An analysis of Chinese (textile) exports and their future (continued series on China)
The Research arm of Hong Kong Trade Development Corporation has analysed the export position of China in 2015 and with an outlook into the future. The findings are based on WTO, the World Trade Organisation and EU Statistics. We feel that the findings will give TextileFuture readers an excellent basis of what to expect next from China, also in the textile relevant sectors, and how China is changing its industrial face
In 2015, China recorded its first decline in export value since the financial crisis of 2009. This has triggered concerns as to whether China’s export competitiveness is eroding rapidly in light of the competition arising from the emerging number of alternative production bases. There is a clear indication that labour-intensive production in certain sectors is relocating away from China, with South or South-east Asia being the likely beneficiary. Despite this, trade statistics show that China is continuing to expand its share of the overall world export market share, while its export product mix is becoming increasingly sophisticated and high-tech.
China continues to expand World Export Share
According to the WTO’s recently released global trade figures, total export values across the world dropped by 13.2 % in 2015, falling to USD16.5 trillion. Although China’s total exports dropped by 2.9% in 2015, it had the smallest decline of all the major exporters. Aside from Vietnam, China’s exports were also declining at a slower pace than any of the alternative production bases in Asia. As a result, China’s global market share of merchandise exports continued to increase, rising from 12.3 % in 2014 to 13.8 % in 2015.
As merchandise exports include agricultural products, fuel and mining products, this could distort the overall picture. If, however, we consider only those exports directly affected by production costs, WTO statistics show that China’s share of global manufacturing exports has also continued to increase over recent years, rising from 14.8 % in 2010 to 18 % in 2014.
No Sign of Decrease in China’s Overall Import Share in the Major Markets
With regard to both the US and the EU, the world’s two leading importers, China’s share of their imports also increased during this period. According to US statistics, China’s share of US imports rose from 18.1 % in 2011 to 21.5 % in 2015. When oil imports are excluded, China’s share increased from 22.8 % to 23.7 % for the same period. In the case of the EU, statistics show China share of extra-EU imports increased from 17.1 % in 2011 to 20.3 % in 2015. If oil is excluded, the share rose from 21.8 % to 23.6 %. China’s share of Japan’s total imports also recorded a rise, increasing from 21.5 % in 2011 to 24.8 % in 2015.
China is also gaining import market share in a number of the emerging markets in Asia and Latin America. According to ASEAN statistics, for instance, imports from China accounted for 12.8 % of the Association’s total imports in 2011, increasing to 17.5 % in 2014. A similar pattern is evident in the statistics relating to individual countries. China’s share of Malaysia’s non-oil imports, for instance, jumped from 14.7 % in 2011 to 20.8 % in 2015. Over the same period, its share of Thailand’s non-oil imports increased from 15.8 % to 22.8 %. In the case of Mexico, China-sourced imports increased from 14.9 % in 2011 to 17.7 % in 2015, while in Brazil the figure rose from 14.5 % to 17.9 %.
China’s export competitiveness amid a changing product mix
While China’s exports remain competitive, as reflected in the country’s market share of global exports, the relocation of manufacturing from China to other production bases, particularly to those in other parts of Asia, has inevitably affected its overall share of exports of labour intensive or lower value-added products. In the case of garments, China’s share in terms of US imports dropped slightly, falling from 39.4 % in 2011 to 37.4 % in 2015. In this case, it was Vietnam that saw its market share rise correspondingly. In the case of extra-EU imports of garments, China’s import share in the European Union also declined, dropping from 44 % in 2011 to 37.5 % in 2015.
In the case of footwear, while China still commands the lion’s share of US imports, its percentage share dropped from 73.9 % in 2011 to 62.5 % in 2015. In the case of extra- EU imports of footwear, China’s share declined from 50.5 % in 2011 to 46.3 % in 2015. With regard to both US and extra-EU imports of footwear, Vietnam and Indonesia have emerged as the major alternative suppliers.
Garments and footwear aside, China’s share in other sectors, such as toys, remained more or less unchanged. In total, China accounted for 87.4% of US toy imports in 2015, slightly up from 86.3% in 2011. In the case of extra-EU sourced items, China accounted for 85.3% of the European Union’s imported toys in 2015, slightly down from 86.3% in 2011.
Gaining share in electronics and semi-manufactures
Over recent years, China has been diversifying its exports away from traditional, labour- intensive, lower-end products to more advanced, high-tech items, including both final consumer products and upstream semi-manufactures. According to WTO statistics, China’ global share of telecommunications exports, for example, increased from 29.4 % in 2009 to 39.5 % in 2014, while its share of textiles increased from 28.3 % to 35.6 %.
In the case of household electrical appliances, China’s US import share has generally demonstrated an upward trend, increasing from 39.2 % in 2011 to 42.4 % in 2015. With regard to extra-EU imports in the same sector, China’s share again increased, rising from 47.4 % to 52.1 % over the same period.
It is likely that the relocation of final assembly works to alternative low-cost production bases in Asia may have contributed to China’s growing export of raw materials and semi-manufactures destined for further processing. Based on China’s own statistics, a rough estimation shows that the country’s export of raw materials and semi-manufactures recorded an average annual compound growth of 9.1 % between 2010 and 2015. This was faster than the overall average annual export growth (7.6 %) and the average annual growth for consumer goods (8.3 %) over the same period.
In particular, China’s exports of textiles to Vietnam, the alternative production base for garments that is most noticeably gaining share in overseas markets, grew by an average annual compound growth of 22.6 % between 2010 and 2015. At the same time, textile exports to Bangladesh showed an average annual growth of 13.2 %. While China is the world’s largest importer of integrated circuits and electronic components – 38 % of the global total in 2014 – its share in world exports has also increased, rising from 11.4 % in 2009 to 17.2 % in 2014 according to the figures from the WTO.
China outperforms in terms of Labour Productivity and Clustering effects
While China’s labour costs have undoubtedly risen, it could be argued that this is justified in light of its work force’s higher skill level and the country’s overall level of productivity. According to the Asian Productivity Organisation, China’s average level of labour productivity grew by 9.3 % per annum between 2005 to 2013, far higher than was the case in a number of alternative production bases in Asia – notably Vietnam (3.7 %), Indonesia (3.4 %), and Bangladesh (2.8 %).
As well as the skills of its domestic labour force, manufacturers in China also benefit from their access to well-developed industrial clusters, with upstream supplies easily sourced locally. With ample supply of both services and upstream and downstream products, manufacturers are assured of the provision of a strong supply chain, ensuring ready access to ancillary industries, products and spare parts. This allows for greatly improved efficiency, while also shortening delivery lead times. The effects of this can be seen by considering the ratio of net exports of manufactured goods to imports of manufactured goods. Over recent years, the ratio has continued to grow and has exceeded 100 %, partly reflecting the rising locally-sourced content of many manufacturers’ exports.
In the case of the electronics and high-tech sectors, industries in which China has enjoyed rapid growth of late, a higher percentage of parts and components are now being produced locally and subsequently feeding into the downstream assembly of electrical and electronic products. China’s competitive advantage in the more advanced industries will only become more pronounced as the country continues to invest in R&D and move up the production value chain.