An Asian Irony
Market shifts among Asian countries may signal new competitive patterns.
John J. Luke, Technical Editor
It is no secret that in the past 20 years, several Asian economies have decimated US fiber, fabric and garment manufacturing. These countries have spread their tentacles into textile/apparel complexes in many additional countries. It also is axiomatic that, lacking a not-expected major policy reversal, new, freer quota regulations from the WTO will kick in next January. As this happens, market shifts among the countries of the Asian region may signal new competitive patterns. In an eloquent irony, the Wall Street Journal reported recently that "A group of the world's poorest countries [are planning an appeal to the WTO] to save their industries from being overwhelmed by textile-production superpowers such as China and India." More about this later as recent FEB data examining the stability and growth patterns of the superpower nature of the Asian textile/apparel complex is analyzed.
"Synthetic fibers" means man-made fiber materials derived largely from petroleum-based hydrocarbon materials, not including cigarette tow. The majority of these fibers are nylon, polyester, acrylic and olefin.
"Cellulosic fibers" means cellulose-based fibrous materials including viscose and lyocell rayons and cellulose acetate materials, not including cigarette tow.
In FEB's lexicon, Asia is divided into four subregions: Central Asia covers China and Hong Kong; Northeast Asia covers South Korea, Taiwan and Japan; Southeast Asia covers Indonesia, Malaysia, the Philippines, Thailand, Myanmar, Singapore and Vietnam; and West Asia covers India, Bangladesh, Pakistan and Sri Lanka.
Asian Fiber Consumption By Region
Table 1 details the consumption of all manufactured fibers from 1996 through 2002. The meteoric rise of total man-made fiber production in Asia has been driven almost entirely by increases in production in the Central Asian region. Total Asian production rose at a compounded annual rate of 7.8 percent, while Central Asia's share of the total, riding a 13+ percent annual growth rate, doubled from 12+ billion pounds and a 39-percent market share to 25.6 billion pounds and a 54-percent market share. As China ballooned, Northeast Asian manufacturers stagnated and Southeast Asian producers grew slightly. West Asia - particularly India - grew at an 8-percent compounded annual rate; but, because it started so far behind China, it is unlikely to overtake the mainland giant.
The table clearly demonstrates the obvious: Asian mill consumption of all manufactured fibers is driven by activities in Central Asia - followed closely by Northeast Asia. Central Asia is a large net importer of fibers, while Northeast Asia is an equally large net exporter (See Table 2). Parenthetically, the net export/import positions of the remaining two Asian regions, while impressive, pale in comparison to these larger two and will receive considerably less attention in the discussion presented here.
Northeast Asia is composed of three economies generally more developed than those countries in the rest of Asia. Japan, Korea and Taiwan have had their day in the labor employment sun and have moved on to more capital-intensive economies. Japan, for example, has used the benefits of its earlier labor-driven economic plans to morph into bankers financing economic expansions in the developing nations of the Asian Pacific Ocean shoreline. The capital already sunk into fiber production is not wasted, but rather has been diverted into support for substantial export programs that show in the net export posture of Northeast Asia.
China, in comparison, has been a region heavily committed to labor employment and dominance of labor-sensitive industries. Central Asia has run a fiber deficit for years - meaning that, in addition to the dramatic fiber-plant building program undertaken in the past decade, the region imported approximately half as much fiber as Northeast Asia was exporting. At the end of the day, the region is a net exporter of fibers.
One other distribution activity is worthy of mention. West Asia recently has begun to supply fiber material from local sources and appears gradually to be reducing its net import stance. As noted in TW 's September Fiber World feature, recent polyester expansion moves by India's Reliance Industries Ltd. will dramatically change the supply posture to the Indian subcontinent. It is unlikely that India seriously will threaten China's dominance, but the previously mentioned Wall Street Journal article suggests a battle royal between the more- and less-developed nations for dominance in apparel and made-up articles production.
The Great Irony
China is beginning to demonstrate the characteristics of a changing economy, particularly as it relates to outsourcing. Increasingly, companies in Hong Kong and mainland China are managing the production process with companies spread around the entire eastern Asian region. According to the Wall Street Journal, smaller countries in the area are concerned that the scheduled Jan. 1, 2005, WTO quota elimination will result in an overpowering response by the larger, more developed nations such as China and Hong Kong. The pleading nations anticipate a major loss of trade share and are requesting "special trade deals to protect them from a free-for-all." As developed countries agreed to reduce and ultimately drop garment quotas after the Uruguay round of trade talks, companies outsourced labor-sensitive articles to China, particularly those that built the fiber/fabric/garment colossus detailed above. To less-developed nations, for some of whom garments represent up to 70 percent or more of total exports, China's possible dominance represents a serious threat to their overall economies. In a not-unexpected move, a "group of the world's poorest countries ... led by Mauritius and Bangladesh [including, but not limited to Nepal, Cambodia, Sri Lanka and the Dominican Republic] are making an 11th-hour appeal to ... save their industries from being overwhelmed by ... China and India." According to the Wall Street Journal, "China's entry into the WTO in December 2001 has helped make it more competitive than many ... countries imagined it would be when they signed the 1995 agreement."
Importing countries of the West and export competitors China and India have promised to review the situation, but it is arguable whether much if anything will be changed. How ironic that high-wage economies that sacrificed entry-level jobs to freer world trade now find themselves sharing economic concerns with low-wage economies that did not believe one or more Asian countries would become superpowers in the world of textiles!
Tough Road Ahead
If this were a betting match, odds probably would favor China. Despite the fact that the presented data include the early-century recession, the growth rate of China's textile complex has slowed, an almost natural result of increasing difficulties in maintaining increasing growth patterns against the increasing size of the base. To the extent that China refuses to agree to reduced restrictions, it can provide increased services by investing in labor-sensitive manufacturing and continuing to absorb significant fiber production from those world areas currently marooned by the move of industries to Asia. As the Wall Street Journal cites, "Convincing the Chinese to make any concessions may be a tough task."