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陳亨利:《新形勢下中國紡織企業的創新發展戰略》 Innovative Development Strategy of China Textile Enterprises Under New Situation--by Henry Tan

Innovative Development Strategy of China Textile Enterprises Under New Situation--by Henry Tan



The 2nd China Textile Forum 2015, hosted by China Chamber of Commerce for Import and Export of Textile and Apparel (CCCT) in Shanghai on August 27, received over 200 delegates around the world. Invited as the keynote speaker in this forum, Henry Tan, Permanent Honorary Chairman of Hong Kong’s General Chamber of Textiles, gave a speech titled Innovative Development Strategy of China Textile Enterprises Under New Situation. Here are the main points covered in his speech:


Two Main Challenges: Aggressive Bargain and Tariff Treatments

Two of the challenges that the industry faces have the most substantial and widespread influence. The first challenge is the ever-lowering target price from clients. However, production cost keeps rising, making lives for manufacturers even harder by squeezing margins out of them.


The second challenge is the change of international trade situation. Bilateral or regional free trade agreements (FTAs) have emerged in various forms. Take Southeast Asia, which has considerable impact on textile and apparel (T&A) industry, as an example: First ten countries formed ASEAN free trade area, then they signed FTAs with six countries, namely, China, Japan, Korea, Australia, New Zealand and India. Now ASEAN countries are discussing with these six countries to reach an agreement that unify the markets in all sixteen countries, or Regional Comprehensive Economic Partnership (RCEP). On the other side of the globe, negotiation of Trans-Pacific Partnership (TPP) led by the US has entered the final and most crucial stage. Vietnam has completed talks on FTA with EU and will start enjoying preferential tariff for exports to EU after some review and procedures. Besides, developed regions like EU, US and Japan have also provided some countries preferential duties through Generalized System of Preferences (GSP).


Hard to Compete Without Preferential Duties


Negotiation on TPP is expected to complete within this year. In application, all tariffs for T&A goods will not be waived immediately. Rather, for some sensitive goods, they will probably reach zero tariff only in several years, after periodic reductions. Besides, there may be a short supply list to allow some raw materials that are not produced in TPP member states to be imported from other countries, which still comply with rules of country of origin.


As for how big an impact these FTAs have on the Mainland’s T&A industry, some main products produced by Henry Tan’s Luen Thai Holdings Ltd can be a good example. Duties of these products in the US range from 20% to 32%. There will still be 10% to 16% of price difference if these rates are presumably cut in half upon approval of TPP. If these goods are produced in the Mainland, there is simply no way to lower cost or compromise profit on such scale to compete with countries with preferential duties. The match will be even tougher when tariffs are fully waived years later.


Big Winner of TPP Will be Vietnam


In the ASEAN countries, Vietnam has the most edge with existing conditions. More importantly, it has already gained or is about to gain preference on duties from many major markets. Currently, like other garment manufacturing countries of ASEAN, Vietnam relies on import for most of its fabrics, especially from China. However, identification of country of origin in many FTAs requires “fabric forward”, or even “yarn forward” in TPP’s case. The purpose is to restrict Southeast Asian clothes makers to buy fabrics from China. This has also propelled Vietnam government to drive material localization. In fact, not only does Vietnam need its own fabrics, other ASEAN member states also need them so as to produce clothing that meets requirements from some FTAs and thus enjoy zero tariff. For weaving mills this is an excellent opportunity to grow, but for clothing manufacturers in the Mainland this is undoubtedly a challenge.


Two Main Changes: Raw Materials and Mode of Consumption


The other trends for the development of clothing industry are mainly in two aspects: Change of raw materials and mode of consumption.


For raw materials, over 70% of filaments used for global textiles production are already synthetic. Cotton is and will keep on taking a smaller share. Meanwhile, synthetic fabrics can improve people’s lives with all kinds of functions gained by technologies and processing, not to mention their cheaper price. Use of functional fabrics in clothing production is the big trend in the future and is sure to become more prevalent.


As for changes in mode of consumption, more and more people, especially young consumers are buying clothing, shoes and daily goods on websites like Tmall and while visits to brick and mortar stores are slow dropping. E-commerce in China, as in the rest of the whole world, will grow rapidly to gain 3.5 times of sales revenue of 2013 by 2018, accounting for a 50% share of the global figure, as claimed by a research paper from Morgan Stanley in Nov last year.


In the traditional mode of store sales, products are sold first to brands or direct retailers by manufacturers, and then delivered to stores and eventually to consumers. If manufacturers sell directly to consumers through e-commerce, many costs in the process can be cut to secure a reasonable profit even with a reduced price, resulting in win-win. Surely at the beginning the collection may consist of mainly basic and affordable items to familiarize consumers with such mode. When the market gets used to it, finer products can be launched.


Where to produce? What commercial activities to choose?


Some have dubbed the T&A industry a sunset industry. However, as long as human beings still wear clothes, the market is there. The question is where to produce them – China, Southeast Asia, or Africa? Another key question is through what commercial activities do we sell clothes. From manufacturers to brands and retailers then to consumers, or directly from factories to consumers.


Before the forum, leaders from CCCT and HKGCOT exchanged opinions on further cooperation between the two organizations. From left to right: Henry Tan, Permanent Honorary Chairman of HKGCOT; Jiang Hui, Chairman of CCCT; Ray Shiu , Deputy Chairman of HKGCOT; Shiu Lo Mo-ching, Chairman of HKGCOT at the time; Guan Shu-min, Deputy Chairman of HKGCOT.


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