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China’s Once Mighty Garment Industry Is Starting To Unravel

The clothing factories of Shenzhen have been hit by a perfect storm, battered by rising labor costs, unstable prices for raw materials, currency appreciation and dipping demand. By year’s end, more than half of the once bustling businesses could be shuttered.

Article illustrative image Partner logo Hard times have befallen China's once booming clothing industry

SHENZHEN - One by one, the garment factories of Shenzhen are shutting down. Industry analysts say that by Christmas, 60% will be gone. A business that was once worth 150 billion RMB (23 billion dollars) per year has been battered on all sides: rising costs of labor and raw materials, an appreciating currency, inflation, and a slump in demand.

I went down to Shenzhen’s Luohu District to see what could be seen. Where thousands of small factories had been in production, most are now boarded up. Of the few hundred that do remain open, many operate just a handful of days per month.

I talked to one factory boss, Mr. Wang, a man who used to receive massive orders to supply brand-name retailers. He invited me onto his empty factory floor. He said the greatest difficulty the business faces is the continuing appreciation of the Chinese currency, RMB, which intimidates factories from taking orders. He now accepts only urgent and short-term contracts.

Wang pointed to the hundreds of automatic sewing machines sitting idle, noting that his garment production capacity used to be hundreds of thousands of pieces annually. Since January this year, production volume has not even reached 5,000 pieces. The factories used to hire thousands of workers. Now they employ just a few dozen. And even with these workers, the factory is only in operation for less than 10 days a month.

Wang told me that if the situation does not improve, his factory will eventually collapse altogether. For now, he is one of the luckier ones, able to maintain a skeletal operation; large numbers of smaller enterprises are already doomed no matter what happens.

Another factory boss, Liu Quande, confirmed the predicament of the business. He said that, since last year, the zone’s once prosperous industry has been reduced to sporadic operations for a few surviving factories. Mr. Liu says that in addition currency woes and growing labor costs, there is also the problem of sharp price fluctuations for raw materials. Last year, the price of cotton shot up from 20,000 RMB per ton to 30,000 RMB per ton. Many garment factories then opted for synthetic fabrics to reduce costs. But the inferior garment quality was thought to be responsible for sluggish sales. Others hoarded cotton stock, but then the price of cotton dropped so much these businessmen went broke.

Liu says the Chinese garment industry is at a crucial point, and he is not particularly optimistic. The small enterprises are badly positioned in a competitive global environment, while the bigger ones will be difficult to restructure. He reckons that maybe 10% to 20% have a chance to survive.

The secretary-general of the Apparel Industry of Shenzhen, Shen Yongfang, said the region’s garment export industry used to sell more than 100 billion dollars worth of goods per year. Now, at the best, it can generate just a few billion. Shen said that most of the entrepreneurs are eager to rebuild their businesses, except they don’t know how.

Read the original article in Chinese.

Photo - Marc Oh

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About this article source Website:

The Economic Observer is a weekly Chinese-language newspaper founded in April 2001. It is one of the top business publications in China. The main editorial office is based in Beijing, China. Inspired by the Financial Times of Britain, the newspaper is printed on peach-colored paper.

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