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Rising costs affect China's exports

The competitiveness of Chinese clothing industry is set to weaken over the next few years as costs rise. Hence, export growth could falter. The rise in costs in China stems in part from significant increases in fuel and shipping costs. Also wage rates have risen to the point where they are higher than in many other Asian countries.

Rising costs in China are already forcing an increasing number of western apparel brands and retailers to cut back on their sourcing from China and have their apparel manufactured elsewhere. The strongest growth of EU clothing import in 2013 was from Bangladesh, Cambodia and Pakistan, while the strongest growth in the US clothing import market was from Bangladesh, Sri Lanka and Vietnam. However, a number of western apparel brands and retailers are expanding their retail operations in China to capitalise on an expected upsurge in domestic demand.

The potential for growth in China’s domestic market is huge. Consumer expenditure per head on clothing in China is extremely small. If expenditure per head in China were to climb, then the additional domestic demand for clothing would more than compensate for any likely fall in exports given that it equates to about nine times China’s clothing exports to all destinations in 2013.