The year 2005 has witnessed the end to quota system that had been ruling global textile and clothing for more than 40 years. In spite of the unprecedented textile trade disputes, RMB appreciation, shortage of energy and rising labor costs, China’s textile and clothing industry has utilized the advantages of the elimination of quotas and made great efforts to strive to overcome the difficulties, realizing a steady growth in the country’s textile and clothing trade.

REVIEW OF 2005

u       China’s economy kept booming.

According to China National Bureau of Statistics, the country’s GDP expanded to US$ 2.3 trillion in 2005, an increase of 9.9% over the previous year, or a per capita GDP over US$ 1,700. China became world’s 4th largest economy, surpassing UK and France. As the fastest growing economy in the world, China has been maintaining an average annual growth rate of 9.6% since 1979.

In 2005, China’s investments grew 25.7% to US$ 1.1 trillion, and consumption climbed 12% to US$ 837.5 billion. Urban per capita disposable income came to US$ 1,300, up 9.6%. Rural per capita net income reached US$ 400, a 6.2% rise.

Foreign exchange reserves totaled US$ 818.9 billion at the end of 2005, and US$ 875.1 billion at the end of March, 2006. China surpassed Japan as world’s No. 1 forex reserve holder. Foreign direct investment reached US$ 60.3 billion, a 0.5% drop year on year. China’s overseas investment, however, saw an increase of 26% to US$ 6.9 billion.

As the 3rd largest trading country after the US and Germany, China imported & exported US$ 1.4 trillion worth of goods in 2005, up 23.2%. Export scored US$ 762 billion, up 28.4%; and import totaled US$ 660 billion, up 17.6%. Trade surplus tripled to US$ 101.9 billion. China accounted for 7.5% of world exports and 6% of world imports.

u       Textile production growth slowed down.

China’s major textile production showed signs of deceleration in the growth of output. According to China National Bureau of Statistics, China’s cotton output dropped by 9.8% to 5.7 million tons in 2005. Yarn production came to 14.4 million tons, an increase of 11.5%, 2.4 percentage points less than the previous year. Fabric output rose by 11.9% to 47 billion meters, with the growth rate falling by 6.9 pct points from 2004. China produced 16.2 million tons of chemical fibers, an increase of 13.6%, 7 pct points less than 2004.

According to China National Textile & Apparel Council, China’s textile and clothing industry directly employs 19.6 million workforce, 14 million of whom are migrant workers from rural areas. Textile and clothing workforce accounts for 14% of China’s total employment in industrial enterprises with annual sales above 5 million RMB yuan. The industry consumed more than 7.3 million tons of Chinese natural fibers last year, indicating that it is closely related to the survival of 100 million farmers in China.

u       Textile & clothing trade grew steadily.

According to China Customs, China’s import and export trade in textile and clothing hit a record high at US$ 132.2 billion in 2005, up 18% and accounting for 9.3% of the country’s total merchandise trade. Exports reached US$ 115 billion, exceeding US$ 100 billion for the first time. The growth rate was 20.9%, 7.5 percentage points less than China’s total merchandise exports growth, making 2005 the third consecutive year that has seen an annual growth rate over 20%.

Chart 1: China’s Trade in Textile and Clothing, 2001-2005

China exported 936,000 tons of textile fibres in 2005. Yarn exports hit 1.7 million tons in volume and US$ 5.2 billion in value, up 21% and 18% respectively. Fabric exports totalled 18.6 billion meters in volume and US$ 21 billion in value, up 12% and 16% respectively. Textile made-up goods showed the fastest growth, rising by 36% to US$ 15 billion. In 2005 China exported 45.3 billion pieces garments worth of US$ 73.9 billion, an increase of 15% and 20% respectively.

Chart 2: China’s Exports by Major Items, 2005

In 2005 China’s imports of textile and clothing rose to US$ 17.1 billion, up 1.7% and representing 2.6% of the country’s total imports. As the world’s 3rd largest importer of textiles and 14th largest importer of clothing, China imported 4.6 million tons of fibres (including 2.7 million tons of cotton, 1.1 million tons of chemical fibres, 376,000 tons of linen/ramie and 284,000 tons of wool), 1.7 million tons of yarns, 5.3 billion meters of fabrics and 1.3 billion pieces of garments.

Chart 3: China’s Imports by Major Items, 2005

u       Contribution of textile & clothing to total trade surplus significantly dropped.

Trade surplus in textile and clothing increased 25.1%, standing at US$ 97.9 billion and contributing 96.1% of the country’s total trade surplus. The contribution of textile and clothing to the country’s total trade surplus has significantly dropped: in 2004 textile surplus was 140% bigger than the total trade surplus.

u       Trade dispute with the EU and US were properly resolved.

The textile trade dispute with the EU and US, involving US$ 9 billion worth of products and 1 million Chinese employments, was a focus of attention and top concern for the sector in 2005. The textile agreements that China had reached with the EU and US on June and November 2005, allowed China further growth in the products of concern, and provided exporters and importers with stable and predictable trading environment.

China-EU Textile MoU: Both sides agreed to manage the growth of 10 categories of Chinese textile and clothing during the period from June 11, 2005 through the end of 2007, with growth rates ranging from 8% to 12.5%. The EU promised to exercise restraint in using textile safeguard.

Tabel 1: China-EU Textile Agreement

Category	Unit	Growth 2005	Level 2005	Growth 2006	Level 2006	Growth 2007	Level 2007
2 cotton fabrics	tons	12.5%	55,065	12.5%	61,948	12.5%	69,692
4 T-shirts	1000 units	10%	491,095	10%	540,204	10%	594,225
5 pullovers	1000 units	8%	181,549	10%	189,719	10%	219,674
6 trousers	1000 units	8%	316,439	10%	338,923	10%	382,889
7 blouses	1000 units	8%	73,176	10%	80,493	10%	88,543
20 bed linen	tons	12.5%	14,049	12.5%	15,795	12.5%	17,779
26 dresses	1000 units	10%	24,547	10%	27,001	10%	29,701
31 brassieres	1000 units	10%	205,174	10%	219,882	10%	248,261
39 table+kitchen linen	tons	12.5%	10,977	12.5%	12,349	12.5%	13,892
115 flax yarn	tons	10%	4,309	10%	4,749	10%	5,214

Note: To resolve the issue of blockade, both sides agreed on Sept 5 2005 to transfer from 2006 levels, and set up new 2006 levels for Cat. 5, 6 and 7 as shown in the table above.

China-US Textile MoU: Both sides agreed to set annual levels for 21 categories of Chinese textile and clothing products from Jan. 1, 2006 through Dec. 31, 2008. The calculated growth rates are: 10%-15% for 2006, 12.5%-16% for 2007 and 15%-17% for 2008. The US promised that safeguard should not be used against the 21 categories and products liberalized before Jan. 1, 2002. The US will also exercise restraint in using safeguard of products not covered by the Agreement.

Table 2: China-US Textile Agreement

Category	Unit	Level 2006	Level 2007	Level 2008
200/301 sewing thread/combed cot yarn	kg	7,529,582	8,659,019	10,131,052
222 knit fabric	kg	15,966,487	18,361,460	21,482,908
229 special purpose fabric	kg	33,162,019	38,467,942	45,007,492
332/432/632 pt (plus baby socks)-T	dp	64,386,841	73,963,859	85,058,437
sublimit 332/432/632 pt (plus baby socks)-B	dp	61,146,461	70,318,431	80,866,195
338/339 pt cotton knit shirts	dz	20,822,111	23,424,875