Written by Sheng Lu and Marsha A. Dickson.
China is well known as the largest textile and apparel (T&A) producer and exporter in the world, yet China’s T&A industry is also under-going tremendous restructuring and transformation. This article intends to shed light on the broad landscape of China’s T&A industry in the years ahead. Capturing where China’s T&A industry is going from the macro perspective is critical for shaping meaningful future research agendas and identifying new research opportunities associated with the sector.
Common misunderstandings about China’s T&A industry
More or less, China’s T&A industry is commonly misunderstood in the following aspects:
Misunderstanding 1: China’s T&A industry is export-oriented. On the contrary, the export dependency ratio of China’s T&A industry, i.e. the percentage of exports within the value of total industry output, has significantly declined from over 30% in 2000 to less than 17% in 2011 (CTEI, 2012). This means that over 80% of T&A “Made in China” today actually are consumed domestically. As China’s apparel retail market starts to boom, expanding domestic sales will become an even more important priority for China’s T&A industry in the future. Not only are domestic sales growing, the International Labour Organisation cites statistics from UNIDO that suggest the increased domestic demand is contributing to growing value added by the industry in China, which will likely bring increased interest in production for local markets versus export.
Misunderstanding 2: China dominates the world T&A market. Although China is still the world’s single largest T&A exporter, it should be noted that China’s market share in some leading T&A markets is gradually declining. For example, Chinese products accounted for a 39.7% share of the EU T&A import market in 2013, down from shares of 41.4% in 2012, 43.9% in 2011 and 45.5% in 2010. Chinese products are also losing momentum in the U.S. T&A import market where Chinese market share dropped from 41.2% in 2011 to 38.9% in 2014. The grave concerns about China’s dominance in the world T&A market when the quota system was eliminated in 2005, are now proven to be unnecessary.
Misunderstanding 3: ‘Made in China’ is losing price competitiveness. It is a common argument that China’s fast rising labour cost is mainly responsible for its loss of shares in the world T&A export market. However, trade statistics suggest otherwise. For example, from 2006 to 2014, the average unit price of U.S. T&A imports from China only slightly increased from $1.45/square-meter-equivalent (SME) to $1.46/SME (up 0.7%), whereas the average unit price of T&A imports from the rest of the world increased from $1.97/SME to $2.13/SME (up 7.9%). In fact, total landed cost of T&A ‘Made in China’ remains one of the lowest in the world, thanks to China’s more efficient supply chain management, more modern infrastructure, and workers’ higher productivity than key competitors such as Vietnam and Bangladesh (OTEXA, 2015). Nonetheless, Chinese factories still face challenges in complying with the country’s labour laws regarding payment of social insurance benefits. Full compliance may increase costs but should help address growing labour activism in a country where workers are increasingly resorting to strikes and work stoppages in order to obtain these benefits, and other improvements in working conditions.
Misunderstanding 4: T&A is a pillar industry in China. Three decades after its economic opening-up and growth, China has passed the development stage which heavily relies on the T&A sector for creating jobs and generating foreign reserves. Instead, with a more diversified industry base, especially the emergence of other more advanced and capital and technology intensive sectors, T&A industry is playing a much less critical role in China’s economy today. By 2012, the T&A industry had only accounted for 3% of employment and 3.5% of industry output in China. Moreover, it won’t be too long before the total size of China’s T&A industry starts to shrink. As a matter of fact, more and more low-end and resource-intensive segments of the T&A industry, such as apparel assembly, are leaving the country and moving to other less-developed Asian economies.
Future of China’s T&A industry: policymakers’ vision
In addition to the market forces, another important factor that will shape the future of China’s T&A industry is government policy. Different from many western countries, government in China has preserved a significant role for the state in the economy.
According to the 12th Five-Year Plan, a key document which lays out policymakers’ blueprint for the development of China’s T&A industry from 2011 to 2015 (CTEI, 2011), critical changes are happening in the following four areas:
- Industry upgrading. Two aspects are particularly emphasised: one is the structure of industry output – China intends to gradually move towards more production of textiles and less of apparel. For example, by the end of 2015, apparel is expected to account for 48% of total T&A industry output, down from 51% in 2011, whereas the share of technical textiles is expected to increase from 20% to 25%. Another aspect is moving up in the value chain – China is eager to engage in more high-value added functions such as design, product development and distribution. The government is pledging financial support for the building of indigenous Chinese fashion brands and further sets the goal to have indigenous-branded products account for no less than 50% of China’s total T&A exports by the end of 2015.
- Building a “greener industry”. Recognising the rising awareness of environmental protection in the country, China ambitiously sets the compulsory goal to reduce the consumption of energy, water and emission of pollutants per GDP output in the T&A industry respectively by 20%, 30% and 10% annually (or cut by 67.2%, 83.2% and 41% cumulatively from 2011 to 2015). China also plans to double the consumption of recycled textiles from 2011 to 2015 (or nearly a 15% annual growth), hoping to reduce demand for natural resources in the process of making T&A. Already we see examples of leading Chinese manufacturers such as the Esquel Group, TAL, and the Crystal Group emerging as leaders in improving environmental performance within their factories and also taking active roles in global industry initiatives focused on sustainability.
- Moving production from the east coast to the west. To keep as many jobs in China as possible, the Chinese government encourages T&A manufacturers in the east coast to move factories to the inner part of China where the local economy is still at the nascent stage of industrialisation and cheap labour is still relatively abundant. By the end of 2015, the Western region is expected to account for 28% of China’s total T&A output, a significant increase from 17% in 2010. However, some Chinese manufacturers are taking an alternative route of investing in production in low cost countries in Africa and Southeast Asia, suggesting that Chinese PEOPLE, if not China the COUNTRY, will retain some level of prominence in global T&A production for the foreseeable future.
- Expanding domestic consumption. Stimulating local demand for T&A is also given a high priority in China. This is a move that will help both create new market opportunities for T&A companies and make them less vulnerable to the fluctuations in the international market. Specifically, government sets the goal to expand domestic consumption for apparel, home textiles and industrial textiles by 3%, 3% and 10% annually (or 15.9%, 15.9% and 61.1% cumulatively from 2011 to 2015).
Indeed, China’s T&A industry has many specialties, such as its huge size and the heavy involvement of policy in guiding industry’s future development. However, in many ways, China’s T&A industry is also NOT unique. The slow-down of export growth, relocation of low-end manufacturing, and moving towards more domestic consumption, reflects a development path for China’s T&A industry that is very similar to what has happened in other countries such as Japan, Germany, South Korea and even the United States. Understanding the stages the T&A industry has gone through in these developed economies will help us foresee how the size and nature of China’s T&A industry will continue to evolve in the years ahead.
Sheng Lu is Assistant Professor at the Department of Textiles, Fashion Merchandising and Design, University of Rhode Island. Marsha A. Dickson is Faculty Chair and Co-Director of Sustainable Apparel Initiative, at the Department of Fashion and Apparel Studies, University of Delaware. Image Credit: CC by dianaoftripoli/Flickr