| Steadily
increasing overseas demand is pushing China's hat
and cap suppliers to boost production capacity, many
by as much as 50 percent. But even as exports
continue to rise, the industry is reeling under the
pressures of labor shortages, increasing raw
material costs and intense competition.
China exported 3.4 billion hats and caps worth
more than US$1 billion in 2004, up 22.7 percent from
the overseas shipments of the previous year. At
$155.7 million, exports in the first two months of
2005 were already up 29.7 percent compared with the
same period last year.
Higher overseas demand is the main reason for the
export growth. Many buyers from the United States
and the European Union that used to source hats and
caps from Indonesia, Thailand, Vietnam and Mexico
are now importing from China because suppliers there
can offer greater value for money.
In addition, many existing US buyers have
increased their imports from China, some by as much
as 50 percent, mainly because US quotas on cotton
hat and cap imports were removed in early 2004, and
those on polyester items were lifted this year. The
removal of quotas on cotton hats and caps, which
account for at least 80 percent of China's total hat
and cap exports, resulted in a 22 percent growth in
exports of the product category in 2004. Post-quota
overseas shipments of polyester hats and caps are
expected to register an even higher growth of 30
percent.
Because of the increase in demand, many China
suppliers are constructing additional factories or
expanding existing facilities. Many of those with
in-house embroidery capability will purchase
computerized machines to improve efficiency. Most of
the new facilities will begin operating by the end
of 2005, while some will open in early 2006.
However, despite these expansions many suppliers
might not be able to achieve their targeted capacity
increases because of the labor shortage that
companies in the southeastern coastal regions have
experienced since last year. The hat and cap
industry is particularly affected because of the
labor-intensive production process, which involves
cutting and finishing each panel by hand before the
hat or cap is formed.
The shortage of labor has forced some companies
to increase subcontracted production in order to
meet orders. Many makers in Guangdong, one of the
provinces most affected by the shortage, are
subcontracting to factories in Jiangxi and Anhui
provinces, where the labor situation is not as bad.
However, the logistics of subcontracting, especially
to factories in a different province, are difficult
and costly. In addition, quality control and
consistency can become a potential problem with this
arrangement.
Therefore, a few makers are trying to retain
their employees by improving working conditions and
giving additional benefits. Some are even building
more comfortable dormitories and better staff
canteens, while others are offering free meals. Many
suppliers have increased salaries of technicians and
skilled workers 10 to 30 percent over the past year.
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