It has been 10 years since China accessed to the WTO on 11 December 2001. During the decade, the Chinese textile industry has grasped the opportunities encountered, and proactively tackled various challenges. As a result, it has been dubbed the "textile manufacturing powerhouse".
In the last century, China's textile industry implemented reform of state-owned enterprises and modification of industrial structure. This was a long and difficult process, yet has built up a solid foundation for its further growth after China entered the WTO. The industry has grabbed the opportunity of integrating into the global economy and its expanding domestic market, witnessing 10 years of remarkable achievements.
The Chinese textile industry invested RMB403.7 billion (about US$63.5 billion) in 2010, compared with RMB43 billion (about US$6.76 billion) in 2001, an 8.38 times growth. This has manifested an impressive development at a fast pace.
In 2010, China's volume of textile fibers processing made up about 40% of the world's total. Chinese textile enterprises with annual sales volume of over RMB20 million (above-scale enterprises) manufactured 30.89 million tons of chemical fiber, 27.17 million tons of yarn and 65.5 billion meters of fabric, 3.67, 3.57 and 2.26 times respectively that of 2001 before China accessed to the WTO, all top-ranked in the world. Besides, these above-scale textile enterprises reached total production output of RMB46,707 trillion (US$7,349.18 trillion), 5.13 times more than RMB910.3 billion (US$143.23 billion) in 2001.
After China's accession to the WTO, a more open environment has been created for the China-made textile and apparel for exports. Consequently, its export turnover has continued to rise and doubled every four to five years. China's textile and apparel exports in 2001 and 2005 were US$54.3 billion and US$117.5 billion respectively, making up 15% and 24% respectively in the global market. In 2010, its exports hit US$212 billion, with its global market share that rose to 33%.
The exponential growth of China's domestic market is also a driving force to boost its textile industry. In 2010, 81.7% of its production output was for domestic consumption, compared with 67.6% in 2001. For the above-size enterprises, the textile industry's domestic output rose from RMB582.1 billion in 2001 to RMB3717.7 billion in 2010.
Strengthening industry's competitiveness
After accessing to the WTO, China's textile industry has further strengthened its existing three advantages and consolidated its status in the international market. The first advantage is the traditional comparative advantage of China's textile industry in resources and costs. China is a major producer of cotton, hemp and silk with abundant natural resources and labor supply.
The overall labor productivity went up from RMB125,000 (about US$19,670) in output value per capita in 2001 to RMB210,000 (about US$33,040) in 2005 and further to RMB417,000 (about US$65,610) in 2010.
 The conference in which China's accession to the WTO was announced in 2001 |
Another important advantage is China's capacity of industrial chain. In the three industrial chains including garment, home textiles and industrial textiles, the garment-led industrial chain of weaving and dyeing sector is most comprehensive. Its production output of garment is 60 billion pieces a year; its yarns, cloth and fabrics are almost all manufactured in China.
Structural modification has seen a new progress, with rapid development in sophisticated processing and emerging fields. Printing and dyeing fabric and non-woven fabric with high added-value and technical level have witnessed the fastest growth, with production output having increased by 19.6 times and 21.1 times respectively in 2010 compared with 2001. Besides, the development and industrialization of carbon fiber and other hi-tech products have also obtained remarkable progress.
The past 10 years can be divided into two phases, marked by the cancellation of global textile and apparel quota restrictions on January 1, 2005.
The Agreement for Textiles and Clothing (ATC Agreement) remained effective from 1 January 1995 to 31 December 2004. It regulated the methods of cancellation of trade restrictions of textile and apparel, including cancelling the products listed in the appendix to the ATC Agreement, and expanding the import quota of the products under restrictions.
Quotas of textile and apparel were finally abolished and fully managed by WTO with the expiration of ATC Agreement.
Following the extended import quotas and cancellation of a series of quotas in many countries, China's textile industry continued to grow and its exports went up year by year.
Post-quota period
The path wasn't totally smooth after China's accession to WTO. China is also restricted by the articles of "special protectionist tariffs". WTO members have set up special safeguard rules for the textiles made in China, i.e. "Paragraph 242", which refers to paragraph 242 of the Report of the Working Party on the Accession of China to the World Trade Organization (Accession Agreement) and is more easily operated than other articles of "special protectionist tariffs".
