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China's textile goal
Feature: 3/12/2001



Textile leaders in India are becoming increasingly concerned that they are losing out in the challenge to supply the global textiles market, and recent reports have highlighted their problems. What the reports also do is point up the steps taken by Chinese industry to capture even more of the world's textile and garment trade - and as such they are pertinent reading for anyone with an involvement in textiles.

If it is a race between the giants - India and China - for the global textiles market, the entry of China to the WTO will mean that India will have to think for a new strategy to compete - or lose the race even before it has begun.

Despite having similar resources and being grouped in the same category for the market, one contender is capturing international market share while the other is losing ground.

With the growth of the global economy, it is expected that world textile trade will grow at three to five per cent every year. China, which presently has a 19 per cent share in the world textile trade, is aiming high and has set itself a target of achieving 40 per cent of the global clothing market by the year 2004 - dominating the scene completely.

India on the other hand currently has a three per cent share and nothing it is doing appears to be able to prevent the declining trends.

Intense competition

The growth in the world textile trade and perceived role of China as a major player, is a cause of great concern for India's domestic textile industry. Says Vijay Bhalla, president, SBU-yarns, Indo Rama Synthetics: "With China's entry into WTO, pressure from external competition is expected to become all the more intense.

"The Indian textile industry is already facing problems of higher production costs, lack of research and development and anomalous excise duty structure".

According to economist Sudhanshu Bhushan of the Indian Cotton Mills Federation (ICMF): "The competitive advantage of the Chinese textile industry arises from its low labour costs and economies of scale".

Though India also has its own advantages as a perceived supplier of fashion garments and textile designs, China leads in terms of certain economic parameters like power tariffs, interest rates and labour policy, says a comparative study between India and China carried out by Sudhanshu Bhushan.

The study further notes that China's economic performance over the past two decades has been astounding, culminating in six per cent GDP growth in the year 2001. Its entry into the WTO has stimulated an upsurge in foreign direct investment (FDI) and China may turn out to be the world's textile and garment factory, Sudhanshu Bhushan believes.

Its stock of FDI is growing by over $40 billion a year and the bulk of this has gone into joint manufacturing projects with local companies that are directly engaged in exporting their products.

World leader

The Chinese textile industry employs more than 13 billion people, making a contribution of 13 per cent of the country's total manufacturing employment. The production capacity for garments, cotton, wool, silk and chemical fibres in China leads the world, with 5.7 million tonnes of cotton yarn and 6.02 million tonnes of chemical fibres - making up 30 per cent and 20 per cent of world output respectively.

The biggest advantage with China lies in its abundant labour pool with a clear hire and fire policy. Statistics from Germany's Werner Corp indicate that China holds 40th place in terms of labour cost. Perhaps more importantly, attached to this is an exit policy under which a production unit can be closed down at any time - and with virtually no red tape - if it is not economically viable.

Additionally, China also has the advantage of capital available at most competitive rates. According to a recent Texprocil newsletter, interest rates vary between 6.13 per cent and 6.5 per cent, depending upon the duration of the loan. Power rates in China are a quarter of those in India.

The study explains that the developing domestic market strongly underpins the Chinese textile industry as a whole, with some 66 per cent of the garment industry's total output sold in the domestic market.

Further, in response to the challenge presented by China's WTO entry, huge investments have already been made in this industry through high tech modernisation. China has quickened the pace of industrial upgrading in the textile industry and become a textile powerhouse with the aim of winning a 45 per cent share by 2005-06.

In China, half of the country's exports are generated by the textile industry, whereas the Indian textile industry contributes only 30 per cent of its foreign exchange earnings. According to the ICMF report, the biggest problem with India is its fragmented textile industry, lacking any form of consensus.

Archaic laws

India also has to labour under excise duty exemptions and concessions that work against innovation and technical upgrading, with illogical reservations for small-scale manufacturers. Moreover, the Indian industry has to face utterly rigid and archaic labour laws.

Says Vijay Bhalla: "The Indian industry is very resilient to pressures and downturn, provided it is backed up by the correct duty structure. To make it competitive, the fiscal regime has to be re-focused and be in tune with the thrust on exports".

Sudhanshu Bhushan agrees and presses for a re-think on manufacturing policies. "The Indian textile chain is broken at the grey fabric stage, and it desperately needs to be linked to all stages of production so that good quality of grey fabric is available within the country for processing.

"Concessions and exemptions at various other levels also need to be reviewed to complete the chain", he says. The study also argues that the reservation of most items under the small-scale industry rules, has not only eroded competitiveness, but also made the organised sector unviable.

In India there are already reports of rampant closures. Between March 2000 and August 2001, 54 cotton mills shut down. Pointing out that the escalation in running costs and the decline in profitability have affected the liquidity of mills, leading to wide spread problems and closures, ICMF says that 403 textile mills remained closed as of August 2001.

"The cost of closure of the organised mills to the economy is mind-boggling and the official figures have put the loss during 2000-01 alone at 736 million meters of cloth in terms of production and 8.77 million idle man-days", says Mr Jaipuria, president of ICMF.

Textiles and clothing are India's largest employer in the industrial sector and the largest product group in its export basket. The crisis that has engulfed the textile industry has serious consequence for the economy as a whole and if corrective steps are not taken in time, India will undoubtedly lose its premium status, the ICMF believes.
Author: John Gibbon
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