One of the most visible changes in Chinese society over the past 15 years has been the adoption of bright, Western clothing in favour of the traditional dark blue uniforms popularised by Mao. The transformation of China's textile industry that has brought greater colour to its cities has been no less dramatic.
On the positive side foreign investment, innovations in technology and management practices, and a greater emphasis on export are forcing improvements in efficiency. Yet whilst there are obvious benefits to an industry in dire need of modernisation, there is also pain. State firms conditioned to central purchasing have been slow to adapt to a more affluent market driven by fashion. In order to halt overcapacity caused by making products that people no longer want to buy, old mills are having toe demolished and workers face unemployment.
The need to be profitable and earn more foreign exchange, means that the textiles industry can no longer sustain a workforce of 13m people even in a country the size of China. Mr Aaron Lo, a consultant both to Coates Viyella Group in the UK and to Tianjin and Guangzhou Municipal Governments, regards this balancing act as an almost impossible one to fulfil.
Textiles play a prominent part in China's economy. China is the world's third largest producer and is rapidly catching Japan in second place. The US, Eastern Europe, Japan and Hong Kong jointly import 70 per cent of the word's textiles goods, whilst China supplies 70 per cent of textiles imported by these regions. Textiles yield over 10 per cent of industrial output, contribute over a quarter of all foreign exchange earnings and account for nearly one in six of all industrial workers.
The massive domestic market started to take off in 1983 after the abolition of the 30-year-old coupon system for textiles. This led to a 70 per cent increase in per capita consumption between 1978 and 1991. The domestic retail sales value of clothing commodities was Yn135.6bn (US 23.4bn) in 1991, accounting for 16.5 per cent of all consumer goods and ranked just second behind foodstuffs. Mr Teruo Hotta of C Itoh and Co predicts that consumption will grow by 7 per cent during this decade to reach 10m tons by the year 2000 or 20 per cent of the world total.
An increasingly fashion conscious society buying more expensive garments means that high street spending should grow at an even faster rate. Italian fashion group Benetton is opening shops across the country and is sourcing more of its garments from local factories. Fashion fairs are also on the increase, mostly in the north targeting mainland buyers. In the south, the inaugural International Fashion and Accessories Fair held in Shenzhen in September attracted the largest number of overseas buyers to a mainland event for the garment trade. More than 4,000 buyers from Europe, the US and Asia were among the 15000 visitors at the fair. It featured over 250 exhibitors and eight fashion shows.
Elbe Group, a German company specialising in ladies fashions, secured many orders at what was its first trade fair in China. "Buyers from southern China also expressed interest to distribute our products in the north," said Elbe's president Mr Kook Park.
Domestic production is well supported in terms of natural fibre materials, although prices have been mounting in recent years and shortages of some essential raw materials are still common. China is blessed with the majority of the world's silk and there is also abundant cotton, wool, cashmere, angora, down feathers and ramie. Cotton accounts for about 60 per cent of total production although output has levelled off since 1984. By contrast silk output doubled during the 1980s and wool production grew six-fold.
The development of existing facilities especially in synthetic fibres should strengthen China's status as a leading textile producer over coming years. Synthetic fibres have grown rapidly as a result of increased production of polyester filament. Improvements in chemical fibre facilities should help China to become the world's largest producer in this area by the year 2000.
Apart from the obvious appeal of a country comprising over one billion people, cheap labour and power costs are two of China's other main attractions to foreign investors. Only very few Asian countries such as Vietnam and Sri Lanka have cheaper labour costs. Local management levels are also relatively inexpensive; a senior engineer able to run a spinning mill is paid only three times as much as a general labourer, compared to a differential of about ten times in Indonesia. And whilst inflation is a source of concern to investors, the continued devaluation of the yuan is helping to slow down real increases.
With electricity comprising 20 per cent of a Chinese spinning mill's costs, power is another crucial factor. In China the cost is just half that in Hong Kong and Singapore, and whilst there are many power shortages, concerns in this area should diminish over coming years as more government resources are committed to infrastructure.
Currently there are about 3,000 joint ventures, joint cooperative ventures and wholly-owned enterprises in textiles. Most foreign investment is in labour-intensive projects financed from Hong Kong and Taiwan.
