China: Planning The Future


ith 2005 fast approaching and the global textile landscape preparing for major changes in
world trade, the China International Textile Machinery Exhibition (CITME) 2002 is an opportunity to
gain real perspective on China’s plan for its future. The 8th biennial textile machinery show will
take place in Beijing, Oct. 15-19.

hina’s future establishes global trends in manufacturing, consumer prices, economic
development and political stability. Both championed and feared by many in the United States,
China’s accession to the World Trade Organization (WTO) is thought to mark a positive shift for
China toward openness and individual freedom. Concerns remain, however, regarding the level of
openness that will be achieved compared with the competition, thought to be unfair, during the
coming years of transition.

Time will tell, as the commitments negotiated by China’s Ministry of Foreign Trade and
Economic Cooperation regarding opening markets are examined, and the WTO reviews China’s free-trade

China’s population in 2000 was roughly three times that of the United States, Canada and
Mexico combined
(See Figure 1). The United Nations estimates there are 22,500,000 Internet users in China
– almost twice the number in Canada and ten times that in Mexico. The United States is estimated to
have 95,354,000 Internet users. These broad statistics, coupled with the directives of China’s 10th
five-year plan emphasizing targeted investment and growth of the textile industry, illustrate the
very real potential for China’s economic growth and global influence.

Textile Technology Flow

The Italian Association of Textile Machinery Manufacturers (ACIMIT), Milan, has observed
strong trends in China’s consumption of Italian textile equipment. ACIMIT representative Mauro
Badanelli stated, “In 2001, the main markets for Italian textile machinery were China, Turkey and
the United States. However, while China continued to account for an increasing number of Italian
textile machines, with an increase of more than 100 percent in 2001, Turkey and the United States
were subject to sudden downturns last year, due to a very negative general economic situation.

“For many years, Chinese operators have been purchasing Italian textile machinery. In 2001,
weaving machines were largely requested (44 percent), followed by spinning machines (32 percent),
knitting machines (13 percent) and finishing machines (11 percent). Analyzing the 1997-2001 period,
we observe that the annual growth rate of the Italian exports toward China was 11 percent. A higher
annual growth rate was observed by sales of spinning machinery (more than 28 percent), followed by
finishing machinery (22 percent) and knitting equipment (15 percent),” Badanelli explained.

Regarding the regional investment areas in China, Badanelli stated, “In recent years, some
textile areas adjoining the Beijing and Shanghai zones have emerged as potential markets for the
Western manufacturers of textile machines. We refer to the well-known provinces of Guangdong,
Jiangsu, Shandong and Zehjiang, but also to the emerging markets of Inner Mongolia, Liaoning,
Shanxi and Xinjiang.”

When asked about the market focus of textile investment and areas of development, Badanelli
added, “For example, in Jiangsu, the textile sector is focused on wool treatment activity. In Inner
Mongolia, the activity is mostly in cashmere and wool production. In Guandong, the knitting
industry is prevalent. Generally speaking, we observe a growing attention paid by Chinese operators
to man-made fiber production. Furthermore, in some developed provinces (Jiangsu, Guangdong,
Shanghai and Zhejiang), nonwoven fabric production capacity increased enormously in recent years.”

How does China’s appetite for technology compare with the rest of the global textile
machinery market? “Approximately 70 percent of the Italian machines produced are exported,” said
Badanelli. “In 2001, Italian sales abroad of textile machines involved 130 countries, as follows:
Asia (37 percent); followed by the European Union (EU) (24 percent); North America (10 percent);
non-EU Europe (10 percent); Eastern Europe (8 percent); and Central and South America (7 percent).”

When asked to look to China’s future, Badanelli said, “China will remain a major market for
the Italian textile machinery industry. The quota removals and the WTO entry of China represent
further steps in order to strengthen relationships among Italian manufacturers of textile machines
and Chinese textile operators.”


German Textile Equipment

Thomas Waldmann, managing director, VDMA Textile Machinery Association, Frankfurt, reported,
“In the last decade, the Asian market has developed extremely well. Nowadays, German manufacturers
export some 30 percent of their machines in this region. Being a textile giant, China surpassed
even the United States and became the number-one country in 2001 for German textile machinery

Waldmann continued, “European countries, such as Italy, Spain and Turkey – and the United
States – enjoy high reputation for quality products. Therefore, these countries remain major
markets for our member companies in the medium and long term. However, their future development
depends on adapting their strategy to the new developments in Asia.”

Echoing ACIMIT’s observations on China’s regional developments, Waldmann said,
“Traditionally, the eastern part of China obviously [has been] at the heart of development.
However, market players report interesting developments in more remote areas, too. German
manufacturers produce machines for all aspects of the textile chain. All of these machines are
heavily requested from Asian countries.”

Waldmann added, “A specific new development which [has been] going on for some years, and
seen especially in the United States and Europe, is nonwovens. There we had, in recent years,
double-digit growth rates for some nonwoven products. At the moment, we witness a strong
development of nonwoven textiles in Asia. We therefore predict similar growth potentials for
nonwovens in Asia.

