China trade: US’ Xinjiang ban looms large even as textile, garment exports surge to record US$33 billion in July

By Ji Siqi

China’s textile and garment industry recorded a surprising surge in export value last month, despite the sweeping United States ban on products from the region that produces 90 per cent of the nation’s cotton.

Monthly exports of textiles and garments beat expectations and increased by 17.5 per cent compared with a year earlier to a record high of US$33.22 billion in July, according to data released by China Customs on Sunday.

The value also increased by 5.3 per cent from June, when Washington’s Uygur Forced Labour Prevention Act came into effect.

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But industry insiders said the momentum is not a true reflection of the strength of the industry, as July’s exports were largely from the orders placed months earlier, while the surge may also have been caused by rising prices.

Exports are a lagging indicator of the industry
Alex Chen

“Exports are a lagging indicator of the industry,” said Alex Chen, secretary general of Wenzhou Garment Chamber of Commerce.

“The garments exported in July were finished in June or earlier, while the orders might have been placed by downstream clients in the second half of last year.”

Garment exports from Wenzhou, a manufacturing hub in eastern China, increased by 42.55 per cent in the first five months of 2022 compared with the same time last year, according to Chen, but he anticipates increased challenges for the rest of the year.

“The whole industry has been impacted [by the US law], and in the future, with some other issues such as tensions around Taiwan, the continuation of the conflicts between Russia and Ukraine, the Sino-US relationship may become more subtle, then it may further affect [the garment exports to the US],” he added.

How the US’ Xinjiang labour law leaves millions of tonnes of cotton unsold

The rising prices of cotton products passed down by soaring raw material prices may also have contributed to the surge in export value.

China exported 3.62 million tonnes of cotton products in the first half of the year, a 2.73 per cent year-on-year increase, while the export value increased by 15.05 per cent to US$43.07 billion, according to Beijing Cotton Outlook Consulting on Monday.

The smothering effect of the US ban on the world’s top textile maker might have already surfaced, recent industry statistics showed.

As China’s official manufacturing purchasing managers’ index fell to 49 in July, it was mainly driven by textile and other industries that continued to be in the contraction range and significantly lower than the overall level of the manufacturing industry, according to Zhao Qinghe, a senior statistician at the National Bureau of Statistics.

Meanwhile, in the first six months of the year, the value added of China’s textile industry decreased by 1.1 per cent year on year, lower than the growth rate of industrial enterprises in general, according to data from AskCI Consulting, an industry research and consulting services supplier based in Shenzhen.

The total profits for China’s textile industry dropped by 5.3 per cent compared with last year to 42.63 billion yuan (US$6.3 billion) in the first half of 2022, figures from AskCI Consulting showed.

As one-fifth of global cotton is effectively banned from entering the US market, the price has been pushed up further on top of the pressure caused by the Ukraine war.

But the price of Xinjiang cotton has continued to fall as it has been increasingly shunned by downstream manufacturers who are wary of running afoul of the US ban, despite state stockpiling having started last month.

Boon or burden? Asian alternatives to Xinjiang cotton find US ban challenging

Under the terms of the act, US imports of all products from Xinjiang are banned unless “clear and convincing” evidence shows that no forced labour was involved in their production.

The price of cotton futures trading on the Zhengzhou Commodity Exchange has been slashed by over 30 per cent since May, closing at 14,225 yuan (US$2,106) per tonne on Wednesday.

“The pressure is huge,” said the owner of a cotton-ginning mill in southern Xinjiang, who spoke on the condition of anonymity due to the sensitivity of the issue.

“Over 2 million tonnes of Xinjiang cotton are currently taking up the inventory space, and the new harvest season is looming, which will add 6 million more tonnes to the unsold inventory.”

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