| Under the MFA quota system, each supplier country | | | | government-imposed export tax. In the intensely |
| poised to its limits on the volume of textiles and | | | | competitive free-market environment, increasing |
| clothing that may be imported from each individual | | | | prices to balance lost profits could change to lost |
| nation with which it trades. From about 60 different | | | | orders. |
| countries, U.S. quotas comprised of 2,400 products. It | | | | Many low-end suppliers are shifting to the value chain, |
| was anticipated that the removal of these quotas will | | | | targeting production on midrange and even high-end |
| mainly be advantageous to Chinese (and to a smaller | | | | denim garments. These suppliers are spending more in |
| amount to Indian) producers, who are capable to | | | | R&D in arrange to expand more upscale |
| challenge their international competition due to its | | | | products. |
| combination of an undervalued currency, low wages, | | | | These things have also given many midsize |
| and outright labor domination. In an incongruous twist, | | | | companies to vertically integrate production and |
| the majority of developing countries, who insisted on | | | | enhance production output. Many leading companies |
| the phase-out of the MFA as resources to raise their | | | | already carry out all production processes in -house. |
| exports of textiles and clothing to well-off countries, | | | | Doing so has offered these leading companies a little |
| insisted on an extension of quotas or some other | | | | more space to captivate unforeseen additional costs, |
| system that can assure them any share of | | | | such as export taxes. |
| prosperous country markets provided the projection | | | | In projecting the growth in cotton products from |
| of China's awesome supremacy. China, with the help | | | | China, one only requires to have a glance at the past. |
| of some other large developing countries, chucked | | | | After the third stage of quota phase-out (January 1, |
| these demands made by Turkey, and a bloc of | | | | 2002), U.S. imports of cotton products no-longer |
| African, Asian, Latin American and Caribbean Basin | | | | subject to quota climbed noticeably, due to largely to |
| countries. | | | | increasing shipments from China. From 2001 to 2004, |
| The profit of China is not only on its benefits in | | | | the import volume (SMEs) of newly quota free |
| wages. It also profits from a large trained and | | | | cotton products increased 69.6%. Though, apart |
| dynamic workforce, propinquity to inexpensive quality | | | | from China, world shipments actually decreased |
| resources, and encouraging government policies, such | | | | 8.4%, while Chinese shipments boosted by 483.9%. |
| as subsidized lines of credit and exchange rate | | | | As the volume of Chinese imports increased so |
| manipulation. These aspects, jointly in low wages, will | | | | rapidly, the cost per SME for these categories |
| create China, the most chosen supplier for many | | | | decreased 45.9%, a turn down the rest of the world |
| retailers, particularly after 2008, when the likelihood | | | | was incapable to compete. So, China's contribution of |
| the United States to impose safeguards on Chinese | | | | world shipments of cotton products newly integrated |
| products is removed. | | | | into quota-free trading increased from 24% in 2001 |
| It is likely to make a sense of the consequence the | | | | to 53% in 2004. With China's improved capacity for |
| end of all WTO textile and apparel quotas by | | | | apparel production now there is a less motive not to |
| analyzing what happened when quotas on some | | | | anticipate likewise growth in Chinese shipments of |
| products, covering dressing gowns and luggage were | | | | products from which were lifted in January 2005. |
| zeroed in 2002 as part of the quota system | | | | The effect on cotton |
| phase-out. This change gave a 53 percent decrement | | | | The persistent discussion about US safeguard |
| in the average price per square meter that China got | | | | measures against Chinese cotton textile and apparel |
| for its exports in those categories, from US$ 6.23 | | | | imports directly influences the market for cotton. |
| before to US$ 3.12 after quota removal. China's | | | | With China as the world's leading buyer of cotton and |
| market contribution in these items increased from | | | | the United States as the biggest seller, any modify |
| 2002 to 2004, up 888 percent in luggage and 1,179 | | | | textile trade policy could have major implication on |
| percent in dressing gowns. Overall, China now states | | | | cotton. For the 2005/06 marketing year, the USDA |
| 72.3 percent of the U.S. apparel import market in all | | | | estimates that China will import a record 15.0 million |
