Chinese textiles lose out to rising costs and currency surges

Chinese textiles lose out to rising costs and currency surges
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First Published: Wed, Aug 13 2008. 10 53 PM IST
Updated: Wed, Aug 13 2008. 10 53 PM IST
Gold Coast, Australia: China’s textile industry, after dominating world markets, is losing its competitive advantage and some low-end operations are moving to emerging producers, a leading Chinese textile mill official said.
Rapid expansion of textile investment in many developing countries in the last two years was leading to oversupply and sparking fears over earnings and the survival of many mills in Asia, said Leo Yung, director of Central Textiles (HK) Ltd.
“Currently China is rapidly losing competitive advantage in costs to other Asian countries such as Bangladesh, Vietnam and India,” Yung told the Australian Cotton Conference on Wednesday.
Many mills had been forced to switch from exports to domestic sales, which now account for 79% of production, he said.
This followed recent years of “drastic and significant” migration of textile production from the US, Europe and Japan to countries such as China, India, Pakistan, and Bangladesh.
Central Textiles has three spinning mills and a weaving mill in Hong Kong and China.
More than 70% of world cotton is now consumed in Asian countries, with China holding a dominant share of 42%. Global demand for denim, at 6.5 billion yards (5.9 billion metres) a year, was swamped by current capacity of 7.7 billion yards, Yung said.
“The 17% surplus in supply has already been leading to falling prices in the market for some years,” he said.
“Many textile mills in China, Pakistan and India are operating at very small margins or even at a loss.”
“Many mills in China will be struggling arduously and may even close down in one or two years, especially small mills doing export business,” he said.
Oversupply had depressed prices along the entire supply chain, hitting yarn prices in China, India and Pakistan. Mills in China found their plight was being worsened by the growth of cost-effective super-large textile mills, Yung said.
In addition, big retailers such as Wal-Mart Stores Inc. of the US had developed distribution channels around the world which had “enormous negotiation power to give prices one more squeeze,” he said.
China had been one bright spot in growth of the world textile and garment industry, with double-digit annual growth.
But China’s industry was reeling from an 18% rise in the value of its currency since 2005, as well as higher costs of labour, fuel, electricity and chemicals, along with a cut in domestic tax rebates, official moves to slow the economy, and pollution curbs.
Labour costs in China were now double those in Indonesia, Vietnam, Pakistan and Cambodia, he said.
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First Published: Wed, Aug 13 2008. 10 53 PM IST
More Topics: Currency | China | Textiles | US | Pakistan |