Market Analysis: China'S Textile Industry Faces Resistance &Nbsp; Difficulties Ahead

The deepwater area of China's textile industry

In 2005, the Sino EU and Sino US textile agreement created a predictable and relatively stable trade environment for the development of China's textile industry. The export of China's textile industry for the first time exceeded 100 billion US dollars, and the international competitiveness index was greatly improved.

However, the existence of 16 risk factors, such as trade protection clause, weakening of comparative advantage and appreciation of the renminbi, has set a new proposition for the safety development of textile industry. The "good swim" of China's textile industry in the international market has continued to face the "deepwater area" side.

16 special safeguard risk

In 2005, Europe and the United States launched the 242 clause to China.

The "sixteenth item" of People's Republic of China's accession to the WTO protocol, that is, the "pitional safeguard mechanism for specific products", stipulates clearly that "if the quantity of products originating in China, or the amount of growth that it imports to any WTO member territory, or the conditions under which it is created, poses or threatens to cause market disruption to domestic producers producing similar products or directly competing products, the WTO members affected by this request may ask for consultation with China.

If negotiations fail to enable China to reach an agreement within 60 days after receipt of a request for consultations with the WTO members concerned, the affected WTO members shall have the right to cancel or restrict imports of such products within the limits necessary to prevent or remedy such market disruption. "

Obviously, this is a discriminatory clause which only aims at China.

In theory, as long as WTO members, they have the right to take safeguards against Chinese products, including textiles.

The 242 clause ends in 3, but the application period of the 16 clause has been extended to 12 years after China's accession to the WTO. Therefore, once it is touched, there will be endless troubles.

The author believes that whether the European and American countries will initiate the 16 clause depends mainly on two factors: on the one hand, from the international environment of China's textile industry exports, on the one hand, under the background of electoral politics, and considering the national interests and national industrial safety, and the rise of trade protection forces, the possibility of launching the 16 clause is very great, but the premise is that China and Europe should take China as an example.

Although textile associations, foreign investment and other industry associations have been vigorously advocating self-discipline, trying to guide the orderly growth of textile and garment exports, but this is just a stop.

The profitability of capital and the completely competitive market structure of China's textile industry determine that industry self-discipline is difficult to establish in a short time.

At present, the export situation of state-owned enterprises, foreign enterprises and private enterprises under the "three parts of the world" has further delayed the formation of the overall interests of the textile industry, thus pushing the self discipline initiative relying on ideology and morality into an embarrassing situation which is ignored.

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If the industry self-discipline is the "invisible hand" in operation, then in the case of market failure, we must rely on the "visible hand" of the government to intervene.

The author believes that China should change the passive quota categories from Europe and America to active quota management from January 1, 2009, appropriately control the growth rate of export volume, and use quota management as an effective lever to adjust the industrial structure and optimize the industrial layout. While avoiding export disorderly competition and reducing trade friction, we should actively promote the upgrading of the textile industry and safeguard the safety of the textile industry.

Weakening the risk of comparative advantage

Although the comparative advantage of domestic resources and labor costs will remain the foundation of the survival and development of China's textile industry for a long time, this advantage is obviously being weakened by various factors, which has become a new topic for the safety of China's textile industry.

The low efficiency of resource allocation takes the main supply industry of cotton industry as an example.

China is the largest cotton producer in the world, providing an adequate resource guarantee for the development of the textile industry objectively.

However, the supply advantages of resource elements have been greatly offset and weakened due to the low efficiency of resource allocation.

In 2004, China's domestic cotton output reached 6 million 320 thousand tons, reaching a record high. However, the domestic cotton market prices also fluctuate in the same period: in September 2003, 129 cotton per ton rose by 4400 to 4500 yuan, or 32.8%, and then dropped to 6200 to 6800 yuan in October 2004, and a decrease of 38.2%.

Many cotton spinning enterprises are on guard.

The sharp rise and fall of cotton prices and the long-standing price discrepancy in domestic and foreign cotton markets (China's domestic cotton price is higher than the international market price of 1000-2000 yuan / ton) is fundamentally rooted in the unsound circulation system of cotton in China and can not be fully integrated with the international market.

In addition, the existence of the cotton quota system and the lagging nature of government decision also exacerbated market failure objectively.

The cotton circulation system that has not yet been fully marketed will inevitably restrict the development of the textile industry which has been completely marketization downstream, thus affecting the safety and development of the whole industrial chain.

Labor costs rise. The labor cost of China's textile industry has a strong competitive advantage compared with the developed countries and the international average, but this advantage is rapidly weakening compared with some developing countries.

In 1988-1998 years and ten years, the labor cost of China's textile industry increased by 230%, and by 2002, it has increased by more than 4 times, and the growth rate is much higher than that of Mexico, Philippines and Thailand.

In 2002, the average wage level of China's textile industry has reached 1.12 times that of India and 1.86 times that of Pakistan.

The two countries emerging in the late 1990s are increasingly becoming China's strongest competitors in low value-added products.

With the lag effect of the "one-child" policy appearing, labor resources in China will reverse after 2015-2020 years of supply peak, leading to a further rise in labor costs.

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According to Potter's diamond theory, China's textile industry is still in the initial stage of the four stage of Industrial Development - the guiding factor of production factors.

At this stage, industrial development relies mainly on the advantages of production factors, which is easy to highlight industrial achievements, but it is also very fragile. The reduction or relatively weakening of comparative advantage of production factors will easily bring heavy losses to industrial development.

This forced China's textile industry to speed up the development mode of relying mainly on the quantity and low cost of production factors to the development mode of relying mainly on quality improvement, and actively carry out system reform, greatly improving the efficiency of resource allocation.

Exchange rate risk of RMB appreciation

The new exchange rate mechanism allows the RMB exchange rate to rise (or fall) at 0.3% per day, so theoretically, the renminbi can appreciate (or devalue) 15% in two months.

China's textile industry is an export dependent industry, and the appreciation of the renminbi will inevitably squeeze the profit margins of product exports, making the situation of the textile industry unusually severe.

According to preliminary estimates, RMB appreciation will be 2%.

It is worth noting that although long-term hedging is a powerful measure and important means that can be expected to achieve exchange rate costs, if applied properly, it can help enterprises to control exchange rate risk within a reasonable range. However, such financial instruments themselves also have certain risks, and the misjudgement of the trend of the rise and fall of the exchange rate will also bring losses to enterprises.

For Chinese textile enterprises with an average profit margin of only 3% to 5%, such losses are likely to be disastrous.

Therefore, only by making profits from the brand products and high-end products to enhance the enterprise's ability to resist risks, and through the continuous upgrading of product structure to digest the impact of rising costs caused by the appreciation of the renminbi, is the fundamental measure to resist exchange rate risks.

Quota management, exchange rate adjustment and so on are the regulatory actions of the government, while industry self-discipline and hedging are market means.

Therefore, the safe development of China's textile industry must rely on the effective combination of the government and the "two hands" of the market.

When the market fails, the government must intervene in order to minimize paction costs and maximize the benefits of industrial development, so as to ensure the development of China's textile industry safely through the "deep water area".