LI & FUNG RESEARCH CENTRE · PDF file2 3 LI & FUNG RESEARCH CENTRE May 2006 Issue 5 Industrial cluster series LI & FUNG RESEARCH CENTRE LI & FUNG GROUP LI & FUNG RESEARCH CENTRE LI

Textile and Apparel clusters

in China

I. Introduction

China is the world’s largest producer and exporter of textile and apparel,

accounting for one-fifth of the world’s total production. With its abundant

supply of low-cost and skilled labour, the country has attracted textile and

apparel manufacturers from around the world to set up production bases.

One of the noteworthy features in China’s textile and apparel production is

the presence of industrial clusters. These textile and apparel clusters are

mainly located in the cities or towns of the coastal regions, particularly in

the Yangtze River Delta (YRD), the Pearl River Delta (PRD) and the

Bohai-rim region. In each of the localities, hundreds and even thousands

of textile and apparel manufacturers have clustered together. Enterprises

of related industries, which serve the clustering enterprises, are also

located nearby. In most cases, specialized wholesale markets are also

presented to act as trading platforms for the finished products.

Today, the textile and apparel clusters in China have become principal

sourcing bases for textile and apparel products that are sold in the

international markets. Raw materials and processed apparel products are

often cheaper in China and their quality are increasingly up to the global

standards. Yet, sourcing in China involves significant difficulties and

challenges, particularly under the new quota-free regime for the textile

and apparel industry.

This issue will cover various aspects of the textile and apparel industry in

China: Section II will highlight the industry’s performance; Section III will

give a brief description of the textile and apparel clusters; and last but not

least, Section IV will discuss the sourcing potential and major difficulties

encountered by enterprises when they perform bulk purchase from China.

It will also give a snapshot on the impact of the new textile and apparel

regime on production and sourcing strategies in China.

IN THIS ISSUE :

I. Introduction 1

II. Highlights of the 2

textile and

apparel industry

III. Textile and 4

apparel clusters

in China

IV. Textiles and 15

apparel sourcing

in China

Appendix 1 18

Major textile clusters

in China

Appendix 2 19

Major apparel clusters

in China

Map:Major textile and 10-11

apparel clusters

in China

LI & FUNG RESEARCH CENTRE

– Industrial cluster seriesMay 2006 Issue 5

LI & FUNG RESEARCH CENTREMEMBER OF LI & FUNG GROUP13/F, LiFung Centre, 2 On Ping Street, Shatin, Hong Kong. Tel: (852) 2635 5563 Fax: (852) 2635 1598

E-mail: [email protected] http://www.lifunggroup.com/ Contact person: Ms Teresa Lam & Mr Antony Cheng

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Exhibit 2: Foreign trade of the textile and apparel industry in 2004

Source: China National Textile & Apparel Council

Meanwhile, the private sector plays a significant role in driving the industry’s total exports – it accounted for about

95% of the industry’s in 2004. As shown in Exhibit 3, the export value of state-owned enterprises shrunk by 4.69%

to USD 4.88 billion in 2004, which contrasted the rapid growth of the private enterprises’ figures.

Exhibit 3: Export values of state-owned enterprises, private enterprises and foreign enterprises

Exporting goods value on delivery

Types of ownership (in billion USD) Growth rate in 2004

Stated-owned enterprises 4.88 -4.69%

Private domestic enterprises 38.2 16.04%

Foreign enterprises 33.5 20.60%


Most of these textile and apparel enterprises are located along the coastal region, particularly in Zhejiang,

Guangdong, Jiangsu, Shanghai, Shandong and Fujian. As shown in Exhibit 4, the total export value of the six

provinces totaled USD 19.4 billion in 2004, accounting for 81.5% of the country’s total textile and apparel exports.

Exhibit 4: Textile and apparel product exports by province, 2004

Note: Numbers in billion USD Total: $97.38


II. Highlights of the textile and apparel industry

1. Production and sales

The textile and apparel industry is one of the pillar industries of China’s economy. According to the China National

Textile & Apparel Council (CNTAC), the total sales of the industry in 2004 amounted to 2,640 billion yuan, grew by

22.8% year-on-year (yoy); of which, the total sales of textile and apparel enterprises above designated size

reached 1,548.1 billion yuan, up by 24.2% yoy. It was estimated that around 80% of the total sales of all textiles

and apparel enterprises above designated size were generated from industrial clusters. This indicates that the

phenomenon of industrial clustering has become a distinctive feature in shaping the development of the textile

and apparel industry in China.

