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Rising costs lowers China's competitive edge

The competitiveness of the Chinese clothing industry is set to weaken over the next few years as costs rise. As a result, export growth could falter. Rising costs in China are already forcing many western apparel brands and retailers to cut back on their sourcing from China and have their apparel manufactured elsewhere. In response, the Chinese government is pursuing a policy of encouraging growth in the domestic clothing market in order to take up slack in its manufacturing sector caused by this apparent loss in competitiveness.

The rise in costs in China stems in part from significant increase in fuel costs and shipping costs. Also, wage rates have risen to the point where they are higher than in many other Asian countries. Early signs of a shift in apparel manufacturing have been seen in EU and US clothing import trends. In 2013, China’s share of EU clothing imports from all sources in value terms fell from 41.7 to 40 per cent. China’s share of US clothing imports from all sources fell from 37.8 to 37.3 per cent.

The strongest growth in EU clothing imports in 2013 was in imports from Bangladesh, Cambodia and Pakistan, while the strongest growth in the US clothing import market was in imports from Bangladesh, Sri Lanka and Vietnam.