According to the rule, if the exports of China-made textile would create disruption to the market of any WTO member country during 2005-2008, such member country may temporarily implement restriction, but it can only implement one time for the same category within four years, and such restriction can only be effective within one year each time. Textile and apparel are the major products China exports for foreign exchange and play a main role in the international trade relief after China became a WTO member.
According to the statistics of the Ministry of Commerce of China, there were 45 cases relating to anti-dumping against China-made textile and apparel in 2009. In recent two years, the industries in the coastal regions of China were shifted to other places, and the textile industries of Southeast Asian countries swiftly rose due to their cost advantage.
Trade protection measures can be generally divided into policy category and technology category.
Policy-related trade protection measures cover anti-dumping, anti-allowance and special safeguard measures, which are mainly against those countries at the same competitive level as China in the international market, such as India, Pakistan and other developing countries. Technology-related trade protection measures are mostly concentrated in the developed economies, such as the US, Japan, Europe, Canada and so on.
Also, a number of new regulations were formulated or renewed in the world, for example, REACH, eco-friendly label standard for textiles, Oeko-Tex 100 certification standard and so on. The policy-related or technology-related trade protection measures brought cost pressure and risk to the Chinese textile and apparel exports.
Financial crisis
Before the financial crisis in 2008, changes already occurred within China's textile industry. The investment rate of the textile industry of 12 provinces and cities in China's eastern region was rapidly increasing and reached the peak (76%) in 2005. It gradually decreased since 2006 and stood at 53.5% in 2010, which saw 22.5% decrease; the investment rate of nine provinces in China's central region rose from 16.9% in 2001 to 39.7% in 2010, up by 22.8%.
The year 2007 was very different for China. The global economy, especially China's economy, showed signs of overheating, and most industries grew at high speed. The Chinese textile industry entered a period of modification, especially in the eastern region. Textile enterprises at the coastal region shut down their factories due to rising costs and appreciation of renminbi. This indicated that the growth of the textile industry in eastern China was not sustainable and structure-related contradiction appeared.
While the textile industry in China was being shifted to the central and western regions of China, the global financial crisis in 2008 disturbed the normal operation of the economy. The Chinese government revised its macro-control policy. The moderately loose monetary policy that was implemented at the end of 2008 made the textile industry resume its rapid development, which reduced the pressure of modification and upgrading of the textile industry in the eastern region, and also delayed the course of shifting from the eastern region to the western region.
Since 2009, the newly added capacity of the textile industry in China's coastal region could not play its role and mostly became idle. The optimal chance for shifting to the central and western regions of China was interrupted.
After the crisis, domestic prices in China drastically rose. In 2011, China implemented the prudent monetary policy and tightened monetary measures, coupled with the rising costs, a number of small- and medium-sized textile enterprises in the eastern region were in trouble and the situation was even worse than that in 2007 and 2008.
China's central and western region also faced a tough time in 2007. Under the circumstances, previous international orders of the eastern region are directly shifted to Southeast Asia.
Developing China into a primary textile power
China's textile industry has undergone rapid development after its accession to WTO. But competition has become even fiercer, and the trend is that China needs to shift its focus from low- to medium-grade textile products to medium- and high-grade products. The China National Textile and Apparel Council has made plans to take the industry to new height in the next 10 years.
China's textile industry is now faced with challenges such as lack of manpower, lack of capital, insufficient power supply, high costs and high taxes. These require the textile industry of China to improve competitiveness in industrial upgrading with innovation, and seek breakthrough in brand development.
China's textile industry will modify its mode of economic growth, pay more attention to quality, innovation, branding and quick response rather than price and quantity, so as to achieve sustainable development and become a textile power in scale and in strength.
Impacts on Asian manufacturing countries
China's development in its textile and apparel industry has been remarkable since it joined the WTO. To some extent, this has affected other manufacturing countries in Asia.
According to some Indian experts, one of the important events that have taken place in the Indian textile industry is that major textile global players are setting up their manufacturing units in India to take advantage of the country's highly skilled workforce, relatively cheap and abundant labor pool.
Some Indian experts believe that the golden era of Chinese textile and apparel exports is over and the production base of global textiles is gradually shifting from China to India, Pakistan and other lower cost destinations like Vietnam and Bangladesh and so on.
