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UPDATED: May 5, 2008 NO. 19 MAY 8, 2008
Clothing Pains

Though the summer sets in early this year, at the recently closed spring session of the biannual China Import and Export Fair, also known as the Canton Fair, Chinese textile and clothing exhibitors encountered a chilly season. Textiles and clothing trading volumes after the first phase of the fair declined by 11.4 percent, compared with 2007, according to the China Chamber of Commerce for Import & Export of Textiles.

This change in the Canton Fair--a barometer for the country's foreign trade--can be considered a reflection of the country's textile and apparel industry, which has been on the rack recently. Reasons are seen as less external demand caused by the U.S. subprime crisis, fast appreciation of the Chinese currency, rising raw material prices and labor costs and the reduction of export tariff rebate.

Now many are worried about whether this slump will affect export growth and further drag down China's economy, or if it will lead to a rise in unemployment.

However, to some extent, this unnecessarily indicates a gloomy future for the country's export and the industry's development.

China has struggled with its huge trade surplus, leading to mounting foreign exchange reserves, which further add pressure to the appreciation of its currency.

Analyzing the structure of Chinese exported goods, it's not hard to find the main sources of its trade surplus. Propping up the substantial growth of exports are mainly labor-intensive products or raw resource products. Textiles and clothing are examples of labor-intensive exported goods. These products are at the low end of the industrial chain, with low value-added and marginal profits.

Such an export structure is obviously not beneficial for China's long-term growth. The competitive edge of these exported goods is only their cheap price, which does little to reward the laborers who produce them, or gain international competitiveness for the country. What it does do is to fan the fiery winds of trade disputes.

Therefore, one of the goals of China's macro-economic regulation is to cut down the exports of low-end products, so as to reduce its trade surplus and alleviate the appreciation pressure of its currency.

Meanwhile, China is seeking industrial upgrading and sustainable development. Labor costs and raw material prices are on the rise, along with costs of environmental protection. All these cost needs to be factored in, and when they are, it is obvious that labor-intensive and resource industries will suffer the most.

As we all know, R&D, branding and marketing are profitable links. But most Chinese textile and clothing exporters are manufacturers, at the bottom of the innovation chain, dealing with the least profitable, labor-intensive processing procedures.

Under the current external and internal circumstances, Chinese textiles and clothing manufacturers can emerge from this predicament by strengthening R&D and designing, creating their own brands, going abroad to tap into more markets while increasing domestic sales. This will boost the sector's sustainable development, thus eventually sharpen its international competitiveness.

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