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Decoding China’s duty-free facility for the knitwear sector of Bangladesh: The Chinese market dynamics (Part-1)

The economy of Bangladesh is growing with a pace of over 6 percent growth rate for more than one decade. The national perspective plan– ‘Vision 2021’ and ‘Vision 2041’ were launched to transform Bangladesh from the bracket of least developed countries (LDCs) to a middle-income country and stepping ahead gradually to a developed nation by 2041.

According to the General Economics Division (GED), Bangladesh will need to maintain an average growth rate of 9 percent for the next 20 years after 2021 to achieve the vision of becoming a developed country.

China-Duty-Free-facility-Knitwear-Bangladesh
Figure 1: China is now a growing export destination for apparel items following its strategic move towards making higher value-added items and gradually exiting from manufacturing lower value-added items.

As a part of ‘Vision 2041’, bilateral trade amplification strategies have been opted to update the industrial eco-system and economic advancement along with substantial investment in infrastructure. Predominantly, a strong trade relationship with leading Asian economic giants like China are required to continue the present growth trajectory of Bangladesh for making ‘Export Policy 2018-2021’ a reality.

Addressing this fact, the close relationship between Bangladesh and China is now spurring in the area of bilateral trade followed by China’s credit lines offered for many key infrastructure projects as well as investment inflows observed in power and energy, textiles, weaving, leather, footwear, construction, light engineering, and stock exchange.

The current elevated strategic partnership of cooperation between China and Bangladesh is believed to be the outcomes of recent visits paid by the Chinese President Xi Jinping in October 2016 to Bangladesh and Prime Minister Sheikh Hasina’s visit to China in July 2019.

China-Bangladesh-trade-relationship
Figure 2: The current elevated strategic partnership of cooperation between China and Bangladesh is believed to be the outcomes of recent visits paid by the Chinese President Xi Jinping in October 2016.

Furthermore, as a part of this strengthened bilateral relationship, China has given Duty-Free (DF) access to 97 percent of Bangladeshi products which came into force from 1st July 2020. According to the notice of the Tariff Commission of the State Council of China on 16th June 2020, zero-tariff has been applied to 8,256 products originating from Bangladesh among the total 8,549 products recognized in the Chinese tariff-line.

More to that, China’s DF coverage has freshly included 5,161 numbers of products, in a moment when Bangladesh’s GDP fell to 5.24 percent from expected 8.20 percent in the last fiscal year (FY) 2019-20. The trade between Bangladesh and China in FY 2019-20 was US$ 12.14 billion through the export to China was only US$ 600.11 million– triggering the talks to exploit China’s DF facility to the optimum for reaping off the benefit in favor of Bangladesh.

However, the potential for substantial trade opportunities is yet to be transpired. To materialize China’s freshly declared DF facility, this article intends to find out the untapped export potentiality of Bangladesh knitwear products in China market.

RMG market dynamics of China

China is now a growing export destination for apparel items following its strategic move towards making higher value-added items and gradually exiting from manufacturing lower value-added items. This move has been reflected in importing more RMGs from the world by China as depicted in the Figure-3 that the importing trend of RMG by China has been increasing steadily and at CY 2019 it stood at US$ 8.1 billion from US$ 1.2 billion at CY 2001—a significant change within twenty years.

Over the last 10 years, from CY 2010-2019 the market size of RMG increased by 368 percent while China’s RMG import as a percentage of total import from the world had hovered around 0.50 percent and in CY 2019 it stood at 0.39 percent.

RMG-import-China
Figure 3: RMG import scenario of China.

Data Source: ITC Trade Map; Data Calculation & Illustration: Latifee, E. H., and Uddin, M. M., 2020.

Yearly growth of Knitwear and Woven Garment (HS code 61 & 62) import by China:

Yearly-growth-rate-HS-Code-61-62-Import-China
Figure 4: Yearly growth rate of HS Code 61 and 62 Import by China.

Data Source: ITC Trade Map; Data Calculation & Illustration: Latifee, E. H., and Uddin, M. M., 2020.

From the line graph above (Figure-4) we can see that annual average growths of knitwear and woven garment were increasing up to 2008 and suddenly fell in 2009– the world financial crises of that time can be a reason for that.  But, in CY 2010 the import of knitwear items bounced back by 29.23 percent and in CY 2011 it grew by 45.09 percent. Since CY 2012 the imports of HS Code 61 & 62 had been following cyclical growth and fall as Figure-4 tells.

Table-1: Market Share of Top 10 Knitwear Exporters in China during 2015-2019. Data Source: ITC Trade Map. Data Calculation: Latifee, E. H., and Uddin, M. M., 2020.