| products where quotas were raised in 2002. | | | | bales to fulfill internal mill demand for fiber. Usually, the |
| Denim market of China | | | | United States calculated to 55% to 60% of China's |
| China is the world's leading supplier of denim | | | | cotton purchases, noting that it possible could sell a |
| garments, having 30% of global production. The | | | | record 7 to 8 million bales to China in the coming |
| country exported US$1.8 billion worth in 2004. With | | | | marketing year. |
| quotas removal, demand is projected to rise by more | | | | The volume of cotton products exported from |
| than 20% in 2005. But a government-imposed export | | | | Chinese mills would decline and hence new trade |
| tax and looming US and EU to protect threaten | | | | restrictions, the volume of cotton demand could |
| growth. | | | | like¬ wise decrease, perhaps giving an oversupply |
| Nearly all denim garment producers in China make | | | | of cotton on the U.S. and world mar¬kets, which |
| jeans, and most of them also provide shorts, skirts, | | | | would put forward a depressed outlook for price. |
| dresses and shirts. Many companies provide jeans as | | | | Export tax forces quality upgrades, higher prices |
| their main product line. In some companies, jeans are | | | | China denim jean producers are increasing R&D |
| produce of about 90 percent of its total production. | | | | facilities and enhancing production output to gain in |
| Jeans and shorts report for 64 percent of the denim | | | | competitive edge in the quota-free market. But, |
| garment exports by suppliers Jackets report 16 | | | | because of a new export tax imposed by the |
| percent, skirts and dresses 13 percent and shirts 7 | | | | government in China, it is estimated that many |
| percent. | | | | suppliers will be increasing prices. |
| According to Global Lifestyle Monitor, average | | | | Exports in some apparel categories, covering denim |
| consumption of denim apparel in 2003 was observed | | | | jeans, are being taxed amounted to $0.02419 to |
| in U.K.-12.9, Japan-12, Hong Kong-11.8, Italy-10.8, | | | | $0.06049 per item per kilogram. China officials applied |
| China-7.9 and India-3.1 items. But, in general | | | | the export tariff to motivate suppliers to produce |
| consumption of denim apparel items remains highest | | | | more upscale designs as an alternative of provided |
| in the U.S., Germany and Colombia and lowest in India | | | | the market with low-priced, low value products. |
| and China. Though, most industry experts believe | | | | The new levy is projected to drive production costs |
| denim consumption in Asia (most particularly China) to | | | | up 3 to 6 percent, but whether or not this added |
| explode over the next several years as income | | | | expense will be distributed to buyers according to the |
| increases and wardrobe dictates vanish. | | | | size of the supplier. |
| Present performance of Denim | | | | Though many leading companies can still offer to |
| According to official data, China's exports of denim | | | | take up the extra cost, many small suppliers will have |
| fabrics considerably increased in the first half of 2005. | | | | no option but to increase product prices in arrange to |
| China's exports of cotton denim fabrics (HS 520942) | | | | keep up profit margins. |
| were increased 17.80% in volume terms in the first | | | | The export tax is not going to disturb denim jean |
| six months of the year to 193 million square meters | | | | prices at Jiaxing Union Garments Co. Ltd, a bigger |
| to Hong Kong's denim's harshly rose direct exports to | | | | Hong Kong-invested company that produces for Lee. |
| Korea, Russia, Cambodia India also increased. Prices | | | | Considering of the impending tax months before it |
| were increasing at the time, in line with value added | | | | was applied; the Zhejiang province-based company |
| content. | | | | was capable to refresh contracts with clients. Jiaxing |
| Shipments even increased at the same time to 30 | | | | Union will also be capable to take up the added cost |
| million, giving rise in average price to US$ 1.71 per | | | | in cases where the client did not need to renegotiate. |
| square meter. China's exports to Hong Kong | | | | Many companies capable of bearing the additional |
| increased 25% in volume terms, now reporting | | | | cost normally are not raising prices for long-term |
| 38.80% of total shipments of cotton denim fabrics. | | | | clients. Though, their innovative designs will be |
| Greater demand within China | | | | provided to projections at a higher price. |
| A greater chunk of those fabrics shipped to Hong | | | | But many small and midsize suppliers that had |
