China’s textiles exports were down in 2016 from prior years, but how international pundits interpret that is not the same as what the Chinese government claims.
Pundits like to attribute lower exports to higher wages, as though paying high wages is a problem, and warn that business will be lost to low wage countries (true). But in China long term business goals are set by the government for its own reasons, and the government sees it differently.
China’s textiles industry consists of primarily vertical supply chains, from raw cotton and silk production all the way up to finished garment manufacturing. In 1990 industry exports were $7.2 billion. By 2015 they were a whopping $283.9 billion. But in early 2016 they fell by 15.7% – mainly exports to Europe, Russia, and Japan – and have continued to fall since. Meanwhile, worker salaries are five times what they were five years ago.
Plunkett Research views this as Chinese manufacturers being in a “much less favourable position” than before. Because of higher wages, Chinese apparel manufacturing is moving to competitive, low-cost nations in Africa and Asia, they say. Manufacturers appear to be chasing those extremely low wages to keep down their costs and the subsequent price they charge to the end buyer. Is this a competition worth catering to? China thinks not.
Textiles manufacturers in China have had a hard time attracting and keeping workers in recent years. Workers are gaining a voice and are moving from low wage firms to those willing to pay higher wages – from textiles and apparel piecing to specialty clothing to automobiles or telecommunications and the government encourages it. They’ve also been calling for better working conditions, especially in reaction to the textiles building collapse in Bangladesh in 2013.
Meanwhile, the government’s own five year goals run contrary to international assumptions:
1. International Assumption: China’s textile & apparel industry is mainly focused on exports.
China’s Perspective: As the Chinese worker purchasing power grew, China reduced its percentage of exports from 30% in the year 2000 to less than 17% in 2012. Its retail market is booming and China prefers it that way.
2. International Assumption: China plans to dominate world textile trade.
China’s Perspective: Contrary to that assumption, China is winding down exports of apparel and building up the domestic market.
3. International Assumption: China is losing price competitiveness in textiles.
China’s Perspective: A look at actual figures shows that exports from the rest of the world to the US went up 7.9% between 2006 and 2014, whereas China’s prices stayed about the same – still one of the lowest in the world.
4. International Assumption: Textiles and apparel are a pillar industry in China.
China’s Perspective: In fact, China is diversifying into high tech sectors. The low-end, assembly line types of apparel-making are either leaving the country or moving inland to service the Chinese populace.
It is a known fact that the Chinese government’s involvement in business is stronger than in most countries. When China wants to move in a specific direction, the government commits large sums of money to make it happen.
According to China, their goals for the textile industry have the combined effect of reducing pollution in the cities (a primary goal), strengthening domestic demand, and reducing vulnerability to fluctuations in external markets.
While this is opposes the international perspective on China’s involuntarily “losing market share,” in this industry, time will tell what the real story is.