Rank Exporters CY 2015

 (%)

CY 2016

(%)

CY 2017

(%)

CY 2018

(%)

CY 2019

(%)

1.        Viet Nam 15.05 16.56 17.80 20.29 21.55
2.        Italy 12.04 10.99 11.34 12.85 13.62
3.        Hong Kong & Other Re-Import 14.01 11.74 12.74 11.17 10.39
4.        Cambodia 6.62 7.19 7.95 8.72 8.93
5.        Bangladesh 7.34 8.47 7.22 7.04 7.16
6.        Portugal 4.44 5.00 5.71 4.90 4.56
7.        Turkey 5.23 5.54 5.06 4.95 4.48
8.        Indonesia 4.81 4.99 5.70 5.05 4.45
9.        Thailand 3.36 4.08 3.89 3.29 3.59
10.    South Korea 2.73 2.82 2.83 3.15 2.59
11.    Rest of the World 24.37 22.63 19.76 18.58 18.68

Table-1 shows that during 2015-2019, the market share of Viet Nam at Knitwear items in China significantly increased from 15.05 percent to 21.55 percent and grabbed the market share that was previously held by Turkey, Indonesia, and the Rest of the World. Meanwhile, Italy and Cambodia were able to secure steady growth in taking up more market share.

Unfortunately, as seen in Figure-5, Bangladesh (i.e., slightly above 7 percent in CY 2019)  could not take much of this opportunity of the increasing market for knitwear items as Vietnam is geographically nearer to China than Bangladesh, besides, as a member state of ASEAN, Vietnam had been also privileged to enjoy DF facilities given by China, since ASEAN-China Free Trade Area (ACFTA) came into effect on 1st  January 2010 which got revised and upgraded on August 2014 covering more products, heavy tariff cuts and eliminated non-tariff barriers significantly.

Market-share-top-10-knitwear-exporters-China-CY-2019
Figure 5: Market share of top 10 knitwear exporters to China in CY 2019.

Data Source: ITC Trade Map; Data Calculation & Illustration: Latifee, E. H., and Uddin, M. M., 2020.

Market share trend of top knitwear exporters in China

If we look at the trend line of Viet Nam’s knitwear export to China (Figure-6), the market share is continuously increasing and the country had been able to grab the market share of other smaller exporting countries which is forecasted to increase in the upcoming years too, while, exports by rest of the World is forecasted to rebound and take more market-share in CY 2020 and CY 2021.

In the meantime, Bangladesh’s market share of knitwear products in China is forecasted to go down by CY 2021 if the Chinese DF facility declared for Bangladesh is not been utilized up to the optimal level.

Market-share-trend-knitwear-exporters-China
Figure 6: Market share trend of top knitwear exporters to China.

Data Source: ITC Trade Map; Data Calculation & Illustration: Latifee, E. H., and Uddin, M. M., 2020.

Top 10 knitwear products in the Chinese market

It is observed from the Table-2 that over the last three years imports of most of the top 10 knitwear products have increased, that is, knitted T-shirts, singlets, jerseys, trousers, shirts had seen double-digit CAGR, indicating that exporters like Bangladesh have high potential to experience a boost in exports of those items if strategies are all set and synched targeting China market for knitwear.

Only a few have little compound annual growth rate (CAGR) while only one product has negatively approached its CAGR.

Table-2: Top 10 knitwear products that China imports from the World with their Cumulative Average Growth Rate (CAGR) from CY 2017-19 (US$ in ‘000). Data Source: ITC Trade Map. Data Calculation: Latifee, E. H., and Uddin, M. M., 2020.

Sl# HS Code

(8 Digit Level)

Product label CY 2017 CY 2018 CY 2019 CAGR
1.        ‘61091000 T-shirts, singlets & other vests, of cotton, knitted or crocheted 429,100 600,950 719,565 29.50%
2.        ‘61102000 Jerseys, pullovers, etc, of cotton, knitted or crocheted 343,861 460,363 602,741 32.40%
3.        ‘61103000 Jerseys, pullovers, etc, of man-made fibres, knitted or crocheted 248,611 300,637 310,282 11.72%
4.        ‘61099090 T-shirts, singlets, etc, of other textiles, nes, knitted/crocheted 222,720 232,944 234,661 2.65%
5.        ‘61101100 Jerseys, pullovers, etc, of wool, knitted or crocheted 129,440 150,046 175,946 16.59%
6.        ‘61034200 Men’s or boys’ trousers, etc, of cotton, knitted or crocheted 105,113 131,293 142,719 16.52%
7.        ‘61051000 Men’s or boys’ shirts of cotton, knitted or crocheted 98,399 125,954 141,392 19.87%
8.        ‘61112000 Babies’ garments, etc, of cotton, knitted or crocheted 96,079 108,394 97,560 0.77%
9.        ‘61034300 Men’s or boys’ trousers, etc., of synthetic fibres, knitted/crocheted 64,466 88,758 90,030 18.18%
10.    ‘61046300 Women’s or girls’ trousers, etc, of synthetic, knitted or crocheted 88,185 91,930 87,211 -0.55%

Enamul Hafiz Latifee is the Deputy Secretary, Trade Facilitation and SME Development, Dhaka Chamber of Commerce and Industry (DCCI). He can be reached at ehlatifee@gmail.com, and also be viewed at www.ehlatifee.com.

Mohammad Musleh Uddin is the Deputy Secretary, Research & Development and SME Development, DCCI. He can be reached at adnan.cu06@gmail.com.

Views expressed here are not from the organization that the authors represent.

(To be continued…)

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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