In the first quarter of 2023, China's clothing exports faced considerable downward pressure.
The possibility of a global economic recession is increasing
In early January, the International Monetary Fund (IMF) stated that the outlook for major world economies this year is pessimistic, with one-third of the world economy and half of the EU economy expected to be in recession. On January 10, the World Bank released its latest Global Economic Prospects report, lowering its forecast for global economic growth in 2023 from 3.0% in June 2022 to 1.7%, the third lowest growth rate in nearly 30 years, only higher than 2009 and 2020, when global recessions occurred. Economic growth in developed economies in 2023 will fall from 2.5% in 2022 to 0.5%, while growth in emerging market and developing economies outside China will fall from 3.8% in 2022 to 2.7%.
External demand has cooled significantly, and destocking pressure persists
Inflation has a significant inhibitory effect on consumption. US inflation fell to 6.5% in December, the sixth consecutive month of decline, while eurozone inflation was 9.2% in December, returning to single digits for the first time since August. Although inflation in the US and Europe has peaked and is slowing, it will remain high for a considerable period. High interest rates and soaring inflation have led to a sharp increase in US household debt. Federal Reserve data shows that US household debt surged by $351 billion in the third quarter of 2022, the largest increase since 2007. During the pandemic, US consumers accumulated $1.5 trillion in excess savings from fiscal stimulus, which is expected to be depleted by mid-2023, at which point consumption will be significantly impacted. In the EU, the energy crisis has led to a sharp rise in the cost of production and living, with energy and food prices continuing to rise in recent months, leading to persistently low consumption. EU retail sales fell by 1.7% month-on-month in October and by 2.4% year-on-year. The results of the household income and expenditure survey for November 2022, released by Japan's Ministry of Internal Affairs and Communications on January 10, also showed that the average monthly household expenditure for households with two or more people decreased by 1.2% year-on-year, the first decrease in six months. Real wages in Japan fell by 3.8% year-on-year in November, marking an eighth consecutive month of decline, and core inflation hit a 40-year high, putting further pressure on consumption.
Apparel retail sales are slowing. In November, US apparel and accessories store retail sales were $26.35 billion, down 0.2% from the previous month and up only 0.7% year-on-year, the slowest year-on-year growth of the year. In the first ten months, Japan's textile and apparel retail sales totaled 6.9 trillion yen, up 2.5% year-on-year, but still down 22% compared to the same period before the pandemic. The German Retail Association said that due to the Russia-Ukraine conflict and its economic consequences, there is considerable uncertainty among consumers and retailers, and sales are not expected to recover immediately in 2023.
Inventory adjustments will continue. In October, the US apparel and accessories store inventory-to-sales ratio was 2.15, with inventory growth slowing. Inventory levels were down 3.6% from their peak in 2022, but still 18% higher year-on-year.
Imports have slowed sharply in the past two months. After a rapid 16.6% increase in the first three quarters of 2022, US apparel imports fell by 4.7% and 17.3% in October and November respectively; EU cumulative apparel imports increased by 17.1% in the first ten months, but fell by 12.6% in November; and Japanese imports also fell by 2.4% in November.
Exports from overseas suppliers have slowed significantly recently
In November 2022, US apparel imports from Vietnam saw an unusual decline, falling by 4.3% year-on-year. During the same period, US and EU apparel imports from Bangladesh also fell by 9.8% and 3.5% respectively. Following China, the decline in international market demand has also affected countries with relatively low costs. In the first three quarters of 2022, China's exports of fabrics to ASEAN increased by 22% year-on-year, but growth was 0% in October and -11% in November, indicating that subsequent apparel orders from ASEAN will enter a downward trend in the first quarter of this year.
The boosting effect of price on export value will further weaken
In December 2022, China's average export container freight rate index was 1358.63, down 61.3% from its peak in January, greatly easing the pressure of freight costs. It is expected that freight rates will further return to pre-pandemic levels in 2023. At the end of 2022, cotton prices fell by 35.5% year-on-year, cotton yarn prices fell by 19.6%, and polyester filament and staple fiber prices fluctuated within ±3% year-on-year. With the improvement of China's economic fundamentals and the start of domestic consumption, raw material prices will stop falling and rebound in 2023. In 2022, the RMB depreciated by 8.32% against the US dollar, the largest annual decline since 1994. In the new year, the RMB is expected to enter an appreciation channel, which will negatively impact export competitiveness and profits.
The trend of "de-Sinicization" is a major uncertainty factor in the future
Western countries' trend of "friend-shoring" and "decoupling" is becoming increasingly intense. The "Uyghur Forced Labor Prevention Act," implemented in June 2022, severely impacted the willingness of US buyers to import from China, not only significantly adjusting their procurement strategy for cotton products but also affecting exports of other products to the US. According to a report released by the American Apparel & Footwear Association in July 2022, 80% of US companies plan to continue reducing their sourcing from China in the next two years, up from 63% in 2021. 86% of US companies plan to reduce their sourcing of cotton apparel from China, and 45% plan to reduce their sourcing of non-cotton apparel from China. In response to US restrictions, on June 9, 2022, the European Parliament overwhelmingly passed a resolution on anti-forced labor customs measures. On September 14, the European Commission published a draft regulation on prohibiting products made with forced labor in the EU market. On January 1, 2023, Germany officially implemented the Supply Chain Due Diligence Act. Recently, the US Customs and Border Protection (CBP) again cited the Countering America's Adversaries Through Sanctions Act (CAATSA) to detain goods from three Chinese companies on the grounds of "involving North Korean labor" at ports of entry from March 14, 2023.