Statistics also revealed that the total industrial output of all textile and apparel enterprises above designated size

reached 1,610.7 billion yuan in 2004, accounting for 8.6% of the country’s total.

Exhibit 1: Industry performance of enterprises above the designated size in 2004

Textile and apparel industry Country total

(in billion yuan) (in billion yuan) Industry % of total

Industrial production Value 1,610.7 18,722 8.60%

Sales revenue 1,548.1 18,781 8.24%

Value-added 398.9 5,481 7.28%

Total profit 51.3 1,134 4.52%

Source: China National Textile & Apparel Council, National Bureau of Statistics

2. Foreign trade

Leveraging on the low labour cost, the industry has successfully attracted huge foreign direct investments (FDI) in

the past 20 years. Hong Kong’s textile and apparel manufacturers have started to invest heavily in Guangdong

since the early 1980s and made use of the region as a manufacture powerhouse; and most of their products are

exported overseas. It was the same case for Taiwanese textile manufacturers in Zhejiang. Thus, the industry is

very export-oriented.

The gross import and export value of textile and apparel reached USD 114.189 billion in 2004, up by 18.86% yoy,

taking up 9.89% of the country’s gross import and export value of foreign trade. The exports were USD 35.769

billion, representing an increase of 25.2% over previous year; while imports were USD 61.616 billion, increased

by 18.69% yoy. The industry created a trade surplus of USD 80.6 billion, which is 2.52 times of the country’s total

trade surplus and is the highest for a single sector. Hence, the textile and apparel industry is one of the most

important contributors to the overall trade surplus.

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3. Textile vs. apparel sector

Taking a closer look at the textile and apparel industry as a whole, 53% of the industry’s production in 2004 was

textile; while 47% was apparel products. However, apparel represented 63% of the industry’s exports. Compared

to the textile sector, the apparel sector focused more on the export market (see Exhibit 5).

Exhibit 5: Textile and apparel production and exports in 2004

% of industry production

(by foreign enterprises) % of industry export

Apparel 47% 63%

Textile 53% 37%


According to the “China Apparel Industry Development Report 2004/2005”, China’s apparel exports are mainly

low to middle-end products, of which the prices are 20-50% lower than the world average. Due to intense

competition and its position on the low end of the textile and apparel production chain, profit margin of the industry

remains low (see Exhibit 6). However, apparel products yield slightly higher profit margins than textile products.

Reasons could be that apparel involves more value-adding components (design and production differentiation)

than textile commodities, which are mainly semi-finished products.

Exhibit 6: Textile and apparel sales figures

Sales revenue Total profits Profit margin

(billion yuan) (%)

Apparel 388 15.3 3.94%

Textile 934.7 28 3.00%


Note: 2004 figures of all state-owned enterprises and non-state-owned enterprises above designated size

III. Textile and apparel clusters in China

According to the CNTAC, there were 38 major textile clusters and 48 major apparel clusters in China

(see Exhibit 7). Each of these clusters specializes in the production on one or more textile or apparel products. A

complete list of the major textile clusters and apparel clusters is shown in Appendix 1 and 2 respectively. All of

these clusters are located along the coastal provinces, namely Zhejiang, Guangdong, Jiangsu, Fujian,

Shangdong and Hebei.

Exhibit 7 Number of textile and apparel clusters in China


Among the 38 textile clusters, 24, or more than two-third of them are located in Jiangsu and Zhejiang. On the other

hand, Guangdong, which is the largest apparel production base in China in terms of production volume, only has

3 textile clusters.

As for the 48 apparel clusters, over one-third of them are located in Guangdong and one-fifth in Zhejiang. It is then

followed by Jiangsu and Fujian, with 8 and 7 apparel clusters respectively.

The followings are some descriptions of the major textile and apparel clusters in Zhejiang and Guangdong.

1. The textile and apparel clusters in Zhejiang

The textile and apparel industry is the most important industry in Zhejiang. According to the CNTAC, Zhejiang’s

textile industry accounts for nearly 25% of the province’s gross industrial ouput value. Nationally, the province is

the second largest textile and apparel producer and exporter in China, producing about one-fifth of the national

total. The province also has huge production capacity – in 2004, it produced 578 million tons of chemical fibres,

making it the largest production base of chemical fibres. Unlike the case in Guangdong in which the clusters were

mainly driven by foreign investments, local enterprises played a more significant role in the development of

Zhejiang’s textile and apparel clusters.

