China's textile and clothing exports: changing international comparative advantage and its policy implications

Abstract

Remarkable changes have occurred in world textile and clothing markets in the last two decades. Japan lost its comparative advantage in labour-intensive textiles and clothing in the 1970s, and the Asian newly industrialising economies (NIEs) of Hong Kong, the Republic of Korea, Singapore and Taiwan have also been rapidly shifting away from these products. At the same time, China and several other low-wage economies have emerged as major textile and clothing exporters. China has, in particular, overtaken the NIEs as the world's largest clothing exporter. <p> In the past few years, China itself has shown signs of export diversification, at the expense of textiles and clothing. Such a rapid structural change raises several questions. Is China losing comparative advantage in textiles and clothing? Does the diversification result from domestic structural change, competition from other exporting economies or import restrictions overseas? What is the proper policy response to the declining importance of textiles and clothing in China's manufactured exports? <p> This paper examines these questions. In the following section, China's labour-intensive exports are placed in a broad context of the world market and historical trends are analysed. In Section 3, domestic structural change is examined and its effects on China's competitiveness in textiles and clothing are analysed. Demand side issues are discussed in Section 4, with particular attention to the implications for China's textile and clothing exports of the changing trade environment after the conclusion of the Uruguay Round. The potential impact of China's entry into the World Trade Organisation (WTO) will also be discussed. In Section 5, China's textile and clothing quota allocation regime is analysed. The paper concludes with a brief summary of policy implications. Show more