A Survey on the China’s Apparel Industry Xingmin Yin China Center for Economic Studies, Fudan University 220 Handan Road, Shanghai, 200433 Email: yin1953@fudan.edu.cn International Workshop “Sustaining Development through Garment Exports: Cambodia and the Least Developed Economies”

1. Introduction China’s economy has increasingly integrated with the world economy. Export-oriented industrialization theory has had a significant impact on economic policies in China since the end of 1970s. China’s export ratio to GDP increased dramatically from 5% tin 1980 to 35% in 2005. The export volume of manufacturing products reached USD 762 billion in 2005, in comparison with USD 18 billion in 1980. The apparel industry has contributed a great part in the export promotion as well as the job creation in China during the period 1990-2004.

Main Issues for This Study What have been the characteristics and development of the apparel industry since 1999? How was China’s garment exports evolved, particularly the foreign trade generated by apparel sector that has accounted for 11-16% of China’s exports since the mid-1990s? What have been changed for the clusters of apparel production in regional levels? More questions……

2. Overview for China’s Apparel Industry China’s exports of apparel products substantially increased its share in the world market from 20.7% in 1997 to 26.6% in 2004. The growth of the apparel industry revealed in exports is also observed in the employment and output. From the national perspective, the apparel industry only accounted for 0.56% of non-farm employment in 2000, and 0.78% in 2004.

Indicators of China’s Apparel Industry Year Assets (billion yuan) Amount % Employment Person % Output Amount % 1990 19.5 1.22 1650 3.02 41.5 2.49 2000 175.9 1.84 2156 3.88 229.1 3.05 2001 190.6 1.87 2371 5.23 259.6 3.08 2002 207.9 1.89 2658 5.76 291.5 2.96 2003 237.7 1.86 2892 5.92 342.6 2.69 2004 277.1 1.84 3203 6.14 388.0 2.38 Unit of employment: 1,000 person; Unit of output: billion yuan.

This sector increased 58% of assets, however, the stable percentage of apparel sector to total manufacturing assets was about 1.84% in the period 2000-2004. Labor force employed in this industry increased more than 1 million of new jobs within five years. The output of apparel sector has increased quickly since 2000, however, and its share of manufacturing output has been decreased from 3.05% in 2000 to 2.38% in 2004.

3. Export-Oriented Growth Pattern The world garment market has become a more open market, subject to strong price and quality competition. China including Hong Kong accounted for 36.4% of world clothing exports in 1997 and 38.0% in 2004. In regarding to exports of textile and textile goods to China’s GDP, their combined ratio to GDP was 4.24% in 1999 and 5.4% in 2004.

Export Growth of Apparel Products Millions of US$

Before 1990, China’s apparel sector had already begun its integration into the world market. The growth of exports was driven by a surge of exports to the US markets in the mid-1990s, and thereafter from a surge in exports to allover the world. The apparel industry did not account for a high share of the total export, with the share of 16% in 1999 and decreased to 11.05% in 2004. China’s apparel industry is a typical sector of export-oriented growth pattern. The ratio of exports to sales had not been changed with about 55% for China’s apparel industry.

Role of Foreign Direct Investment Many of the foreign-funded enterprises (FIEs) are export-oriented. FIEs recruited unskilled labor from the rural sector and skilled workers from the urban sector. FIEs, creating half million of new jobs and also accounting for 61% of new job creation for apparel industry, provided more jobs for unskilled labor over the period 2001-2004.

Employment and Output of FIEs in Apparel Sector Year Employment Number Percentage (thousand) (%) Output Value Percentage (billion yuan) (%) 2000 / / 111.21 48.5 2001 1113 46.9 119.45 46.0 2002 132.18 45.3 2003 1448 50.1 158.95 46.4 2004 1617 50.5 185.27 47.8

The proportion of FIEs in total sales was 48%, while the share of exports reached 48% in 2004, two percentage points added to FIEs in the exports of apparel products. FIEs involved the labor-intensive production in the apparel industry: FIEs increased its weight in employment from 46.9% in 2001 to 50.0% in 2004, although they accounted for 45-48% of total output and 45% of total assets during this period.