After years of hard work, the province has developed a robust textile and apparel sector in which enterprises are able

to build up a complete value chain from designing to manufacturing and to distributing the products. Below are some

examples of the development of selected textile and apparel clusters in Zhejiang.

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Over the years, Ningbo has developed a complete product chain from designing to manufacturing and to

exhibiting the apparel products.

(4) The textile clusters in Shaoxing ( )

Shaoxing is located in the mid-northern part of Zhejiang. It is one of the largest textile counties in China, with over

2,5000 key textile and apparel enterprises. The county is also the base of chemical fibres in Zhejiang, with an

annual products of 2.7 billion metres of all types of fabrics.

Shaoxing has a well-developed wholesale market – the China Light Textile City ( ). It is the largest

textile wholesale market in China and recorded a turnover of 25.8 billion yuan in 2004. It is also the largest market

for cloth in the world and the largest fabrics distribution centre in Asia.

2. The textile and apparel clusters in Guangdong

Guangdong’s apparel production is the largest in China, accounting for 26% of the national total. It is also the

largest textile and apparel export base in the country and the third largest in the world. It contributes to about 20%

of China’s total textile and apparel exports. On the other hand, the apparel exports of Guangdong account for

5.2% of the world’s total, making it an important sourcing base of apparel products internationally.

The textile and apparel industry in the province is rather ‘external-driven’, i.e. mainly driven by foreign

investments. Foreign investors, particularly Hong Kong manufacturers have shifted their operations to

Guangdong in the past two decades to take advantage of the lower production and labour costs. In turn, the

Mainland manufacturers leverage on Guangdong’s proximity to Hong Kong to conduct business with the outside

world. They also obtain up-to-date technology and fashion information from Hong Kong. The province boasts a

number of renowned clusters specialize in the production of various textile and apparel products. Examples

include:

(1) The leisurewear cluster in Shaxi ( )

Shaxi town is located in the west of Zhongshan and is one of the largest industrial towns in the PRD. With a land

area of merely 55 square kilometers, Shaxi has about 1,000 textile, apparel, and related manufacturers. The town

specializes in the production of casual wear, including sport wears, T-shirts, vests, shirts, hooded coats, duck-

feather coats, jeans, sweaters, pants and dresses. Its production accounts for 7% of the country’s total production

of its kind.

Shaxi is very much exposed to foreign trade. Leveraging on its superior geographical location, it is able to obtain

raw materials with lower transportation cost than other inland cities. Moreover, the town is able to specialize in

higher value-adding activities, such as fashion design because of the massive foreign investments as well as the

abundant supply of talents. Since 2000, the town has been hosting the “International Casual Wear Fair & China

Casual Wear Expo”, which is the only casual wear expo in China. It is no wonder the most important city for

sourcing casual wear products in China.

(1) The children’s wear cluster in Zhili Town ( )

Zhili town is located about 15 kilometers from Huzhou City in Zhejiang. It covers an area of 135.8 square

kilometers with a population of 180,000, in which 80,000 are from other parts of China. In Zhili, over 70% of the

households are engaged in apparel processing activities. The town is well-known for its children’s wear

production. There are over 5,700 enterprises specialize in children’s wear manufacturing, employing over 80,000

people and accounting for nearly one-third of the town’s total industrial output. The town produces about 180

million pieces of children’s wear annually, representing a national market share of 21% in the product of the same

kind. The products are sold across China and to over 15 countries or regions worldwide.

The town has two important wholesale or commodity exchange markets selling children’s wear, namely, the China

Zhili International Children’s Wear Market, and China Zhili Commercial Town of Children’s Wear. They are able to

attract millions of businessmen from different parts of China such as Hunan, Hubei, Heilongjiang and Xichuan to

source various types of children's wear.

(2) The apparel manufacturing and exporting city – Pinghu ( )

Pinghu is a small city in Zhejiang. With an area of around 500 square km, it has about 1,300 apparel enterprises,

employing over 140,000 workers. It produces an annual output of roughly 300 million pieces of apparel,

accounting for 10% of the apparel production in Zhejiang and 2% of the national total. The city focuses on the

production of eight categories of apparel, namely work suits, casual wear, cotton jackets, imitation leather wear,

raincoats, knitwear, women’s wear and down apparel.

Pinghu has attracted investors from all over the world such as the US, Japan, Korea, Singapore and Hong Kong.

Currently, there are over 200 foreign-funded apparel enterprises in the city; and around 95% of the products are

exported to some 56 countries. Therefore, the industry is very export oriented.

