era, China became the focus of conflicts in international textile trade. Since the beginning of last year 96 industrial organizations from 54 economies has one after another signed the so-called Istanbul Letter, demanding the postponing of the quota-end and aiming at curbing China’s textile and apparel competitiveness. In the latter half of 2004, the U.S. and the EU doubled their efforts in holding up China’s export of textile and apparel. As early as in 2003 the U.S. put restrictions to Chinese bras, robes and knit fabrics. As the first round of restrictions, which targeted at the above-mentioned three textile and apparel products, ended, a new round of special safeguard measures was started. Including the three products, the U.S. accepted restriction applications continuously for as many as 13 Chinese textile and apparel categories with the excuses of “market disruption” or “market disruption threat”. Except for its regional preference trade policy, the EU put an end to its General Preference System treatment for China before schedule. The EU also carried out single prior surveillancefor 38 Chinese textile and apparel categories, aiming at tailing the changes of import volume and price of Chinese textile and apparel products, therefore finding proofs for its special safeguard and anti-dumping measures. Some developing countries followed suit in putting restrictions on Chinese textile and apparel import. On December 16 of 2004, Argentina announced a strict quota management system for Chinese textile and apparel products. Then on December 23, taking “market disruption” or “market disruption threat” as the excuse, Turkey decided to implement safeguard measures for 42 categories of Chinese textile and apparel products, 24 of which were still under quota management. India, South Africa and Peru also implemented anti-dumping and provisional safeguard measures on Chinese textile and apparel products.
Since the latter half of last year some foreign importers have taken a wait-and-see attitude towards purchasing from China due to their worries of the uncertainty of the trade policy in 2005. On the other hand, domestic exporters have been even more worried, confronted with the dilemma whether to accept orders. As investigated, currently the number of forward contracts of 3-month-later delivery was obviously less than that of former years. Loss of orders from foreign importers has occurred.
2. Change of production inputs caused difficulties in the process of production and export of China’s textile and apparel
In 2004, rising oil price, shortage of energy, high level of the price of synthetic materials, volatile cotton price and extra transportation and labour cost all contributed to the difficulties in export of China’s textile and apparel.
Prospect of 2005
The long-awaited expiration of the more-than-40-year-old quota system finally arrived. However, free trade of textile in a true sense has not yet arrived in the post-quota era. Worsening of international trade environment appeared as early as at the beginning of 2004 and would affect China’s textile export this year. Furthermore, macro economic regulation and related management policies, and some industry-associated factors, such as cotton price, energy and exchange rate, would all affect China’s textile export. Therefore, basic conditions would be expected to support China’s international trade in textile and apparel in 2005, but the environment would be worse than in 2004, and difficulties and challenges would be severe.
I. Overall expiration of quota, sustainable and fast development of Chinese economy, ever increase of industrial competitiveness and policy support would continue to push the export of textile and apparel
1. Overall expiration of quota would lift restrictions on the export of major products
As promulgated in the ATC, textile quota was removed from on January 1 of 2005, which was no doubt the biggest advantage. The production and export capacities of China’s textile and apparel would be released to some extent.
2. World economy would continue to grow, at a slow rate though, which would guarantee the growth of China’s international trade
2005 would witness a slower economic growth than 2004. Specially, oil price would stay at a high level, inflation pressure would increase globally, interest rate rise by the FED might hold the economic growth, members of the Euro area would not grow at the same pace and the internal demand would be weak, Euro would be volatile, and some Asian economies would also slow down. However, world economy is expected to grow 4%, still regarded as a relatively fast year, which would provide opportunities for the development of China’s international trade.
3. Macro economic regulation has begun to yield good results and China’s economy would maintain fast growth
The macro economic regulation and the economic development in 2004 laid down a good foundation for a stable economic development in 2005. 2005 is expected to witness a harmonious economic development with stable and fast speed and mild inflation.
4. International investment became active again, and world textile industry would continue to relocate in China
In the first half of 2004, the value of M&As, the leading indicator of TNCs’ international investment movement, increased by 3%. International investment is expected to be more active in 2005. Developed economies would continue to relocate production and expand market in developing economies. Removal of quota would attract more foreign capital to be invested in China’s textile and apparel industry, which would be conducive to the industry’s restructuring and technological upgrading.
