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Changes in Asia’s Textiles and Garments Supply Chain

Shift of Global Supply Chain and Guangdong-Hong Kong Industrial (3)

Under the WTO’s Agreement on Textiles and Clothing, all trade quota restrictions on textiles and garments were removed on 1 January 2005. Since then, global production of textiles and garments has been shifting to regions with abundant labour supply and low production costs, including the Chinese mainland. However, in the face of rising production costs and labour shortages in China over the past few years, many enterprises have begun to relocate some labour-intensive production processes to other low-cost countries, while others have chosen to source certain materials and products elsewhere.

Nevertheless, as some coastal areas and inland production bases in China have set up mature supply chains with well-developed transport and logistics services, many enterprises still retain those industrial activities with higher value-added and technology content on the Chinese mainland. Active upgrading is also being introduced to enhance the added value of their operation on the Chinese mainland as a means to tackle the challenges arising from the hike in production cost.

Supply Chain Situation in Cambodia*

Most of the production and export enterprises investing in Cambodia rely heavily on imported materials and equipment. As investors move towards producing higher grades of products, they need to import better value materials of a wider variety to support their production activities in Cambodia. Efficient transport and logistics services are therefore essential.

Enterprises investing in Cambodia should also pay heed to the overall supply chain situation and use appropriate logistics services to ensure the smooth development of relevant production activities. In particular, the supply chain of light-industrial products is becoming more complicated. Accessories such as cloth, plastic and metal hardware for the manufacture of garments and other textiles can be produced in mainland China or other production bases such as ASEAN countries. Automated or semi-automated production-line equipment can be produced on the mainland, or in Germany and other developed countries.

Overall, the supply chain is becoming increasingly complex. As such, it is advisable for Cambodian companies to use appropriate management systems and information technology, or enlist Hong Kong and other overseas partners to enhance supply chain management services and provide efficient third-party logistics services to facilitate the enterprises’ long-term development.

* Excerpts from Belt and Road: Development of China's Overseas Economic and Trade Co-operation Zones, HKTDC Research, June 2017.

 

According to the available statistics, total textiles and garments exports from Asia rose from US$154.3 billion in 2001 to a peak of US$451.5 billion in 2014, before falling back to US$412.3 billion in 2016 following the global economic slowdown. 35% of this trade comprised of textiles used mainly as production materials, among which some 50% was absorbed by the “markets” of Asia, and was thus classified as intra-Asia trade.

Chart: Textiles and Garments Exports of Asia 16*
Chart: Textiles and Garments Exports of Asia 16*

The largest source of these textiles exports is the Chinese mainland, followed by the ASEAN countries and India. These three saw their shares of Asia’s textiles exports rise from 2001 to 2016. In particular, the Chinese mainland’s share during this period surged from 20.9% to 56.2%. Korea’s share, meanwhile, dropped drastically from 17.1% to 7.5% as a result of the relocation of production lines to overseas bases.

These production materials are mainly exported to the production bases in ASEAN countries (26.2%) and the Chinese mainland (9.8%), while 8.8% are absorbed by the EU, where some economies – particularly those in eastern Europe - are still engaged in the garment production. In recent years, foreign investors have set up garment production facilities in Bangladesh, and their operations have to be supported by industrial materials imported from other places. As a result, an increasing proportion of the textile products exported from Asia went to Bangladesh, rising from 2.5% to 5.8% in 2016. Since Asia’s supply chain has also begun to provide support to garment production bases outside Asia, such as Turkey and some African countries, the proportion of Asia’s trading activities accounted for by intra-Asian textile trade has declined in recent years.

In short, the Chinese mainland has become an important source of textiles exports for garment production activities in ASEAN, Bangladesh and other countries following the relocation of production bases. As for other Asia economies, including ASEAN countries and India, they are also capitalising on their own production strengths to produce various kinds of textile materials for export to China and other Asian locations. From these activities, it can be seen that the textiles and garment manufacturing enterprises in the region have already formed a closely-knit supply chain for upstream materials to be supplied to downstream garment manufacturers.

As for garment exports, China remains the largest source of exports in the region. Yet with the rise of production costs on the Chinese mainland and the relocation of production lines to overseas bases, China’s share of Asia’s garment exports has declined from a peak of 67.6% in 2011 to 64.9% in 2016.

Photo: Asia’s textiles and garments supply chain is changing (1).
Asia’s textiles and garments supply chain is changing (1).
Photo: Asia’s textiles and garments supply chain is changing (1).
Asia’s textiles and garments supply chain is changing (1).
Photo: Asia’s textiles and garments supply chain is changing (2).
Asia’s textiles and garments supply chain is changing (2).
Photo: Asia’s textiles and garments supply chain is changing (2).
Asia’s textiles and garments supply chain is changing (2).

The US and EU remain the largest garment export markets. Together, they absorbed a total of 50.6% of Asia’s garment exports in 2016. It is therefore evident that the export pattern of garments was different from that of industrial materials. Only a quarter of garment exports were accounted for by intra-Asia trade, with 9.7% going to Japan and 5.4% to the local ASEAN markets.

However, hit by the slackening global market in recent years, enterprises in Asia are facing intensified competition. Enterprises in China, plagued by labour shortages and rising production costs, have also been prompted by this development to proactively enhance their competitiveness, expanding their international business to broaden their market, while setting their sights on Asia and other regions. By adjusting their regional business strategies, including relocating part of their production and sourcing activities, many Chinese enterprises hope to forge closer links with Asia’s supply chain and take advantage of their resources in the mainland and overseas to pursue transformation and upgrading, in order to meet the changing demands of the international market.

For further details, please refer to:

Shift of Global Supply Chain and Guangdong-Hong Kong Industrial Development (Executive Summary)

Changing Global Production Landscape and Asia’s Flourishing Supply Chain

Rapid Development of Asia’s Electronics Supply Chain

Evolving Role of “Made in China”

Guangdong and Hong Kong to Adjust Regional Business Strategies

Shift of Global Supply Chain and Guangdong-Hong Kong Industrial Development (Conclusions and Recommendations)

 

Appendix:

Table: Textiles Exports of Asia 16
Table: Textiles Exports of Asia 16
Chart: Garments Exports of Asia 16
Chart: Garments Exports of Asia 16
Content provided by Picture: Wing Chu
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