News Flash on the Chinese Invasion – It’s a Myth

 

 

 

 

Just think how many millions of column inches were devoted to that subject in 2005. And it made a good story, with a powerful villain – the terrifying Chinese textile monster, crashing through markets, pulling down prices and terrorising helpless European manufacturers.

 

But how would it be if I told you that the basic premise behind almost every “Bra Wars” story written last year was quite probably wrong. Far from surging, growth in European garment imports from China in 2005 may actually have been quite sluggish. Which raises questions about how much the European clothing industry really has to fear from China and how much protection it really needs.

 

In early 2005, Peter Mandelson, the European Trade Commissioner, justified the need to revive quotas on imports of Chinese garments by saying that EU sweater imports from China had risen by 534 percent and imports of men’s trousers from China had grown by 413 percent.

 

 

Those certainly sound like scary numbers, large enough to justify the reimposition of quotas. But let’s have a look at some other figures. According to China’s customs house, China’s overall garment exports direct to the EU during 2005 amounted to 18.863 million $US, up 55.3 percent from 2004. That’s less than Mandelson’s 400-500 percent, but it’s still a substantial increase, large enough to justify the revival of quotas.

 

But the problem is that none of the figures so far can possibly be correct. You’ll need to follow the logic for a minute. In Europe, the quotas on textile product imports from China ended on December 31^st, 2004, and were not reintroduced until mid-June, 2005. So, between those dates, European retailers were free to import as much from China as they liked, and many are said to have imported more than they needed, in expectation that the quotas would soon be revived.

 

 

However, the whole point about the quota regime was that it prevented many Chinese companies from exporting to Europe directly. So, instead of exporting directly, they were forced to export finished or semi-finished garments to a third country – where the quota allocations were cheaper or more readily available – complete the manufacturing process and then export the garments from there to Europe. Before January 1, 2005, these garments were entering Europe labelled with non-China countries of origin. After that date, with the ending of the quota regime, these same garments could enter directly from China, with “Made-in-China” documentation.

 

Before January 1, 2005, neither Chinese nor European customs officials had any accurate way of tracing the routes that clothing shipments were taking. Chinese officials had no real way of knowing that exports to, say, Hong Kong or the Philippines were ultimately destined for Europe, any more than European officials had any reliable way of knowing that clothes from Hong Kong or the Philippines had originated in China.

 

 

So, because China is a major textile manufacturer, and because Chinese state control over the quota system made Chinese quota allocations relatively expensive, the ending of quotas at the end of 2004 was inevitably going to produce a statistical increase in European textile imports directly from China.

 

As evidence of the statistical distortion, you only have to look at the figures for China’s garment exports to Hong Kong. In the whole of 2005, China’s combined textile and garment exports to the EU, with a population of 450 million, were worth 18.863 billion $US, but its exports to Hong Kong were worth only 21 percent less than this, at 14.843 billion $US. Hong Kong has a population of a mere 7 million, so it’s obvious that the vast majority of those goods were destined for elsewhere.

 

 

It’s quite telling that while China’s garment exports to Europe and the US surged, exports to Hong Kong slumped. Measured by volume, China’s garment exports to Hong Kong in the first 9 months of 2005 dropped by 44 percent from the same period in 2004, according to figures from the China National Textile and Apparel Council. With no quotas in place, there was less need for Chinese companies to export to the EU and the US via Hong Kong. They could export the same product directly.

 

So, if the country-specific statistics aren’t a reliable indicator of a surge in Chinese garment imports to Europe, the logical place to find evidence of such an increase would be in the overall figures for China’s garment exports and the EU’s garment imports. According to China’s customs house, China’s overall garment exports in 2005 were worth 73.88 billion US dollars, up 19.9 percent from 2004. Well, that still sounds like a significant increase, one big enough to show evidence of surges in exports to certain countries or regions.

 

 

But the problem with this figure is that it’s susceptible to changes in price. If we are talking about a surge in imports of Chinese garments, then we’re really talking about an increase in the volume of imports, rather than the price. So, what about the figures for exports by volume, rather than value? China’s customs statistics for the first 7 months of the year (http://www.ctei.gov.cn/english/e_show.asp?xx=3276), a period including the 6 months most strongly affected by the ending of the quotas, show that China exported a total of 11.915 billion garments. That may sound like an impressive number, but it’s a mere 3.96 percent more than the figure for the same period in 2004. So, where’s the sudden surge now?

 

During those 7 months, the total value of China’s garment exports grew much more quickly than the volume, increasing by 20.94 percent. So, despite widespread alarm about the prospect of a flood of cheap textile goods from China, what actually seems to have happened is that slow overall growth in China’s garment export volume was offset by a quite substantial increase in price. Prices in some sectors may have fallen, but overall they rose.

 

This pattern is again borne out by figures from the China National Textile and Apparel Council covering the first 9 months of last year. (The figures are shown in translation on the Emerging Textiles website here: http://www.emergingtextiles.com/?q=art&s=051207Bmark&r=free ). During the 9 months, the value of China’s garment exports grew 22.31 percent year-on-year to US$43.42 billion, but the volume of those exports in fact grew by just 6.73 percent.

 

It might be possible to cast aspersions on Chinese official statistics, but the EU’s own overall figures also throw major doubt on the idea of there being a surge in imports from China. According to EC figures cited in the Financial Times (news.ft.com/cms/s/f91734d6-5fb2-11da-a628-0000779e2340.html    – (subscribers only) ), the value of the EU’s overall textile imports during the first 8 months of the year grew by just 2.1 from a year earlier, while the volume of those imports grew by just 2 percent. Again, where’s the surge?

 

 

In response to these figures, it has been argued that a surge in textile imports from China was offset by a reduction in imports from other developing countries, which would explain the low figure for overall growth in the EU’s textile imports. But this again rests on the reliability of the EU’s country-specific import figures, which are questionable. The figures, for example, show that the EU’s textile imports from Hong Kong during the 8 months dropped by 54 percent year-on-year, while its imports from Macau fell 53 percent. It would be a very hard job to prove that textiles imported from Hong Kong and Macau in 2004 had not originated in mainland China.

 

What is more, we could ask if it really matters to European manufacturers if garments at the low end of the market are being imported from China rather than from, say, India. With the overall rate of textile import growth so slow, it’s not clear that garments made in the developing world really have been displacing locally-made goods.

 

So, as we sit in our Made-in-China clothes and worry about the Chinese invasion, we might take comfort from knowing that the worst of it seems to have already happened. Fears about the final ending of quotas at the end of 2007 may be overdone. This now seems unlikely to drown European clothes-makers in a wave of cheap goods. Despite the hysteria of the “Bra Wars”, it is also quite possible that if EU officials had had a better understanding of their import figures, they might not even have seen a compelling reason to bring back the quota regime.

 

Tim Wilson is general manager of Chunkichilli Knitwear Ltd ( www.chunkichilli.com )

 

 

Tim Wilson