On the other hand, the Pinghu government has been keen on fostering brand development among the apparel

enterprises. Of the 1,300 apparel enterprises in Pinghu, only very few have developed recognizable brands. Thus,

the local government is offering incentive schemes to boost brand creation - an example is the cash reward for

enterprise which can first gain a place in the “Top 100 Brands” list in China.

(3) The apparel clusters in Ningbo ( )1

Ningbo is perhaps the most important apparel manufacturing city in Zhejiang – it produces around 1.3 billion

pieces of apparel products each year, which accounts for 40% of the provincial production capacity and 12% of

the national total. Major products manufactured in the city include male suits, knitted garments and children’s

wear, which account for 44%, 65% and 76% of the province’s total production respectively. The city has about

2,000 apparel enterprises, account for about 5% of the national total. Its products are exported to places all over

the world, making it one of the largest apparel manufacturing and marketing bases in Asia.

1 The apparel clusters in Ningbo are not included in the list released by the CNTAC; yet the city is one of the largest apparel manufacturing

and marketing bases in Asia.

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(2) The denim wear cluster in Xintang ( )

Xintang Town is situated at the gateway between Guangzhou and Hong Kong. It is the largest denim wear

producing town in China. With a land area of less than 85 square kilometers, Xintang produces over 200 million

denim wear a year. For every hundred pieces of denim wear produced in China, 60% is produced in Xintang. Its

denim exports account for 30% of China’s total.

Xintang is a typical example of foreign-investment driven industrial cluster. It was an agricultural village back in

1970s. In the early 1980s, a Hong Kong businessman brought 30 knitting machines and set up a denim-

processing factory in the town to utilize its convenient geographical location and cheap labour. The small

processing business was able to reap substantial profits, which later on triggered an upsurge of denim processing

manufacturers among the locals. The town now has over 2,000 denim-related factories, employing approximately

80,000 workers. The local manufacturers followed the business model of Hong Kong’s factories and started to

take processing orders from overseas. The town is now responsible for around 30% of the country’s denim

exports, which are being sold to Europe, U.S. and other regions. Thus, foreign investments not only foster the

development of local industries, but also link them with the world market.

(3) Textile materials cluster in Xiqiao ( )

With an area of only 177 square kilometers, Xiqiao has 1,286 fabric enterprises and more than 30,000 units of

fabric machinery. It has the capacity to produce 1 billion meters of fabrics annually.

The textile industry in Xiqiao has formed a comprehensive production chain from product R&D, material

production, weaving dyeing & finishing, fashion design, to sales and exports of finished apparel. The city

leverages extensively on one of its well-developed wholesale market - Xiqiao Light Textile City ( ).

Xiqiao Light Textile City is the largest textile commodity exchange/wholesale market in Guangdong; its turnover

amounted to 17 billion yuan in 2004. There are three specialized sections dealing with fabrics, denim and

upholstery; and other sections such as raw materials and clothing accessories.

3. Characteristics of the textile and apparel clusters

(1) Strong linkages with the outside world

The textile and apparel clusters have built strong linkages with the outside world. Geographically, all major textile

and apparel clusters are located in the coastal regions. They rely on some of the major logistic infrastructures to

convey the imported fabric from or finished products to other countries. For instance, Humen Town in Dongguan

has a well-developed port, which greatly facilitates its industrial exports. The Humen port contributes significantly

to the development of the textile and apparel industry in the region, making the town “No. 1 Fashion Wholesaler in

China”. Another example is Xintang Town – it relies on several land transport infrastructures such as Guangzhou-

Shenzhen Railway and Guangzhou-Huizhou Expressway to transport its products to nearby ports with relatively

lower costs.

On the other hand, proximity to highly internationalized cities such as Hong Kong and Shanghai allows the

apparel clusters to sell their products to the world market efficiently and conveniently. For instance, despite

Ningbo has developed its own clusters with sound marketing facilities, it still needs to leverage on Shanghai’s

extensive network of trade.

(2) Extended production chain

In China, many enterprises in the textile and apparel clusters started off being small and engaged mostly in low-

value added processing activities. Overtime, they gradually expanded their business scope. As a result, more

types of activities come into play and eventually cover nearly all stages of the value chain. This is the vertical

expansion along the value chain. On the other hand, the enterprises also make use of the modern technology and

equipment to expand the product range. This is the horizontal expansion into more diversified product groups.