| Kong normally turn back to the mainland where they | | | | procured extra machinery to enhance production |
| are utilized by apparel factories. The sudden increase | | | | capacity and turn out to more competitive in the |
| in first half sales to the SAR (Special Administrative | | | | quota-free market will now have to reduce |
| Region) provides the important contribution of Hong | | | | manufacturing costs to keep up operations. As the |
| Kong's trading houses in the denim business in China. | | | | slight margins may not facilitate them to recover the |
| With the end of quotas on denim apparel, demand | | | | amount invested in new equipment, many will have |
| for denim fabrics was evidently robust in the first half | | | | to increase prices, even for well built clients, to keep |
| in the PRC. According to official data, direct sales to | | | | on buoyant. |
| other regions were also harshly increased in the | | | | Expansion and new set ups in China |
| period, somewhat because of to an increment in | | | | Apart from the size, China denim jean suppliers are |
| clothing production in these countries or a decrement | | | | increasing R&D facilities to build up more upscale |
| in domestic output. Shipments to Korea were | | | | products and enhancing efficiency to reduce the |
| increased 62% over the period, as a clear indication | | | | costs. Suppliers, who already established that aims |
| of diminishing Korean denim production. In | | | | simply on high-volume production of inexpensive |
| comparison, a 132% jump in exports to Russia more | | | | products, will evade competitiveness in the |
| possibly gives an increment in Russian apparel output. | | | | international market if they do not compose likewise |
| Other denim suppliers may also have mislaid market | | | | changes. The foreseeable step of increasing prices to |
| contributions, such as Taiwanese manufacturers. | | | | react to costs would make their low-end products |
| Exports to India, Turkey and Cambodia: Increasing | | | | unfavorable among buyers' aspects for better-quality |
| China's shipments to India and Turkey boosted at the | | | | designs at only slightly soaring prices. |
| same time. Contributions of these areas in total | | | | Many companies like Jiaxing Union and Jiaxing Roma |
| denim exports from China are very low. Prices | | | | Garment Co. Ltd, are concentrating on R&D on |
| increased in line with better quality and more value | | | | new fabric and fiber blends, superior washing and |
| added content. In China like to another place, the | | | | finishing technology and new ideas. Jiaxing Roma is |
| quality of fabrics is enhancing and is being more | | | | putting their efforts in brand development, a |
| advanced. | | | | progress the company glimpses as essential for |
| Though, its exports to Cambodia were increased to | | | | gaining its goal of receiving huge share of the |
| 51% in volume terms. The high valued fabrics send to | | | | international market. The company exports nearly |
| Japan at US$ 2.69 per square meter while low-priced | | | | 100,000 denim jeans monthly to Japan and South |
| products were bought by Bangladesh (US$1.54), | | | | Korea. |
| Russia (US$1.49) or Mexico (US$1.31). | | | | Vertically integrated production to increase out put |
| Denim fabric re-exports of Hong Kong | | | | and decrease cost are steps being implemented by |
| Hong Kong's trading in cotton denim fabrics kept | | | | China denim jean suppliers. Even before the export |
| increasing in the first half, improved by higher sales to | | | | tax was applied, many suppliers had already set |
| China and to other low-cost countries such as | | | | expansion plans in expectation of the raised orders |
| Bangladesh. Hong Kong's denim exporters are gaining | | | | and increased competition that quota elimination |
| benefits from the rebound in Asian clothing | | | | would bring. Furthermore, to procuring latest |
| production in the post-quota period. Unit values | | | | machinery, many companies are coming with new |
| decreased in part of the year in partly because of | | | | factories. In many cases, the developments will |
| poorer cotton prices. | | | | increase capacity by 50 percent. The extra factory |
| Hong Kong's re-exports of cotton denim fabrics (HS | | | | space will be utilized not only to house more sewing |
| 520942) were increased more than 32% in volume | | | | machines but also to establish workshops for fabric |
| terms in the first part of the 53,700 tons. Re-exports | | | | weaving, washing, finishing and dyeing. |
| had already rose 23.80% in 2004 to 85,600 tons. | | | | So, the export tax has made it critical for suppliers to |
| Shipments only increased 28.40% in US$ terms in the | | | | gain by all these expansion plans. At present, Shunde |