5. Complete industrial chains and good service would provide competitive edge to China’s textile and apparel industry
China boasts of a complete textile and apparel chains with high proficiency and good quality including textile, dying and made products. The industry has a strong ability to provide materials and components in major production areas, such as machine components and accessories. The industry has an obvious cluster feature, with dozens of production and sale bases over the country of fabrics, clothing and textile for household use. Chinese textile and apparel enterprises have the ability of fast reaction and good services, which can make products of any quantity and any category in the shortest time. Chinese enterprises are leading in the whole world in catering for the demands of importers in the post-quota era.
II. Worsening of trade environment and trade order challenge China’s textile and apparel export
1. Trade policies of the U.S. and the EU will be the foremost factors affecting China’s textile and apparel export in 2005
The U.S. and the EU are the major markets for China’s textile and apparel, taking up nearly 30% of the total export of China’s textile and apparel. The U.S. and the EU will double their efforts in restricting China’s export of textile and apparel in 2005. Trade policies of the U.S. and the EU will be the foremost factors affecting China’s textile and apparel export this year.
Meanwhile the trend of setting restrictions on China’s textile has prevailed from developed to developing economies, which also has begun to be multilateralized.
Due to the trade policies of the U.S. and the EU, some importers have made it clear that they would not purchase more from China in order to divert trade risks. Some even placed orders to other countries. Domestic enterprises are worried about using up the quota within the first half of this year for those products under the U.S. special safeguard measures. In the latter half of the year, those enterprises would not have enough work to do. Furthermore, enterprises will unavoidably fight for export even at the cost of very low price. The resulting chaotic order will not only jeopardize the interest of the enterprises, but also cause vicious cycle and therefore jeopardize the long-term development of the industry.
2. The U.S. and the EU stepped up making RTAs, which will weaken the export competitiveness and squeeze the market of China’s textile and apparel industry
In the post-quota era tariff will become the deciding factor in a country’s competitiveness. The U.S. and the EU exert influence on the trade flow through preference arrangements such as exemption of tariffs. And the exclusion of China will definitely weaken the export competitiveness of the country’s textile and apparel industry and squeeze its market shares.
3. Such technical barriers as environmental protection and safety and social accountability standards will be used by the U.S. and the EU as another weapon in restricting China’s textile export. And those trade protection measures should be attached enough importance because they are not easy to be identified and are more harmful compared with pure quantity restrictions
Many countries are making vigorous preparations for the post-quota era in order to get more interest from the international trade in textile. Indian government announced to reduce or exempt central government VAT for cotton and natural fiber machines, and increase financial input for technological upgrading. Pakistan and Turkey increased investment in the textile industry in order to survive the competition. As a late-comer in the export of textile, Vietnam has already become an important competitor to China in the U.S. and the EU markets. The country’s potential should by no means be overlooked. Although it is not a WTO member, it has been taken extra care of by the U.S. and the EU.
It is fair to foresee a new hike of international competition for the Chinese enterprises.
4. The influence of the future of Renminbin exchange rate on the textile and apparel industry should not be dismissed
A latest report released by J.P.Morgan indicated that textile industry would be the first to be affected if Renminbi were appreciated. The report said that the net profit of the textile industry was a few percentage points less than consumer industries, therefore, the textile industry had few profit to offset the influence of the currency revaluation. Furthermore, the currency appreciation will also raise the industry’s labour cost and fixed cost. The industry might be forced to raise the price of commodities, which might result in a loss of some markets.
5. Supply-demand conflicts in coal, electricity, oil and transportation are still severe
According to the analysis of the National Commission of Development and Reform, currently Chinese economy is in an upward period of a new round of growth cycle. Supply of coal, electricity, oil and transportation could not meet the demand. The state has injected more inputs into such weak sectors as energy and transportation, but construction needs time, and it is difficult to totally solve the supply-demand conflicts in coal, electricity, oil and transportation in a short period of time. Therefore, enterprises will continue to face the shortage of transportation, coal, electricity and oil and the hike of cost.
In a nutshell, opportunities and challenges coexist for the international trade of China’s textile and apparel industry in 2005. Taking all factors into consideration, we estimate that export of China’s textile and apparel will slow down in 2005, but may still increase by about 15%, achieving more than 100 billion dollars of export value.