GENEVA — China’s problematic and sheltered state-ownedenterprisesin the textiles sector, and other light industries, will be forced to shed millions of jobs, as the country lowers import barriers and slashes industrial subsidies as part of its mandatory obligations for membership to the World Trade Organization, which itjoined in December 2001, according to a recently released U.N. report.
China’s reliance on low tech, labor intensive plants in the textile sector, could make its textile industry vulnerable to the high tech plant of some of its more industrialized neighbors, the report said.
The report said Chinese state-owned industries — like textiles, which employs 5.8 million — are “particularly vulnerable” and argued the dismantling of support measured over a 10-year period is likely to have serious repercussions for the state-assisted sector.
The study by the U.N. Conference on Trade and Development pointed out that state-owned ventures in China, which included over 3,000 out of a total of 10,981 companies in the textiles sector at the end of 1999, are characterized by”excessive employment, high inventory levels, low productivity, low capacity utilization, inefficient scales of production and outdated technology.”
The stated-owned textiles sector in 1999 accounted for 6 percent of China’s industrial output and 14 percent of its industrial workforce, it said.
In contrast to the tough times ahead for government-owned firms in textiles,UNCTAD’s “Trade and Development Report for 2002″ noted thatChinesestate-owned ventures in clothing, which in 1999 only numbered about 792 out of 6,611 total companies in the sector, are profitable and account only for a small share of sales.
On the plus side, UNCTAD trade economists argued that the removal of subsidies and the reduction of tariffs and hidden barriers, along with the elimination of preferential treatment “will, no doubt, exert considerable pressure on these enterprises to improve efficiency and competitiveness.”
But the report projected that as China opens up its textiles sector to international competition its state-owned mills will not lose business to labor-intensive textile suppliers in South Asia and South East Asia butrather capital-intensive, high tech textiles producers based in Japan, Taiwan and South Korea.
Already Taiwan accounts for about 25 percent of China’s textile imports. Korea and Japan account for about 20 percent each.
The U.N. review said the shift to capital-intensive methods, mainly robotization, has given advanced economies in the region an edge over China and other labor intensive and low quality suppliers.
In addition, the report asserts that the liberalization of the clothing sector in China will also affect the competitiveness of the textiles sector.
“Liberalization of the clothing imports could shift domestic demand in favor of high-quality clothing,” it said. It projected that in the short to medium term, the opening of China’s market that should result from WTO membership “could favor rapid growth in imports of textiles.”
Over 55 percent ofChina’s exported apparel is made from imported fabric, according to the report.