With the end of 2014 APEC, the substantive negotiations on the China-South Korea Free Trade Agreement (FAT) have also concluded.
According to the minutes, the two countries will complete negotiations on the remaining technical issues before the end of the year, and then initial the FTA text. The agreement will be formally signed by the heads of relevant departments of the two countries early next year. After the agreement takes effect, China and South Korea will gradually eliminate more than 90% of commodity tariffs over 20 years. As a major textile and apparel country, the entry into force of FAT is bound to have an important impact on the apparel industries of China and South Korea.
With the strong export of Korean culture, Korean clothing has been sought after by many young Chinese consumer groups, and a large number of retailers selling Korean clothing have appeared in local online and offline channels. At the same time, China has always been the main OEM base for Korean clothing due to its relatively low processing and manufacturing costs and geographical advantages.
Over the years, the apparel trade between China and South Korea has been showing strong growth momentum. According to relevant statistics, in 2013, China’s exports of textiles and clothing to South Korea increased by 16.6% year-on-year. In particular, China’s clothing exports reached US$3.95 billion, a year-on-year increase of 21.1%. In the first five months of 2014, China’s exports of Korean textiles and clothing reached US$2.967 billion, a year-on-year increase of 16.33%.
In this regard, will the signing and implementation of FAT push the service trade cooperation between China and South Korea to a new height?
Can FAT retain outbound orders?
In fact, just before the substantive negotiations on FAT were concluded, news broke out in Qingdao, the main OEM site for Korean companies in China, that many Korean-owned garment factory owners ran away without pay. Due to the rise in the overall cost of China’s manufacturing industry, many Korean companies that previously set up garment processing plants in China have gradually withdrawn from the Chinese market and turned to Southeast Asia and other countries with lower costs.
Ju Xiaoxin, the export business manager of a garment foreign trade company in Qingdao, is also deeply touched by this phenomenon. He told reporters that many Korean garment companies have recently withdrawn from Qingdao, mainly because of the rising labor costs in China. “Especially as the government increasingly improves corporate supervision and requires all companies to improve the payment of employee social security and other expenses, this has further weakened the cost advantage of Chinese manufacturing.” Ju Xiaoxin said.
Wenzhou, which is also an important local clothing processing cluster, has also deeply felt the obvious changes in clothing manufacturing costs in China and South Korea. Chen Qixiang, deputy secretary-general of the Wenzhou Garment Chamber of Commerce, told reporters that compared with clothing manufacturing costs in Wenzhou and Korean manufacturing, the gap in production costs is not large. “Compared with South Korea, Wenzhou’s local clothing industry chain is not perfect. Therefore, the main cost of manufacturing in Wenzhou is also concentrated in the industry chain.”
Facing the industrial status quo of increasing manufacturing costs, can Chinese OEM companies retain the orders from Korean companies moving south with the advantage of zero tariffs after the FAT is signed?
According to Wu Jianmin, chairman of Shulang Group, even if China and South Korea sign FAT, its beneficial effect on China and South Korea’s OEM orders will not be too obvious. “Not many Chinese companies do OEM work for Korean clothing brands. The cooperation between Chinese OEM companies and Korean companies is mostly cooperation on some second- and third-level OEM orders, that is, the stronger Korean OEM companies accept European and American OEM orders. Clothing orders are then allocated to Chinese OEM companies for processing, and the layers of profit exploitation determine that these orders are more cost-sensitive.” Therefore, Wu Jianmin believes that even if China and South Korea achieve zero tariffs, they will not be exempted from the It is also difficult for tax rates to restore the cost advantage of manufacturing in China.
In fact, Korean manufacturing has begun to deploy industrial chain resources in the global market a long time ago. After years of development and improvement, it also has strong resource allocation capabilities. “The limitations of South Korea’s local market mean that there are not many well-known clothing brands in South Korea, but South Korea’s clothing manufacturing has started to go global very early and has rich OEM resources all over the world.” Wu Jianmin told reporters that this is also This gives South Korea the ability to find cheaper OEM sites in time to replace Chinese manufacturing.
At the same time, Southeast Asian countries have obvious advantages over Chinese companies in terms of apparel export tariffs. Taking Cambodia and Bangladesh as examples, their clothing exports enjoy duty-free treatment in the EU and tax reductions under the Generalized System of Preferences in the United States. Therefore, even after the China-South Korea Free Trade Agreement is implemented, it will be difficult to have a fundamental impact on the trend of outbound local OEM orders.
Can FAT conquer the local clothing market?
No one can deny the important influence of Korean culture on China’s younger generation, and this influence is increasingly reflected in the clothing consumer market.
In the major professional clothing markets in Guangzhou, there have already been a large number of merchants specializing in the wholesale and retail of Korean imported women’s clothing. A Korean merchant who specializes in the wholesale of Korean women’s clothing in a well-known professional market in Guangzhou said that its daily turnover can reach tens of millions of yuan.