They note that as the Chinese textile industry is hit by the rise in labor wages, price of yarn, fabrics and garments, there has been relocation of factories to other economies.
According to WTO trade statistics, during 2011, India has ceded more ground to Vietnam and Indonesia in the US market for both textile and apparel, while Bangladesh has been ramping up its market share in the EU through the LDC (Least Developed Country) concession that allows it zero duty access to the European markets.
Industry experts in Bangladesh noted that the change in European Union's (EU) import rules gives Bangladesh (and other LDCs) a significant competitive advantage over competitors. The change gives the Bangladesh duty-free access to the EU for clothes and other finished goods. China, India, Pakistan and Sri Lanka are Bangladesh's main competitors in garment sector but they are not LDCs and will be liable for duty.
On the ramifications of these new rules by EU, sources said that in the first few months of 2011, there was a surge in the value of Bangladeshi garment exports as the new rule has taken effect. Plants from China and India, amongst others, have begun setting up in Bangladesh in an effort to secure a foothold in the largely domestically-owned industry.
 A garment factory in Vietnam (Image source: Kaosha Textile) |
For years, Vietnamese consumers have been wearing a lot of China-made garments, while garment manufacturers have been importing materials from China, because of their competitive prices and product diversity.
In the garment sector, Vietnam's competition with China is not only on export markets but also on China's own domestic market. Many Chinese products are imported to Vietnam, from kidswear to sportswear, lingerie to protective clothes. Therefore, Vietnamese manufacturers have begun to focus more on developing their own domestic market as the best solution to offset their decline in exports.
"Alongside exports, the manufacturers come back to the local market. We are trying to retake the domestic market currently covered by the imported brands," said Le Trung Hai, Vice Chairman of the Vietnam Textile and Apparel Association (VITAS).
For the textile sector, Vietnam is still relying heavily on the imported materials and China is one the biggest suppliers of these for years.
According to the Vietnam Ministry of Industry and Trade (MOIT), the imports of the materials for textile, garment and footwear during January to June of 2011 reached US$1.48 billion, and among them, China-imported materials were valued US$406.8 million, accounting for 27.5% of total materials imported.
 A Thailand-based production facility of garment (Image source: VT Garment) |
The Thai textile and garment industry has been affected seriously by Chinese textile and garment goods, especially the garment sector, Silpsarnvitch Yuttana, Executive Manager of Thai Garment Manufacturers Association (TGMA) told ATA Journal.
"Thailand's garment export has seen growth almost every year. But if you dig down to each product category, you will find that only three categories have growth in big number. They are sport wear, lingerie, and kidswear. They have now become product champion of Thailand. Other products don't seem to grow because of Chinese effects."
The textile sector doesn't seem to be affected much by China because of its well-developed production as well as exports. Among the ASEAN countries, "made-in-Thailand" textiles are at the top quality and have recently exported well to these neighboring countries.
"Textile business is quite good. We export a lot to our neighboring countries in ASEAN like Vietnam, Laos, Cambodia and Burma, because they have no local textile industries and many Thai entrepreneurs invest in garment factories abroad, with fabric sent from Thailand to their offshore factories as well," added Mr Yuttana.
However, the Thai products are receiving more and more orders from big customers who want to reduce their dependence on Chinese products, he said.
"Japan is now one of the biggest and most important customers especially in the near future, as they want to shift some orders from China to other countries. Thus, Thailand may produce some items for them, and will make more exports soon."
Positive signs in Cambodia
Cambodia solely focuses on the garment sector because the textile sector is still very small there. Nearly all materials for garment production are imported from China. In addition, Hong Kong and Taiwan are two major investors of foreign direct investment (FDI) in Cambodia's garment industry. These manufacturers tend to import the materials from China.
The rapid development of the Chinese textile and garment industry appears to generate positive effect on the Cambodian textile and garment industry. "Cambodia does not produce any textiles and as such most of our raw materials such as fabrics are mainly imported from China," Ken Loo, Secretary General of Garment Manufacturers Association in Cambodia (GMAC) told ATA Journal.
Regarding the garment sector, almost all Cambodia-made products are for exports, and there seems to be no competition on the domestic market.
"In addition, we do not really have a local market, and thus there is no situation where Chinese products are competing with locally produced products," added Mr Loo. [ATA Journal]
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