Chinese textiles feel the cut
Lan Xinzhen

THE Chinese textile industry, long a high exporting sector, is showing signs of a slowdown. According to statistics released by the National Development and Reform Commission (NDRC) on October 30, in the first eight months of this year, China’s exports of textiles and apparel were $111.73 billion. This represents an increase of 19.46 percent year-on-year, though a decline of 5.21 percentage points compared with the growth rate during the same period last year.
Analysis made by China National Textile and Apparel Council (CNTAC) found that the slowdown came mainly from a decrease in export volume. In the first eight months, the export volume grew 11 percent, 4 percentage points lower than last year. “The industry is changing from its high-growth period after China’s WTO accession to a normal growth period,” said Du Yuzhou, Chairman of the CNTAC.
Three factors
According to Du, the industry has been heavily influenced by factors such as yuan appreciation, the adjustment of tax rebate policies and international trade friction. From January to August, the renminbi appreciated 3.16 percent against the U.S. dollar. Statistics from the CNTAC indicate that when the renminbi appreciates 1 percent, profits of cotton textiles, wool textiles and apparels decrease by 3.19 percent, 2.27 percent and 6.18 percent respectively. Renminbi appreciation caused the industry to lose 30.6 billion yuan ($4.08 billion) in the first eight months. This year, China’s central bank also raised interest rates for savings deposits and loans five times, meaning textile companies had to pay an extra of 8.9 billion yuan ($1.19 billion) in interest.
As of July 1 this year, the Chinese Government reduced the tax rebate rate on apparel as well as viscose fiber and related products down to 11 percent and 5 percent respectively. On July 23, the Ministry of Commerce (MOFCOM) and the General Administration of Customs jointly announced a new list of processing trade products classified to be restricted for export. Exporters of products on this list must pay the full amount of an export guarantee deposit. There are 1,539 textile products included on the list, accounting for 83 percent of the total.
The EU’s quota mechanism on Chinese textiles will be annulled on January 1, 2008. According to an agreement between China and the EU, the two parties will adopt a double-check system. The China Chamber of Commerce for Import and Export of Textiles, the CNTAC and the China Association of Enterprises With Foreign Investment jointly issued qualification standards for companies exporting textiles to the European market subject to the new system. The standards include six indicators, according to which about 6,000 companies are qualified to export textiles to the EU market. Previously, more than 10,000 companies were qualified to export to the EU. These restrictions will lead to the continuous decline in the growth of textile exports. In Du’s opinion, it will drop to10-15 percent, from the previous annual average rate of over 20 percent.
A low-profit industry
The Chinese textile industry is a major traditional industry. At present, China is the largest textile exporter in the world. In 2006, the trade surplus of China’s textile industry stood at $129.2 billion, contributing 71 percent to the country’s total trade surplus. However, China’s textile industry is not yet fully developed. Most textile enterprises, especially apparel producers, are processing oriented, serving as original equipment manufacturers (OEM). The MOFCOM statistics show that exports of Chinese textiles with independent brands only account for 10 percent of the industry’s total exports.
There are now more than 30,000 textile enterprises in China, most of which earn processing fees of about 10 percent of the total costs. Chinese textile exporters only get 3-5 percent of profit, while more than 90 percent goes to importers, retailers, whole sellers, brand owners and related logistic companies.
The textile industry is labor-intensive. China’s textile industry employs 20 million people and its labor cost advantages are weakening. Gao Hucheng, Vice Minister of Commerce, says that according to a report released by Werner International-a global management consultancy specializing in the fiber, textile and fashion industry-traditional coastal textile-producing areas are witnessing rising labor costs, closing in on the threshold of $1 per hour. Ten years ago, the cost was less than $0.3 per hour and five years ago less than $0.6 per hour. Regionally, textile labor costs in Viet Nam, Cambodia, Bangladesh and Indonesia were $0.29, $0.36, $0.22 and $0.36 per hour, respectively, only one-third that of China on average.
The world’s textile market
