Since the beginning of the new year, the most discussed word has been foreign trade orders. In particular, the textile industry, which is highly dependent on foreign trade, has been more affected. This year’s foreign trade situation is not optimistic. From January to February 2023, my country’s textile and apparel exports fell by 18.5% year-on-year, and the decline was larger than that in December 2022. So what is the real reason for the plummeting foreign trade orders?
Textile and clothing exports continue to decline. What challenges will foreign trade companies face?
In 2023, the risk of global economic recession will rise and the growth of external demand will continue to slow down, which will become a severe test that China’s foreign trade must face. The main contradiction in current foreign trade has changed from the supply chain obstruction and insufficient contract performance capabilities in the past to the current weakening foreign demand and declining orders.
Data show that my country’s textile industry will exceed US$300 billion in 2021, making it the world’s largest textile producer and exporter. Data for the first three quarters of 2022 show that my country’s textile exports increased by 11% year-on-year, which is a gratifying increase. However, it is worth noting that the increase in Southeast Asian countries such as Bangladesh has also exceeded 20%, and the gap with my country is constantly narrowing. , which puts textile companies under a lot of pressure.
From January to February 2023, my country’s textile and clothing exports fell by 18.5% year-on-year, and the decline was larger than that in December 2022; among which, textile and clothing exports fell by 22.4% and 14.7% year-on-year respectively.
So what is the real reason behind the plummeting foreign trade orders?
First, the United States continues to raise interest rates. The Fed’s interest rate hikes drive other countries to passively raise interest rates, which not only causes the debts of relevant countries to rise, but also further inhibits world economic growth. The Organization for Economic Cooperation and Development has significantly lowered the world economic growth rate next year to 2.2% from 3.1% this year. There was a black swan incident recently, when Silicon Valley Bank in the United States went bankrupt and closed.
U.S. Treasury Secretary Janet Yellen said on March 12 that the core problem of the bankruptcy and closure of Silicon Valley Bank in the United States was the continued increase in interest rates by the U.S. Federal Reserve, not the problems of technology companies. She said the U.S. government would not bail out Silicon Valley Bank.
However, the matter turned around later that day, when the U.S. federal government announced that it would ensure that all deposits of Silicon Valley Bank were paid. The statement was jointly issued by the Federal Reserve, Treasury and the Federal Deposit Insurance Corporation (FDIC). The statement said: “Starting from the 13th, all depositors of Silicon Valley Bank can get all their money back. Losses related to the liquidation of Silicon Valley Bank will not be borne by taxpayers.”
In the past year, the Federal Reserve has raised interest rates eight times in a row, and the target range for the federal funds rate has risen to between 4.5% and 4.75%.
Second, international relations are tense. The relationship between the United States, the European Union and China is tense, which has also led to the tightening and suppression of the global textile and apparel supply chain. The share of related goods imported by the United States from China has shown a clear downward trend. In November 2022, the United States’ imports of Chinese clothing almost halved year-on-year, a drop of 47%, and the import value dropped 38% year-on-year. From January to November 2022, China’s market share of U.S. apparel imports dropped to 22% from 24.1% a year ago, and Vietnam’s share increased from 17.8% to 18.3%. According to current trends, Vietnam will soon surpass China to become the largest source of U.S. apparel imports. Bangladesh, the third largest source of U.S. clothing imports, is also growing rapidly. In November 2022, U.S. clothing imports from Bangladesh increased by 42.5% year-on-year, and the growth rate for the whole of 2021 reached 37%.
The third is the return of orders and industry transfer. In 2021, due to the severe epidemic in Southeast Asia, some orders will return to China. According to statistics from the General Administration of Customs, the country’s textile and apparel exports in 2021 were US$315.47 billion, a year-on-year increase of 8.4%. However, after the local epidemic eased after May 2022, orders immediately returned to Southeast Asia. The main reason is Southeast Asia’s cost advantage. “The manufacturing cost of a T-shirt in China is about several times that of Southeast Asia, and global textile and apparel manufacturing will continue to accelerate its transfer to Southeast Asia and other places.” It is a general trend for textile and apparel orders to shift to Southeast Asia with lower costs. A clothing foreign trade company said that its We mainly purchase raw materials from China and hand them over to factories for OEM. In recent years, they have been mainly shipped to OEMs in Southeast Asia such as Vietnam or Myanmar.
The textile foreign trade market is mixed
The current situation is both good and bad for foreign trade companies. The good news is that we can carry out normal foreign trade activities, but the worrying thing is that there are still some uncertainties in the future. The foreign trade competitiveness of other countries is changing, including some companies in some developed countries that want to compete with us for orders. This is a new situation.
In the three years since the epidemic, Southeast Asia’s anti-epidemic policies have followed the gradual liberalization of Europe and the United States. While China’s export growth slowed down last year, Southeast Asia’s export growth increased significantly. Indonesia’s export growth exceeded 40% year-on-year, and Vietnam’s export growth exceeded 30%. , Malaysia, Thailand, and the Philippines are around 20%. At the same time, the “reshoring manufacturing industry” in European and American countries is also seizing the market, and the competition for orders is becoming increasingly fierce. At present, overseas supply chains are unable to pose a fundamental challenge to China in the short term, no matter in terms of production capacity scale, product structure or industrial chain integrity. Its products are highly concentrated in end consumer goods such as clothing and home textiles.�It still takes a process to reach or surpass China in terms of scale or structure. Neighboring countries are highly dependent on Chinese textile raw materials, especially chemical fiber products. More than 60% of textile raw materials in Vietnam, Bangladesh and other countries are imported from China. “Spillover” in certain specific links of China’s industry is inevitable.
Made in China has three competitive advantages in the world. First, the industrial chain is very complete. Second, the domestic demand advantage brought by the unified domestic market of 1.4 billion people. Third, the application of Industry 4.0 brings improved production efficiency. It will be a trend for Vietnamese manufacturing to replace Chinese manufacturing in certain industries or products. China will also eliminate some uncompetitive industries, but overall, Vietnamese manufacturing will not replace Chinese manufacturing.
China should fully seize the opportunity when neighboring countries are still highly dependent on China, take advantage of the RCEP opportunities, rationally deploy industries and trade, accelerate transformation and upgrading, and try to avoid the negative impacts of too rapid industrial transfer.
Some experts believe that currently, the pain period for foreign trade companies is 3 to 5 years, and the transformation period may be 5 to 7 years. If things go well, my country will still be the world’s most important value chain management center in 2030.
Since the epidemic, companies are also trying their best to find a way out. The first step was to transition to domestic sales. However, when the epidemic prevention and control situation stabilized, the company encountered the problem of insufficient domestic demand and could only look for a way out through foreign trade, but had to face changes in the trade pattern.
When the cost advantage is no longer there, it is a general trend for mid-to-low-end orders to shift to Southeast Asia with lower costs. Chinese textile and apparel companies should turn more to research and development, design, and innovation, and improve the added value and technological content of their products, so that they can have room for development.
In the future, on the one hand, we must strive to promote a steady increase in the international market share of high value-added products, and on the other hand, we must avoid a rapid decline in the international market share of mid- to low-end products. On the basis of maintaining a basically stable export scale, we will accelerate the transformation and upgrading of the industry, tap innovative growth points in trade, enhance comprehensive competitiveness, and achieve high-quality development of apparel foreign trade exports.