The exports and imports of China have grown steadily for two consecutive years.
The exports and imports of China have grown steadily for two consecutive years.

The textile industry is an important contributor to the overall growth of some Asian economies and many Asian players are the front-runners in the industry globally. The article looks at the factors that have significantly contributed to the industry’s development and the business opportunities in these markets.

China enjoys stable growth for imports and exports of textile and apparel

Asia is a leading manufacturing and sourcing hub for the global textile and apparel. China, an economic leader in Asia, recorded an eye-catching performance. The exports and imports of the country have grown steadily for two consecutive years.

According to the statistics of the General Administration of Customs, China's exports of textile and apparel in 2018 reached US$276.73 billion, a year-on-year increase of 3.52%. The export continued to maintain positive growth throughout the year. Among them, the exports of textile totaled US$119.098 billion, representing a rise of 8.12% while the exports of apparel totaled US$157.633, showing a slight increase of 0.29%.

In 2018, China's textile and apparel industry experienced a growth for the exports of upstream products and a slowdown for the exports of downstream products. On the one hand, the delocalization of Chinese apparel production networks has led to a slowdown in related exports; on the other hand, the incomplete supply chain of the neighboring low-cost apparel producing countries has triggered the demand for Chinese yarns and fabrics.

Facing with the demand for domestic consumption upgrades, the Chinese government has repeatedly lowered tariffs on imported goods and promoted a substantial increase for the imports of consumer goods.

According to statistics from the General Administration of Customs, in 2018, the imports of textile and apparel of the country reached US$26.14 billion, a year-on-year increase of 6.4%. Among them, the imports of textile rose by 3%, and the imports of apparel increased by 14.8%.

Other Asian countries gaining presence

In addition to China, some other Asian countries are also enjoying a rapid economic growth. According to a report by PwC, Vietnam, India and Bangladesh have the potential to be the fastest growing economies between 2016 and 2050 with average annual growth of around 5%. These countries will benefit from their energetic and fast growing working-age populations, boosting domestic demand and output.

In these growing countries, the textile industry has been a powerful driving force that provides impetus to economic development. For example, Bangladesh (US$29.3 billion), Vietnam (US$26.7 billion) and India (US$18.4 billion) were listed among the world’s top 5 largest apparel exporters in 2017, as stated in the World Trade Statistical Review by the WTO.

Notably, with the rising government focus and encouraging policies, a favorable environment have been created for boosting domestic textile manufacturing, creating employment opportunities, as well as attracting foreign investment.

Both local and foreign investment increasing in Bangladesh

Over the next five years, Bangladesh has the scope to invest a fresh Tk 50,000 crore in the primary textile sector. The textile industry plays a vital role in the growth of Bangladesh’s economy, generating over 80% of the export earnings and contributing more than 12% in GDP, according to Bangladesh Textile Mills Association (BTMA).

As introduced, primary textile sector of Bangladesh has turned into very a strong backward linkage industry for the RMG (Ready-made Garment) sector. Currently, the local spinners can supply 85% of the raw materials to the export-oriented knitwear sector and 35 to 40% to the woven sector. The local woven fabric capacity can be increased up to 60% in next five years if all the infrastructural issues are addressed.

From 2014 to 2018, the local entrepreneurs invested an average of Tk1,380 crore per year in the primary textile sector to meet the demands of fabrics and yarn.

BTMA also revealed that, over the next five years, Bangladesh has the scope to invest a fresh Tk 50,000 crore in the primary textile sector as the demand for locally made fabrics has been rising in both the domestic and international markets.

Mohammad Ali Khokon, president of BTMA, pointed out that the government should supply energy and industrial land at a reasonable price so that the spinners and weavers feel encouraged to invest in the sector. Investment in the local fabrics will lessen the dependency on imports, majorly from India and China.

To attract large-scale foreign investment and develop the country’s infrastructure, Bangladesh government has taken initiatives to construct 100 special economic zones across the country on 75,000 acres of land by 2030 to spur planned industrial development in protecting the unscrupulous use of agricultural land.

