A Tianjin carpet factory, 1980s. Automation has since changed textile production methods. PHOTO BY JOAN LEBOLD COHEN.
China became a major textile manufacturer beginning in the early 1980s. Its industry quickly expanded to become a top producer and, by the late 1990s, China had become the world’s leading textile-exporting nation. Today, expansion into technical textile products reflects a general trend toward innovation and higher-value products for the domestic as well as export markets.
Textile production has played a key role in the initial stages industrial development in China and its East Asian neighbors. Because it is labor intensive and does not require a large amount of capital, the textile and clothing industry is well-suited to developing economies that have little capital and plenty of low-wage labor. As the industry matures, exports generate foreign capital, mechanization and production techniques become more sophisticated, and wages rise. This leads to a shift toward more capital-intensive and higher-value industries.
Textile Industry in the Newly Industrializing Economies
The newly industrialized economies (NIEs) of Hong Kong, Taiwan, and South Korea began developing their textile and clothing industries in the 1950s and 1960s. Production and exports steadily increased throughout the 1970s as did their export share in the Japanese, U.S., and European markets. As their industries matured, they shifted toward more high-value products, such as man-made fibers. By the end of the 1970s and into the 1980s, the quality of synthetic fibers coming from the Asian NIEs had improved enough to be competitive with other exporting countries.
Hong Kong became the world’s leading clothing exporter from 1973 to 1977 and again from 1980 to 1985. Taiwan’s industry peaked in the 1980s, briefly becoming the leading apparel exporter to the U.S. market and the second leading producer of manmade fibers (after the United States). Throughout the 1980s, the textiles industry played a critical role in South Korea’s exports, consisting of US$11.9 billion, or 19.6 percent of total export earnings. In 1989, the total value of South Korea’s textile exports reached US$15.34 billion, an 8 percent increase over the previous year.
By the late 1980s, the low-wage advantage that the Asian NIEs held in the labor-intensive clothing segment began to dwindle as their industries advanced and labor costs increased. Their textile exports, accompanied by a shift to synthetic fibers, remained at around a quarter of total world trade in the 1990s, while their share of garment exports fell steadily from around a quarter in the 1980s and early 1990s to 16 percent by 1999.
A common response to this situation was for the NIEs to upgrade their technology and the quality of their products. Production was upgraded through automation, mechanization, and computer-aided design. Emphasis was placed on producing upmarket and high-fashion apparel. Taiwan and South Korea increasingly moved away from the production of textiles and clothing to manufacturing value-added products such as electronics and semiconductors. In addition, as the NIEs and Japan increasingly outsourced the labor-intensive manufacturing of such items as clothing to China and other low-cost producers, they were able to devote more resources to higher value-added activities while still maintaining demand for their textile exports.
Trade Barriers and Market Shifts
Throughout their development, East Asian textile exporters confronted challenges that pushed the industry to undergo structural reform. First, considerable trade barriers existed in the global textile trade. In 1974, the Multi Fibre Arrangement (MFA) was adopted by the United States, Canada, and Europe. The arrangement set quotas on the imports of textiles and clothing to the United States, Canada and the European Union. It was intended to prevent textile and garment industry jobs in developed nations from moving to developing nations where manufacturing and labor was cheaper.
The effects of the MFA in East Asia were complex. For example, limits on exports for Japan and Hong Kong led to greater export opportunities for Taiwan and South Korea. When quotas were placed on exports from Taiwan and South Korea, Thailand and Indonesia reaped the benefits. This created a shift in the market in which investment in textile production spread throughout the region and often to those countries not yet limited by the MFA. What had been an attempt to limit exports sometimes resulted in greater exports from countries that otherwise might not have attracted the capital and expertise to develop a textile industry of their own.
In 1995, the World Trade Organization (WTO) adopted the Agreement on Textiles and Clothing, which called for a 10-year phaseout of the MFA. And in 2005, the MFA ended, giving all WTO members unrestricted access to the U.S., Canadian, and EU markets.
A second challenge faced by East Asian nations was the increase in labor and production costs that accompanied the expansion of their textile industries. As costs increased, their textile industries became more vulnerable to competition from low-cost producers. In many cases, this resulted in relocation of manufacturing facilities to the very countries that housed their low-cost competitors. Hong Kong, for example, relocated factories to China on a large scale beginning in the 1980s, bringing to the mainland the benefits of massive investments and training. Japan also began moving its manufacturing operations offshore in the late 1980s and early 1990s. China received the bulk of these investments, seeing new Japanese-backed plants go from 23 to 187 in the late 1980s while spending rose from US$16 million to US$120 million.
Third, the formation of regional trade blocs, such as the European Union in 1993 and the North American Free Trade Agreement in 1994, threatened market shares of the NIEs in Europe and North America. Hong Kong was hit especially hard, for example, by the erosion of its U.S. market share to lower-cost Mexican and Canadian producers.
China’s Textiles and Clothing Industry
China became a major player in the world textile market after it initiated market reforms in the early 1980s. The production value of its textile and clothing industry grew at an annual rate of 15.6 percent from 1986 to 1995, while exports increased from US$8.5 billion to US$38 billion. In 1991, China surpassed Italy to become the economy with the biggest trade surplus in textiles and clothing. In 1999, after a decade of 13 percent annual growth, China’s clothing sector captured 16.2 percent of world trade, while Hong Kong garnered 12 percent. In 1997, and again in 1999, China passed Germany as the world’s top textile exporter.
