Spinning wheel turns full circle in Indochina's favour
At textile mills and sweatshops across Cambodia and Vietnam, boom times have returned.
After a wave of lay-offs and closures late last year as garment manufacturers shifted production back to China before the expiry of global textile quotas on January 1, the textile industries in both countries are once again expanding.
In Cambodia, where the clothing industry was particularly hard-hit and middle-of-the-night factory closures prompted widespread civil unrest in January, workers who once conducted angry strikes are now busily stitching, weaving and installing new machinery.
Garment production is still cheaper and more efficient in China, but the threat of new American and European import quotas on a range of Chinese textile categories has prompted big international buyers to avoid the 'made in China' label, forcing suppliers back into the Indochina factories they abandoned in December.
Lark Apparel Holdings, a Hong Kong firm that sources up to US$100 million worth of garments annually, will place 15 per cent more orders in Southeast Asia this year, according to general manager Douglas Sheridan, who said the mass migration of production into China last year also created an intractable labour shortage.
'Quite a lot of Japanese and Taiwanese money is being put into garment factories in Vietnam. A lot of these factories downsized last year but are ramping up again,' he said.
'The availability of workers in Southeast Asia is better than south China, which is now short a few million workers.'
The Cambodian government recently approved 24 applications to set up garment factories, of which 12 had started operations, said Van Sou Ieng, chairman of the Garment Manufacturers Association of Cambodia.
'The situation of Cambodia's garment industry is improving,' Mr Van said. 'Buyers are shifting orders from out of China and we are benefiting.'
Since January 1, about 30 garment factories have opened in Cambodia while 27 have closed, resulting in a net loss of 20,000 workers, according to the association.
'We've got a net gain of factories, which is a good sign,' said association secretary-general Ken Loo. 'I won't be surprised if we recover the 20,000 lost jobs and maybe go into positive employment by September.'
Even mainland firms plan to set up factories in Cambodia. Chinese officials have told Mr Loo that Beijing is encouraging domestic textile firms to set up overseas production facilities to circumvent quotas against China and will offer these firms technical and financial assistance.
A Hong Kong-owned factory in Cambodia, Grace Sun Cambodia Garment, had increased its workforce to more than 1,000 in the past few months, said shipping manager Chen Qingbo.
'Now, big clients like Levi's are giving us more orders. There are no longer quotas, so we can export more.'
The International Labour Organisation is monitoring Cambodian garment factories for compliance with standards and if this is demonstrated, the United States will import more garments from the country under a special bilateral agreement.
Vietnam has also seen a surge in garment orders since the EU announced investigations into possible 'safeguard quotas' on Chinese T-shirts last month.
EU retailers were now demanding T-shirts from India and Vietnam rather than China, said Willy Lin Sun-mo, vice-chairman of the Hong Kong Textile Council.
Vietnam's Ministry of Industry is asking Vietnamese garment firms to increase production capacity in preparation for a surge of US orders, particularly for cotton knit shirts and blouses. Chinese exports of those garment categories are now subject to US quotas, which were imposed last month.
However, there is a catch. Southeast Asia's textile boom may be temporary and end when the 'safeguard quota' mechanism expires at the end of 2008. Until then, WTO members are allowed to limit imports of Chinese textile categories to 7.5 per cent in a single year, in cases where imports have surged fast enough to cause 'disruption' to local textile industries.
'Investors may leave Cambodia after three years. We have to create an environment to discourage them from leaving,' Mr Loo said.
Mr Van said to remain competitive, Cambodia must reduce corruption and encourage upstream industries like fabrics.