Market Diversification A high value in market diversification means that a country exports to a large number of countries. Japan has been the largest region for China’s garment exports. The US and the EU belong to the strong quota imposing regions for garment exports from developing economies. The US market for China has been slightly decreased from 13.31% in 2000 to 12.59% in 2004, while the EU market for China has been increased from 10.38% to 12.75% at the same period.

China’s Garment Exporting Destinations Region 2000 2001 2002 2003 2004 HK 6.60 5.82 8.31 9.78 11.29 Japan 11.49 11.84 11.98 13.44 15.09 EU 3.24 3.35 4.24 5.95 8.49 USA 4.79 4.92 4.82 6.51 8.26 Subtotal 26.12 25.93 29.34 35.68 43.12 Percentage (%) 72.52 70.92 68.29 65.54 65.77 Total 36.02 36.56 42.97 54.43 65.56 Unit: USD billion.

Breakdown of Market Diversification

4. Employment Creation and Related Performance What is comparative advantage for China’s apparel industry? The labor force is fairly young and educated, as the average worker reported about nine years of formal education. In comparison to other developing economies, China was well placed to take advantage of the labor cost and other factors that related to institutional reforms and industry policy. More factors……

Employment Growth of Apparel Industry Million

China increased exports generated a surge in employment, where it went up from 2.03 million in 1999 to 3.20 million in 2004, namely, creating 1.17 million jobs in apparel industry. The increase of jobs in the apparel industry is equal to approximately a 12% increase of the 6.9 million workers in all manufacturing industry during 2001-2004. Electronic and communication industry increased its employment from 1.96 million in 2000 to 3.33 million in 2004, creating new jobs of 1.37 million.

Brief Assessments on Efficiency The export-orientation does not induce increased efficiency in the use of labor when surplus labor is drawn from the rural area to the export sector. Performance for apparel industry seems to worsened in consideration of overall performance of manufacturing industry. The proportion of apparel productivity to manufacturing had continuously decreased from 85% in 1995 to 43% in 2003. The profit share of apparel to manufacturing had a decline path from 3.16% in 2000 to 1.84% in 2004.

Labor Productivity (yuan/person)

Wage Movement Average manufacturing wages have increased continuously from USD 619 in 1995 to USD 1329 in 2002. In predicting wages for apparel workers, we assume that labor productivity can be selected as a substitution indicator, which can be assured to be “level of wages”. As expected, workers in the apparel industry earn a lower wage that that of a manufacturing worker, as this industry produces low value goods and employs a mainly unskilled workforce.

Changes of Capital Intensity Manufacturing accounted for about 75-78 percent of industrial capital in the context of China. As a direct effect of five years of sustained employment growth in the apparel industry, overall capital-intensity declined very clearly except for the year of 2004. Generally, the growth of output was much faster than that of employment and capital accumulation.

Comparison on Capital-Intensity (Yuan/person)

Employment, Output and Capital Accumulation in China’s Apparel Industry (1999-2004, 1999=100)

5. Industrial Clusters and Concentration China’s apparel industry is highly clustered in four coastal regions: Guangdong, Jiangsu, Zhejiang and Shanghai, which accounted for nearly 72% of national output in 2000 and 67% in 2004. With fast growth of an industry new entrants are encouraged to enter through the attraction of high profits, and also barriers to entry may appear less formidable in an expanding market. The number of enterprises from 7064 to 10901 revealed the lower degree of industrial concentration. On average, 298 employees for one production unit in formal data, not for all firms in apparel industry.

Concentration of Apparel Industry by Regions:2001

6.Conclusions Export growth has created considerable job opportunities for China with a large volume o workforce. Clearly, an increasing export is expected to help the developing economies to create more jobs. Export expansion in the China’s apparel industry has based on FDI. Therefore, a friendly situation fro FDI is needed for the developing economies. The future of China’s apparel industry depends, to a large extent, on its specialization in specific products and its choice of system. It can be forecasted that resources in apparel industry will be shifted into other sectors and non-coastal regions of China.

Thank You!