Coates Viyella is an exception, having been trading with China for many years. Before the Second World War, it owned manufacturing facilities in spinning and dyeing in Shanghai. Soon after the open door policy was adopted in 1979, the company sought the cooperation of a Chinese partner. It went into a compensation trade with a state owned spinning mill in Tianjin. Two spinning mills and one dyeing joint venture followed between 1985 and 1991 with a combined investment value of over US$40m.
As China seeks' to attract more large-scale foreign investments in a bid to upgrade the quality of textile production, the emphasis is now on advanced technology and equipment. Over US$2bn was spent on advanced equipment in 1992 and contracts for textile machinery projects, such as auto-winders and shutless looms, were signed last year with companies from Switzerland, Germany, Japan and Italy.
Many opportunities exist, including two companies in Jiangsu province which are currently looking for joint venture partners. Yancheng Silk Reeling Mill, a medium-sized silk producer, is currently planning to import eight warp knitting machines as part of its plans to produce two million metres of warp knitting silk a year. Meanwhile Yancheng No.2 Textile Mill is looking to import 48 air jet weaving machines for producing high-density and high-grade fabrics.
The rapid pace of change that is sweeping through the industry is having wide repercussions. Most alarming for China is a rising tendency to impose import quotas by the US and Japan. The Multi Fibre Agreement helps to protect western European companies from cheaper producers in Asia. But it is not just the West that is being protectionist. The Indian silk trade is pressing its government to curb imports of Chinese silk which is mostly cheaper and of better quality than can be produced locally.
Greater protectionism casts a shadow over future export hopes and whilst the prospect of rejoining GATT should usher in lower textile costs, the agreement allows countries to adopt a voluntary export quota limitation. Textile owners, whether in China, India or elsewhere, are often forced to set up less profitable overseas factories in order to overcome the country export quotas that are imposed on individual producers.
Competition from other low-cost producers in Asia and eastern Europe is also impacting export performance. Germany s Federal Industry Clothing Association has revealed that garment imports from Poland grew 25 per cent in 1992 compared to a 23 per cent fall in China and Hong Kong.
The decline in importance of the state textile sector has seen privately-owned and foreign-funded companies grow to claim a third of total output by the 1990s and more than half of all profits. There is now a pressing need to Further improve the low levels of managerial skills and technology that persist in the 50,000 state enterprises. Technical standards of dyeing, fabric finishing and processing are patchy and strict quality control procedures are needed, especially in sewing and finishing.
Obsolete machinery is being replaced and as streamlined and efficient joint venture companies exert their influence, unemployment is becoming more acute. Yet the output of trained textile workers shows little sign of diminishing ? there are 23 'textile universities and colleges, 52 textile polytechnic schools and more than 100 scientific research academies and institutions. Over the past five years, 200,000 professionals have emerged from this system. Whatever the true unemployment total, one must take into account the many workers who are idle but still receive 60 per cent or 80 per cent pay.
The problems stretch beyond the mills and factory floors, however. Foreign trade departments exert great influence over purchasing from state textile firms, which puts a barrier between producer and buyer. This can create a situation in which an enterprise is cocooned from the demands of the world market or where the foreign trade corporation is ignorant of production issues. Not surprisingly, a recommendation for greater export autonomy was proposed at the last People's Congress. The improved export performance of companies like the Suzhou Knitwear Factory which was granted greater freedom a few years ago should strengthen resolve for further reform.
The streamlining of state departments should also help. The eighth People's Congress passed a resolution to replace the Ministry of Textile Industry with the China Textile Federation. Its major function will be to guide and oversee industrial planning and policies and provide the necessary economic and legal framework. Ji Guobiao, President of the China Textile Engineering Society is committed to "improve the processing technology, develop market-oriented products and give a full play to our raw materials advantages. We will further open to the outside world, and develop international trade and technical and economic cooperation." *
Information included in this article was kindly supplied by The Textile Institute, Asia and World Textiles, William Cheung and Aaron Lo (Coates Viyella) and Ji Guobiao (China Textile Engineering Society).