However, as a socialist economy undergoing market reforms, China’s economy suffered from the burden of money-losing state-owned enterprises (SOEs). The SOEs dominated the textile industry but were plagued by labor redundancy, high pension and benefit costs, and outdated equipment. Reform of these enterprises took precedence in government efforts to transform the state-owned sector in 1998. As a result, money-losing factories were closed by the hundreds, 1.16 million workers were laid off, and 9.6 million antiquated cotton spindles were taken out of production by 1999.
After China joined the WTO at the end of 2001, it began upgrading its textile and clothing manufacturing equipment. In 2002, it imported US$3.5 billion wo
rth of advanced equipment, mainly from Western textile producers who had outsourced production to lower-cost producer nations such as China and India. With this new equipment, Chinese textile manufacturers improved their productivity and the quality of their textile exports.
China’s textile industry also saw an increase in investment from internationally renowned corporations, such as Toray Industries and Asahi Chemical Industry of Japan, DuPont of the United States, BSF of Germany, and others from Hong Kong, Taiwan and South Korea. Enterprises from other sectors, such as coal, steel, and chemical manufacturing, also stepped into China’s textiles industry with big investment projects. This influx of funds helped finance upgrades in textile and clothing manufacturing equipment.
In 2003, the industry saw its exports reach US$80.4 billion, a jump of 27 percent over the previous year, accounting for 18 percent of the country’s total export value. But with the surge in exports came problems in the form of trade friction with Western nations, especially the United States. Claiming that Chinese imports were creating a disruption in the U.S. market, the U.S. Department of Commerce announced in 2005 that it was imposing temporary quotas on cotton shirts, cotton trousers, and underwear from China. The announcement came just five months after the lifting of quotas under the Multi Fibre Arrangement.
In 2007, China’s textiles and apparel exports reached US$171 billion, a rise of 16 percent year on year, but 8.5 percentage points lower than the previous year. In the first two months of 2008, China’s exports of textiles and clothing grew by 8.19 percent, a drop of 30.9 percentage points over the previous comparable period. Factors contributing to the slowdown included a higher-valued Chinese currency, cuts in export tax rebates, rising raw materials costs, and higher wages. Since 2003, China’s average wages have risen more than 50 percent, and the value of the yuan has gained about 18 percent against the U.S. dollar since lifting the unit’s peg in 2005. This has made Chinese textiles more expensive and has taken away their cost advantages compared to products from Vietnam, Bangladesh, Pakistan, and India.
Although some in China’s textile and apparel industry have appealed to the government for help, such as adjustment of the export tax rebate, many experts and industry insiders realize that a slowing of the industry offers a good opportunity for restructuring. Many see China’s industry shifting away from production capacity to innovation and product upgrades. For example, the China National Textile and Apparel Council (CNTAC) urged the country’s textile manufacturers to focus on innovation, environmentally friendly production methods, and high-end apparel for the international market. The council supports a strategy of developing Chinese brands and targeting overseas markets with high-end, China-made fabrics and Chinese-designed clothing. Innovation and technological advancement are the two primary directions for the industry at this time, according to the council.
Meanwhile, the government has established a Textile Industry Technical Advancement and Development Program as part of its Eleventh Five-Year Plan, and set up a fund of $180 million to drive technological development and innovation. Many textile factories have continued to upgrade their equipment. According to the German Engineering Federation, China is one of the largest buyers of German textile machines. The Chinese government is seeking faster modernization and higher value, the federation said in a recent report.
Future Trends in the Industry
One of the most promising areas for the future of the textiles industry is technical textiles, which includes those products used for their performance or functional characteristics rather than for their aesthetics. Technical textiles account for about one-third of the world’s annual consumption of fibers, both natural and manmade. Volume growth in developing countries is expected to average between 4 percent and 5 percent annually to 2010, with a large portion of production coming from China and India. China imported nearly 500,000 tons of technical textiles in 2004, and its consumption has averaged 11 percent a year since 1998.
As China has developed into a consumer society, its demand has grown for technical textile products, such as diapers and feminine hygiene items. Higher standards for medical care have led to an increase in demand for disposable bed sheets, surgical drapes, gowns, and caps. The microelectronics industry has also spurred growth through demand for clean-room (protective) clothing. And the rise in car ownership has resulted in a sharp jump in demand for technical textiles in the auto manufacturing sector.
Chinese companies have increasingly expanded into specialty areas previously occupied by producers in developed countries. And its strategy of innovation and self-sufficiency is likely to be applied to the technical textiles segment. Success in this area will likely help it turn the tables to become a major exporter of technical textile products in the future, although the global financial meltdown of 2008 makes predicting future trends difficult.
The financial meltdown is likely to affect China and its Asian neighbors adversely in the near future: even number-one China has experienced a drop of 10.7% in the growth rate of its textile and garment exports in 2008 as compared to 2007. The State Council announced on 4 February, 2009 a comprehensive national plan to reinvigorate China’s textile industry by increasing the tax rebate rate for textile and garment exports to 15%, providing financial assistance for technology upgrades and branding, promotion of the domestic market, and other measures.
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A shirt factory at the Yangzhou Commune in the 1970s. The textile industry in China would begin to see market reforms in the 1980s, and China became a major player in the world textile market. PHOTO BY JOAN LEBOLD COHEN.
In the global economic meltdown, inventory stockpiles are a threat to all industries. PHOTO BY JOAN LEBOLD COHEN.
Textile and Clothing Industry (F?ngzh? fúzhu?ngyè ?????)|F?ngzh? fúzhu?ngyè ????? (Textile and Clothing Industry)