China’s labor costs increase, losing U.S. textile market share

New rivals in China’s textile and apparel market have formed.
At the 2014 “Industrial Blue Book” press conference of the Chinese Academy of Social Sciences and the China Manufacturing Development Seminar on December 29, a report released by the Institute of Industry showed that China’s market share in the international market, especially in developed countries, is increasing. It was cannibalized by countries such as Vietnam, India, and Indonesia.
The main reason is that China’s current labor costs have exceeded those of the above-mentioned countries. For example, in 2000, China accounted for 39.2% of the U.S. apparel market, which dropped to 37.3% in 2013. A similar situation occurs with textiles.
“The market share China has lost is occupied by developing countries represented by India.” Dr. Liang Yongmei from the Institute of Industry of the Chinese Academy of Social Sciences said at the meeting.
The reason for the decline in China’s export market share is related to the rapid rise in China’s labor costs. According to the above-mentioned blue book, China’s labor remuneration increased by 266.7% from 2003 to 2010, which is not only higher than the growth rate of less than 50% in industrialized countries, but also higher than India’s 100% and Brazil’s 182.2%.
Affected by this, labor remuneration in China’s manufacturing industry surpassed India and Indonesia in 2004, and surpassed Mexico and the Philippines in 2008. However, it is still significantly lower than that of developed countries. For example, in 2010, labor remuneration in China’s manufacturing industry was 14.6% in Japan, 10.5% in Germany, and 20.4% in South Korea.
To this end, some experts suggest that China should speed up the training of the manufacturing industry as soon as possible, so that they can transform from skilled workers to senior technicians, and at the same time speed up the pace of industrial upgrading.
The textile and apparel market in developed countries has been robbed
According to the above report, the proportion of China’s exports in the international market has increased rapidly over the years. For example, China’s exports surpassed the United States in 2012 and ranked first in the world. In 2013, China’s exports of goods accounted for 11.75% of global exports, which is not only higher than India’s 1.79%, Brazil’s 1.28%, and Russia’s 2.76%, but also about 3 percentage points higher than the United States.
Among them, in the fields of electronic products, mechanical products, ships, automobiles, clothing and other fields, China’s market share has increased rapidly. For example, for ships, Chinese products accounted for 3.1% of the international market in 1996 and reached 21.48% in 2013. China’s apparel industry’s share of the international market increased from 22.1% in 2000 to 44.5% in 2013.
However, in the field of clothing and textiles, the increase in the market share of Chinese products is largely inseparable from China’s efforts in developing countries. The proportion in developed countries has actually declined.
For example, in 2010, the proportion of Chinese clothing imported into the United States was 39.2%. In 2013, this proportion dropped to 37.3%. The markets that China has lost in developed countries such as the United States have been gained by Vietnam, India, etc. For example, in 2000, Vietnam’s clothing exports to the United States only accounted for 0.1% of all U.S. clothing imports, but in 2013 this proportion reached 10.2%. From 2010 to 2013, China’s apparel market share in the United States decreased by 1.9 percentage points, while Vietnam increased by 2 percentage points.
In the field of textiles, mainland China’s textiles accounted for 48% of the U.S. market share in 2010, but this dropped to 47.7% in 2013. The proportion of Indian textiles increased from 10.3% to 12.4%. Vietnam’s proportion increased from 1.9% to 2.6% during the same period.
Liang Yongmei pointed out that China’s current competitiveness in textile and apparel mainly relies on low labor costs. In recent years, China’s demographic dividend has tended to disappear and labor costs will continue to rise, which will greatly damage China’s current international competitiveness.
Developing countries represented by India, Pakistan, and Cambodia have become strong competitors to China. This is the analysis part of international competitiveness.
“From the perspective of external factors, developing countries represented by India are copying China’s development model, and they have cheaper labor costs, so their rise will have a great impact on China.” She said.
She believes that the next step for China can only continue to diversify and decentralize its export market. At the same time, we need to reduce our reliance on low-cost labor, strengthen brand design, strengthen the research and development and production of high-end fabrics, and avoid low-price competition with emerging economies.
​China’s labor costs far exceed those in India
In response to the situation of Chinese clothing and other products being robbed of market share in developed countries, Li Xiaohua, director of the Industrial Layout Office of the Institute of Industry of the Chinese Academy of Social Sciences, believes that the fundamental reason is that China’s labor costs have already exceeded those of many neighboring countries.
For example, from 2003 to 2010, China’s labor compensation increased by 266.7%, which was much higher than India’s 100% and Brazil’s 182.2%. Indonesia’s 214.3% increase in labor compensation from 2000 to 2010 was also lower than that of China.
Affected by this, China’s manufacturing labor remuneration surpassed India and Indonesia in 2004, and surpassed Mexico and the Philippines in 2008. In 2010, manufacturing wages in China were equivalent to 2.2 times those in Mexico, 2.75 times those in Vietnam, 1.8 times those in India, and 2.5 times those in Indonesia. But it is still only 14.6% of Japan, 10.5% of Germany, 20.4% of South Korea, and 43.3% of Brazil.
However, if labor productivity is faster, there is no problem with wages rising quickly. The reality is, not entirely.
For example, the unit labor cost of the U.S. manufacturing industry dropped from 0.15 in 2000 to 0.11 in 2008. India and Indonesia also dropped from 0.053 and 0.054 to 0.038 and 0.041 respectively. Only China and Brazil dropped from 0.049 and 0.08 in 2003.8, respectively increased to 0.052 and 0.1 in 2010.
In this regard, Li Xiaohua pointed out that labor remuneration in China’s manufacturing industry has increased significantly since 2000. Due to the rapid increase in labor productivity, the increase in unit labor costs has not been large.
However, with the end of the demographic dividend and the people’s demand to more fully enjoy the fruits of economic development, it is inevitable that labor costs will continue to rise. “As the lower-cost countries in neighboring countries stabilize their politics and improve their infrastructure and industrial supporting systems, their low labor cost advantages will become apparent.”
He believes that the next step is to speed up the training of manufacturing industries so that they can transform from skilled workers to senior technicians. At the same time, we will promote industrial transformation and upgrading, from labor-intensive industries in the past to capital-intensive industries, especially from traditional industries to strategic emerging industries.
Zhang Qizai, editor-in-chief of the above-mentioned blue book and researcher at the Institute of Industry of the Chinese Academy of Social Sciences, agrees with the above view.
He believes that we can also increase imports and implement “import substitution” to produce products that China cannot yet produce and needs to be imported. At the same time, we must promote cutting-edge technological innovation and cultivate new industries. That is to say, in the process of catching up with developed countries, their development level will become higher and higher, and the distance from the technological frontier will become shorter and shorter. While maintaining catch-up, it is necessary to promote research on the technological frontier and cultivate potential new growth points.
“Implementing the ‘dual-track’ strategy means properly handling the relationship between catching up and leapfrogging. The former is to fully utilize existing comparative advantages, while the latter is to cultivate new potential comparative advantages.” He said.