Reports that China may be losing its competitive edge in textiles and clothing are becoming increasingly common. But they could be premature, says David Birnbaum, who advises the industry not to write off China just yet.

Periodically, garment professionals report the demise of China as the world's dominant garment exporter. 

Some go further and regularly nominate a candidate for the title of the 'New China.' 

Among the previously named 'New Chinas,' first there was Mexico, which is now semi-comatose. Later it was India, which is now struggling. And most recently it has been Vietnam, which is still doing quite well.

The data supporting this latest end-of-China scenario seems clear. China's US market share for the first five months of 2008 is sharply down from 2007:

China: US Garment Market Share

Undeniably true. Furthermore, China safeguard quota and clearance rates have both tanked:

Also undeniably true. Then China's costs are rising, also undeniably true. Just look at these factors:

• Chinese wages are rising, up 27% last year in the all-important Pearl River Delta. 
• The RMB is revaluing, causing upward pressure on FOB prices for made-in-China garments. In the past four years, the RMB has moved up 19% against the dollar, 11% alone in the past 12 months.
• The Chinese Government has imposed new cost-increasing regulations on the garment industry, including restrictions on working hours and anti-pollution controls.

Customers are worried that China is rapidly becoming an unreliable supplier. Consider the following:

• The politics in both the US and the EU are becoming increasingly anti-China.
• Customers fear the US and the EU may impose anti-dumping duties or countervailing duties. 
• Customers wanting to diversify are moving to Vietnam, Cambodia, Bangladesh and, more recently, to Honduras, El Salvador, and Nicaragua. 

Conclusion: China's day is over. Customers will not be returning to China when the safeguard quotas are phased-out in 2009. 

Don't write it off
However, despite the apparent data, the stories and the now accepted wisdom, I would not be taking bets just yet against China.

In fact, the data is not all that clear. The stories going around are no more true today than they were when the same professionals elected Mexico and India as the new Chinas.

China's market share drops during the first three months every year, and each year beginning in April, market share starts moving up. It happened in 2006. It happened in 2007. And it happened in 2008.  

China, with its uniquely broad product base is less reliant on the strategic categories than other countries. 

More importantly, 2008 allocations were on average 30% higher than in 2007. Lower premiums and clearance rates may not reflect reduced demand but rather increased supply.

As far as the stories are concerned, they may be just that - stories.

Will China continue to dominate the future global garment industry? 

I do not know. The industry is going through catastrophic changes. What customers expect from their supplying factories is rapidly changing.

The factors that defined a successful supplier in the past will no longer hold in the future. In a changing industry, dominance is up for grabs. 

The question is, will China be the first to adapt to the requirements of the new industry? 

Clearly, today, Chinese factories face far more sophisticated challengers than in the past. China can no longer consider itself an automatic winner.

However, only a fool would count China out as an automatic loser.

David Birnbaum is the author of The Birnbaum Report, a monthly newsletter for garment industry professionals. Each issue analyses in-depth US garment imports of four major products from 21 countries, as well as ancillary data such as currency fluctuations, China quota premiums and clearance rates.