Impact of Textile Quota Removal for China

What opportunities does the eliminations of textile quotas provide to US manufacturers?

Quotas, unlike tariffs or duties, impose a set limit on the number of a given product allowed to be shipped to the country issuing quota. What the removal of quotas for textiles from China it is our belief the US will see a sharp increase in Chinese manufactured garments, table linens, drapes, etc. China already has many factories in place to supply their huge domestic market and the cost to add capacity is minimal. With the removal of quotas they will be able to take advantage of slightly higher profit margins on exported goods. The cut and sew business is an incredibly labor intensive industry. China’s median wage of around $0.60 per hour is still the lowest in Asia. People who argue that having Mexico so close to the US, and thus cutting down delivery times, makes it an attractive alternative would be wise to keep in mind the $2.50 an hour wage rate.

There are about 550 million migrant workers throughout China right now. In years past they flocked to the Southern China coastal region of Guangdong, near Hong Kong. With the rapid development of the Chinese infrastructure in the past 3-5 years, the ports of Shanghai, Ningbo and Xiamen are increasingly busy. We project seeing a rapid increase in textile manufacturing due to the development of the infrastructure in these regions, the lifting of US quotas, and the relative proximity to the middle of China where a great number of those migrant workers come from.

What segments in the Chinese textile industry seem to be most prepared to expedite the opportunity?

Certainly the Chinese are poised to impact the basic cotton clothing industry enormously. These types of facilities are everywhere in China supplying both the export and domestic markets and they simply need to add more machines at a very low cost to increase their output and capitalize on higher demand for exported products. Makers of household textiles should similarly be well prepared for significant and rapid growth.

Under pressure of strong lobbyists the US is putting restrictions on certain categories of products, which may limit their impact on US shelves. Gowns and brassieres have had heavy duties leveled on them and we will see most industry lobbyists arguing for anti-dumping legislation. This will hinder certain industry sectors in China from impacting the US market as profoundly as they otherwise would.

What are the most important questions I need to ask myself before going into China for textiles?

The first question to answer when contemplating any China strategy is: “Am I willing to put in the time to succeed?” Even in industries where the product is known, and manufacturing expertise is mature, it takes considerable time and energy to navigate the business landscape of China. The cultural differences are profound, and it takes a long time to understand the nature of any company or organization. How can you know whose hands are in the pot? How do you make sure quality standards are met and kept up? How will you handle any Chinese imposed export duties or issues?

Secondary questions you should answer are: How will I get there? Do you do business their now and have someone who can help you? Are you manufacturing textiles somewhere else and have no idea how to get into China? One of the most important aspects of doing business in China is maintaining an on-the-ground presence either yourself or through a solid partnership.

Financing is always a critical factor and one that needs to be deal with immediately. Ask yourself: “Do I have the financing to buy from China?” Most all companies exporting products from China will need either a deposit or letter of credit. Any manufacturer willing to work without one is more than likely making too much money on your deal. It boils down to risk and reward. If the reward is big enough they’ll risk not being paid. If they’re working on thin margins they will not take the risk. The safest bet for both parties is a letter of credit.