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The domestic textile industry has come to a critical point of industrial upgrading

Textile and apparel industry carries a large number of jobs, the contribution to the protection of employment of residents is much greater than the contribution on economic benefits, is a reservoir of low-skilled labor employment.

Since entering the 21st century, the domestic textile industry has experienced approximately three development stages:

During 2001-2010, the demand for foreign trade after joining the WTO organization drove the rapid development of the domestic textile industry, and China gradually became the world’s textile factory. According to the National Bureau of Statistics, from 2001 to 2010, China’s cotton fabric production rose from 9.74 billion meters to 38.345 billion meters, yarn production rose from 6.58 million tons, and chemical fiber fabric production rose from 3.792 billion meters to 17.075 billion meters.

During 2011-2017, the domestic textile and apparel industry entered a plateau period as factor costs such as labor and land rose. The production growth rate of yarn and chemical fiber slowed down significantly, and even cotton fabric and garment production as a whole showed a fluctuating downward trend.

So far in 2018, the industry’s main products have had negative output growth, and the industry is gradually showing signs of recession, with the domestic textile industry coming to a critical node of industrial upgrading.

China’s textile industry in the past 30 years of rapid development, so far has formed a very mature industrial chain, but also facing many difficulties.

First of all, the textile and apparel industry is a relatively typical labor-intensive industries, the past two or three decades of rapid development of the domestic textile can not be separated from the first large population of the demographic dividend. But with the economic development, labor costs and land costs are rising, and the birth rate declined after family planning, China’s demographic dividend is gradually reduced, the production costs of textile enterprises are increasingly high.

Second, in order to promote the green development of the economy and promote the harmonious coexistence of man and nature, in recent years China’s environmental protection requirements for the manufacturing industry is increasingly high.

As the second largest polluting industry after the petrochemical industry, the textile industry has borne the brunt. The new “Environmental Protection Law” stipulates that: chemical oxygen demand (COD) direct emissions from textile enterprises need to be controlled at 80 milligrams per liter”, which is since 2013 COD direct emission standards were raised to 100 milligrams per liter, the textile and apparel industry’s emissions threshold has been raised again.

Finally, a trade war broke out between China and the United States in 2018.

The first round of products on which China imposed tariffs on the US were mainly agricultural products, including cotton. Cotton is an important textile raw material, and in 2017, China imported 505,300 tons of cotton from the U.S., accounting for 44% of total cotton imports, and after the imposition of tariffs, the import cost per ton was raised by more than 3,500 yuan, which had a certain impact on cotton spunlace nonwoven enterprises.

The second round of U.S. tariffs imposed on China includes all yarns, fabrics, technical textiles and some textile machinery products of various raw materials (cotton, wool, silk, hemp and chemical fibers). Before this in 2017, the United States was the largest export market for technical textiles in China.

Taking nonwovens as an example, China, Germany, Japan, Canada and Mexico are the main suppliers of nonwovens in the U.S. After the imposition of tariffs in the cost and logistics fees compared with Canada and Mexico competitiveness decline, and Turkish companies have also accelerated the layout of the U.S. market, these will to some extent affect the growth of China’s nonwoven industry

Therefore, the imposition of tariffs will have a greater impact on China’s industrial textiles exports to the United States.

Textile industry, “internal and external problems”, in the face of increasing production costs, enterprises must find another way out.

Textile enterprises have to “leave home”

In the external trade friction between the United States and China caused by tariff increases, internal environmental policies, industrial restructuring and upgrading, the demographic dividend disappeared leading to higher labor costs, recruitment difficulties and other problems, many domestic textile enterprises have been transferred to Southeast Asia or South Asian countries production capacity.

Textile and apparel industry was an important pillar industry in the early stages of global industrialization, and gradually lost its status as a pillar industry with the development of industrial technology. From the perspective of the development pattern of the global textile industry, the textile industry has shifted several times since the industrial revolution, and these transfers are mainly related to labor costs.

The first occurred in the first half of the 20th century, from the United Kingdom to the U.S. The first half of the 19th century, the modern industry, mainly textile machines and steam engines originated in the United Kingdom, which greatly improved the productivity of the textile industry. And with the development of the textile industry, the demand for raw materials grew, and by the early 20th century, the United States became the main source of raw materials for the textile industry, for the consideration of raw materials and labor costs, the center of the textile industry moved to the United States.