Today, most of the textile and apparel clusters cover the entire apparel value chain, from producing textile fabrics,

to processing ready-to-wear apparel and to distributing the final products to consumers. Most of the well-

developed clusters have established wholesale markets or commodity exchange markets to sell or exhibit their

products. By involving in the lower stream of the value chain, clusters are able to create their own brands and

enjoy higher profit margins. Hence, the textile and apparel industry performs a pivotal role in speeding up the

development of the service sector.

(3) Existence of wholesale market/commodity exchange market in or near the cluster

As mentioned, wholesale markets or commodity exchange markets selling apparel products often exist in major

apparel clusters. They act as major distribution channels for mass apparel products produced in the cluster. The

markets offer a wide variety of low-and-mid-range unbranded apparel products. Price range of the products is

from a few dozen yuan to more than a hundred yuan.

According to the Statistical Yearbook of China Commodity Exchange Market, there were 252 textile and apparel

commodity exchange markets with an annual turnover exceeding 100 million yuan in China in 2004. There were

altogether 273,137 stores; and the total turnover amounted to 316 billion yuan. Exhibit 8 indicates the Top 20

textile and apparel commodity markets in China.

Source: China National Textile & Apparel Council; Li & Fung Research Centre

Major textile and apparel clusters in China

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Exhibit 8: Top 20 textile and apparel markets in China

Textile and Apparel Commodity Market Province Turnover (billion yuan)

China Light Textile City in Xiaoxing Zhejiang 25.82

( )

China Eastern Silk Market in Wujiang Jiangsu 25.03

( )

Xiliu Apparel Market in Haicheng Town Liaoning 19.20

( )

Xiqiao Light Textile City ( ) Guangdong 16.97

Qianqing Light Textile Raw Material Market in Zhejiang 15.06

China Light Textile City in Xiaoxing

( )

Changshu Commercial Town Jiangsu 12.00

( )

Zhili Children’s Wear Market Zhejiang 10.54

( )

Dieshiqiao Embroidery Market ( ) Zhejiang 10.00

Datang Light Textile and Socks City Co. Ltd. Zhejiang 9.34

( )

Zichuan Apparel City Shandong 7.42

( )

Jimo Garment Wholesale Market Shandong 6.96

( )

Textile Commodity Exchange Market Jiangsu 6.12

in Changshu Commercial Town

( )

Sijiqing Apparel Market in Hangzhou Zhejiang 6.07

( )

Yuezhou Light Textile Industrial Park Co. Ltd. In Xiaoxing Zhejiang 6.01

( )

China Leather City in Haining Zhejiang 5.69

( )

Chuangang Bed Lining Products Market Jiangsu 4.00

( )

Luyuan Cotton Wear Market Tongxiang City Zhejiang 3.59

( )

China Textile City in Haining Zhejiang 3.50

( )

Xiangjiang Market in Liucheng City Shandong 3.23

( )

Xiaoshan Industrial Products Wholesale Market Hebei 2.84

in Lunan District, Tangshan City

( )

Source: Statistical Yearbook of China Commodity Exchange Market, 2005

In addition, wholesale or commodity exchange market also provides a platform for small manufactures to be

informed of the market trend and other latest information - it lowers information costs for small enterprises, which

usually do not have large information network. Besides, it also acts as a trading platform for buyers and sellers.

Various kinds of services dedicated to apparel trading and sourcing are available in the market, including logistics,

translation, exhibition, finance, and other commercial services. Thus, wholesale market links up all parts of the

value chain so that the locally produced goods can be sold to other parts of the world handily.

(4) Concerted marketing efforts among enterprises in the cluster

Enterprises in the clusters are generally small and fragmented. They often advertise and sell their products

collectively in order to gain efficiency.

(i) Exhibition

Exhibition provides sellers the chance to sell and promote their products. It is usually supported by the town or city

government. For example, the China’s Casual Wear Fair, which is held annually in Shashi Town in Zhongshan, is

one of the biggest of its kind in Asia. It is organized by the Zhongshan government. Activities include forums,

factory visits and fashion shows. Target customers are businessmen from across China as well as from other

countries.

Another major annual exhibition is the Strait Textile and Clothing Fair, which is an annual event jointly organized

by the Fujian government and the Taiwan Trade Association; and is held in the major apparel town of Shishi in

Fujian. The first exhibit was held in 1995, which was then merely a local event. However, from 1998 onwards, the

exhibition has enriched with exhibitors from all over China and other countries. According to the organizing

authority, the exhibition in 2003 resulted in realized garment transaction of 2.5 billion yuan, and contracted foreign

direct investment of about USD 67 million.

