Asian textile sectors cautiously positive for this year

Asian textile sectors look cautious but positive for the new year. Throughout last year, many textile and apparel factories were faced with shrinking demands from global consumers. The Christmas sales season just past saw a drop of 23% in US consumer spending on apparel, according to industry players in China. The sales in Europe and Japan were also on the decline, as the negative effects of the global financial crisis lingered on. Despite the prediction that the downturn would continue this year, some manufacturers look to the positive side, anticipating fewer competitors, lower production costs, and even new opportunities to emerge. Asian textile manufacturers, who used to focus on the traditional markets of the US, Europe and Japan, are now looking for new destinations and new strategies that help them through the tough times.

China, Hong Kong

To stimulate consumer expenditure, retailers in the US had cut prices heavily since the Thanks-giving Festival late last year, seriously affecting the turnover. A number of retails stores were closed down, including about those of Ann Taylor and Gap. There is, however, positive news observed by Hong Kong-invested garment manufacturers. At a Hong Kong Fashion Week seminar organized by the Hong Kong Trade Development Council on January 13, Felix Chung said: “Most of the inventory of retailers were sold out through big price cuts, and they might send Asian suppliers urgent orders (to fill their retail shop shelves).” He expected such orders, if available, would be seen within a few weeks. Mr Chung is Chairman of the Hong Kong Apparel Society and also Director of Chungweiming Knitting Factory. Additionally, some industry players based in Hong Kong said that while there was a 30% drop in sales, the competition might reduce by 40% as some textile and apparel manufacturers in China and other Asian countries might collapse, often smaller firms doing outsourced processing jobs. “Considering this, it does not look so bad after all,” said Mr Chung, adding this is an opportunity for those Hong Kong-invested manufacturers flexible enough to make quick changes. Merger and acquisition activities are also anticipated as stronger players to take the opportunity to grow larger. Another positive news is that some unfavourable factors against the Chinese textile and apparel industry over the past two years have been eased lately. As the US, EU and other traditional markets face shrunk wealth and bankruptcy, the global textile and apparel market is searching for a new market optimum. Facing sharp demand drops in importing markets, some Chinese textile and apparel manufacturers were pleased to find that appreciation of renminbi, rises in minimum labour wages, accelerating inflation, and shortage of skilful labour have all been alleviated. Future opportunities may lie in the exploration of non-traditional markets or segments, Mr Chung advised. He explained that China, the Middle East and Russia have been relatively less affected in the global financial crisis, and their huge foreign reserves help support consumers there to keep a steady consumption. Take China as an example. Currently, exports, domestic spending and capital investment are three major contributors of China’s gross domestic product (GDP), with each of them sharing approximately one-third of the GDP. The Chinese authorities are encouraging domestic spending so as to help compensate the decline in exports. Boby Chan, Chairman and Managing Director of Moiselle International, a listed premium fashion brand based in Hong Kong, agreed that China is an important market. He expected that the spring/summer market sentiment may be weak, but a better performance is possible in the second half of this year. Meanwhile, the economic boom in the Middle East and Russia depends on oil prices. The emerging wealthy people in these regions are ready to pay for premium consumer products, including fashion, said Mr Chung, who visited the two regions in recent months. Amid the global economic downturn, “It’s time to remodel the business for garment makers to stay in the market,” said Mr Chung, considering OEM a relatively passive model of doing business. Buyers have been comparing prices intensively among suppliers to place a highly efficient (and/or cheapest-possible) order. Providing design, product development and branding services are thus essential.

Mainland enterprises register profit drops

Despite a relatively optimistic expectation by the Hong Kong-invested garment makers, textile manufacturers on the mainland China were shocked by the “financial tsunami”. Many of them have found it difficult to move forward in 2008 due to a number of unfavorable factors, ranging from the troubled global financial market, harsher environmental requirements, new labors laws, revaluation of the renminbi, and the more expensive electricity and so on. In 2009, China’s attempt to expanding domestic demand is expected to help China’s textile industry to accelerate its pace for industrial upgrading and restructuring. Against this background, the Chinese textile and garment industry is facing a downward outlook in 2009, which started already in some geographical areas (e.g. Guangdong) and segments last year. Growths of production output slowed down significantly after the US property market ran into trouble last September. A further analysis on the Guangdong textile and garment industry is covered in the “China Focus” column on page 46. Moreover, financing remained a headache for many Chinese textile enterprises. It is the first time the Chinese textile and apparel industry registered a negative growth in profits (see table). In the face of weak economic outlook (especially in the US and EU), the fixed investment realised in the industry rose slightly by 8.8% to RMB247.23 billion in the first 11 months of 2008. This growth rate was 22.2 percentage points lower than that of the previous year. Looking ahead, Wang Tian Kai (王天凱), Vice President of the CNTAC, predicted the Chinese textile and apparel industry to increase by 6%-8% this year. He outlined several positive factors of the industry: — The complete supply chain of the Chinese industry is competitive in world markets despite the weakening consumer spending in traditional markets in the West and Japan. — Further ASEAN integration and these Asian countries continue demanding for China-made chemical fibers, fabrics and other upstream products — Exploring emerging markets in Russia, Latin America and Africa — Relatively strong domestic market of China.

South Asia

In addition to China and Hong Kong, the worsening of the global economy has begun to spread its tentacles to the Asian majors such as India and other South Asian economies. The quest for new economic opportunities in the new trade era is urgent as ever, which may help them to survive against the global financial slump. At the World Economic Forum summit last November, Indian participants were optimistic about India’s textile industry despite a fall in exports. They opined that it remained important to focus on the long-term prospects for India and they still believed the country would emerge as a global economic leader. Sharing a very positive outlook for Indian economy and its sectoral growth, chief executive of Goldman Sachs India, L Brooks Entwistle, said: “The underlying (growth) story of India remains intact and the long term interest in India continues.”