Although the profits of China’s textile enterprises are low, the country provides a huge market for the world’s textile industry. Development of China’s textile industry drives imports of related dress materials, cotton and textile machinery. According to MOFCOM statistics, in 2006 China imported $18.1 billion worth of textiles and apparels and $4 billion worth of textile machinery, up 6 percent and 19.2 percent, respectively, year-on-year. China is also the largest cotton importer in the world, importing $4.87 billion worth of cotton in 2006, a rise of 52.3 percent over a year ago. At the same time, it is the second largest cotton exporter to the United States.
During the January-August period this year, growth of China’s imports of yarns and fabric from the EU, the United States, the Association of Southeast Asian Nations, India, Thailand and Viet Nam all surpassed 10 percent. At the same time, China’s imports of textile machinery from the EU surged 30 percent year-on-year, 19 percentage points higher than last year. The imports of textile machinery from Japan grew 27.5 percent.
According to Gao, China’s textile industry provides cheap but good textiles to consumers in developed countries, especially to those with low incomes. Figures from U.S. Department of Commerce indicated that in 2006, the average unit price for textiles imported from China was $1.45 per square meters while that from the rest of the world was $1.79 per square meter. Every square meter of textiles the United States imported from China saved $0.52 for U.S. consumers and $9.68 billion for the whole year.
Time to upgrade
Competition based on low added value and low profits means many Chinese textile enterprises have been losing money. Figures from the CNTAC show that only 40 percent of China’s textile enterprises show a profit, while the other 60 percent break even or fail to make a profit. The MOFCOM, the NDRC and other related government departments are calling on textile exporters to speed up the transformation of the industry. “Chinese textile exports should abandon the focus on quantity alone,” said Gao.
In fact, some enterprises had already noticed the crisis, becoming aware that the OEM pattern of low added value and low technology could not bring in more profits and would lead to accusations of dumping. A kind of cotton quilt that can be washed repeatedly attracted attention at the 2007 China (Shaoxing) International Textile Expo held on October 21-24. The quilt, made of specially processed ultra-long cotton fiber, compares favorably with down-padded quilts in terms of warmth and durability. Even after repeated washing and drying, it still retains its fluffiness. This cotton quilt was produced by Shaoxing Oumeiya Textile Co. Ltd. (SOTC), after four years of research.
SOTC was once only a factory that processed materials according to samples provided by clients from home and abroad. Although it still does this, independently developing new products has been its most recent focus. Two years ago, the Chongqing No.3533 Printing and Dyeing Garment Factory developed 75 varieties of battle fatigues and fatigue materials suitable to different terrain and weather such as sea, desert and forest. These products, with high technology content, can resist fire, infrared rays and ultraviolet radiation. They have been exported to the United States, Russia, France, Germany and other countries.
The Chongqing Kunlang Trading Co. Ltd. developed a kind of wood fiber towel that is antiseptic and deodorizing and has a long service life and high water-absorbing capacity. It has been ordered by companies from Europe and the Americas. Such products of high technology content are in high demand abroad and bring profits without worries over dumping charges. At the China Textile Innovation Conference held on October 30 in Shanghai, 23 companies were awarded for product development contributions. However, not many textile enterprises are in transformation on the whole. Less than 10 percent of the total are in the process of upgrading to higher technology products. Less than 1 percent are focusing on improving the technology content of their products and developing independent brands. Most enterprises are simply maintaining the pattern of production of low-added value products.
In Gao’s opinion, if these enterprises want to survive, they must strengthen adjustment of their product mix, promote innovation of textile technologies and equipment, develop energy-saving technology, create differentiated and environmentally friendly products and increase labor productivity. More importantly, they must nurture independent brands of international influence.
“Textile enterprises can actively promote international operations by setting up factories abroad in order to utilize both domestic and overseas resources and markets to increase their own market influence and improve the position of the Chinese textile industry in the global industrial chain,” Gao said.

