China’s recovered apparel competitiveness

China's never been the cheapest place to buy clothes from – and no-one in this business has ever really thought it was. The silly phrase "China price" seems to have been invented by journalists to describe something quite different from how the garment trade works.

There have always been countries – above all Bangladesh – where clothes could be made more cheaply, and the last year's mania about rising Chinese prices hasn't changed that. But this year's conventional wisdom has been that China is getting remorselessly uncompetitive. And right now, that's just not true.

The chart shown here shows the change each month on the same month the previous year for the past three years in the average price per square metre (US$) paid by US importers for Chinese garments and for garments from the rest of the world. Imports from places like Italy are minimal: "rest of the world" in the chart below means almost entirely Asia and Central America .

China kept on getting cheaper than it had been the previous year till around May 2010. Then until the end of the year, its clothes started getting more pricey than a year earlier – and they got pricier faster than the rest of the world. China was – just – losing competitiveness.

But all that stopped in Spring 2011. Chinese price rises slowed down, while price rises from the rest of the world accelerated. And by October, there was a very wide gap between the rate of price rises: they rose 14.6% from China, but about 19% from the rest of the world.

No-one's really tried very hard to explain this. We think it's a mixture of reasons

• China by late summer 2011 had started encouraging its banks to lend to small businesses again
  
• In the last recession we saw China getting ahead of other producer countries in ratchetting productivity up
  
• Chinese garment output growth slowed suddenly this autumn, as softening export demand coincided with a slowdown in dlkmestic growth. A lot of this has been hidden by media quoting market trends in cash (which is inflating) rather than number, weight or square metreage
  
• Other countries might have started getting greedy after reading all about the fall of Chinese competitiveness.
  

 

Whatever the explanation, China's no longer losing competitiveness – at least not for now. But it's not reversing those price rises either. It's just staying cheaper than most of its competitors