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  ANALYSIS: China embraced for tough 2009

      Knitting Trade Journal - Issue 1/2009

A knitwear industry led more by the domestic sector rather than the export market is quickly becoming a reality for many manufacturers in China.

As the economic downturn in the US and Europe continues to impact, the stark realisation for many knitwear producers in China is that there will not be as many export opportunities as before and those who rely on international markets the most will suffer the most.

For some, such as Trimax International, which is based in Huzhou City in Zhejiang Province and manufactures apparel and textiles for export to Europe, North America and Russia, while the slowdown hasn't completely come yet, advance orders are expected to tail off significantly in 2009.

For now the figures don't look too unappealing. The latest report from the China Customs, and China Textile Statistics Centre shows that exports of knitwear in the first 10 months of 2008 reached US$5.47 billion, an increase of 14.18% on the same period in 2007.

In October, exports were US$481 million. The major markets in these first 10 months included Hong Kong (US$1.75 billion, down 5.6%); Vietnam (US$377 million, up 32.3%);and Mexico (US$293 million, up 79.39%). Imports remained flat at US$1.9 billion with the major suppliers being Taiwan, South Korea and Japan .

However, the figures showing imports of machinery - investments made to help fulfil anticipated future orders- tell a slightly different story.

Imports of knitting machinery in the first 10 months reached just US$858 million, a drop of 21.7% compared to the previous year with figures in October registering one of the year's lowest totals of just US$54.2 million. In the first 10 months, the major suppliers were Germany (US$419 million, down 12.03%); Japan (US$303 million, down 26.34%); and Italy (US$69.4 million, down 14.72%). Attempts by the Chinese government to improve the reputation and standards of the country's textile industry have so far backfired with reports that thousands of jobs continue to disappear as factories close en masse.

To make matters worse, the government has so far failed to come up with any initiatives aimed at stemming the flood of apparel production operations moving out of China to neighbouring countries. Further highlighting the seriousness of the problem for China is the news that India, a major competitor for China in terms of apparel production, buoyed by the success of a seven-year modernisation program, is to extend the scheme for a further five years.

The problems facing China represent something of a paradox. China has an almost unlimited supply of labour and after investing and upgrading its facilities in recent years to attract more international business, has good production capabilities. Admirably, it has also improved its protection of labour rights and introduced hitherto unheard of a new labour contract laws that protect rights of workers and raises costs of employers by holding them to compulsory laws covering benefits and worker contracts. Higher wages have also followed.

But with this new era of workers rights and modernization has come higher costs and logistics issues that have forced factories to relocate to other parts of Asia and to Eastern Europe.

Escalating costs have also seen orders from the US and Europe fall at an alarming rate - orders from the US at a recent trade show were down by a quarter with business from Europe down 12%.

While it can be argued that China is simply facing market forces and with them, the problems that other, usually Western countries, have had to deal with over recent years, the crucial question for many in the country's textile industry will be why has the government been so slow to react? Among those measures being mooted to arrest the slide have been changes to import and export taxes, the adjustment of tax policies on certain textile production equipment and more work to attract investment to central and western parts of China. Industry leaders have said that more support to the textile industry to upgrade technology and work on domestic branding would also be welcome. The reality is that there is now less money to go around and a lot of competition for it.

There is too much supply, too little demand. To sustain a factory on credit can no longer work, so the borderline operators are unlikely to survive won't survive. Towards the end of 2008, thousands of knitting mills disappeared which for the long term health of the industry was seen by many as not such as bad thing. The upside is that once the current fall-out ends, China's manufacturing base will be left on a sounder footing.

Particularly as international buyers are now increasingly concerned with quality and less forgiving of small flaws. "Of course business is worse the economy influences everything. It definitely is impacting us, and will completely change the industry," agreed Elaine Qian, a representative of Shaoxing K&E Import & Export Co.