For about $80, one can get a nice polo shirt at Macy's department store in New York. While in a factory in southern China, one could pay $40 and get a dozen.
Tens of thousands of Chinese textile enterprises have been competing to offer consumers in the US and Europe shirts, suits, and shoes as cheaply as possible. And until recently things have been smooth for these enterprises, except for occasional anti-dumping accusations from China's trade partners.
But as the US subprime crisis fallout continues to unfold, the yuan continues to rise and other factors including the reduction or removal of domestic government textile tax rebates bite in, many of the once strong manufacturers are looking extremely fragile.
While many experts are calling for the government to reinstate the rebate policies - or even raise them - Pan Jinshan, general manager of Jiangsu Sunshine Import and Export Co Ltd, says the policy change is good for the industry in the long run.
Pan described the current situation as a "double-edged sword"; good for an orderly market and stronger Chinese manufacturers and bad for medium and small manufacturers competing in the low-end market.
"Enterprises will die sooner or later if the industry does not reshuffle," says Pan. "The market has already deteriorated as a result of chaotic competition."
Pan says Sunshine changed its strategy since several years ago, and now focuses on making middle to high end products. It is one of China's major wool textile and suit makers, with a total export of $370 million last year.
The company is the largest buyer of Australian wool in the world. It purchased more than 10,000 tons of wool from Australia last year and manufactures both textile materials for Armani and suits for Hugo Boss.
"For a long time, we had to abide by rules and prices set by others," said Pan, "but now we are the biggest buyer and manufacturer and we have the best quality, so we have the right to decide the price." That contrasts with most of the rest small Chinese companies, who may raise prices but are rejected by foreign buyers. "I told my sales team in the US to cancel the contract if buyers don't agree on a price increase," said Pan.
Sunshine also tries to lower the costs of several levels of middleman by entering foreign markets directly. Many Chinese manufacturers have to send their products to exporters in China first, then to importers in other countries. But Sunshine has started its own sales channels.
Last year it set up a company in Japan, hired local native designers, and sold its products to Japanese wholesale markets and retailers by itself. "We almost have no middlemen in Japan now," said Pan, "and that saves cost and money."
But it's not easy for any Chinese company to enter a foreign market. It requires a trained, reliable staff, professional logistics and efficient management. But Pan sees it as a new field in which Chinese enterprises can compete. "When we first started, we lacked money and knowledge," he says. "We had to accept everything set by others, but now is the time to improve our management and fight our way through the bombardment."
The bombshells of the yuan appreciation, loss of rebates and middleman costs have meant heavy losses for many export-oriented enterprises, and Sunshine is no exception. But Pan said that businesses should learn to make use of financial derivatives and cut their losses to a minimum. For instance, through working with insurance companies, Sunshine has reduced its losses due to yuan appreciation by 10 million yuan last year.
All these efforts and strategies seem to have paid off far. While most in the industry are crying doom and gloom, Pan remains calm because he has seen no profit decline during the first two months of 2008. "Through enlarging our sales channel and adjusting our product structure, we maintained the profit level although the increase rate decreased," he says.
That is impressive given the overall decline of the market. Statistics from webtextiles.com shows that for the first two months of this year, the Chinese textile industry suffered a loss of over 4.8 billion yuan. And figures from China's Import and Export Fair (also called the Canton Trade Fair), known as the barometer of the nation's trade status, reveals a 24.4 percent decline of garments transactions from the session held last fall.
"All the challenges force us to figure out the way ahead," said Pan. "But Chinese products will remain competitive as long as our service and management improve."