(The Daily Mail-Beijing Review Articles Exchange Item)



Common GCC currency caveat
Dr Eckart Woertz


WITH Kuwait’s decision to peg its currency to a currency basket instead of the dollar exclusively and the withdrawal of Oman, the planned GCC currency union saw two major setbacks this year. Still, its scheduled implementation by 2010 was reconfirmed at the GCC summit in December this year, despite widespread doubts among experts who deem this unrealistic under present circumstances. The planned GCC common market has received less attention in the media, although it is arguably more important than the proposed currency union. A currency union by itself does not increase trade numbers if it cannot build on an already existing common market, and monetary policies of the GCC countries already show some synchronisation anyway — provided common currency pegs persist, be it to the US dollar or some kind of currency basket.
The launch of a GCC common market by January 1, 2008 will mark an important step in GCC economic integration. It will move beyond the free movement of goods and services that has been agreed upon in the GCC customs union to include labour and capital flows as well. To this end, various markets have to be opened up and regulations harmonised, ranging from labour laws to pension schemes and social security entitlements. The list in Article 3 of the GCC Unified Economic Agreement is long and includes access to universities and other education, as well as the right to buy and sell property, and to invest without restrictions. On the eve of the start of the GCC customs union in January 2003, a timeline for the GCC common market was agreed upon: By the end of this year, the GCC should harmonise its legal requirements and legal codes and the member states should enable them on the respective national level. The necessary third step would then be the actual implementation by the respective administrative institutions and their bureaucracies. Although the GCC has already achieved consensus on a vast number of laws, their actual implementation on the national levels still lags behind and detailed specifications and unified regulatory frameworks are absent in many cases. Cars are one of the few examples where such detailed specification has been achieved, but otherwise all too often the free flow of goods is hampered by red tape and confusion about applicable procedures. Thus, the GCC customs union as a necessary precondition of a common market has not been fully implemented in 2007 as envisaged, and Saudi Arabia has asked for extra time of one year.
The implementation of the common market will go beyond the realm of goods and services and will complicate things further. It would not be possible to keep laws of workforce nationalisation (Saudisation, Emiratisation, etc.) in their current form and labour laws would need to be applied to all GCC nationals equally. The same is true for the sponsorship systems, and the respective stock markets would need to offer equal access for all GCC citizens. But so far considerable restrictions persist. For example, the Haj tourism industry is, and most likely will remain, a closed Saudi market, and all GCC stock markets, except for Bahrain, have limited the percentage of shares that other GCC nationals can hold in a publicly listed company. Despite some liberalisation like Saudi Arabia opening up its banking sector to other GCC investors, this state of limbo is going to persist for some time: “As far as we are concerned, there is nothing changing as from January 1, 2008,” announced the chairman of Dubai Financial Market, Eisa Al Kazim. No doubt, next year will mark the beginning of a long process, and not the start of a full-fledged common market.
Provided consensus on the GCC level will have been achieved with respect to laws and regulations and provided the national governments will have implemented these laws in the respective countries, the ultimate litmus test for the common market will come in the real world of institutions and bureaucracies as they need to guarantee the accurate realisation of the proposed policies. The requirements for training can be imagined. More importantly, public awareness about the possibilities of the common market would need to increase. Besides specific media campaigns, the website of the GCC and other information outlets could be improved, and cooperation with non-governmental bodies like chambers of commerce strengthened. Only with well-oiled feedback loops, will the GCC be able to monitor the grade of actual implementation. It will, of course, also require the capability to enforce it if need be. Here, a major empowerment of centralised GCC institutions is warranted. It is not enough to meet once or twice a year to decide important issues, the establishment of a common market needs day-to-day decision making by administrations with corresponding institutional capabilities. The EU has the European Commission, the Council of the EU, the European Parliament and the court of justice to deal with such matters; in the GCC, no such institution exists thus far.

—Khaleej Times







Iran is no threat & that’s official
Linda Heard

THEY stole our threat” goes a headline in the Israeli daily Haaretz. The author is, of course, referring to the recently published US National Intelligence Estimate (NIE) composed by 16 American intelligence agencies. It counters US and Israeli assertions that Iran is developing nuclear weapons. There’s been no such program since 2003, it states. For those of us in the neighborhood, this is good news but the powers that be in Washington and Tel Aviv are seething. With plans to squeeze the Iranian leadership with further UN sanctions and a military option on the table, this was not what either country wanted to hear. George W. Bush says the report doesn’t change anything. On the contrary, he says, it shows that Tehran was working toward the manufacture of nuclear weapons in the past and could reconstitute the program again. When challenged by reporters over his “World War III” speech, he said nobody told him that Iran didn’t have a current weapons program. This assertion has gone down like a lead brick with skeptical administration’s critics.
Investigate reporter Seymour Hersh says it has been an open secret in Washington since last year. In any event, whatever remnants of credibility Bush still possessed after the Iraq fiasco have been shot. Israeli Prime Minister Ehud Olmert says he is determined to work with the nuclear watchdog, the IAEA, to prove that Iran is developing nukes. If that’s so, he’s got a difficult task ahead because head of the IAE Mohammed El-Baradei has consistently discounted such claims and been vilified by the US State Department for his stance. The hawkish US Vice President Dick Cheney is accused of trying to bury the intelligence estimate but he encountered opposition from Secretary of State Condoleezza Rice, who either wanted to put a brake on the warmongers or feared inopportune leaks. Moreover, US law mandates that intelligence estimates must be put before Congress. Whatever the real reason it’s been published there is no doubt it has undercut the Bush administration’s military option rationale as well as its efforts to persuade Russia and China to sign up to further anti-Iranian sanctions. China’s ambassador to the UN said, “We will assess the situation on proposals for a new resolution in the UN Security Council on the basis of several factors including the publication by the US of data showing that Iran does not have a military nuclear program”.
Russia’s foreign minister has trumpeted Iran’s willingness to adhere to the principles of the Nuclear Non-Proliferation Treaty. For its part, Israel feels betrayed by the report’s authors. Zvi Ba’rel writing in Haaretz says “The anger against the American intelligence report is understandable. After all, the threat remains. Even if Iran is not nuclear at the moment, it is still a state with a proven arsenal of ballistic missiles that threatens Israel and the entire region.” “This explains the profound disappointment, the feeling of betrayal and, especially, the panic over the American intelligence services’ decision to peek under the Iranian cloak and suggest that there are significant holes in the ‘theory of the Iranian enemy’”, he writes. Actually, Ba’rel, all the countries in our neck of the woods believe that Israel, which does possess a nuclear arsenal, is currently occupying Arab land and just last year launched a war against Lebanon, to be the greatest threat to this region.

—Arab News