Denim Garments Report — Industry Overview — Sample Pages: Sourcing Denim Garments from China

Industry Overview: Denim Garments

China's denim garment export industry is on unstable ground, facing the year ahead with cautious optimism. Major concerns are a government-imposed export tax, intense post-quota competition that prohibits makers from increasing export prices, and potential US safeguards that threaten to stunt export growth. In anticipation of the quota-free market, many small and midsize makers embarked on expansion projects and capability upgrades. In October 2004, US textile organisations filed safeguard actions capping 2005 import growth for China-made woven cotton shirts and trousers — including denim garments — at 7.5 percent, and China imposed an export tariff from January 1, taxing exports by volume at US$0.02419 to US$0.06049 per item, partly to encourage suppliers to manufacture more upscale designs instead of flooding the market with cheap, low-end products. The levy was estimated to increase costs by up to 6 percent.

The burden falls unevenly. Large manufacturers producing midrange and high-end designs have room to absorb the tax — with cotton costs stabilising, some can even drop prices a little — and vertically integrated companies can keep prices stable. Small and midsize suppliers, especially those that bought machinery to boost capacity for the quota-free market, are hit hard: they focus on basic, low-value garments with wafer-thin margins, cannot raise prices without losing orders, and may not recover their equipment investments if US import caps curb growth. The overview warns that some suppliers will look for ways to cut production costs, and some will resort to cutting corners — using 8oz denim, for example, to produce a garment specified in 8.5oz denim. The industry snapshot counts 4,000 exporters, 2004 exports of US$1.8 billion, OEM work at 50 percent of business, 30 percent of world supply, an export ratio of 83 percent and capacity utilisation of 92 percent.

How to Read This Overview as a Buyer

Read the overview for decisions, not background. The cost figures tell you how much room a supplier has to negotiate: a maker absorbing most of a cost increase will either raise prices soon or cut somewhere you cannot see, and both possibilities belong in your order planning. The competition analysis tells you where your enquiry has leverage — crowded, standardised segments compete on price, while design-led segments compete on capability — and the supplier survey turns the industry's own expectations about prices, sales, research focus and capacity into a planning horizon for the year ahead. In this report, Jun'an is profiled, where quality washers spur export growth, a fact the full overview develops with production and survey detail.

The overview also frames the 71 profiles that follow it. A profile's prices mean little until they are set against the overview's price trends; a factory's expansion plan means more when two-thirds of its competitors are expanding too. Buyers who read the overview first consistently shortlist better, because they know which claims to test when they reach the profiles and the product gallery.