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RCEP's impact on the future textile and garment industry

June 05,2023

On June 2, the RCEP, also known as the Regional Comprehensive Economic Partnership, came into full force for 15 signatories, ushering in a new phase of full implementation of the world's most populous, largest and most promising free trade area.

The RCEP has come into effect for the Philippines. China's first batch of export goods under the supervision of Shenzhen Customs, from Shenzhen Huanggang port to the Philippines. More Chinese companies are enjoying the development dividends of the RCEP as it enters a new stage of full implementation.

This has a profound positive influence on the expansion of foreign trade scale and the deepening of intra-regional industrial chain and supply chain cooperation in Chinese textile industry

The textile industry should give full play to the comprehensive advantage of complete industrial chain and complete supporting facilities, and enhance its international competitiveness. For the textile industry, after the RCEP takes effect, companies can introduce advanced Japanese equipment, strengthen production capacity cooperation and upgrade the textile and apparel industry.

On January 1, 2022, the RCEP came into effect for 10 countries, namely Brunei, Cambodia, Laos, Singapore, Thailand, Vietnam, China, Japan, New Zealand and Australia. Effective Feb. 1 for South Korea; Effective for Malaysia on 18 March; Effective May 1 for Myanmar. On January 2, 2023, the RCEP came into effect for Indonesia. Effective June 2 for the Philippines. As all 15 RCEP member countries have completed the entry into force process, they will be able to offer tariff concessions to each other, and the benefits of preferential policies will continue to expand.
Since the implementation of the RCEP more than a year ago, tariffs among member countries have fallen and the cost of trade in goods has dropped significantly, vigorously promoting deeper integration of industrial chains, supply chains and value chains in our partners' regions. For our country, it is beneficial to developing export market as well as advantageous industries to "go out" and carry out globalization layout, thus helping the construction of the new development pattern.

1. Current situation and characteristics of textile and garment industry
In recent years, the RCEP regional market based on Japan, the ROK, Australia and New Zealand, with China as the growth engine, has been playing an increasingly prominent role in the global textile and apparel industry. The release of policy dividends from the RCEP will help restructure the industrial value chain in East Asia, accelerate the economic recovery process of various countries, and create more comprehensive and deeper opportunities for China's regional industrial cooperation.

The characteristics of textile and garment industry are: cyclical, capital, labor intensive and high pollution.

First of all, the changes in the rate of production and sales brought by the fluctuation of upstream raw material prices and downstream demand have a significant impact on the profitability of the textile manufacturing industry, which makes the textile and clothing industry has a significant periodicity. From cotton to garments, the entire textile industry chain covers all the processes of garment manufacturing. The textile and garment industry is relatively capital-intensive and has significant economies of scale.

Secondly, the textile and clothing industry has many processes, including multiple processes and continuous mass production. Despite the adoption of new technologies and new equipment, the transformation has been achieved to a certain extent, but due to the relatively backward overall equipment level, manual operation still accounts for a large proportion in the production process, which is a typical labor-intensive industry. At the same time, the textile and clothing industry is highly polluting, which will have an impact on the environment in every link of production.
Ii. General situation of the development of Chinese textile and garment industry
In terms of distribution:

The industrial chain of our textile and garment industry is concentrated in east, south areas and raw materials production areas such as Xinjiang. In contrast, enterprises in Zhejiang and Jiangsu provinces cover a wider range in the industrial chain, basically covering the upper, middle and lower reaches of the textile and garment industry chain. The representative enterprises in other provinces, such as Fujian, Shandong and Guangdong, are mainly cloth and garment economic and trade enterprises.

In terms of growth:

Textile and garment industry profit performance is significantly higher than the overall level of manufacturing. At present, our country has formed the world's most complete textile and apparel industry chain and supply chain.

In the foreground:
Technological progress promotes the development of industry. The textile industry of our country has made remarkable progress in the industrial chain, industrial structure, marketization degree and so on. According to the China National Textile Industry Council, the textile and clothing industry has broken through the bottleneck problems in fiber materials, green manufacturing and textile machinery. With the application and development of Internet, big data, AI, Internet of Things and other technologies, the industrial structure of textile and clothing industry continues to optimize and adjust, and the proportion of labor-intensive industries decreases.

Iii. Impact of the full entry into force of the RCEP on the development of the textile and garment industry

RCEP member states play an important role in the global textile and garment trade and have a significant impact on China's import and export trade. In 2022, China exported 95.31 billion U.S. dollars of textiles and apparel to other member countries of the Regional Comprehensive Economic Partnership (RCEP), up 9.7 percent year on year, accounting for 29.5 percent of the total textile and apparel exports in 2022, up from 27.3 percent in 2019.

Trade in China's textile and garment industry
For the whole year of 2022, China's textile and apparel exports reached a record high of 323.34 billion US dollars, up 2.6% year-on-year (5.9% year-on-year in RMB terms). Among them, the export of textiles was 147.95 billion US dollars, up by 2.0% (4.9% in renminbi terms). Garment exports were $175.40 billion, up 3.2% (6.7% in RMB terms).
With the upgrading of domestic consumption and the improvement of the production distribution capacity of garment enterprises in transnational supply chains, the scale of Chinese garment imports from RCEP member countries has continued to expand in recent years. The main raw materials

China imports from RCEP member states include:
Vietnam: DTYACY,  clothing;
Cambodia: imported cotton knitted clothing, etc.;
Japan & Korea: Import functional fabrics, chemical fiber textiles and garments, textile dyes, etc.;
Australia & New Zealand: Imported high quality wool and other textile raw materials.

In 2022, the top five markets for Chinese textile and apparel exports are the United States, ASEAN, the European Union, Japan and South Korea. The main trade conditions are as follows:

The United States: Entering the post-COVID-19 period, the end consumption of the textile market in the United States remains active.
Asean: With the relaxation of epidemic prevention and control measures, the manufacturing industry in ASEAN countries has begun to recover, and the demand for products in China's textile industry chain has been increasing. In terms of the export of chemical fibers, textile yarns, textile fabrics, ASEAN is our largest market, among which Vietnam is one of the most important exporters.

Eu & Japan: With the normalization of epidemic prevention and control, the demand for masks and protective clothing in the EU and Japan has decreased; At the same time, the recurrence of the epidemic has slowed the recovery of end-consumption demand, such as clothing.
RCEP's impact on the textile and garment industries of member States

The industrial chain of textile and garment industry is very long and there are many intermediate links. Over the years, influenced by labor costs and supply, preferential trade arrangements, cotton quotas, procurement strategies and other factors, RCEP member countries have formed a China-centered and advantageous model of regional industrial cooperation. China, Japan, the ROK and ASEAN countries have established a supply chain layout and trade and investment model that is both competitive and cooperative.

To sum up, the full entry into force of the RCEP will further leverage ASEAN countries' advantages in low cost and labor resources, and will boost ASEAN countries' textile and garment exports, employment and economic growth. At the same time, it will drive the export growth of Chinese intermediate products such as yarns and fabrics to ASEAN, and significantly increase the fluidity, activity and interdependence of textile and garment trade within the region, thus driving the rise of the China-centered Asian supply chain.

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