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Cover Story | November 2018

China's booming textile trade

China’s textile industry is accounting for over 60 per cent of the world chemical and synthetic fibre production, and it is second in cotton production, says Avinash Mayekar of Suvin Advisors.

Today, Chinese goods are a part and parcel of day-to-day life for the entire world. China makes and sells more manufacturing goods than any other country on the planet.

The range of Chinese goods includes iron, steel, aluminum, textiles, cement, chemicals, toys, electronics, rail cars, ships, aircrafts, and many other products. Despite the fact that Chinese products are often questioned for their reliability in India, these products are over flooded in global markets. Their capability to produce as per market demand has made them popular in the consumer goods market.

Currently, China has a per capita GDP of $8,123. Its dominance in manufacturing sector is quite visible in the textile market as well. China is world number one in textile industry having a global share of 40 per cent and the distant second country, India is having a share of 5.8 per cent only.

China’s textile industry is accounting for over 60 per cent of the world chemical and synthetic fibre production, and it is second in cotton production just after India as on 2016 accounting for 20 per cent of the total global production. It is also world’s largest textile garment producer and exporter and its international market share exceeds one third of the world.

The Chinese textile industry has six major sub-industries namely cotton, chemical fibre textile and printing and dyeing finishing, wool textile and dyeing finishing, linen textile, silk textile and finishing, finished textile product manufacturing as well as knitted and woven product. In 2017, China’s textile and apparel exports were valued at $266.97 billion of which 59 per cent was contributed by apparel and 41 per cent by textiles and it is increasing at a CAGR of 5 per cent in the last 10 years, whereas imports were at $28 billion.

China has high dominance in overall textiles and focuses more on the finished garments. China’s textile industry maintained a moderate rise in the first quarter of 2016. The textile exports grew by 22.16 per cent reaching EUR 24.6 billion. The growth of exports to the European Union and the United States recorded a sharp decline to 9.7 per cent as the set quota limits reached the sum of EUR 7.3 billion, 47 percentage points lower than the growth rate of the same period last year.

On the other hand, textile exports from Mainland China to Japan, Hong Kong, Republic of Korea and the Association of Southeast Asian Nations (ASEAN), which have no quota restrictions, jumped to 28.38 per cent. That means 23.32 percentage points higher than the growth recorded in the same period last year. (Source: report published by EUSME centre)

The major export destinations for China’s textile trade are USA and Japan having a share of 16 per cent and 8 per cent with trade value of $42.5 billion and $19.7 billion respectively in 2017. China has strong infrastructure for finishing and apparel manufacturing and has strong presence in retailing. They also have strong base for man-made filaments and staple yarns. China is dominating the textile market as it is having intense manpower. Although China has the highest labour wages amongst the competing nations it has developed sufficient training infrastructure to meet the industry requirements. China has the highest power cost but the power supply is consistent and reliable.

In China, all the industrial cities are connected by six lane express highways. Most of the units are in industrial zones that are set up with state-of-the-art facilities. They have five to six tier fly-overs and underground tunnels. With good infrastructure in place, the industry has better scope to flourish. The transit time taken by the Chinese units to move their goods from factories to destination is just a fortnight.

Despite having several trade advantages China’s textile trade is slowly declining the major reason being this is the high labour cost and shift of focus on other more profitable sectors. China’s has [however] overcome this problem by strategically investing in other countries like Vietnam, Cambodia and some other African countries for the manufacturing needs and only the end product retailing is being done by China. This move of China has helped them in providing competitive prices by retaining their share in global market. The technological advances especially the complete automated operations have helped China to increase productivity and lower the per capita cost.

As far as textile trade with China is concerned, the Indian textile entrepreneurs are not sure what strategy is to be adopted as most of the times China has shown different colors at different circumstances. For instance, a decade back China started expanding its business in other areas apart from textile & indicated signal for their slow exit from textiles, however three to four years back China again started procuring huge quantities of yarn from India. This step of China resulted in setting up of many new yarn exporting spinning companies in India focusing only on China as their export market. These Chinese markets were not concerned with the quality of yarn but were demanding lower rates. So naturally, Indian counterparts were ready to supply inferior quality of yarn to China as it was exporting huge quantities.

This export of inferior yarn from India continued only for about two to three years and later China stopped all imports from India. Thus the units which were setup for supplying only to China started suffering the consequences. Similar case took place when China started piling stocks of raw cotton from all over the globe.

Another instance is when five to six years back China began exporting fabric at very cheap rates. The prices offered for the fabric by China were equivalent to the manufacturing cost of yarn itself. This strategy of China impacted the large number of textile corporates in India who were planning for investments in weaving to think otherwise. This forced the Indian entrepreneurs to take a step back from their investments as they would not be able to compete with the cheap rates offered by China. But of late China has almost stopped exporting fabric to India and so Indian weaving industry has started growing which could have taken place long back.

These incidences indicate that China’s country strategy is highly unpredictable and has created many problems for Indian players whose target market is China. Even in the case of processed fabric, we are still dependent on import of finished process fabric for supplying our garment units, and in near time, there will be need for setting up these plants in order to survive without falling prey to another strategy of China. It is true that due to China’s constantly changing strategy, India is not able to completely strengthen its weaving, knitting and finishing processes thereby damaging the entire value chain. It’s high time that we as a country do not depend on another countries strategy but come up with our own strategies to maximise our strengths and overcome our weaknesses.

Table: Manufacturing competitiveness in terms of raw material

Material Units China
Cotton production
Million bales (480pound) 24.5
Acrylic 000 tonnes 640
Polyester staple 000 tonnes 9,030
Polyester filament 000 tonnes 23,909
Nylon filament 000 tonnes 1,955
Polypropylene S+F 000 tonnes 700
Cellulosic S+F 000 tonnes

Source: Monthly Economic Letter of Cotton Incorporated
TXC Office & Suvin Analysis

Table: Manufacturing competitiveness in terms of factor costs:

Units China
Labour Cost USD/ Month 150-350
Power Cost USD/ Kwh 0.10

The article is authored by Avinash Mayekar,
MD & CEO, Suvin Advisors

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