China currently plays a leading role in the world's textile markets. The textiles sector is one of the country's biggest foreign exchange earners ? some western estimates suggest that as much as 11 per cent of global textile output now carries a 'Made in China" label. China's state owned Xinhua News agency maintains that China is the largest garment maker in the world with sales of 3.55 billion pieces in 1991 alone.
Between 1978 and 1988, China exported US$56bn worth of textiles and the People's Republic owns textile ventures in Australia, New Zealand, the United States and Hong Kong. China is the world's largest manufacturer of silk.
Foreign textile companies have taken advantage of China's cheap labour ? ac-cording to Chinese Ministry of Textile statistics there are more than 1000 co-operative textile enterprises in the People's Republic absorbing in excess of US$1.25bn worth of foreign investment. The majority of these projects are engaged in processing high and medium grade textiles for sale abroad.
The astonishing development of China's textile industry is a relatively re-cent phenomenon ? China rationed cloth until the mid-eighties and some items are still periodically rationed when in short supply, particularly in less developed country regions. In the early eighties, even in the larger cities, Chinese citizens had to produce coupons if they wished to buy clothes made of cotton.
The Chinese textile market has had more than its fair share of difficulties in the last decade. China faces serious over-production of many outmoded and unpopular textile-related products, including ordinary medium and long-staple fibre fabrics, low grade pyjamas, polyvinyl alcohol fibre mosquito nets and gunny-bags. Accordingly the authorities are trying to phase out production of unpopular items as consumer taste changes.
A slow-down in the economy and subsequent political disturbances in 1989 and 1990 meant that the Chinese textile and clothing industry achieved a poor growth rate in 1990 with gross out-put only increasing by 1.6 per cent. A reduction in quality of Chinese textile exports led to an alarming drop in orders from Hong Kong. Fall-out from events in Tiananmen Square in 1989, perceived political instability and higher prices among Chinese textiles producers resulted in previously loyal customers turning to other textile suppliers such as Pakistan and Taiwan.
A 1990 survey of 1,356 Chinese textile mills showed that during the first three months of that year, one third of the plants were running at a loss and the first half of 1990 saw a drastic decline in China's textile exports because of slack domestic sales, lower overseas consumption and poor quality of textile ex-ports, as well as a delayed reaction to international sanctions put in place after events of June 1989. In the first nine months of 1990 Chinese textile exports fell 3.5 per cent in value terms compared with 1989. In the same year, of Shanghai's 401 textile firms, 39 were losing money and Beijing's 36 textile companies lost 67m RMB yuan in the first nine months of the year, according to Ministry of textiles statistics.
Another factor that has hampered Chinese garment exports to Europe, apart from rigid quotas, is the fact that Chinese packaging often doesn't meet the stringent requirement of European retailers and deliveries can be slow or unreliable. Nonetheless, according to the US Department of Commerce, in 1985, Chinese imports represented 7.4 per cent of total US textile imports. By 1990, the figure had almost doubled to a massive 12.6 per cent and the US remains China's principal export market for textiles and apparel.
The textile sector performed better in the first half of 1991 with output rising 5.9 per cent in value terms, broadly in line with the stated objectives of the Eighth Five Year Plan which predicts that the gross textile output will be worth 255bn yuan (US$48bn) with ex-port earnings ranging from US$15-17bn by 1995. To put this in context, according to Hong Kong based Technomic Consult-ants Far East, China's total textile and apparel exports were worth US$13.8bn in 1990.
One obstacle preventing China from boosting its textile exports is the Multi Fibre Agreement which was negotiated under Gatt auspices in 1974. Under the MFA, 52 countries regulate the world's textile and textile related trade. One of the principal aims of the MFA is to pre-vent domestic market disruption resulting from import surges from countries like China. Textile manufacturers in western Europe fear that their own industries would be seriously undermined if cheap textile imports from southeast Asia started to flood in.
Hence a quota system which operates contrary to the free trade provisions that characterise the General Agreement on Tariffs and Trade. Consequently, Chinese garments are far less evident in European retail outlets than they are in the US, Australia or southeast Asia. Most EC countries have no desire for a change in the current status quo which has resulted in China's textile enterprises accusing the west of protectionism.
To date, the lack of essential raw materials has hampered the quality of many of China's garments. In recent years prices of raw materials have been escalating ? especially cotton, wool and silk and this has raised manufacturing costs. In some areas, even basic essentials like power and water are in short supply and it is therefore not surprising that most of China's quality textiles are produced on Hong Kong affiliated export processing ventures. Shortages of essential raw materials from raw cotton, denim, canvas, corduroy, silk and poplin to synthetic fibres are expected to continue in the medium to long term.