The trend of industrial transfer is obvious, and it is necessary to accelerate transformation and upgrading
At present, overseas supply chains, whether in terms of production capacity, product structure, or the completeness of the industrial chain, cannot pose a fundamental challenge to China in the short term. Their products are highly concentrated in apparel, home textiles, and other consumer goods, and it will take time for them to reach or surpass China in terms of scale or structure. Neighboring countries have a high dependence on China's textile raw materials, especially chemical fiber products. More than 60% of the textile raw materials in Vietnam and Bangladesh are imported from China. We should take full advantage of the opportunity that neighboring countries still have a high degree of dependence on us, utilize the opportunities presented by the RCEP, rationally allocate industries and trade, accelerate transformation and upgrading, and minimize the negative impact of rapid industrial transfer.
China's apparel export industry still has strong endogenous competitiveness
Firstly, China possesses a complete textile and garment industry chain and a highly efficient supply chain. Secondly, China has comprehensive advantages in both hardware and software, which to some extent offsets the disadvantage of labor costs. Thirdly, the development momentum of new foreign trade formats is strong. New formats such as cross-border e-commerce have higher requirements for rapid response and flexible production. In recent years, it is precisely by relying on China's flexible, efficient, and highly digital manufacturing base that they have been able to develop rapidly. The production capacity of Southeast Asian countries is concentrated in large-volume, basic products, and it is currently difficult to undertake the "small, fast, and flexible" trade model. Fourthly, the implementation of RCEP will help China and ASEAN, the two largest textile and garment production centers in the world, to further integrate, achieve a large cycle within the RCEP region, and complete the development and leap from "RCEP manufacturing" to "RCEP consumption" to "RCEP brand." Fifthly, China's ultra-large single market provides continuous development momentum for industry capacity and development space.
In 2023, the external environment is becoming more complex and severe, with increasing uncertainties and instabilities. Insufficient external demand has become a prominent challenge, the impact of a historically high base continues to be apparent, and the operation of clothing foreign trade will face further pressure. The downward pressure on exports will be particularly significant in the first half of the year, especially the first quarter, and is expected to continue or even exacerbate the negative growth trend in the fourth quarter of 2022 (clothing exports in 2022Q4 decreased by 13.9% year-on-year). At the same time, it should be noted that after decades of development, China has established a clear competitive advantage in the global textile and garment supply chain, and is at the core of the Asian supply chain. In particular, the Chinese economy is expected to achieve overall improvement in 2023, providing strong support for stabilizing foreign trade. In the future, on the one hand, we must strive to ensure a stable increase in the international market share of high-value-added products, and on the other hand, we must avoid a rapid decline in the international market share of mid-to-low-end products. On the basis of maintaining the basic stability of export scale, we will accelerate industry transformation and upgrading, tap into innovative growth points in trade, enhance comprehensive competitiveness, and achieve high-quality development of clothing foreign trade exports.
Leaders from Xiamen C&D Group visited Tongzhou for investigation and guidance
On March 3, Wang Yongqing, Vice President of Xiamen CNOOC Group, visited Tongzhou Group for investigation and guidance. Wei Gangmin, Chairman of our company; Huang Hongyu, President; Li Tao, Vice President; and Zhang Zhiyan, Director of the General Office, met with and participated in a symposium.
Tongzhou Cotton Market Brief, Week 1 of March 2025
1) This week's National People's Congress and the Chinese People's Political Consultative Conference (NPC & CPPCC) in China boosted market expectations for steady growth. In February, the Purchasing Managers' Index (PMI) for manufacturing stood at 50.2%, up 1.1 percentage points from the previous month, indicating a significant improvement in the manufacturing sector.
In 2024, China's dyeing industry saw rapid export growth to ASEAN and RCEP member countries, exceeding the overall export growth rate. However, this growth was accompanied by a decline in prices. From January to December, China's exports of eight major dyeing products to ASEAN totaled 7.908 billion meters, a year-on-year increase of 12.14%, 4.61 percentage points higher than the overall export growth rate, accounting for 23.58% of total exports. The average export price was US\$1.19 per meter, a year-on-year decrease of 2.75%, 0.64 percentage points lower than the overall decline. Exports to RCEP member countries totaled 8.431 billion meters, a year-on-year increase of 11.35%, 3.82 percentage points higher than the overall export growth rate. The average export price was US\$1.17 per meter, a year-on-year decrease of 2.79%, 0.60 percentage points lower than the overall decline.
On February 28, Mr. Huang Hongyu, President of our company, was invited to attend the 2025 Zhangjiagang Cotton Industry Development Conference and, as a guest speaker at the "Xiangshan Roundtable," shared his views on the cotton market and trading opportunities.
Henan Tongzhou Cotton Industry Co., Ltd.
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Henan Tongzhou Cotton Industry Co., Ltd.
Address: 10th Floor, Henan Nongxin Building, No. 19 Commercial Outer Ring Road, Zhengdong New District,Zhengzhou, China
Tel：86037165836206
Email：tongzhou@tongzhoucotton.com
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