t’s now been nearly two months since China announced its new yuan policy — one that
promised some gradual upward currency revision. But so far, there’s little to suggest it will make
for any big difference in incoming textile and apparel shipments from that nation — certainly not
over the next few quarters. For one, the upward revaluation since the announcement in June has been
negligible. And judging from latest Beijing standards, any changes will continue to be quite small.
True, some American officials are still talking in terms of a 5-percent-or-so rise in yuan value
over the next few quarters. But this seems like wishful thinking, with most analysts seeing a much
more modest near-term advance — not nearly sufficient to even start leveling the international
playing field. Indeed, if there’s any doubt about how the huge still-existing yuan-dollar imbalance
is continuing to spark imports, take a look at recent trade trends. Thus, despite only a very small
pickup in U.S. domestic demand so far this year, U.S. year-to-date textile and apparel imports from
China have jumped a hefty 22.5 percent. Result: With this new advance, China now accounts for some
40 percent of all U.S. textile and apparel imports. Also on the disturbing side: Imports from all
other overseas suppliers have also been increasing — with year-to-date incoming shipments up by 10
percent. To be sure, that’s small than the Chinese gain, but again, hardly anything to cheer about.
Imports Beyond 2010
On a rosier note, however, this new import surge should slow down over the longer pull. For
one, the anticipated creep-up in Beijing’s yuan — while far under the 25- to 40-percent
appreciation most analysts feel is needed to correct the current imbalance — will over time add up
to a meaningful number. Note, for example, that a similar Chinese currency policy from 2005 to 2008
resulted in a sizeable 21-percent gain in the yuan vis-à-vis the dollar. There are also other
factors at work that might slow down our demand for Chinese products — the most notable of which
is that nation’s accelerating increase in wage rates. Pay levels there are already running anywhere
from 5 to 15 percent above beginning-of-year levels. Zero in on the coastal province of Guangdong,
a hub for apparel manufacturing, and wage gains are now near 20 percent. Further add in rising
costs of raw materials, transportation and pollution control — and Chinese apparel tags may rise
as much as 5- to 10-percent over the next 12 months. That should be enough to make U.S. companies
take another look at their overall sourcing strategies. But don’t expect any miracles — certainly
nothing that would result in any actual import shrinkage. That’s because rather than shifting back
to domestic production, virtually all major American firms are now considering shifting some of
their sourcing to other low-cost suppliers like Vietnam, Indonesia, Pakistan, India and Bangladesh.
The CFO of one of the nation’s largest retailers sums it up, noting that his company is already
busy working with its top 15 suppliers to find cheaper foreign sources. Other firms tell pretty
much the same story — suggesting some major changes in industry sourcing over the next few years
are virtually inevitable.
Gauging The Macro Impact
The strength of underlying domestic demand is another problem that industry executives
continue to wrestle with these days. The basic unknowns: How fast will the economy grow, and how
will it all impact textile and apparel activity? As of now, the prognosis is basically positive.
Newly revised International Monetary Fund forecasts, for example, now see the U.S. economy
advancing 3.3 percent this year — actually a bit faster than its earlier 2.7-percent projection.
And while some leveling off to 2.9 percent is anticipated for next year, that, too, would still be
a respectable gain. Several factors are behind this cautious optimism. They include:
higher-than-a-year-ago household net worth; falling consumer debt — the amount owed by average
credit card holders is now running 10-percent under a year ago; the modest amount of government
economic stimulus still in the pipeline; strong growth in Asia — something that could help bolster
our exports; and the huge amount of cash in corporate coffers — money that could stimulate
additional business spending. All the above would seem to guarantee at least a 3-percent rise in
real consumer spending this year. More important, retail apparel sales seem to be doing even better
than that. Latest monthly totals, for example, are running close to 6 percent ahead of a year ago.