The Rupp Report: Asia Or Europe? Is That The Question?

Last week, not only did the 2013 ITMF Annual Conference take place in Bregenz in the Austrian
province of Vorarlberg, but also the 52nd Dornbirn Man-made Fibers Congress in Dornbirn. This
congress took place September 11-13 and is without any doubt the most important event for the
global man-made fibers community. It is organized by the Austrian Man-Made Fibers Institute and
supported by CIRFS, the Brussels-based European Man-Made Fibers Association.

In the traditional opening session, Friedrich Weninger, president of the Austrian Man-Made
Fibers Institute and COO of Lenzing AG, gave a remarkable and interesting speech titled “Asia — Is
the party over or has it just started?” Here are some bits and pieces from his speech:

Is China Losing Its Power?

As everybody knows, and the Rupp Report has reported to its readers before, China’s economic
growth rate has been somewhat lower than in the past years, although still at a very high rate of
some 7.5 percent. Weninger wondered if this slower growth means that some emerging markets, and
especially China, are losing ground. In spite of all predictions and written articles in some
financial newspapers, he sees no danger for China and other countries. However, he said,
“Double-digit growth rates in China and high single-digit growth in other emerging markets,
particularly in Asia, will not be able to serve forever as pain relievers for the Western economic

The fact is that China is and will be an important factor for the entire textile industry.
More than half of all globally installed spindles are in China. Also, China’s economic output
totaled about US$8.23 trillion in 2012, and output is anticipated to expand by a further US$620
billion this year.

Or Is There No Limit?

Weninger is quite certain that even in China, no miracles have been produced so far. He sees
clearly the fact that China should manage to transform itself from an emerging market to an
industrialized country, and not maintain its status as an “eternal emerging market” like many other
emerging countries. On the other hand, and this is particularly the case for textiles, China is
pursuing its way from being a low-tech to becoming a high-tech country, and, one must know, this is
part of the current five-year plan. For Weninger, this change does not mean the end of China’s
export-oriented economy or the finish of its attractive domestic market.

A clear target of China’s current five-year plan is to boost its domestic market. Analysts
expect private consumption to comprise 51 percent of China’s gross domestic product in 2014. If
China wants to allow private consumption to expand more rapidly than in the past, “this translates
into enormous opportunities for the fiber industry,” Weninger mentioned.

According to existing data, per capita fiber consumption in China currently amounts to about
13.2 kilograms per year (kg/year), compared to 22.5 kg/year in Western Europe. Frequent travelers
to China see that the citizens are becoming more and more conscious of fashion and the environment.
In this context, the targeted domestic market in China will serve as a major engine of growth for
the man-made fiber industry in the coming years.

In recent days, it is commonly understood that technical textiles and nonwovens are mainly
produced in Europe and the United States. However, Weninger commented that China, with 2.1 million
metric tons of nonwovens produced last year, is already the largest nonwovens manufacturer in the
world, accounting for an estimated 25 percent of the global production. The growth rate for
nonwovens in China is estimated at some 11 percent per annum, while wipes are at 20 percent.

Asia Is The Most Important Region

However, Weninger reminded the audience, Asia not only consists of China but also other
important countries such as Indonesia, South Korea and India. “Nevertheless,” he said, “Asia is and
remains the most important region for further growth of the textile industry, as the global fiber
consumption is heading towards 100 million metric tons. This is the case regardless of how the
economies of Europe and the USA will develop.”

Today, China is a country that features state capitalism, and, as per now, it very
successfully links the control instruments provided by the market with the strict structures of a
planned economy. This approach doesn’t appeal to Westerners. Weninger mentioned that, for him,
“both models are successful in their own way, but they are closely linked economically, and that a
competition would be completely absurd; this would result in “economically collective suicide for
both sides.”

Same Rules For Everybody

Weninger strongly emphasized an open economic system for all participants. He commented that
“countries that have been particularly successful are those that only gradually opened up their
economies to the world market and protected their industries from strong global competition — at
least for a while.” However, he is certain that “there is a risk for countries that are partially
protecting selected industries in a preliminary stage by introducing trade barriers.”

For Weninger, “the de facto failure of the Doha free trade negotiations and their replacement
by an increasing number of bilateral trade agreements indicates that the industry is heading
towards a period determined by a slowdown of globalization with lower growth rates in world trade
than in the past decade.” He denied that there should be one unified system in the world, saying,
“The only reasonable objective would be to exploit the advantages of both systems in order to
generate more global prosperity for all of us.”

Asia is, and will continue to be, the main engine of growth for the fiber industry, with
respect to both exports as well as domestic consumption. As a Lenzing man, Weninger emphasized the
fact that his company anticipates structurally above-average growth for man-made cellulosics for
the years to come — with a projected increase of up to 10 million metric tons in 2020.

Optimistic Future

In his closing words, he said: “I am optimistic. The global fiber market is continuing to
grow, and the facts clearly speak in favor of the man-made fiber industry. If the Western world
concentrates on its strengths and the Asian region on its competitive advantages, we will both

That’s it!

September 17, 2013