In 2017, Bangladesh’s textile and apparel sector received foreign investment worth US$421.68 million, which is 15.70% higher than US$364.44 million in 2016, according to Bangladesh Bank’s data.

Economists said FDI in the sector could be a solution for Bangladesh to move towards value-added products since the country is highly dependent on import for higher end fabrics.

At the 6th China & Asia Textile Forum 2018, Faruque Hassan, Senior Vice-President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said: “Although we are the second largest importer and exporter, our market share reached 7%. At the moment, Bangladesh is a hotspot for foreign textile investment. In particular, with the policies and incentives launched by the government, we are hopeful of more foreign investment projects to arrive in the future.”

Vietnam's garment sector turns appealing for FDI investors

KraigBiocraft Laboratories' subsidiary, Prodigy Textiles, signed agreement with local farmers for mulberry needed at its spider silk production facility.In 2018, Vietnam’s textile-garment sector has grossed over US$36 billion in export turnover, up over 16% against the previous year, according to Vietnam Textiles and Apparel Association (VITAS). This is the highest rise over the past three years, compared with 12.1% in 2015, 4.07 % in 2016, and 10.8 % in 2017.

The sector ran a trade surplus of some US$17.86 billion throughout the year, representing a year-on-year increase of 14.39 %.

VITAS has set the target of raising the export turnover to US$40 billion in 2019, up 10.8 % and bringing trade surplus to US$20 billion.

More importantly, Vietnam’s textile-garment sector has become increasingly appealing to large foreign investors who want to seize opportunities with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) effective in January 2019, analysts said.

VITAS statistics showed nearly US$15.9 billion in FDI had been injected into more than 2,090 textile and garment projects in Vietnam by 2017 end. In the first half of 2018, the industry attracted US$2.8 billion in FDI.

VITAS is hopeful of more foreign direct investment (FDI) projects to arrive in the coming years.

At the 6th China & Asia Textile Forum 2018, Nguyen Binh An, Secretary-General of Vietnam Cotton & Spinning Association, pointed out the competitive advantages of the country. “The Vietnam Government has attracted numerous foreign investors to the country with a number of incentives, rules and regulations. In addition, the electricity cost and labor cost are low here. In brief, the rapid growth of Vietnam in the last decade was mainly attributed to the government policies and competitive cost levels.”

Many German and US companies manufacturing garment items are expanding their presence in the country. Germany’s Amann Group, one of the world’s top three leading producers of high-quality sewing and embroidery threads, is expanding its network in Asia to Vietnam with a new factory being constructed at the Tam Thang Industrial Park in the central province of Quang Nam.

The group will produce around 2,300 tonnes of sewing threads per year at the new production site, mainly for apparel and shoe manufacturers, according to a news agency report. The first phase of the project is scheduled to commence in late July.

US-based KraigBiocraft Laboratories Inc., which manufactures spider silk-based yarn, is working with agricultural cooperatives in Quang Nam to expand mulberry production and develop high-performance silk in Vietnam.

The firm plans to set up a centre for silk research and development (R&D) and grow about 2,500 hectares of mulberry to support spider silk in the country.

The domino effect generated by FDI expansion in the textile and garment sector has also led to a rise in the number of foreign suppliers of machinery and equipment for the industry.

In June last year, ILLIES Vietnam, a member of the German C. ILLIES & Co. and a leading distributor of industrial textiles machinery and equipment, announced expansion of its portfolio in the spinning sector. It now provides machines and spare parts for short-staple yarn-spinning systems for the Rieter Group and the local textile market.

Favorable policies leading growth in India

Karur Textile Park in Karur, India.The Indian textile industry, currently estimated at around US$ 150 billion, is expected to reach US$ 250 billion by 2019, according to India Brand Equity Foundation (IBEF), a Trust established by the Department of Commerce, Ministry of Commerce and Industry, Government of India.

Indian textile industry contributes to 7% of industrial output in terms of value and to 15% of country's export earnings.

