China is building tech intensive textile industry, leaving low value business

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Since 1949, textiles are a traditional industry in China, which can be divided into two sectors- the textile sector and the clothing sector. The industry, one of the industries in modern China, has experienced dramatic transformation and become the biggest exporters of textile and clothing (T&C) to the world. However, it has been discussed a lot for past few years that China is leaving its textile and garments business. Is China really doing so? The question comes, as still China is the number one textile and clothing exporter to the world and producing more than 43.1% of global demand.

As per the 13th fiver-year plan of Chinese government for the year 2016 to 2020 periods, it is clear that China strategically is moving towards more value adding tech intensive products. The plan wants to maintain traditional market share and grow more on the high value adding product range.

But real market data shows that the country is losing its export market drastically from 2015 in almost product ranges in the textiles and clothing arena.

China, giant producer in wide range of T&C categories

T&C industry is much outstretched in China and there are eight major categories such as Garment, Cotton fabrics, Chemical fabrics, Wool fabrics, Silk fabrics, Knitted fabrics, Textile machinery and Bast fiber. Production capabilities of all categories T&C is remaining unparalleled in the world. According to China Textile Industry Development Report (2014/2015) textile fiber production in China exceeded 50 million tons, accounting for 54.36 percent of world share. As much as 64.2 percent of the world’s chemical fibers, 64.1 percent of synthetic fibers and 26.2 percent of cotton were produced in China. On the other hand, apparel production in China reached 29.9 billion units in 2014, which is 10.4 percent higher from 2013. This massive production capacity of China is showing a clear view that very likely China will remain the top apparel-sourcing goal for world’s buyers.

China is losing its T&C market share

The number one textile and clothing exporter ‘China’ is gradually losing its market share as there are few signs that shows it. Total value of China’s exports of apparel and clothing accessories (HS code 61 and 62) in the world was 147.79 billion USD in 2016, which was 162.35 billion USD in 2015 and 173.44 billion USD in 2014 and 165.04 billion USD in 2013, according to ITC (International Trace Corporation) data from World Trade Organization (WTO). This data clearly shows that Chinese apparel export was having sharp growth till 2014 and afterwards it is having sharp decline. In 2014 Chinese global apparel export was the highest ever and afterwards in two years it has lost 14.79 percent of its exports.

Recent trend of Chinese textiles and clothing (Chapter 56 to 63) exports, according to table 1 data from ITC WTO, is showing that export of total Textiles & Clothing (Chapter 56 to 63) was 200.935 USD billion in 2012, 223.651 USD billion in 2013, 236.061 USD billion in 2014, 223.362 USD billion in 2015 and 206.984 USD billion in 2016. Only export of chapter 56 (Wadding, felt and nonwovens; special yarns; twine, cordage, ropes and cables and articles thereof) has maintained a notable growth. On the other hand, exports of chapter 57 to 63 declined significantly after 2014. The total value of nonwoven and technical textiles (chapter 56’s) export was 3.54 billion USD in 2012, 4.12 USD billion in 2013, 4.59 USD billion in 2014, 4.86 USD billion in 2015 and 4.93 USD billion in 2016. However, other products failed to maintain any sharp growth, especially after 2014. That means unless the high-end technical products, China is leaving its textile and clothing business from 2015 and onwards.

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Export trend of textile fiber including both natural and manmade fibers (Chapter 50 to 55) was also showing same pattern. Second part of table 1 is showing that export of total textiles Fiber was 45.12 billion USD in 2013, 50.31 billion USD in 2014, 51.53 billion USD in 2015 and 48.01 billion USD in 2016. All chapters from 50 to 55 observed a great slowdown after 2014.

Finally last part of table 1 shows that the total Chinese exports of Textiles and Clothing’s including fibers (Chapter 50-63) have declined significantly since 2014. In 2013, total exports of Textiles and Clothing’s including fibers was 273.95 USD billion, which was 287.58 USD billion in 2014, 273.57 USD billion in 2015 and 255.07 USD billion in 2016.

Figure 1: Showing trend of Chinese export from product ranges shown in HS Code Chapter 56 to 63. The export value is in billion USD from 2012 to 2016. For exact figures please refer table 1.
Figure 1: Showing trend of Chinese export from product ranges shown in HS Code Chapter 56 to 63. The export value is in billion USD from 2012 to 2016. For exact figures please refer table 1.
Figure 2: Showing trend of Chinese export from product ranges shown in HS Code Chapter 50 to 55. The export value is in billion USD from 2012 to 2016. For exact figures please refer table 1.
Figure 2: Showing trend of Chinese export from product ranges shown in HS Code Chapter 50 to 55. The export value is in billion USD from 2012 to 2016. For exact figures please refer table 1.
Figure 3: Showing trend of Chinese total textile and clothing export including fibers shown in HS Code Chapter 50 to 63. The export value is in billion USD from 2012 to 2016.
Figure 3: Showing trend of Chinese total textile and clothing export including fibers shown in HS Code Chapter 50 to 63. The export value is in billion USD from 2012 to 2016.

A brief analysis of China’s five-year plan

In March 2016, China’s Ministry of Industry and Information Technology (MIIT) has released its development plan, the 13th Five-Year Plan for period 2016-2020, for the apparel and textile industry, where China itself is expecting a slower growth for the industry (growth rate was 8.5% in 2011-2015 whereas the plan set a 6-7% goal for next five-year). Similarly fiber end-use ratio and annual labor productivity growth rate were set lower than previous plan. Exports of Chinese textile and apparel are decreasing notably and the plan did not set a fix growth rate, but said to maintain a stable market share in the world export market.

Making the T&C industry sustainable, the plan set a conservative target for energy and water consumption (per unit of industrial value added) and emission of total pollutants. At the same time, China set a target to build a more tech-intensive T&C industry.

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Investment in the T&C industry

According to the figure 4, T&C industry is receiving steadily growing investment through last 7 years. Even in the period when its export was going down, the country maintained a strong growth in investment. In 2015, investment growth rate was 15 percent, which was 13.4% in 2014 and 17.3 percent in 2013.

Investment in the China and apparel industry
Figure 4: Showing investment trend in the T&C industry of China.

In fine, T&C industry of China is being changed for several reasons including, higher costs of production and scarcity of a skilled labor force. Exports are declining but the sector is still remaining unbeatable in the world market. On the other hand, textile production in 2017 will continue to update with depreciation and the rise of cotton prices. Since the Renminbi Exchange Rate Reform in 2015, the yuan has devalued more than 11 percent and the depreciation is expected to boost export income, increase the competitiveness of exports and help export-oriented manufacturers.

However, whatever the export growth or decline is China as a vibrant manufacturing country will surely maintain core value adding sustainable business portions in textile and apparel value chain. With great rise in domestic consumption, Chinese companies are becoming global giants day by day. Chinese new face of development in research and high product range, China clearly going to lead the textile and clothing world for coming many years.

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