The Balance Shifts

The evolution of imported textile materials from Asia is reaching a conclusion. Government
and industry cooperation has created a regional powerhouse industry, whose production ranges from
man-made fibers to complement the ready availability of regional cotton, to fabrics of all
descriptions, all focused on support of traditional labor-intensive garment manufacture throughout
the entire region. The past 10 years have seen a dramatic change in fiber plant siting, as
traditional Japanese and Taiwanese plants play a less active role and are supplanted by dramatic
increases in production in several mainland Asian areas.



Fiber Geography

In
this report, Asia is defined as follows: Central Asia — China and Hong Kong; Northeast Asia — South
Korea, Taiwan and Japan; Southeast Asia — Indonesia, Malaysia, the Philippines, Thailand, Myanmar,
Singapore and Vietnam; and West Asia — India, Pakistan, Bangladesh and Sri Lanka.

Table 1 details the changing geography of world man-made fiber production. Man-made
cellulosics are not included, not because their consumption is unimportant, but rather because
their market position is static and not a meaningful part of current Asian fiber capacity
ambitions.

It quickly is apparent that major shifts in fiber production and capacity are underway.
Asia’s share of total world fiber productive capacity, in pounds, has risen to almost 69 percent,
and actual production has matched this rise. In 1998, Asian production represented 64.1 percent of
total world production. By 2001, Asian production had risen 15 percent, 7.5 billion pounds, to 68.1
percent of the world total. More interesting, however, is the production rise in China, almost
doubling from 9.7 billion pounds to 16.1 billion. China’s share of Asian production rose from 29.6
percent in 1998 to 40.1 percent in 2001 – representing the entire Asian market share increase.
Putting this in a broader perspective, Chinese production rose from 18.9 percent of the world’s
supply in 1998 to 27.3 percent in 2001.

 

As might be expected, the primary losers were South Korea and Japan. Korea finally has slowed
building fiber-producing capacity and, in so doing, has lost share to the expansion binge in China.
Korea’s share shrank from 16.4 percent of Asian production (10.5 percent of world) in 1998 to 13.5
percent (8.9 percent of world) in 2001. Similarly, Japan, a former world fiber power, now produces
a modest 1.3 billion pounds of fiber in an industry with capacity to produce almost 1.9 billion.
Japan’s fiber operating rate languishes in the high 60s to low 70s range, a formula for disaster.
Total Asian apparent operating rates are not much better, settling in the high 70s, traditionally a
marginally profitable experience.

As seen in Table 1, the North American Free Trade Agreement (NAFTA) nations have
fared about as well as Korea in the world fiber sweepstakes. North American fiber shipments
represented 17 percent of world shipments in 1998, dropping to 12.3 percent in 2001. Unfortunately,
while shipping approximately 7.5 billion pounds annually, the North American fiber industry is
saddled with almost 9.5 billion pounds of capacity. This translates to an average operating rate of
just under 80 percent — possibly, but not assuredly, profitable.

The interesting statistic underlying these geographic descriptions is an analysis of product
emphasis, particularly that of filament and staple polyester. Of 1998 world production of 51,266
million pounds, 36,461 million (52.9 percent) were filament and staple polyester. Asia shipped
27,095 million pounds, almost 75 percent of world polyester shipments. By 2001, Asian shipments of
polyester totaled 33,764 million pounds, 57.4 percent of total world fiber shipments and almost 80
percent of world polyester shipments.

The picture is clear. Chinese planning focuses on concentrating manufacturing in apparel for
the U.S. market and is building capacity, particularly for polyester, at all levels of distribution
in an effort to dominate this market area. By supplying fibers, fabrics and garments, China retains
the value added by labor at each step of the production process. This virtually guarantees the
country will accumulate substantial quantities of hard currencies, such as dollars, to be spent in
modernizing other areas of the Chinese economy.

Mill Consumption

In addition to portraying the Asian textile economy by analyzing fiber shipment, a valuable
adjunct to this analysis is a look at mill fiber consumption. Not surprisingly, mill consumption
data paint a similar portrait of the growing importance of fibers, fabrics and garments to Asian
economies.

Table 2 analyzes two areas of the Asian textile economies: Central Asia and Northeast Asia.
These areas show the two divergent directions in which the Asian textile economy is headed —
apparent total dedication to a fully vertical industry in developing states, balanced by decreasing
emphasis in the developed states as they metamorphose from labor/manufacturing to
capital-sensitive/service/knowledge economies. The time frame of the analysis stretches back to
1994 for a perspective on growth and change.

Traditional competitors, the Japanese, Koreans and Taiwanese of Northeast Asia,
have moved up the scale of economic industrialization, wherein labor plays a lesser role in
economic activity. Consider these three states. In 1994, mill consumption of man-made fibers
totaled 8,353 million pounds, and fiber manufacturers net-exported an additional 4,110 million
pounds. Northeast Asia obviously was a substantial producer of fabrics and a large exporter of
fibers. In six years, mill consumption rose a modest 3+ percent, compounded annually, to 10,016
million pounds, on top of which fiber producers exported another 6,305 million pounds.

Investment obviously was put to capital-sensitive fiber plants for worldwide product
distribution, rather than national retention for fabric and garment manufacture. Contrarily, in the
same time frame, Central Asia, represented by China and Hong Kong, more than doubled mill
consumption from 7,899 million pounds in 1994 to 19,465 million pounds in 2000. Of 1994
consumption, more than 24 percent was produced from imported fibers. By 2000, the absolute level of
pounds imported for consumption had more than doubled, from 1,904 to 4,132 million pounds.

Despite this growth, imports’ share of mill consumption fell from a 24.1-percent share in
1994 to a 21.2-percent share in 2000. Investment obviously focused on downstream fabric and
garment-making activities, employing more labor and exporting products to accumulate or conserve
strong currencies.

 


Rate Of Change

If history repeats itself, one can expect continued disinvestment in the textile and apparel
economies of Northeast Asia and continued increased investment in the relatively undeveloped
economies of Central Asia. This is a quite normal appearance of the traditional development curve
for economies. What is surprising is the rate of speed at which this maturation has occurred.
Similar development took the United States several centuries; it seems that the Chinese want to
accomplish the same jump in only several generations. Can they do it?

As the target of China’s manufacturing explosion, can the United States sustain the current
orgy of consumer spending necessary to provide adequate markets? Or, maybe more important is the
issue raised in these pages two months ago
(See “
Fiber’/ / s Fast Track,”
Textile World, September 2002). Will the U.S. textile and apparel complex use
its technology, marketing and distribution expertise to expand the United States presence in
non-Asian international apparel and textile markets?