(ii) Website promotion

Enterprises in the cluster may concert their promotion efforts by establishing a website to disseminate trading

information to potential buyers. Selected examples are shown in Exhibit 10. Of which, Humen Town’s “Humen

Fashion” is perhaps one of the most comprehensive ones. The portal provides a platform for buyers and sellers to

post their trading request online. It also links up with the websites of some leading local labels and hundreds of

shops at the Humen Fashion City.

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Exhibit 10: Selected promotional websites

Regions Website

Shishi City, Fujian http://www.ssfz.com/

Humen Town, Guangdong http://www.fumin.com/

Shaxi Town, Guangdong http://www.gdfzw.com/

Changshu, Guangdong http://www.csfz.cn/

Zhejiang http://www.hzfz.com.cn/

4. Government’s role in the textile and apparel industry

Today, local governments often act as facilitators in the development of the industry. Some of their major initiatives

include:

(1) Improving the usage of land resources and facilitating the establishment of wholesale markets. For

example, Shishi streets were once packed with garment shops back in a decade ago. The Shishi

government then organized a centralized marketplace - the Shishi Fashion City to accommodate the shops

in a well-organized manner. The Shishi Fashion City later on became one of the largest fashion markets in

Asia.

(2) Organizing exhibitions. One of the most prominent is the Shaxi Fashion Exhibition organized by the

Zhongshan government. Another well-known large-scale exhibition is the annual joint-exhibition co-

organized by Yinxian County ( ) and Fenghua County ( ) in Ningbo.

(3) Supporting human resources development. Well-trained labour is the key to sustainable growth of the

industry. Many local governments support and organize various types of training activities. For example, the

Ningbo government supports or organizes fashion trainings from short-term courses to university programs.

It also encourages cooperation among fashion institutes within and outside the city.

5. Major obstacles affecting the development of the textile and apparelclusters

(1) Limited brand development

Domestic products prevail in most of the textile and apparel clusters. However, there are very few well-known

domestic brands. With their small scale, domestic enterprises put little resource in product development and are

generally weak in brand building. Hence, the whole industry is still lacking some famous brands which can drive

the industry up along the value chain. This explains the low profit margin of less than 4% for the industry.

(2) Insufficiency of professional managers

For a textile and apparel enterprise to move up the value chain, the presence of expertise such as professional

corporate managers and brand managers, is crucial. Yet, most textile and apparel enterprises in China are family-

owned, which may not be willing to hand over their power to outside experts; or they are too small and lacking the

resources to do so. This suppresses human capital formation in the industry. Thus, enterprises are slow in

transforming into modern businesses with well-established brands. On the other hand, the lack of professional

fashion designers also affects brand creation.

IV. Textiles and apparel sourcing in China

For more than a decade or two, ‘Made in China’ has been a compelling sourcing option for the textile and apparel

industry. Raw and processed materials are often cheaper in China and frequently match global standards of

quality. Overall, procurement costs generally run 20-50% below costs for comparable goods in established

markets. But surely, doing business in China involves significant risks and challenges that need to be tackled

tactically.

1. Sourcing potentials and difficulties

Sourcing potentials:

Low cost of production, ever-improving quality, abundant production capacity, and further liberalization following

China’s WTO entry will further strengthen China’s position as the leading global sourcing base. In particular, the

lifting of restrictions2 on foreign ownership of wholesaling, distribution and logistics businesses in December 2004

will greatly encourage and facilitate sourcing from China. Many multinational enterprises increasingly see China

not only as an important market but also as a principal supply base for goods sold in international markets.

Difficulties & constraints

(1) Suppliers are small and fragmented

Although many good suppliers exist in China, it can be difficult for overseas enterprises to spot and trade with

them. Most Chinese suppliers are small and fragmented. The challenge is to build a distinctive supplier network in

a rapidly changing, highly fragmented and inconsistent supplier market.

2 These restrictions include geographical, equity ratio and quantitative restrictions, as well as market entry thresholds such as minimum

assets and annual sales. Foreign-invested commercial enterprises are now allowed to engage in import-export agency and franchising

operations.

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(2) Quality of Chinese suppliers varies

In addition, since Chinese suppliers vary greatly in quality levels, lead time, innovativeness and working

conditions, buyers must be cautious in committing to sourcing contracts. To illustrate, while product quality in

some Chinese apparel manufacturers rank among the world’s best, in others it is so unreliable that buyers must

place their own staff in the factories to monitor the production lines.

