| Women's
undergarment suppliers in China are in a state of
tremendous flux. The industry was gearing up for
phenomenal growth in 2005, when all textile quotas
are fully eliminated. Suppliers, however, are wary
of explosive growth because of a number of factors.
China's exports to countries that used to impose
quotas on women's undergarments, primarily the
United States and the European Union, have surged in
the months after quotas were lifted, but total
shipments have declined as a result of US safeguards
and government-imposed export taxes.
To prevent the US and EU from applying safeguards
on sensitive categories, the government in China has
taken measures to curb a sudden surge in exports to
these markets, such as setting export taxes. The
initial tax implemented at the beginning of the year
covers some 100 apparel categories, including
women's undergarments. A second levy, which is up to
400 percent more than what was previously imposed,
was implemented in June but does not apply to
women's undergarments.
Under the policy, exports of slips and underpants
are taxed at US$0.024 per piece. Although bras are
not included in the categories to be taxed, the levy
still applies for sets with panties.
While the tax has little effect on most apparel
categories that are being levied, it is a burden for
low-end underpants. The levy accounts for about 9.6
percent of a typical low-end underpant's cost. Since
the average profit margin for most low-end makers is
less than 10 percent per piece, most of these
suppliers will face bankruptcy if they continue
offering low-end products at the same price. To
survive, many have passed all or most of the
additional cost to buyers, while a few have shifted
to more upscale manufacturing.
In fact, total exports of panties and girdles
decreased 3 percent in the first three months of
2005 to 409.2 million pieces, with average prices up
34.8 percent from US$0.30 to US$0.40 per piece.
Because these products account for the majority
of total women's undergarment exports, the sharp
decline in shipments has significantly affected
overall exports in Q1 2005, which went down 17
percent to 760 million pieces at a value of US$420.5
million.
However, exports of panties to the United States
in the same period surged 1,169 percent to 19
million pieces. Because of the phenomenal increase
in exports, the US imposed a safeguard, capping
growth of underwear imports from China to 7.5
percent.
The US previously imposed a safeguard on
China-made bras, 22 months after quotas on the
product were lifted in January 2002. Exports of bras
to the US grew 291 percent in this period, prompting
the safeguard to be implemented in December 2003.
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