China’s Focus Shifts from Quantity to Quality
February 22, 2012 As the world’s largest textile maker, China plays a leading role in world cotton consumption. According to USDA’s world cotton supply and demand estimates from December 2011, annual average cotton consumption in China during the last five years was 10.49 million tons, accounting for 41% of the world’s total.
To better understand the trends in China’s cotton consumption, it is necessary to understand the development of the textile manufacturing industry in China. Analysis of the following seven factors makes us believe that cotton consumption in China has passed its high point.
I. Labor supply. China’s textile industry is labor intensive. Its development is dependent, to a large extent, on labor supply. With increasing urbanization and wages, China’s labor cost advantage is losing ground. At the end of 2010, 30 provinces (or province-level municipalities) in China have raised their wage floors. The highest level is in Shanghai at $177.50 per month and the lowest is in Ningxia at $112.50 per month. Since 2011, 35 provinces have raised their wage floors. According to a World Bank forecast, the new labor force in 2015 will decrease by 10% from 2005, and labor supply will be considerably tight.
II. Cost of raw materials. The amount of labor needed to plant cotton is higher than for competing crops, and labor costs will continue to go up. The cotton-picking cost in Xinjiang, for example, doubled in 2011, to 17.3 cents/lb.
III. Energy supply and environmental protection. From 1978 to 2010, China has experienced 26 major power limitation and outage events that were not caused by accidents. It is common for industrial users to operate only three days or even two days a week. From 2000 to 2010, the price of coal for generating electricity increased from $36/ton to $127/ton and electricity costs increased from 5 cents/kWh to 6 cents/kWh. Obviously, the electricity rate has big potential for further increases.
In addition, China is emphasizing a sustainable development model based on low-carbon consumption and environmental protection. As a large energy consumer, China’s textile industry will certainly encounter unfavorable policies, leading to higher costs.
IV. Competition from chemical fibers. With the development of science and technology, man-made fibers are increasingly comparable to cotton fibers. Over the last 10 years, China’s chemical fiber output has increased from 7 million tons to 33.2 million tons, an increase of 370%.
V. Demand. In recent years, developed countries in Europe and the United States – both major importers of China’s textile products – face a sustained economic recession. Domestically, although China maintains rapid GDP growth, the disposable income of most people is limited because of the unequal distribution of wealth. Textile production is largely constrained by these situations, with no foreseeable short-term solution.
VI. Export policy. China has huge foreign exchange reserves that have suffered great losses from the depreciation of the U.S. dollar. China may cancel the tax exemption policy for textile exports, which would be a fatal blow to most textile mills that survive by producing a high quantity of products with low added-value.
VII. Impact from competitors. India and Pakistan are major competitors of China in the international textile markets. Cotton prices and labor costs in these countries are lower than those in China, so the global market share of China’s textile products will be further squeezed.
However, China’s large-scale, fixed-asset investments in the textile industry make textiles one of the country’s pillar industries. China will enhance the industry’s ability to compete in the global marketplace through the optimization of the industrial infrastructure, product upgrades, and improvements in production management. As a result, China will remain the world’s largest textile producer.
GET THE NEWSLETTER TODAY!