(3) Lacking relevant infrastructure

Despite China has developed a number of well-established ‘centres of excellence’ in which raw materials

suppliers and finished products manufacturers are clustered, many Chinese suppliers still lack the infrastructure

to automate warehousing and track real time inventory level. This often results in delays, shortages and

uncertainties.

2. The new textile and apparel regime: impact on sourcing in China3

Starting from 1 January 2005, all quotas on textile and apparel are eliminated for countries that are members of

the World Trade Organization (WTO) in accordance with the Agreement on Textiles and Clothing (ATC). The ACT

aims at phasing out all the quotas and promoting free trade in the textile and apparel industry. However, it is

doubted if the quota-free world is going to be as free as it is perceived to be.

(1) More complex rules of game after quota elimination

In the post-quota era, some countries may resort to other trade measures like anti-dumping, countervailing duties,

technical barrier of trade, etc. to protect their domestic industries from the influx of imports from other countries.

Therefore, the rules of game will be more and more complex; trade in textile and apparel is going to be much more

complicated and unpredictable. And this will have a strong impact on sourcing in China.

(2) New production and sourcing strategies in the new era

After quota elimination, a huge market share shift is expected. Textile and apparel trade has been distorted for

years because of the quota system. The elimination of quota enables the market to go back to the regular track.

The competitive textile and apparel manufacturers will win the market while the existing beneficiary of quota will

lose.

As for distributors, they may be exposed to the risk of dis-intermediation, given that retailers increasingly source

from the manufacturers directly as a result of the reduction in sourcing complexity after quota elimination.

However, since there are other forms of “quota” in place, sourcing will be more complicated in the post-quota

world. Besides, after the quota elimination, a lot of new apparel manufacturers will enter the market. Maintaining

close connection with this huge number of manufacturers is difficult. Furthermore, as mentioned, the sourcing

destinations are very fragmented. Considerable knowledge of the market and the supplier network is needed.

Hence, distributors will still play a significant role in the textile and apparel industry.

Restructuring the supply chains to eliminate inefficiency in production and sourcing

Indeed, the removal of quotas in 2005 urges the apparel producers, enterprises and retailers to rethink their

business models, and to restructure their supply chains by formulating new sourcing plans and relocating the

production facilities. Apparel enterprises, distributors and retailers need to keep abreast with the latest trade rules,

political environment, etc. and be flexible enough to deploy their sourcing network in response to the market

changes.

Major countries dominate the market while other serve as second-tier suppliers

The orders of textiles and apparel are going to be shifted to some currently quota-bounded countries, which have

lower production costs, abundant supply of land and cheap labour, and relatively more sophisticated

management and infrastructure.

The production of textile and apparel is likely to expand massively in the low-cost Asian countries. China will

continue to be the dominant factory in the world. The China-specific safeguard measures and other protective

trade measures will slow down China’s market share gain, but they cannot reverse the trend. However, it should

be noted that although certain low-cost countries, China and India in particular, will remain as the world’s major

suppliers of textile and apparel, multi-sourcing strategy will still be in place as each country offers different value-

added services to the market.

3 For more information on the implications of the quota elimination, please refer to our Newsletter Issue 18: “The Quota-free World —

Implication of the full integration of ATC”.

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Appendix 1 Major textile clusters in China