The second occurred in the 1950s, moving from the United States to Japan. As the cost of labor in the United States rose, the textile and apparel industry in the United States moved to Japan, where labor costs were low.

The third time occurred in the 1960s and 1970s, from Japan to the four Asian dragons. With the development of the Japanese economy, labor costs also rose gradually, the textile industry began to move out of Japan. In Taiwan, China, for example, the rapid growth of exports of textile and apparel products in Taiwan, China in the 1960s, throughout the 1970s to the 1980s, the proportion of textile and apparel exports are higher.

The fourth time occurred in the 1980s and 1990s, by the “Four Asian Tigers” to developing countries and regions, especially mainland China. 70s reform and opening up, the huge labor market attracted the textile and apparel industry to China. 80s, the textile and apparel industry began to export a higher proportion.

A fifth shift is taking place, from China to Southeast and South Asian countries. after 2000, countries such as Vietnam and India have become important export products with a higher share of textile and garment products. Although the fifth shift in the textile and apparel industry is taking place, China is still the largest textile and apparel exporter in the world.

After a rather long period of turmoil, Southeast Asian countries vigorously advocate economic development, actively attract foreign investment, opening up to the outside world has been increasing, the business environment has gradually improved, winning the favor of global capital, including China’s textile enterprises.

At present, Vietnam, Cambodia is the main destination of domestic textile enterprises to go to sea, the rest of Southeast Asia, South Asia countries such as Myanmar, Bangladesh, Pakistan, India, etc. also gradually ushered in more domestic textile enterprises to go to sea to investigate and land.

Compared with the rising labor costs at home, labor costs in Southeast Asian countries are more affordable. In Vietnam, for example, the average wage is $ 300 / month (equivalent to RMB 2070 yuan), while the average wage in Zhejiang, China is $ 618 / month (equivalent to RMB 4262 yuan).

In addition to the labor cost advantage, data show that the cost of production power in Southeast Asia is even lower. Industrial electricity and water in Vietnam are $0.5/kWh and $3/ton respectively, while industrial electricity and water in Zhejiang are priced at $0.60-0.66/kWh and $4+/ton respectively (both measured in RMB).

The business environment in Southeast Asian countries is also improving, and the Vietnamese government is actively opening up to the outside world and vigorously attracting foreign investment, while the tax incentives given are particularly attractive.

In terms of tariffs, countries in Southeast Asia almost enjoy Europe, the United States, Japan and South Korea, including China, the tariff super GSP treatment, or even tax-free treatment, with certain tax advantages.

Therefore, for many domestic textile enterprises, “away from home” to Southeast Asia production seems reasonable.

The challenge of the textile industry to move out

Domestic textile enterprises have moved their production capacity out of the country, on the one hand, the textile and apparel industry as a reservoir of low-skilled labor employment, carrying a large number of jobs, is important to protect the employment of residents, the main body of the market, to ensure the stability of the industrial chain.

The statistics of industrial enterprises above the scale in 2018 show that the textile and garment industry accounts for 8.4% of the employees, higher than the 4.3% of the business income. Industrial out-migration will at the same time make the out-migration of jobs, or the industry shrinks too quickly with a wave of closures, then the risk of domestic unemployment returning to poverty will also increase.

On the other hand, from the point of view of industrial development, with the economic development, low value-added labor-intensive industries outflow is an inevitable trend. In the long run, the textile industry has two paths of development: one is to the consumer market end of the transfer, the second is to the raw material end of the transfer.

According to the global textile industry transfer law, the first to second industrial migration, accompanied by the transfer of the world economic center, while the third to fifth industrial transfer is the result of the deep division of labor in society, and did not cause a substantial shift in the economic center.

When the textile industry was moved from Britain to the United States, the GDP of the United States gradually caught up with that of Britain, while when it was transferred from the United States to Japan, the Four Little Dragons of Asia and China, the economy of the importing region, though developing rapidly, did not surpass that of the exporting region. The latter important industrial transfers are more related to the extension of the value chain of international industries, so more attention should be paid to the transformation and upgrading of the industrial structure of the exporting and importing regions.

The textile and apparel industry chain is long, involving upstream production of natural fibers (e.g. cotton, hemp, wool) and chemical fibers, midstream including processing steps such as spinning, weaving, printing and dyeing, and downstream including the production of final products such as apparel, home textiles, and technical textiles.