“In our industry, the development of the Asian and Chinese markets is seen as a positive
development. Most member companies [have been] active in the Chinese market for many years now. The
importance of China has led some of the German manufacturers to establish local manufacturing
capacities or to set up service stations. On the other hand, the textile industry is used to seeing
ups and downs, in ever shorter cycles. There is no guarantee that China will be the most important
export market for our manufacturers in the forthcoming years. We recommend our member companies not
focus on Asia alone, but hold a strong foot in Europe and the United States, as these are the
markets which still generate the main innovations,” Waldmann said.

What should U.S. textile manufacturers do to succeed in today’s marketplace, and beyond 2005
WTO quota removals with China? Waldmann replied, “The 2005 WTO regime will result in more
competition in the textile industry. Whereas much has been written about the threat which Western
countries might be facing from the Asian region, it should not be underestimated that the Asian
countries will face strong competition between each other. This will open niches and new
possibilities for American companies in the future.

“Remember that European companies had to adapt to new market situations years ago. By
concentrating on the new technical applications in the automotive and other industries, new
business sectors could be entered. Furthermore, in Europe we still have the traditional textile
industry which has specialized in high quality products, and finally, there are completely new
applications in the technical and nonwoven areas. We expect similar development in the U.S.


Other Associations Agree

Clay Tyeryar, executive vice president, American Textile Machinery Association (ATMA), Falls
Church, Va., reported on behalf of its members that the machinery manufacturers need to “continue
to provide competitively priced, distinguishable products and look at new ways of doing business,
participate in trade events such as CITME and ShanghaiTex, focus on research and development of
products, and apply know-how in order to influence market focus.”

Lukas Sigrist, Ph.D., secretary general, Swissmem’s Textile Machinery Division, Zurich,
reported “a clear shift to the Asian market with a focus on the Far East including China. Swiss
exports to Asia rose from 22 percent in 1998 to 38 percent in 2001.”

Evelyne Cholet, secretary general of the Paris-based French textile machinery manufacturers’
association (UCMTF), concurred. “For nearly all the sectors of the French textile machinery
industry, Asia now represents about one-third of their sales – China more specifically is always in
the top five. Our main exports concern spinning machinery, fiber processing, nonwoven lines,
weaving equipment and finishing machinery. The particularly active areas are Jiangsu, Zhejiang,
Shandong and Yijian – and coastal areas from Hong Kong and Guandong.”

How will the direction of China effect the French manufacturers? Cholet responded, “The
business should increase after the removal of quotas. If China will respect the WTO rules, no
particular problem can be seen, and China could be considered as a normal market. The main problem
lies with regard to the intellectual property, a problem China cannot skip and has to quickly solve
by respecting the international regulations.”

Intellectual Property

The abuse of intellectual property rights (IPR) reaches far beyond textile pattern and
textile machinery designs. Concerns range from consumer products to industrial components and
software design. Many exporters to China balance the risk of IPR abuse and the market for their
patent-laden machinery and designs.

Nicholas R. Lardy, senior fellow in the Foreign Policy Studies program at the Brookings
Institution, Washington, reported in April of 2001, “China’s legislative body, the National
People’s Congress, has already amended a number of important domestic laws covering patents,
copyrights, trademarks, and foreign investment to make their provisions consistent with WTO
commitments. Although these examples do not necessarily guarantee that China will be able to meet
all of its commitments, they do suggest that the government is making a very substantial effort to
comply with a broad range of its obligations and that it believes that further economic
liberalization and opening up are essential to meeting its own long-term economic goals.”

Lardy added, “Despite these efforts, it would be extraordinary if China were able to
implement all of its WTO commitments in every detail and on schedule. As part of the process of
accession negotiations, the Chinese government identified 177 domestic laws and regulations dealing
with customs administration, the administration of foreign investment, intellectual property, and
services that must be amended to ensure consistency with WTO obligations. Although a start has been
made, the work of revising all of these laws and getting them approved by the legislature is likely
to take several years. It will take even longer to train the judges and develop the legal
institutions and processes necessary to ensure that these laws are fairly and impartially upheld
and that legal judgments are enforced.”

The American Textile Manufacturer’s Institute (ATMI), Washington, made a submission to
United States Trade Representative (USTR), Robert B. Zoellick, on the pending Doha Round of WTO
negotiations, strongly recommending that IPR issues be a high priority for the United States. “We
asked that the unfinished TRIPS (Agreement on Trade Related Aspects of Intellectual Property)
agenda of the Uruguay Round – universal protection of intellectual property with penalties meted
out to offenders – be completed in the Doha Round,” said Patty Adair, ATMI’s assistant vice
president, textile products & standards.

“While U.S. law has provisions to attack piracy of copyrighted or trademarked designs in our
domestic market, enforcement in too many foreign countries is either unacceptably lax or, worse,
non-existent.” ATMI asked for WTO agreement that intellectual property piracy – of any kind – is
wrong and that injured parties may obtain effective remedies internationally or have the right to

Questions Remain

The aggregate increase in advanced textile technology in China, its growing domestic market
and hungry export market, and WTO entry have set the stage for tremendous impact on global markets.
With aggressive development plans and dramatic low-cost labor shifts – from farm to factory – China
has engineered a plan for its future. The execution of that plan will define the future for
businesses, workers and consumers on a global scale.

September 2002