The sun set Wednesday on a quota and license system that governed China's textile trade for decades
As the United States-China and European Union-China agreements on textiles and clothing expired with the old year, the Ministry of Commerce terminated supervision over quotas on 21 categories of textile exports to the United States and licenses on eight categories to the European Union.
Textile companies might see Thursday -- the first day of 2009 -- as the beginning of an unfettered era of free trade, but the outlook is clouded by weakening demand and rising protectionism amid the financial crisis.
There are few signs that shipments by the world's largest textile exporter will soar.
"With global demand slumping, the expirations will not bring about a repeat of the sharp increase in textile and clothing imports from China that occurred in early 2005," said Sun Huaibin, spokesman for the China National Textile and Apparel Council.
He said that worries about such an increase and its damage to the U.S. market were "groundless."
He said slackening demand resulted in a persistent low rate of quota usage this year.
Quota prices fell from a peak of nearly 20 U.S. dollars to less than 2 U.S. dollars within a year, said Liu Min, a trader with Shanghai Mai Si Ke Te International Trading Co. Ltd.
"Our exports declined more than 60 percent compared with last year. I heard many textile companies cut exports to the lowest level in recent years. Some even failed to use up the quotas acquired before the third quarter," said Chen Shubin, general manager of Foshan Qiaoli Textile Import and Export Co. Ltd. in Guangdong Province.
Analyst said shrinking orders in the fourth quarter and dim prospects for next year would mean a "tight" year for textile makers. Textile companies' top challenges would be to secure their market share and tailor production to the domestic market.
Pessimistic forecasters expect exports to continue slumping in the first quarter of 2009. If demand continues to shrink, small and mid-sized companies would barely survive.
Sun said although the financial crisis had diluted the stimulus from the quota expirations, textile makers should not lose confidence because they could retain global market share with cheap, good-quality products.
In November, China's textile exports dropped 3.8 percent year-on-year to less than 5 billion U.S. dollars. Garment exports rose 6.1 percent to 10.4 billion U.S. dollars.
From January to November, textile exports rose 18.1 percent to 60.4 billion U.S. dollars and garment shipments grew 3.1 percent to 108.7 billion U.S. dollars.
China did not change the export tax rebate rate for textiles and clothing in its latest round of tax rebate adjustment, announced on Tuesday, after it had raised the rate twice to 14 percent.
"It showed the government wanted companies to cope with the crisis by adjustments such as internal industrial upgrades and product structure alteration," said Zhao Yumin, a researcher with the Commerce Ministry.
She said the recent economic stimulus plans had hardly touched on the textile industry, where profits were being squeezed by several factors: stricter environmental requirements, new labor laws, rising land and power costs and a stronger local currency.
The U.S. textile industry remained unhappy about the expirations and wanted the U.S. government to be prepared to act if there was a surge of imports. Many domestic companies said they cannot tell what the future holds.
Sun said when the new U.S. president takes office, he might not take action with a view to avoiding trade friction.
However, if the U.S. economy remains weak and protectionism rises, the United States might use quotas or licenses to curb imports from China.
Zhao said governments must guard against rising protectionism amid a global economic downturn. If the U.S. government moves to protect its textile industry, which has been largely transferred to other countries, both Chinese exporters and U.S. consumers will pay.
"It is also possible that the United States will use its status as the world's largest textile importer to keep China from getting a big market share and thus support other economies," she said.
In early 2005, a surge in Chinese textile and clothing exports to the United States coincided with the expiration of an international quota system. The United States responded by imposing emergency "safeguard" curbs.
Later in 2005, Washington and Beijing negotiated a broad pact that re-established 21 quotas covering 34 categories of textiles and clothing through the end of 2008. It was that agreement that ended on Wednesday.