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January 2009
Around the World: China

The Maturing Apparel Industry in China

Kin-fan Au
Associate Professor
and Associate Head,
Institute of Textiles
and Clothing,
Hong Kong
Polytechnic University

Dr. Kin-fan Au is an associate professor and associate head of the Institute of Textiles and Clothing of the Hong Kong Polytechnic University. He has extensive teaching experience combining the technical aspects and business operations of fashion and textiles, including knitting technology, production management, and marketing management. Currently, he is involved in teaching international business topics for textiles and apparel. His research interests include global fashion and textile trade and marketing, competitive strategies, compliance issues, offshore production, and foreign direct investments. In departmental administration, he is responsible for quality issues and chairs the partnership and extension committee. In 2008, he acted as the chairman of the organizing committee for the 86th Textile Institute World Conference hosted in Hong Kong.


China’s apparel industry has been an economic pillar ever since the open-door policy and economic reforms of the country took effect in 1979. Earnings from apparel exports have been the major source of foreign revenue, and the industry has thus developed and played a vital role in the growth of China’s foreign trade and economic development. With the concerted efforts of government and the local sector, China has been the world’s largest apparel exporter since 1994. China's world export share advanced from about 10 percent in 1990 to around 30 percent in 2007. For both internal and external markets, rising income and improving living standards have contributed to the increasing demand for apparel products, and this has provided good opportunities for the local apparel industry to prosper. With its strong export performance, China is generally regarded as the “supplier of choice” for most overseas apparel buyers.

While apparel exports from China continue to increase, signs of slackened vigor have been revealed recently. According to the trade statistics of China Customs, total apparel and accessories exports from January to September 2008 were worth $87 billion. This indicates a single-digit growth of only 1.8 percent, down from the 23 percent growth recorded during the same period the previous year. Nearly two-thirds of China’s apparel and accessories exports are destined for four major markets: the EU-27, Japan, the United States, and Hong Kong. During the first half of 2008, the value of China's apparel exports to the EU-27 showed a remarkable growth of 43 percent, as the European Commission decided not to extend quotas on EU textile and clothing imports from China after December 31, 2007. On the other hand, the economic slump in the United States arising from the subprime lending crisis has reversed the growth trend in apparel imports since the third quarter of 2007. China apparel exports to the United States were reduced by four percent in the first half of 2008.

The slackening of China's apparel exports is attributed primarily to the appreciation of China’s renminbi (RMB) against other currencies. The strong value of the RMB has exerted pressure on China’s apparel and related industries. Since July 2005, the exchange rate of the renminbi has appreciated sharply by 18 percent against the U.S. dollar; RMB stood at 6.864 as of October 26, 2008, at the China Foreign Exchange Trading Centre. The high worth of the renminbi means that foreign buyers are now required to pay "more" to buy Chinese apparel products. In this case, the traditional pricing edge is eliminated and lures foreign buyers to shift their orders to other low-cost countries, such as Vietnam, Bangladesh, and Indonesia. Therefore, shrinking overseas demand is threatening China’s apparel sector. The recent downturns of the EU and U.S. economies have serious impacts on China’s apparel industry, as these two leading markets accounted for about 40 percent of China’s apparel exports during the first half of 2008. Many apparel factories in China are reporting plunging purchase orders from the EU and U.S.

Recently, the question has been asked, “Is China losing its competitive edge in clothing?” This has aroused global attention to assess China’s potential in apparel exports. We see that Chinese apparel enterprises are also facing the financial burden of increasing manufacturing costs. A survey conducted by the China Cotton Textile Association indicated that the average cost of raw materials in the apparel sector has increased by eight percent, while energy and power costs have risen by three percent. In addition, a lowering of export tax rebates recently has reduced the profit margins of apparel exporters. Moreover, the implementation of the labor law has instituted a more serious concern for China’s apparel and other labor-intensive industries. The average wage for an apparel worker in the coastal region was 1,600 – 1,700 RMB a month in 2008, which is a 20 percent leap from 2007. This sharp increase in labor costs, especially in the coastal cities, has increased the wage gap between China and neighboring developing countries. By estimation, wages in the coastal regions of China are about 38 percent and 37 percent higher than those in Vietnam and Pakistan, respectively. This wide discrepancy in wages has put Chinese apparel factories under strong pressure to consider cutting production costs and moving production sites to other lower-wage countries. Obviously, China’s apparel industry has entered a stage of restructuring and consolidation.