By: H.K.Sehgal


The global economy had witnessed recently recession, whichwas only next to Great Depression of 1930s, which badly mauled many economies -probably all the economies, even if the difference between different countriesvaried. The national governments, one after another, hurriedly unfolded thestimulus packages to revive their economies.


Most of the economies responded to these packages and theclouds of recession have withered away in most of the economies, but the factremains that no economy has attained the buoyancy that in enjoyed before therecession made its ugly presence felt.


True, the global economy suffered and its suffering wastriggered by the sub-prime rate syndrome in the US, which saw a large number offinancial institutions including banks going down like a house of cards. Theemployment fell in most of the economies with the US leading the pack with over10% unemployment - highest in 26 years. The reduction of demand for allconsumer goods went down and retailers including and particularly in garmentsector hit air pockets. This phenomenon particularly hit the developingcountries, whose major source of foreign exchange earnings and employmentdepended on exports that declined sharply. Inevitably, the American and Europeanretailers were confronted with reduced demand, and therefore placed fewerorders for garments with the garment exporters from most of the developingcountries.


However, a closer look at the world garment trade revealsthat all that is being credited to the recession actually does not belong to italone.


A fact that went by without making a striking note is thatthere was a general decline of 12.5% in garment exports during 2009 to theWestern countries by most of garment exporting countries, except China and Vietnam, while China's share garment exports went up significantly from 41.3% in 2008 to46% in 2009. Thus it would be clear that while there was not only a decline inorders from international retailers due to sagging internal demand, but alsoChina and Vietnam gobbled up a larger share than ever before by increasingtheir exports in real and percentage terms. It has been estimated that about60% of the average garment exporter's sales loss was due to growing Chinese andVietnamese competition, rather than falling demand. It is also important tonote that the impact of reduced demand and therefore imports in the US and EU from the developing world (i.e. other than Vietnam and China in this case) was furtheraggravated by increased share of China and Vietnam's exports to the Westerncountries.


Why Chinese garments have edged out others? The reasons aresimple. Chinese goods including garments are cheaper because of not onlymassive and quick support from the Government by way of heavy subsidies, but alsodue to fettered Yuan exchange rate. This was further accentuated by withdrawalof quotas against China by both US and EU in 2009. The formidable combinationof all these factors was deadly, resulting in mauling up garment exports fromother countries.


What future holds forth for garment exporters, particularlyfrom India?


There are hardly any hopeful signs for the garment exportsto pick up from the developing countries, including India, for the simplereason that I do not see any massive or even major or even notable change inthe global apparel trade scenario. No Government in any developing country,much less India, would be ever able to match Chinese Government's total andquick support to the garment exports. This has been manifested in the number ofquick revisions of subsidies, whenever Chinese garment exports showedinclination for decline. So quick and adequate has been the Chinese Governmentresponse that many garment exporters and their associations have only winced atthe utter apathy that the Government of India has shown to the serious concernsof Indian garment exporters, who have only wished - I suppose only wishfully -that they be provided with level playing field with China. This has been ruledout by person no less than Pranab Mukherjee, who holds the financial strings ofthe Government. In fact, efforts are afoot to roll back the stimulus packagesthat were only of marginal help to the garment exporters.


Second, Chinese have scoffed at unfettered free float ofYuan and have rebuffed the Western overtures in this regard recently as theyhave done it earlier on all occasions. They know it too well that an unfetteredYuan can seriously erode their export margins, which has played indeed animportant role in elevating them to the unique position of Numero Uno as thelargest exporter in the world.


 

Third, any possibility of reimposition of quotas on Chinese exports is likely to meet with stiffest ever resistance, even if both the US as well the EU might like to impose the same, if not for anything else, for serious injury to their own domestic industry, apart from several developing economies, which have been hit hard by unfair trade practices by China. And then, one should not forget about the lobbying by the US retailers, who would insist on getting fullest advantage of "free" trade with China. It is highly pertinent to point out that "free trade" i.e. sans imposition of quota on Chinese garments, has resulted in drop of prices considerably throughout 2009. This stands corroborated by the fact that in October, 2009, US apparel importers bought 8.8% fewer clothes than in 2008, but paid 15% less. It would be naive to expect that US retailers can ever let go such opportunities and possibilities.


On the other side, to hope for any relief or support from Government of India would be, to say the least, a hope against hope.


Similarly, any hope of Indian garment exporter making revolutionary or even evolutionary changes in their cost of production to develop a cutting edge on pricing, is unthinkable, particularly when they are destined to live, suffer and wince at higher input costs like spiraling prices of cotton and non-availability of fabrics even at higher prices, aggravated by a fresh enthusiasm for withdrawal of stimulus package and ascending curve of taxes they are likely to face.


Any non-takers?



Originally published in The Stitch Times: May 2010