“With the popularity of Korean dramas in China and the similar cultural backgrounds between China and South Korea, Korean clothing has become very popular in the Chinese market. In addition to physical channels, there are also many purchases directly from South Korea in the e-commerce field. The institution of clothing.” Chen Qixiang said.
Although the evolution trend of clothing trade between China and South Korea is still developing, Chen Qixiang frankly said:�, the impact on Chinese brand clothing companies is relatively limited. “Currently, there are not many companies that import Korean clothing on a large scale and are engaged in selling Korean clothing. Some stores selling Korean clothing online are mostly small merchants, and their business scale is not large. Many imported Korean clothing do not pay tariffs. .”
For local large-scale clothing companies, compared with importing Korean clothing sales, they are more inclined to establish agency cooperation relationships with Korean brands rather than directly importing their products for sales.
Unlike other industry insiders who are optimistic about the development of Korean clothing in China, Wu Jianmin said that the gap between Chinese and Korean clothing is not large, and Korean clothing also performs generally in terms of brand development. In his opinion, unlike consumers in previous years who were enthusiastic about the Korean Wave, consumers in recent years prefer European and American clothing styles and fashion culture. In this regard, he believes that after the signing of FAT between China and South Korea, the influence and impact of Korean brands on local brands is relatively limited.
However, Wu Jianmin also admitted that compared with local clothing companies, Korean companies have obvious advantages in design, fabrics, brand operations, etc. Local clothing brands are also increasingly paying attention to strengthening cooperation with Korean clothing in various links of the industrial chain. Resource integration and complementary advantages. From this perspective, the implementation of FAT is bound to further promote the exchanges between Chinese and Korean clothing.
Can FAT promote resource integration?
Liu Jianguo, president of the Shandong Garment Industry Association, has been busy recently with matters related to the upcoming 2014 First China (Qilu) Fashion Week. In this fashion week, Shandong’s clothing industry will launch more in-depth cooperation with the Korean clothing industry.
In fact, in recent years, exchanges and contacts between the Chinese and Korean garment industries have continued to increase, and the resource integration between the garment industries of the two countries has also continued to increase.
“Shandong and South Korea are very close to each other, and the two sides have obvious geographical advantages in cooperation. It is now a critical time for the transformation and upgrading of Shandong’s garment industry. Leveraging South Korea’s superior resources in design, fabrics and brand operation management, It will help promote the development of Shandong’s garment industry.” Liu Jianguo said.
In addition to Shandong, Wenzhou’s clothing industry has also begun in-depth cooperation with the Korean clothing industry. The Wenzhou Garment Chamber of Commerce has signed a cooperation agreement with the Korean Garment Industry Association in the field of e-commerce. At the same time, the women’s clothing branch of the Wenzhou Garment Chamber of Commerce has also reached a strategic cooperative relationship with the Korean Garment Industry Association.
In addition to interactions between industry associations, in-depth cooperation and resource integration between Chinese and Korean apparel companies have also been increasing in recent years.
“Semmer has acted as an agent for a Korean women’s clothing brand in recent years. As far as I know, there are not a few local companies that represent Korean clothing brands. At the same time, local companies are also increasingly introducing Korean mid-to-high-end management talents. Many well-known clothing companies They all hire a large number of Korean designers.” Chen Qixiang told reporters that exchanges between China and South Korea on brands, design and talents are becoming increasingly frequent.
In terms of direct commercial exchanges in the clothing industry, China’s demand for Korean fabrics is constantly increasing, and the implementation of FAT will further promote exchanges and interactions between China and South Korea’s clothing industry chain, and strengthen the relationship between China and South Korea’s clothing industry. resource integration.
“In recent years, many Korean fabric companies have appeared at fabric exhibitions. Korean fabrics are superior to most local fabric companies in terms of color, technology, response speed and cost performance. Therefore, many well-known domestic clothing companies have joined forces with Korean fabrics companies. Fabric companies have in-depth cooperative relationships.” Zhang Yihua, design director of Qingdao Yihua Zhenghong brand, told reporters that at the annual fabric exhibition, well-known Korean fabric suppliers will invite many well-known Chinese brands to purchase their new fabrics, such as Mas Phil and others will participate. “These fabric companies will not only provide fabrics, but also sell them to their customers with matching clothing patterns.”
The reporter learned that according to the different materials and processes of the fabrics, the current tariff rate for Chinese clothing companies to import Korean fabrics is generally above 10%. Therefore, after the signing of the FAT between China and South Korea, China and South Korea will have more restrictions on clothing fabric resources. It plays a good role in promoting the configuration.
“The details of the agreement between China and South Korea FAT are still being further negotiated, and its direct impact on the Chinese and Korean apparel industries is still difficult to predict. But what is certain is that the future exchanges and interactions between the Chinese and Korean apparel industries will will become more frequent, and Chinese companies can leverage South Korea’s superior resources to effectively integrate and improve brand operations, design and industrial chain resources,” said Chen Qixiang.