Textile and apparel exports from India are expected to increase to US$ 82 billion by 2021 from US$ 37.9 billion in FY2018. Manmade garments remain the largest contributor to total textile and apparel exports from India, contributing 24.53% to total textile.

The textile industry has witnessed a spurt in investment during the last five years. Rising government focus and favorable policies are leading to growth in the textile and clothing industry.

The Indian government has come up with a number of export promotion policies for the textile industry. It has also allowed 100% FDI in the Indian textile industry under the automatic route.Cumulative FDI in the Indian textiles reached US$ 2.97 billion between April 2000 to June 2018.

The Ministry of Textile is encouraging investments through increasing focus on schemes such as Technology Up-gradation Fund Scheme (TUFS). Under the Union Budget 2018-19, US$ 355.27 million has been allocated for TUFS and US$ 4.63 million for the Scheme for Integrated Textile Parks, under which there are 47 ongoing projects.

The Directorate General of Foreign Trade (DGFT) has revised rates for incentives under the Merchandise Exports from India Scheme (MEIS) for two subsectors of Textile Industry - Readymade garments and Made ups - from 2% to 4%. As of August 2018, the Government of India has increased the basic custom duty to 20% from 10% on 501 textile products, to boost “Make in India” and indigenous production.

In addition, the Government announced a Special Package to boost exports by US$ 31 billion, and attract investments worth US$ 11.93 billion during 2018-2020. As of August 2018, it generated additional investments worth US$ 3.78 billion and exports worth US$ 854.42 million.

The future for the Indian textile industry looks promising, buoyed by both strong domestic consumption as well as export demand. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with the entry of several international players like Marks & Spencer, Guess and Next into the Indian market.

High economic growth has resulted in higher disposable income. This has led to rise in demand for products creating a huge domestic market.

Pakistan’s government taking initiatives to revive the industry

Owing to the new government’s export-led policies, Pakistan’s industry is set to grow.Pakistan’s textile industry is the eighth largest manufacturer in Asia. The textile industry has an overwhelming impact on the economy, contributing 57% to the country’s exports and 8.5% to the country’s GDP, according to the Ministry of Textile Industry Government of Pakistan.

The Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA),Central Chairman Mubashar Naseer Butt, said value-added textile products could earn plenty of foreign exchange for the country.

According to him, the exports of the value-added garment sector grew 11.22% in 2017-18 and the sector is a major taxpayer, the largest employment generator in the entire textile chain and exports up to US$5.5 billion worth of products.

Meanwhile, the new government has introduced visionary steps and launched some export-led policies to revive the industry. It is striving to increase exports among other options by reducing energy tariffs, providing incentives like drawback duties, and cheaper financing under Long Term Financing Facility (LTFF) and Export Refinance Facility (ERF).

Previously, the government agreed to reduce energy (RLNG) tariff for Punjab-based five export-oriented sectors, including textile, to US$6.5 per million metric British thermal unit (mmBtu), down 35 to 50% compared to the earlier rates.

With this move, Pakistan’s energy tariff comes in tandem with the regional countries (such as India and Bangladesh) at US$5 to 7/mmbtu, which will help Pakistan in competing with these countries.

Moreover, Pakistan is in negotiation phase-II of free trade agreement (FTA) with China, which would be a breakthrough for textile industry as currently Pakistan is paying tariff of 3.5% on yarn versus 0% on Bangladesh and ASEAN countries. Tariffs on other textile products range from 4 to 9% versus 0% in ASEAN countries, including Indonesia, Malaysia, Thailand, Philippines, and Vietnam.

Analysts believed that the rationalization of these tariff rates in FTA phase II would unlock potential of textile exports to China.Under the strategic trade policy framework, the government set export target of US$46 billion by 2023.

Over the next five years, the entire textile industry chain, starting from raw material manufacturers to value-added textile units, is estimated to invest around US$7 billion, according to All Pakistan Textile Mills Association (APTMA) Secretary General for Punjab Chapter Anisul Haq.

The exports and imports of China have grown steadily for two consecutive years.

Over the next five years, Bangladesh has the scope to invest a fresh Tk 50,000 crore in the primary textile sector.