the largest and one of the most price-competitive
suppliers of children's wear in the world. The
industry, however, is currently in a state of flux
as it deals with numerous challenges, including the
export restrictions to the US and the EU, a
government-imposed export tax, increasing material
costs and labor shortages.
Exports of newborns' clothing and babywear
sharply increased after quotas were partially lifted
in 2002 and total overseas shipments of children's
wear have continued to rise steadily in the
In the first four months after the last phase of
quota removal in January 2005, children's wear
exports to the US and the EU increased by 30 percent
over the corresponding period in the previous year.
The surge in exports was expected, and to
alleviate concerns of disruption in the US and EU
markets, the government of China imposed a levy on
more than 100 types of apparel, including children's
wear. Since the beginning of the year, exported
garments have been taxed at US$0.024 to US$0.060 per
However, the export tax failed to limit the
dramatic surge in exports, forcing the US to impose
safeguards on a number of categories, including some
types of toddlers' and schoolchildren's apparel.
As of July, the US had restricted four categories
including cotton and man-made fiber knitted shirts,
cotton trousers, and cotton and man-made fiber
underwear. The quota for cotton knitted shirts,
cotton trousers and underwear has already been met,
while boys' woven cotton shirts have used up more
than half of their allocated share.
In the case of EU, China agreed to limit export
volume growth by 10 to 12.5 percent till the end of
2007. The quota for pullovers has already been
reached, while that for knitted shirts, boys'
trousers, girls' woven shirts and dresses are fast
approaching their limits.
Although children's wear suppliers in China were
anticipating the safeguards, the restrictions have
nevertheless adversely affected the industry.
The quota limits on apparel categories apply not
only to children's garments, but to men's, women's
and children's combined. This has resulted in fierce
competition not only among children's wear makers
but with adult garment suppliers as well.
The situation has forced companies to rethink
their business strategies. Many suppliers have put
their capacity expansion plans on hold, adopting a
Instead, companies are trying to boost exports to
other markets such as Japan and the Middle East.
Some large suppliers are moving production to other
countries in Asia.
Meanwhile, a few are shipping goods to countries
such as Bangladesh and Mexico, to be re-exported to
the US and the EU. However, this effectively raises
the price of garments, making them less competitive
than apparel from other countries not affected by
the new US and EU quotas, such as India and Vietnam.
Aside from the concerns arising from US and EU
safeguards, suppliers have had to deal with other
The cost of cotton, the main material used for
children's wear, increased 30 percent in 2004 and by
an additional 10 percent during the first half of
this year. However, keen competition has prevented
makers from raising product prices, even on
value-added models. Many large companies have in
fact lowered the prices of their basic designs by 10
percent in response to rival makers not only in
China but in other garment- exporting countries such
as India and Vietnam as well.
Instead of inflating prices, these large
suppliers are looking at ways to reduce production
costs. Some of them are computerizing processes to
increase efficiency and cut costs.
Companies expect that investing in these new
machines will enable them to reduce material
wastage, minimize rejection rates and lower export
In addition, the export tax, which is levied on a
volume basis, has adversely affected suppliers
focusing on low-end garments. Many of them are
upgrading R&D capability to release value-added
models, which yield higher profits.
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