Rising prices threaten garment sales
Garment exporters at the mainland's biggest trade fair have raised prices by as much as 15 per cent to pass on higher expenses incurred by the yuan's appreciation and increasing production costs.
The price increase may prompt buyers to seek products from cheaper producers elsewhere in the region.
Many apparel producers exhibiting at the bi-annual China Import and Export Fair - formerly known as the Canton Fair - have seen their profitability eroded due to the strengthening yuan and higher costs, ranging from sewage expenses, labour, energy and raw materials to cuts in tax rebates.
Some buyers, who had braced for higher sourcing prices in the past six months, said they would consider switching to cheaper markets such as India, Bangladesh and Vietnam.
Suzhou Hengrui Import & Export, which makes women's clothing for labels Shanghai Tang and Anthropologie of the United States, raised prices by at least 10 per cent to offset part of the higher costs.
'We are forced to pass on some extra costs to customers, but are still exposed to risks on the yuan's exchange [rate],' said Kong Wen, president of the Suzhou-based exporter. 'We will have to bear the loss if the yuan appreciates during the period between the placing of an order and shipment.'
He said the hostile operating environment would be exacerbated by the removal of a quota regime on mainland textiles and clothing to the EU on January 1, a move that would intensify competition.
'We also fear garments will become the next target after toys in the [Sino-US] trade dispute,' Mr Kong said.
The mainland's trade surplus surged 69.1 per cent to US$185.7 billion in the first nine months of this year and already exceeds the US$177.5 billion posted for all of last year. The increase will add to trade tensions.
Morgan Stanley chief economist Wang Qing expects the yuan will strengthen to 7.30 against the US dollar by the end of this year, compared with yesterday's close of 7.5284.
Guangdong Tianhe Woolen Knitwears Factory, which produces knitwear for the Tommy Hilfiger and Diesel brands, also raised prices by about 15 per cent but did not fear the increase would scare off customers.
'Every exporter is facing the same problem and is lifting prices,' sales manager Arthur Zhang said. 'We are more concerned about consumer demand in the US as the subprime lending crisis continues.'
Michael Martino, a senior designer at Russell Newman, the largest sleepwear firm in the US, said it was increasingly difficult to find lower-cost mainland manufacturers.
He said the firm was cutting costs by using lighter fabric and diversifying its sourcing origins.
Melbourne retailer Australian Fabric Wholesalers director Allan Rutman said his firm paid 5 per cent more in sourcing from the mainland in the past six months. 'We can only bear another 5 to 7 per cent rise in the future. Otherwise, India will be an alternative for sourcing,' he said.