China's textile trade shrugs off quotas
By Chris Buckley International Herald Tribune
TUESDAY, AUGUST 2, 2005
DONGGUAN, China With 6,000 employees, 400,000 square meters of factory floor that throb with 1,600 knitting machines, dyeing vats and dryers and its own power station, the Fuan Textile Complex stands out even in the outsize industrial landscape of southern China.
Fuan was the second-largest Chinese exporter of fabrics last year, shipping $390 million of knitted material, two-thirds of it destined for clothing stores in the United States.
Yet even as the United States and Europe have sought to contain Chinese-made textile products by reimposing quotas that ended at the start of this year, this mill in Dongguan, a manufacturing zone two hours' drive from Hong Kong, is not enough for its majority owner, Fountain Set Group, based in Hong Kong.
Fountain Set also owns a 3,100-worker fabric printing and dyeing plant nearby, and it is building a larger, more advanced knitting mill in Jiangsu Province in eastern China.
"Although there has been an increase in the volume of exports from China, we think the volume is not very large compared to the capabilities of this country," said Gordon Yen, executive director of Fountain Set. "All in all, we still believe there's room to increase capacity in China."
At a time when prospects for Chinese textile exports are clouded by the new quotas, Fountain Set's ambition may seem misguided.
But manufacturers, purchasing managers and experts said these restrictions, which are to last until 2007 at the latest, were likely to hinder but not halt China's march to the center of the global textile trade.
The reason is not just China's cheap labor, they said, but also the increasingly sophisticated technology and management on display in larger factories like this one.
Even as competition intensifies, companies based in China are becoming increasingly nimble and versatile.
Hundreds of the workers at Fuan are not machine minders but lab technicians. They test fibers on computerized monitors, try new fabrics in sweat simulators and dozens of different washing machines, and assemble strips of sample fabric - all apparently identical in color to the casual observer - that are dispatched to the United States and Europe so that designers there can choose between faintly different shades of dye.
This combination of cheap labor, productivity and logistical savvy is considered likely to ensure that Chinese-made fabrics and textiles will be an increasing presence in garment stores across Europe and North America, even with quotas in the coming years.
"By and large, anyone in apparel will tell you that you get the best product most reliably for the least amount of money from China," said Bob Zane, the vice president for sourcing of Liz Claiborne, a fashion conglomerate based in New York. "As we approach the future and Chinese manufacturers become more confident that the quota is truly gone, they'll only become more sophisticated and competitive."
Fuan opened in 1988 as the first foray into mainland manufacturing by its Hong Kong-based parent company. Now it can make as much as 16 million kilograms, or 35.2 million pounds, of dyed fabric and yarn a year, and its clients include Victoria's Secret, J.C. Penney, Liz Claiborne and Wal-Mart Stores.
With the ending of the global quotas that held back Chinese exports, established manufacturers like Fountain Set are facing a growing number of mainland Chinese competitors.
The Chinese government has invested $21 billion in local textile and apparel manufacturing in the past three years, and about 3,800 textile plants are under construction, A.T. Kearney, the business consultancy, said in a report.
In the first six months of this year, Chinese textile exports to the United States grew to $8.3 billion, a rise of 76 percent from a year earlier; and exports to Europe grew 57 percent, to $8.7 billion, according to the Chinese Commerce Ministry.
To survive and navigate in an increasingly fragmented and changeable consumer market, retailers and manufacturers have had to find more sophisticated ways to retain profit by cutting costs, time and uncertainties.
"There is definite pressure to reduce lead times," said Harry Lee, managing director of TAL Apparel, a garment giant based in Hong Kong that produces clothes in China and Southeast Asia. "Everyone is trying to push down prices, and everyone realizes they can't push much further, so everyone is looking at inventory to reduce costs."
In recent years, manufacturers based in China have responded to this looming pressure by accelerating their production cycles and taking on the design and logistics roles once assumed by their retail customers.
Soon Nam Yip, manager of TAL's garment factory in Dongguan, said that in the past four years it had cut its manufacturing time to 40 days from 120 days.
TAL also electronically monitors the stock of stores like J.C. Penney and ships clothes directly to the stores, bypassing middle managers and wholesale warehouses, Yip said.
"We in a sense have become the UPS or FedEx for our customers," he said.
Yen said the Fuan mill had computerized orders and testing to cut the lead time for orders and reduce mistakes. And down the highway, Luen Thai, the apparel group based in Hong Kong, offers customers a one-stop "supply-chain city" where they can design garments, choose fabric and trimmings and arrange deliveries.
"These companies are the future of the business," said Zane, who deals with many manufacturers based in China. "In the ideal world, we would send them a sketch and check and that's all."
He predicted that once quotas were fully removed, as seems likely after 2007, clothes made in China would make up 50 percent to 80 percent of the U.S. market, compared with a figure in the low 20s now.
None of this augurs well for clothing manufacturers in Europe and North America, who have persuaded their governments to reintroduce limits on textiles and garments made in China.
In May the Bush administration placed "safeguard" limits on several categories of Chinese textile imports, and already Chinese exporters have used up this year's limit for cotton shirts, underwear and cotton trousers. The European Union also placed quotas on Chinese-made clothes, and then struck a deal to limit export growth to between 8 percent and 12.5 percent until 2008.
These new trade limits and fears of more quotas are likely to sap the momentum of Chinese companies more than is the country's recent decision to raise the value of the yuan, observers said.
"The uncertainty obviously prevents the brands and retailers from coming up with a more permanent strategy for their sourcing," Yen said.
But while China is now the home of increasingly sophisticated textile factories, many of them still have trouble finding all the ingredients they need locally. Chinese cotton tends to vary in quality, making it difficult to ensure that customers' orders are met quickly and consistently, Yen said.
"China is certainly a very big producer of a lot of the ingredients," he said, "but not all of them are of the quality and standard, or may not have the consistency, that is being asked by the foreign brands and retailers."
In coming years, Chinese suppliers are also likely to overtake Japan, Taiwan and South Korea in producing synthetic materials for high-end fashion, Yen said.
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