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Chinese Data Shows Falling Export Growth on Cotton Prices, Wages

Textile and garment export growth slowed dramatically in China during the first four month of this year, standing at $71 billion for January – April. This is only 1.07% higher than a year ago, according to the China National Textile and Apparel Council.

In the first four months of 2011, the growth rate was 27.05%. This sharp slowing is due to a drop in market share overseas and inadequate domestic consumption. China has recently begun losing market share to other Southeast Asian nations, particularly Vietnam and Bangladesh, as rising wages and factory relocations have made their industry less competitive.

CNTAC spokes Sun Huaibin also cited the role of rising input costs, saying, ” “The slowing exports were directly caused by higher domestic cotton prices,” said CNTAC spokesman Sun Huaibin. Chinese domestic cotton has been running higher in cost than freely traded cotton on international markets, impacting FOB for products produced in China and leading Chinese mills to seek international supplies.

The disparity in cotton price has also contributed to the reduction in market share, according to the spokesman.

China’s share in Japan and the United States fell between 3-5% from Q1 2011 to Q1 2012, and export growth to the Association of Southeast Asian Nations, China’s third largest trading partner, grew by less than 3%.

Problems in Europe and the United States contributed to the slump, with overall imports in those trading partners falling by an absolute 6.55%. This means that the same sized pool of Chinese companies is competing for a smaller number of orders. The order shortage has been anecdotally substantiated, and it appears China may have excess capacity for the time being. Profits in surveyed textile companies fell 1.77% year over year.

The CNTAC recently released targets for the elimination of obsolete production capacity, as part of an ongoing government plan to bring textiles up the value chain and begin manufacturing more sophisticated products. This is an acknowledgement that the government is unable to control wage growth, and is trying to move out of competition with low wage countries.