China's Premier And Harper: Difficult Times Ahead

Once the World’s Factory, China’s Textile Industry Increasingly Out of Favor

By Gao Zitan
Epoch Times Staff Created: August 28, 2012 Last Updated: September 1, 2012

Related articles: China » Business & Economy

Photo, taken in 2011, shows laborers working at a clothes factory in Hefei, in east China's Anhui Province. China’s garment manufacturing industry is experiencing a downturn. (STR/AFP/Getty Images)

Clothing manufacturers in China’s Guangdong Province are challenged by significant decreases in orders and excess inventory. Given the slowing economy and increasing costs, China is losing its status as the world‘s factory to Southeast Asia.
“The orders received this year were at least 30 percent lower than last year. Sales prices are lower, while labor costs are higher. As the cost of labor increased by about 20 percent, profits decreased significantly,” said Mr. Chen, the manager of a garment trading company in Guangzhou.
China’s garment manufacturing industry is experiencing a downturn, he said in an interview with The Epoch Times. Mr. Chen also said that domestic sales are decreasing and that as a result, large-scale layoffs took place in many local factories.

Rising costs caused by inflation puts the manufacturing industries in jeopardy. Economists believe that this inflation in raw materials and wages is due to loose monetary and fiscal policy designed to combat the financial crisis as well as China’s peg to the U.S. dollar.
In a town called Dalang, located in Dongguan city, Guangdong Province, a cluster of factories, the largest distribution center for wool production, is having a hard time paying salaries to workers.
“Usually a basic worker’s monthly wage is $393 (2,500 yuan). For experienced workers and managers, it is between $550 (3,500 yuan) and $787 (5,000 yuan),” said Xiao Qiang, the business owner of a Dalang knitting factory, who added that his business is not doing well.
As orders from Western companies decline, other factories in the cluster have become fierce competitors. “Sometimes I don’t want to accept an order because the price is too low,” said Xiao. “Many of them use digital machines for manufacturing. If you don’t want to take an order, soon someone else will pick it up.”
In order to cope in this new competitive environment, companies are resorting to wage cuts and lay-offs: Xingye Knitting Co. Ltd, one of the oldest factories in Dalang once had 1,300 employees, of which only 500 remain.
Xingye’s orders this year dropped 50 percent compared to last year, a decrease far greater than that of 2008 during the depth of the financial crisis, according to China Securities Journal, a state-run national business journal.
Similar situations are found in other manufacturing industries and locales. In Dongguan city, a toy-factory called Guanyue went out of business in July, according to the Southern Metropolis Daily, a relatively liberal newspaper published in Guangzhou. The current owner, Ai Lize, had purchased the factory from Li Ka-shing, the richest man in Asia, in 2008.
Not only Chinese players are leaving the market. Adidas recently announced its decision to shut down the label’s factory in Suzhou by the end of this year, according to the Wall Street Journal. In addition, a source told International Finance, a daily newspaper supervised by state-run mouthpiece People’s Daily, that 300 factories that have produced goods for the sportswear label have been notified of the end of their contracts.
According to The Daily Telegraph, Adidas claimed that they paid $130 a month to Cambodian workers who made the German company’s products for the London Olympic Games, a salary far lower than what Adidas had paid its Chinese workers in Suzhou, China. They reportedly earned $472 (3000 yuan) per month according to Securities Daily.
Given the high cost differential, countries such as Bangladesh, Vietnam, Myanmar, Cambodia and India are now the preferred locations for manufacturing clothing. Big Western outfitters are adjusting accordingly.
Not only Western companies are moving their production, however: State media reported that along with international labels, Chinese clothing brands are also relocating to Southeast Asia from the Pearl River Delta.
Low costs and low wages are the advantages of Southeast Asia, said Xiaoyu Jing, the general manager of Licancheng Garment Corporation, based in Guangdong’s Zhongshan City.
She said that wages for manufacturing workers in Vietnam and Cambodia are between one-quarter to one-fifth those paid to Chinese workers.
Not only wages are cheaper though. Some raw materials are also significantly less expensive in Southeast Asia: In China the going rate for cotton is 19,800 yuan per tonne ($3,114), 5,000 yuan more expensive than the cost of imported cotton from Southeast Asia.