| first six months after average unit price was down | | | | Changrun Garment Co. Ltd carries out most washing |
| more than US$4.79 per kilo. | | | | and finishing processes in-house while subcontracting |
| China's share increased in re-export from HK | | | | fabric weaving to local mills. To put together |
| Not unexpectedly sustained to invite the large part of | | | | production, the company is setting up a weaving |
| Hong Kong trading activities in denim fabrics. | | | | factory in Jiangmen, Guangdong province. The plant, |
| Re-export to the mainland of China were increased | | | | projected to be function by in a short period, will |
| 43% in the first half after rising by 35% China's share | | | | house 50 rapiers with the capacity to weave 300,000 |
| of re-exports a little increment from 60.70% | | | | yards of denim fabric monthly. |
| increased to 61.8% as a result. | | | | Currently, Shanghai Gavin International Trading Co Ltd |
| The key fraction of denim fabrics that are | | | | functions through subcontracting of fabric weaving |
| re-exported by Hong Kong's traders actually- sourced | | | | and dyeing but intends to have the capability to |
| from China. China completed 88.60% of total | | | | conduct these processes in-house in short period. |
| re-exports from Hong Kong in the first half, increased | | | | The company produces for Gap of the United States |
| from 85.60% in 2004. Though, Hong Kong's trading | | | | and exports more than 40,000 denim jeans monthly. |
| houses started diversifying sales to other areas in | | | | Apart from for fabric weaving, Zhuhai New Chengshin |
| the last years. As a result in the first half, re-exports | | | | Clothing Co. Ltd does all processes in-house. The |
| of cotton denim fabrics to Bangladesh got doubled. | | | | company has not intending to set up or acquire a |
| Shipments reported 3.8 million kilos, with Bangladesh | | | | fabric weaving mill in near future. As a substitute, it |
| turning out as the second destination. Its contribution | | | | will be procuring new equipment for its existing |
| of total re-exports increased from 4.70% to 7.10%. | | | | facilities. |
| Chinese denim falling to keep up | | | | International Textile Group, Inc. (ITG) in mid 2005 |
| In comparison, sales to Cambodia and Vietnam | | | | declared that it will set a state-of-the-art denim plant |
| decreased 14.40% and 6.10% at the same time. | | | | in the city of Jiaxing, Zhejiang Province, China. The |
| Shipments to Indonesia increased 65% while | | | | setup will be a joint venture partnership called Cone |
| re-exports to the United States soared, but from | | | | Denim (Jiaxing) Limited, 51% owned by a subsidiary |
| awfully low levels. Shipments to the US market only | | | | of ITG (a WL Ross & Co. company) and 49% |
| calculated to 1.70% of total shipments in the first half. | | | | owned by a subsidiary of Novel Holdings Limited. |
| In provisos of resources, Japan dropped with a | | | | Recently they signed a US$35m loan deal and a $15 |
| limited 8% growth in Hong Kong's re-exports of | | | | million line of credit with Bank of China to help its new |
| Japanese denim fabrics. Though, Pakistan received | | | | Chinese production plant. Making of 28 million yard |
| contributions of the Hong Kong market with a 166% | | | | production facility is underway and they suppose to |
| raise in trading of Pakistani denim that only calculated | | | | be offering high quality denims to their customers by |
| to 0.70% of total re-exports. | | | | the first half of 2007. |
| Tendency and factors observed in China's denim | | | | Cone Denim (Jiaxing) facility will have a production |
| industry | | | | capacity of nearly 30 million yards annually. A vertical |
| The prospect of some denim garment suppliers in | | | | operation, the plant will be established with the latest |
| China is doubtful. Stiffed competition and possible US | | | | manufacturing equipment to process raw cotton |
| protection measures may noticeably affect | | | | through finished fabric. |
| companies that embarked on capacity enhancements. | | | | Set up in 1891, Cone Denim has been a key supplier |
| These companies might not be capable to regain | | | | of denim to top denim apparel brands for over 100 |
| their investments in additional machinery, which they | | | | years. Cone Denim maintains also functions in the |
| purchased to enhanced capacity and become more | | | | United States, Mexico, Turkey and India, and has |
| gung ho. | | | | expansion plans under pipeline at Central America and |
| Small suppliers that spotlight on low-end production | | | | China to offer broader service and flexibility to |
| will be the mainly influenced by the new | | | | customers worldwide. |