Products Cities / towns Provinces

Cashmere Qinghe County ( ) Hebei

Filter cloth Tiantai County ( ) Zhejiang

Weaving Hutang Town in Wujin District in Changzhou ( ) Jiangsu

Wangjiangjing Town in Xiuzhou District in Jiaxing ( Zhejiang

Longhu Town in Pujiang ( ) Fujian

Embroidery Sanxing Town in Haimen Jiangsu

Chuangang Town in Tongzhu ( ) Jiangsu

Warp knitting Maqiao Town in Haining Zhejiang

Yangxunqiao Town in Xiaoxing County ( Zhejiang

Jinfeng Town in Changle ( ) Fujian

Chemical fabric Huangjing Town in Taicang ( Jiangsu

Yaqian Town in Xushan District ( in Hangzhou Zhejiang

Zhouchuan Town in Tongxiang ( Zhejiang

Dangshan Town in Xushan District ( ) in Hangzhou Zhejiang

Static flocking Youchegana Town in Jaixing ( Zhejiang

Fabric Xiqiao District in Nanhai ( Guangdong

Dama Town in Tongxiang ( Zhejiang

Knitting textile Jimo ( ) Shandong

Zhangcha Town in Foshan ( ) Guangdong

Liangying Town in Qiaonan District in Shantou ( ) Guangdong

Hengcun Town in Tonglu County ( ) Zhejiang

Xiangshan County ( Zhejiang

Craft textile Wendeng ( ) Shandong

Jiangzao Town in Tongzhu ( ) Jiangsu

Cotton textile Zouping County ( ) Shandong

Tangqiao Town in Zhangjiagang ( ) Jiangsu

Felt Nangong ( ) Hebei

Dyeing Changyi ( ) Shandong

Cloth Yuhang District in Hangzhou ( ) Zhejiang

Xucun Town in Haining ) Zhejiang

Silk Shengze Town in Wujiang ( Jiangsu

Polyurethane Jingang Town in Zhangjiagang ( ) Jiangsu

Textile machine Wangtai Town in Jiaonan ( ) Shandong

Zhitang Town in Changshu ( Jiangsu

Non-knitting Cloth Zhitang Town in Changshu ( Jiangsu

Pengchang Town in Xiantao ( ) Hubei

Linen Zhenze Town in Wujiang ( ) Jiangsu

Thread Makou Town in Hanchuan ( ) Hebei


Appendix 2 Major apparel clusters in China

Products Cities / towns Provinces

Men’s wear Hanjiang Town in Shishi City ( ) in Fujian Fujian

Huicheng District in Huizhu City ( ) Guangdong

Rongcheng County in Baoding City ( ) Hebei

Zhucheng City ( ) Shandong

Tancheng County ( ) Shandong

Ruian City ( ) Zhejiang

Fengqiao Town in Zhuji City ( ) Zhejiang

Ladies’ wear Humen Town in Dongguan City ( ) Guangdong

Leisure wear Lingxiu Town in Shishi City ( ) Fujian

Xintang Streets in Pujiang City ( ) Fujian

Yinglin Town in Pujiang City ( ) Fujian

Shaxi Town in Zhongshan City ( ) Guangdong

Xiashan Streets in Chaonan District in Shantou City ( ) Guangdong

Shajiabing Town in Changshu City ( ) Jiangsu

Haiyu Town in Changshu City ( ) Jiangsu

Dongqing City ( ) Zhejiang

Denim wear Dayong Town in Zhongshan City ( ) Guangdong

Junan Town in Shunde District ( ) in Foshan City Guangdong

Xintang Town in Zengcheng City ( ) Guangdong

Sanbu Town in Kaiping City ( ) Guangdong

Children’s wear Fengli Steets in Shishi City ( ) Fujian

Huanshi Town ( ) in Foshan Guangdong

Cixian in Handan City ( ) Hebei

Zhili Town in Hangzhou City ( ) Zhejiang

Lingerie Shenhu Town in Pujiang City ( ) Fujian

Yanbu Town in Nanhai City in Foshan ( ) Guangdong

Chendian Town in Chaonan District in Shantou City ( ) Guangdong

Gurao Town in Chaoyang District in Shantou City ( ) Guangdong

Wollen garment Chenghai District in Shantou City ( ) Guangdong

Dalang Town in Dongguan City ( ) Guangdong

Xingang Town in Changshu City ( ) Jiangsu

Hengshan Town in Wujiang City ( ) Jiangsu

Haiyang City ( ) Shandong

Puyuan Town in Puxiang City ( ) Zhejiang

Bridal dress Chaozhou City ( ) Guangdong

and Tuxedo

Hosiery Lishui Town in Nanhai District in Foshan City ( ) Guangdong

Yiwu City ( ) Zhejiang

Datang Town in Zhuji City ( ) Zhejiang

Tie Shengzhou City ( ) Zhejiang

Glove Gaozhou City ( ) Guangdong

Feather and down Xintang Town in Xiaoshan District ( ) in Hangzhou City Zhejiang

Gaoyou City ( ) Jiangsu

Guli Town in Changsu City ( ) Jiangsu

Knitted apparels Xinzhuang Town in Changsu City ( ) Jiangsu

Non-woven apparels Yiwu City ( ) Zhejiang

Garment for exports Jintan City ( ) Jiangsu

Pinghu City ( ) Zhejiang

Garment assessories Baokai Town in Shixi City ( Fujian


© Copyright 2006 Li & Fung Research Centre. All rights reserved.

Though Li & Fung Research Centre endeavours to ensure the information discussed in this material is accurate and updated, no legal liability

can be attached as to the contents hereof. Reproduction or redistribution of this material without Li & Fung Research Centre’s prior written

consent is prohibited.

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