"Chinese Perspective on Textile Trade
Ever since the ending of global textile import quotas on January 1st,
2005, many countries fear that Chinese products may flood their textile
markets. On May 13th, Washington announced that it would re-impose quotas
on some textile items (cotton trousers, cotton knit shirts and underwear).
The European Union followed with similar measures. On May 30th, China’
s Ministry of Commerce said it was lifting textile export tariffs it had
placed on 81 products early this year. The trade war over clothing is
on.
What is seldom (if ever) reported in western media is that China’s textile
industry only gets less than 10% of the revenue and 3%-5% of the profit
for textile export, while the lion share of revenues and profits goes
to western companies that own the brand names. While many Chinese depend
on textile export for employment, the current boom also causes many problems
in China.
To understand how this economic scheme came about, we need to understand
the development of last 30 years. By the end of 70s, China had established
its own production chain for the textile industry: from steel to heavy
machinery, to light machinery, then to textile and apparel production.
Compared to similar western machines, Chinese spinner machines employed
10 times more workers but required much less initial capital investment.
This was well suited for a populous country. After having produced black
and blue suites for almost 30 years, China’s textile industry was ready
to provide more variety and quantity for the people. At the same time,
Chinese government adopted the “open-up and reform” policy. Many textile
machines were imported. By the early 90s, China had essentially two duplicate
textile production systems, one domestic and one imported, and each alone
was enough to meet the domestic demand. Such over-capacity led to fierce
price competition, both domestically and internationally. In 1997, Prime
Minister Zhu Rongji decided to solve the problem once and for all—he
ordered to destroy the domestic machines, as they were more backwards.
Large numbers of textile workers were laid off. This also bankrupted many
upstream machine manufacturers, as their domestic markets were destroyed.
Such drastic measures only relieved the over-capacity problem temporarily
and contributed to the current problems. Without competition from domestic
producers, foreign machine manufacturers can ask higher prices and get
bigger profit upstream; foreign retailers control the brands and distribution
channels and thus get most of the profit downstream. To make up for the
low and decreasing profit margin, Chinese textile producers focus on the
one area where they still have competitive advantage: low price mass production.
They are thus engaging in a vicious cycle of over-capacity. Lack of transparency
in global trade regime further exacerbated the problem. While negotiating
its WTO accession, China agreed to “safeguard measures” in textile:
western countries have the right to re-introduce quotas if import from
China surges. To suppress domestic debate, the ministry of commerce has
downplayed such concessions in front of the Chinese audience. Many producers
imported expensive machineries in 2004 to increase their capacity in anticipation
of quota removal—textile machine import from Germany alone accounted
for more than one billion euro. The re-installation of quotas by US and
Europe in Mid 2005 has caught these producers by surprise. According to
one unconfirmed source, many producers complained that when they requested
explanation and interpretation of related WTO rules from the ministry
of commerce, they got late or no responses, and the information they got
was often confusing or misleading.
It is high time for China to question the model. "Because of the low profit
margins of Chinese textile products, China needs to export 800 million
shirts in order to buy one Airbus A380,”--those were the figures quoted
by Minister of Commerce Bo Xilai on May 3rd, 2005 at a Sino-French seminar
in Paris.
If we take the heavy environmental toll of the clothing industry into
account, the picture is even bleaker. Clothing manufacturing and dyeing is
water and pollution intensive, and so is cotton growing. It takes approximately
four pounds of pesticide and insecticide plus 1,300 gallons of water to
grow one pound of commercially produced cotton. Ironically, the water-scarce
western province of Xinjiang is a major cotton producer for China because
of its hot climate. Does the growing desertification in western China
has anything to do with improper water diversion to grow cash crops like
cotton? There is no conclusive scientific study yet, but there is lots
of anecdotal evidence to support this claim. China’s export cloth industry
certainly contributes significantly to China’s rapidly deteriorating
environment. If all these environmental costs were internalized, the already
razor thin profit margin of China’s textile export industry could very
well be negative. When 1 Airbus=800 million shirts, we can safely assume
most line workers of the 800 million shirts can never afford a ride on
the Airbus. Take Pearl River Delta special economic zone as an example,
while FDI and the economic boom have boosted salaries for management and
technical personnel by around 5 percent annually, wages for general workers
have been stagnant for more than a decade. Taking inflation into account,
the actual wages have decreased significantly. The end of multi-fiber
agreement has created a huge race to the bottom in global wages, which
hurts workers everywhere and has generated a lot of discussion. What is
less known is that the similar dynamics has been playing in China for
more than a decade.
The current trade war does nothing to protect job security anywhere, but
only profits companies who own the brands. If western governments really
want to protect domestic jobs, instead of putting pressure on a foreign
government, they should take measures like redesigning international trade
rules to take into account environmental and social costs. This would
make it much less profitable for companies to outsource production to
China. For the Chinese government, how can a tariff measure (elimination
of export tariff) fight against a non-tariff barrier (quotas)? If the
quota stipulates that US will only import 2 million shirts from China,
it would only import 2 million shirts even if the export price were reduced
to zero. Such a measure does nothing but to protect or even increase the
profit margin of those companies who can get the quotas—which are usually
western companies, as it is hard for Chinese companies to get quotas from
western governments. Other measures would probably be more effective to
protect China’s domestic jobs: increase export tariff, then use the generated
revenue to provide some safety net for workers whose jobs are negatively
affected or eliminated by the quota system; institute some export quota
system, and favor domestic brands in the quota allocation.
In this ongoing textile war, big corporations have once again skillfully
played governments on both sides for their own benefit, while people’
s real concern (job security, etc.) fall into the sideline. This is an
intrinsic problem of the export-oriented model. When 1 Airbus=800 million
shirts, how many shirts does China have to export to achieve a decent
standard of living for its huge population? How can the world possibly
consume so many shirts? When we ask such questions, the empty promise
of export-oriented growth become so obviously lunatic. Why should Chinese
people continue to work for the benefits of global corporate elites in
exchange of meager wages, while they and their children will bear the
true cost of environmental degradation and other externalities? Instead
of continuing on export-oriented development and engaging in lose-lose
WTO style trade wars, it is time for Chinese government and people to
consider a paradigm shift."
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