The garment and home textile processing industry is part of the downstream of the industry chain with low gross margins, and the downstream labor-intensive, low value-added garment production is being slowly squeezed out in the context of industrial out-migration.

For chemical fibers and fabrics, in 2018, yarn fabric exports accounted for 30% of global trade and chemical fiber exports accounted for 40% of global trade. In fact, China is one of the few economies where apparel, fabrics and chemical fibers are net exports; downstream producers such as Vietnam and Cambodia are dependent on imported fabrics.

For textile machinery, China has been a net importer of textile machinery most years since 2000. However, in recent years, the share of China’s loom exports has been climbing, rising from 2% of global loom trade in 2000 to 27% in 2018. This indicates that with rising technology intensity and higher R&D intensity, China’s textile machinery has become internationally competitive.

In terms of export share, China has been among the first tier of textile machinery, and its share has surpassed that of traditional exporters such as Germany and Japan.

Thus, despite the outward migration of labor-intensive, low value-added garment production, the mid- and upstream chemical fiber and fabric position is relatively solid, and the share of textile machinery and other high value-added capital goods in global trade is increasing.

China’s value chain status is gradually upgrading from the low end to the high end, the textile and apparel industry in adversity shows a trend of industrial upgrading, which is not an opportunity for the domestic textile industry.

China’s textile and apparel industry, where is the road?

Domestic textile industry to private enterprises, small and medium-sized enterprises, leading enterprises with capital and technological advantages, to transfer production capacity overseas can obtain local cost advantages. But in overseas layout threshold is high, the initial investment amount, personnel transnational management and other difficulties for small and medium-sized enterprises.

Already to Southeast Asia to transfer production capacity of textile enterprises also encountered some difficulties.

First of all, Southeast Asia’s industrial chain is not mature, can only do OEM products, some companies need to purchase raw materials in China, shipped to the destination country and then processed for garment exports, resulting in logistics costs to a certain extent offset the advantages of labor, production power costs.

Secondly, the quality of local workers in Southeast Asian countries is generally not high and the production efficiency is low. Some business owners said that the production efficiency of domestic factories is about 2.5 times that of overseas factories, which almost makes the labor cost advantage of individual workers disappear completely.

Finally, the language barrier is also a problem that Chinese enterprises must face. Some Chinese enterprises to Southeast Asian countries to open factories when the language barrier, everything must be asked to translate, resulting in a lot of labor and time costs.

The future development direction of labor-intensive industries is still to the raw material side and the consumer side in two directions.

In the global value chain, the brand and sales are mainly in the United States, Europe and a few Japanese and Korean enterprises, advanced fabric production in Japan and South Korea in the leading position, high-quality wool and other raw materials Australia has the right to speak. And China, Southeast Asia and South Asian countries are mainly located in the lower end of the value chain.

China’s future development direction is to improve the value-added products (such as fiber and textile materials research and development), to the two ends of the industrial chain of high-quality raw materials and brand sales extension, the industry’s low value-added part of the transfer to neighboring countries is the development trend.

Relative to Southeast Asian countries, China’s competitive advantage in the textile and apparel industry has a relatively complete and perfect industrial chain, as well as a vast land area, some of the better quality of raw materials such as cotton and wool, but also has an important production base. China has a high quality of skilled textile workers, high production efficiency, chemical industry development is also relatively rapid, relatively easy to transfer to the high-end raw materials end.

In addition, China has a huge consumer market, with the upgrading of consumer spending and the development of domestic brands, help the textile and apparel industry, brand design end of the transfer, the current accumulation of some of the better reputation of domestic brands has been effective.

Because of the huge advantages of textile and apparel volume, industry chain supporting, making China’s textile and apparel industry in the global trade is still difficult to shake the position of Vietnam, for example, spinning capacity gradually to Vietnam, but the main export of Vietnamese cotton yarn still lies in the Chinese market, and imports of synthetic yarn mainly from China, which seems to be, Vietnam’s textile industry is more like a supplement to the Chinese industry.

Therefore, although the textile and apparel industry has shifted, but the current status of China’s manufacturing processing power is still difficult to shake in the short term.

Although facing the pressure of rising labor costs, but our current supporting infrastructure and labor quality still has a greater advantage in terms of production quality and efficiency is still higher than Southeast Asian and South Asian countries. Industrial upgrading, China’s industry to the value-added high-end manufacturing migration is an inevitable trend.