The Chinese National Textiles and Apparel Council (CNTAC) released a ten-year plan Tuesday stating that they plan to more than double the country’s textile output by 2020. The question is, where will that growth come from?
Rising wages and worker shortages have made sourcing in China less appealing, and many companies are now sourcing from other countries in the region. This is an accelerating trend that may undermine CNTAC planning. Tellingly, the plan summary did not directly confront any of these emergent issues, indicating that it may be more aspirational than literal.
With growth slowing to 1.4% for textiles and 3.9% for garments in the first quarter, and fixed-asset investment spending growth falling by 21.51 percentage points over 2011, it seems that China’s textile and apparel sector is hitting some sort of wall. THE CNTAC plan calls for an annual increase in textile and clothing exports of about 7%.
More troubling for the Chinese, export growth has fallen 31.3 percentage points in textiles and 14.5 percentage points in apparel. Growth is still occurring, but the rate is dropping fast. The National Development and Reform Commission, which collects the data, ascribes the slowdown to weakening external demand. Several European nations slipped back into recession in Q1, and apparel demand in the United States fell in April.
China has long planned to shift production from an export orientation to a focus on domestic consumption. This is occurring – retail sales of textile products in China are up 14.6% over Q1 2011. The CNTAC plan calls for urban citizen’s spending on clothing to increase 12.5% annually and rural residents spending to increase by 15% annually.
At the same time, the industry is expected to invest heavily in upgrading equipment, boosting innovation, and branding. This is intended to help the Chinese develop a higher value added industry, in response to rising wages and benefits. The CNTAC aims to have 50% of industry profit come from “leading brands” in the industry by 2020. This strategy is sound, but with corporate profits falling 2.21% year over year, it’s unclear where the money will come from to pay for it.
Vietnam saw overall export increases of 14% in Q1 over 2011. Cambodia saw exports to Korea increase 80% year over year. Both countries offer lower wages and similar proximity to Pacific Rim countries, compared to China. In an environment of falling demand, it is likely that Vietnam and Cambodia’s growth came at the expense of Chinese garment exports. Unless new markets open up, it is uncertain whether China will be able to meet its ambitious targets.