Since 1979, China's textile industry has developed most rapidly along the country's Eastern seaboard, particularly in the country's southern provinces. The relatively developed infrastructure in the special economic zones has also encouraged textile factories to flourish. Higher disposable incomes among consumers have benefited the garment trade ? in 1981, average expenditure on clothing for urban residents stood at approximately US$13 per annum but by 1989, the figure had almost doubled to US$30. Stroll down a street in Shanghai in the early 1980s and most citizens were dressed in blue or green fatigues. The Shanghai of the 1990s is a very different place? denim has replaced a Mao suit.
Foreign companies have realised that the Chinese market has immense potential, though to date have tended to concentrate on low capital, labour intensive projects. Export processing ventures, where comapanies supply machinery in exchange for finished goods for export, have been popular and-Hong Kong companies dominated in this form of trading.
In October, 27 companies from Hong Kong participated in the Fourth Dalian International Fashion Festival. According to the Hong Kong Trade Development Council, the companies promoted designer collections, leather and fur clothing, silk garments, evening and leisure wear.
It is estimated that Hong Kong companies account for between 65-70 per cent of total foreign investment in the People's Republic and some 65 per cent of China's total garment exports are tied to manufacturers in Hong Kong. The colony is the largest foreign investor in China's textile industry and the mid 1980s witnessed much of Hong Kong's garment production capacity moving across the border into south China.
Taiwanese companies have also appreciated mainland China's market potential as domestic wages in the island republic have risen forcing them to take advantage of mainland China's cheaper labour costs. Taiwan has witnessed a textile technology boom in recent years and an increasing number of Taiwanese textiles companies are willing to invest across the Strait. Western estimates suggest that approximately 22 per cent of Taiwanese investment is tied up in textile related projects.
Italian fashion group Benetton has made significant investments in China. The group already has an outlet in Beijing and aims to have 15 shops across China by 1994. Benetton already sources many of its goods from seven factories in south China which produce Benetton clothing for the Japanese export market.
Leading textile company, Coates Viyella inherited a major presence in the Chinese market when it took over Tootal in May 1991. As a result of the merger, Coates Viyella took over Tootal's Guangying spinning plant in Guangzhou which opened in January 1987 and is regarded as a model joint venture by Chinese authorities. The Guangying plant produces high quality thread and is well situated with easy access to Hong Kong.
Coates Viyella also inherited another of Tootal's Chinese plants situated in Tianjin ? the Jinyang Mill with an in-vestment of some US$22m. Coates Viyella's most recent China venture was the commissioning of a dyehouse worth several million dollars in Guangzhou in November 1991. The company is moving its dyeing facilities into China to reduce costs and take advantage of cheaper labour on the mainland.
Sino-western textile joint ventures tend to be well documented. However, in recent months, Eastern European countries have been showing an in-creasing desire to develop business with the People's Republic, particularly as their economies falter.
The People's Republic of China has become a mayor player in assisting the erstwhile Soviet Union to develop its textile industry. Last year a Soviet-Chinese linen joint venture was set up in Baotou, the autonomous region of Inner Mongolia. Registered capital amounted to 129mRMB yuan (approximately US$23m) with the Chinese side contributing 62.9 per cent of the equity and the russian side the remainder. The venture will comprise a seed company, a raw materials plant, a textile mill and a weaving plant. Activities will include the breeding of fine strains of flax, primary processing and spinning, weaving, printing and dyeing of linen products.
Four Soviet enterprises are involved in the project ? the Technoexport All-Union Foreign Economic Association, the Tekstilmash Cheboksary Production Association, the Tostekstil concern and the Avtomatizatsiyalegprom Science and Production Association. Eighty per cent of production is expected to be sold to third countries with Macau and Hong Kong targeted as major markets. The remainder will be sold on the domestic Chinese market. When it comes into production, the plant will produce over 1,900 tons of flax yarn and four mil-lion metres of fabric annum and it will be the largest joint venture in Inner Mongolia to date. Other Sino-Soviet textile joint ventures are being negotiated in China.
Political disturbances in the former Soviet Union have meant that western textile concerns now view the Chinese market even positively with its com-7aratively developed infrastructure. Many hoped for opportunities failed to materialise in Eastern Europe with the fall of the Berlin Wall in 1989.
The indications are that Chinese government agencies will continue their cautious purchasing policies, placing emphasis on projects that are seen to develop the country's infrastructure as a whole and that concur with the objectives laid out in the current Five Year Plan. China's Minister for Textiles, Madam Wu Wenying, spelled out China's objectives recently when she was quoted in the Chinese press as saying that the textiles industry would give priority to chemical fibres and textile machinery over the next five years. Emphasis will be on industry rationalisation, strengthening management and upgrading technology and equipment. Chinas recent economic upturn would seem to indicate that there will be foreign exchange available for the import of textile related machinery.
Western textile concerns will continue to invest in China in ever greater numbers, particularly via Hong Kong. China's labour costs are significantly cheaper than those in other local textile producer countries such as Malaysia, Indonesia and Thailand. As one textile trader put it:
"In the sixties you had one billion people wearing Mao suits. By end of this decade we could easily see the most populous nation in the world clad pre-dominantly in denim and designer labels." *