US downturn hits Asian garment makers
Thursday, 14 February 2008
Raphael Minder, Amy Yee, Amy Kazmin, Tom Mitchell and Robin Kwong
Ft Syndication Service
An expected downturn in US clothing demand is adding to the woes of Asian garment makers already struggling because of rising costs and stronger currencies.
In China, which just three years ago was entangled in a trade dispute with the US and the European Union over export quotas, concerns have switched to the spiralling costs that are eroding its competitive advantage. "Costs are hitting us," says Henry Tan, chief executive of Luen Thai, a large Hong Kong-based manufacturer with operations in China. "Sales to Europe are not so bad because the euro is strong, but sales to the US are very difficult."
Chinese manufacturers have been facing double-digit annual wage increases over the past few years. More recently their headache has come from the renminbi's appreciation, which Beijing has allowed to gather pace this year as it seeks to curb inflation.
Manufacturers now "have to compete on brand rather than on volume", says Chen Wenjiang, president of Haining Grand Double Eagle Garments, a leather-jacket maker based in China's eastern Zhejiang province.
Garment makers face a similar challenge in India, where an appreciation of the rupee that started last year has seen an estimated 500,000 jobs - out of a total workforce of 55m - cut in the textiles industry, the country's second-largest em-ployer after agriculture.
Since September Indian exports to the US have slowed by 5-6 per cent. This makes it likely the government will miss its initial $160bn (€110bn, £82bn) export forecast for the fiscal year ending in March, according to G. Bujpal, at the commerce ministry.
The slowdown has emboldened the clothing industry in its calls for government relief. A proposal to give tax refunds to exporters and reduce interest rates on loans is under consideration, as is a government plan to create special investment regions for textiles and open more training institutes.
The difficulties are also spreading to smaller Asian garment producers such as Cambodia and Bangladesh, which until recently had been riding a textiles boom.
And some observers are predicting the troubles will yield a shake-out in the textiles sector.
More factory closures will cause pain in the short term, but will help ensure that "the balance of power will shift and we may get more bargaining position", says Ken Loo, secretary-general of the garment manufacturers' association in Cambodia.
Furthermore, a switch away from the old quota system, under World Trade Organisation rules, has allowed buyers to move to what has become known as "reverse bidding".
Ft Syndication Service
An expected downturn in US clothing demand is adding to the woes of Asian garment makers already struggling because of rising costs and stronger currencies.
In China, which just three years ago was entangled in a trade dispute with the US and the European Union over export quotas, concerns have switched to the spiralling costs that are eroding its competitive advantage. "Costs are hitting us," says Henry Tan, chief executive of Luen Thai, a large Hong Kong-based manufacturer with operations in China. "Sales to Europe are not so bad because the euro is strong, but sales to the US are very difficult."
Chinese manufacturers have been facing double-digit annual wage increases over the past few years. More recently their headache has come from the renminbi's appreciation, which Beijing has allowed to gather pace this year as it seeks to curb inflation.
Manufacturers now "have to compete on brand rather than on volume", says Chen Wenjiang, president of Haining Grand Double Eagle Garments, a leather-jacket maker based in China's eastern Zhejiang province.
Garment makers face a similar challenge in India, where an appreciation of the rupee that started last year has seen an estimated 500,000 jobs - out of a total workforce of 55m - cut in the textiles industry, the country's second-largest em-ployer after agriculture.
Since September Indian exports to the US have slowed by 5-6 per cent. This makes it likely the government will miss its initial $160bn (€110bn, £82bn) export forecast for the fiscal year ending in March, according to G. Bujpal, at the commerce ministry.
The slowdown has emboldened the clothing industry in its calls for government relief. A proposal to give tax refunds to exporters and reduce interest rates on loans is under consideration, as is a government plan to create special investment regions for textiles and open more training institutes.
The difficulties are also spreading to smaller Asian garment producers such as Cambodia and Bangladesh, which until recently had been riding a textiles boom.
And some observers are predicting the troubles will yield a shake-out in the textiles sector.
More factory closures will cause pain in the short term, but will help ensure that "the balance of power will shift and we may get more bargaining position", says Ken Loo, secretary-general of the garment manufacturers' association in Cambodia.
Furthermore, a switch away from the old quota system, under World Trade Organisation rules, has allowed buyers to move to what has become known as "reverse bidding".