Textile and Clothing Industry—East Asia | Research & Encyclopedia Articles

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Textile Summary

Textile and Clothing Industry—East Asia

Textile production has played a key role in the initial stages of industrialization of the East Asian economies by generating manufacturing output, employment, and exports, often with government support. As labor-intensive industries, textile and garment making are suited to developing economies with comparative advantages in low-cost labor. With experience acquired in mechanization and foreign exchange earned in textile exports, a developing economy gains in manufacturing sophistication and moves on to higher value-added and more capital-intensive industries as its labor costs rise. This strategy of industrialization was established by Japan in the late nineteenth century and was followed by other East Asian economies in their successful drives to economic modernization in the post–World War II period.

Japanese Industrialization Model

The Japanese model follows four phases in the product cycle: importation; import substitution; exportation; and reimportation. In the mid-nineteenth century, imports of Western textiles generated a new demand and created opportunities for technology transfer. An indigenous textile industry developed to meet domestic demand and to substitute for imports, with 1879 being the year when domestic production first surpassed imports, and 1910 when exports first eclipsed imports. Cotton textiles became Japan's most important export industry from the 1920s through the 1930s, when Japanese colonial domination over Taiwan, Korea, and Manchuria helped to spur markets abroad.

The Textile Industry in Postwar Japan

Postwar revival restored the textiles industry as the leading export industry in the 1950s, but production and exports declined steadily from the early 1950s, as percentages of gross domestic product and total exports, respectively. Textiles and clothing's share of exports fell from 36 percent for 1950–1959 to 19 percent in 1960–1969 to 6 percent in 1970–1979. Within the sector, there was a shift to synthetic fibers and yarns, a segment that is more capital-intensive and dependent on research and development. The Japanese economy increasingly focused on other more technologically sophisticated sectors.

A turning point for Japanese competitiveness in textiles came with the Plaza Accord of 1985, an agreement between the United States, Japan, France, Germany, and the United Kingdom to drive down the price of the overpriced dollar. The result was a rising yen, making Japanese exports more expensive. Production of fabrics and spun yarns declined precipitously in the 1990s, while man-made fibers maintained output until 1997, when it began to drop. From a large exporter of textiles and clothing before the 1970s, Japan has become a net importer of clothing and a small exporter of textiles. Japan now has the world's second-largest textiles and clothing deficit in the world after the United States.

The Textile Industry in the Newly Industrializing Economies

From the 1960s, Hong Kong, Taiwan, and South Korea took up the production of textiles, successfully penetrated export markets formerly dominated by Japan, and became world leaders in textiles and clothing. Their successful transition to industrialism prompted their collective label as the newly industrializing economies (NIEs). Hong Kong became the world's leading clothing exporter from 1973 to 1985, overtaken by Italy only in 1978–1979.

Comparative advantage in the more labor-intensive clothing segment was lost more rapidly than in textile production. The NIEs' textile exports accompanied by a shift to synthetic fibers have remained at around aquarter of total world trade in the 1990s, while share of clothing exports fell from around a quarter in the 1980s and early 1990s steadily to 16 percent by 1999.

A textile worker making wool rugs in Shanghai, China, in 1996. (STEPHEN G. DONALDSON PHOTOGRAPHY)

China became a major player in the world textile market with the launching of market reforms from the 1980s. Output value of the textile and clothing industry grew at an annual rate of 15.6 percent from 1986 to 1995, while exports increased from $8.5 billion to $38 billion. China overtook Italy as the economy with the biggest trade surplus in textiles and clothing in 1991, and since surpassing Hong Kong as the world's leading clothing exporter, its lead has widened over time. In 1999, after a decade of 13 percent growth per year, China's clothing sector snared 16.2 percent of world trade, while Hong Kong had only 12 percent. In 1997 and again in 1999, China passed Germany as the world's number-one textile exporter.

The East Asian textile exporters confronted several problems that necessitated structural reform. First, world textile trade was characterized by considerable trade barriers. From 1974 to 1986, this trade was governed by four Multi-Fibre Arrangements (MFA), which allowed industrialized economies to protect their domestic industries through quotas on textile and clothing imports by bilateral agreements or unilateral action. In 1986, the MFA was to be phased out by the World Trade Organization's Agreement on Textiles and Clothing, which would remove export quotas over a ten-year period. Meanwhile China and other East Asian exporters confronted not only export quotas in the advanced economies (except Japan) but also periodic charges of dumping or illegal shipments and imposition of sanctions.

Second, as the economies of the East Asian exporters expanded, labor and production costs rose, making their textile industries vulnerable to competition by lower-cost producers. Third, the spread of preferential agreements and the formation of regional trade blocs such as the North American Free Trade Agreement in 1994 and the European Union in 1993 threatened market shares in Europe and North America. Hong Kong was hit especially hard by the erosion of its American market share by Mexican and Canadian producers.

A common response is to move up the quality and technology gradient. The NIEs have shifted from being net importers to being significant exporters of synthetic fibers. Production was upgraded by automation, mechanization, and computer-aided design. More emphasis was placed on the production of upmarket and high-fashion clothing merchandise. Taiwan and Korea increasingly moved away from textiles and clothing to such value-added production as electronics and semiconductors. In addition, the outsourcing of labor-intensive manufacturing (clothing) by the NIEs (and Japan as well) to China, Southeast Asia, and other low-cost producers released resources for higher value-added activities and also helped to sustain demand for the textile exports of NIEs. Hong Kong especially has relocated factories to China on a large scale since the 1980s, bringing the benefits of massive investments and training efforts.

As a socialist economy undergoing market reforms, China has suffered from the problem of money-losing state-owned enterprises (SOEs), which dominated the textile industry but were plagued by labor redundancy, high pension and benefit costs, and outdated equipment. Reform of these SOEs took precedence in government efforts to reform the state-owned sector in 1998: money-losing factories were closed by the hundreds, 1.16 million workers were laid off, and 9.6 million antiquated cotton spindles were taken out of production by 1999, when the state sector realized a profit of $97 million after having sustained staggering losses over the previous six years.

Future Prospects for the East Asian Textile Industry

Despite their increasing shift to high value-added industries and recent uncertainties in the global economy, the East Asian economies will probably retain significant positions in the world textile and clothing trade. Collectively their exports were responsible for 36.9 percent of total world trade in textiles and 32.6 percent of total world trade in clothing in 1999. Japan remains a key supplier of manufacturing technology to its Asian neighbors, and recent Japanese innovations such as clothing with built-in protection against bacteria and microwave radiation, intelligent or smart textiles that respond to the environment through the embedding of microprocessors or nanotechnology (for example, to keep people warm in cold climates and cool in hot weather), and washable suits may differentiate its manufacturers from competitors and allow them to charge high prices for such unique products.

Among economies with a surplus in textile and clothing trade, South Korea may soon overtake Italy for the number-two spot, while Taiwan and Hong Kong retain respectively the number-four and -five positions. As for number-one China, even as machinery exports replaced textiles and clothing as its top export sector in the late 1990s, its competitive position in the world textile marketplace is likely to be enhanced by its entry into the World Trade Organization.