One of the very significant developments in the global wool pipeline is a redirection of processing capacity to new regional players, such as Vietnam. In part, this is being motivated by economic pressures, including the very rapid rise in Chinese labour costs.
In this edition of the monthly newsletter, we take a look at how China’s neighbours in Asia are rising in importance for Australian woolgrowers – focusing specifically on the ASEAN nations. The Association of South-East Asian Nations (ASEAN) comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Burma), the Philippines, Singapore, Thailand, and Vietnam.
Old world and New world
The emergence to prominence of the collective Asian economies has been underway for decades, but has accelerated in the past five years, partly due to the economic woes experienced (including persistent high unemployment) in Europe, Japan, and North America. This extended slowdown in our traditional regional wool markets is expected to continue in Europe during 2013 while the US is expected to make a firm recovery in the second half of 2013.
By contrast, the economic growth in China and the surrounding ASEAN nations has been both strong and remarkably resilient, supported by the low and steady unemployment levels, along with strong increases in manufacturing wage growth which has helped increase domestic demand. Significantly, the Philippines, Thailand, Indonesia, and Malaysia all accelerated above their 10-year GDP growth trends in 2012.
ASEAN Wool Demand
China represents 70-75% of Australia’s exports of wool – totally dominating our domestic wool market and the world’s wool processing sector. By comparison, China’s smaller ASEAN neighbours only account 3% of Australia’s total direct wool exports. However, this doesn’t accurately represent ASEAN’s total demand for Australian wool, as it also buys semi-processed wool through intermediary countries, especially China.
Since the China and ASEAN Free Trade Agreement (CAFTA) came into effect in January 2010, ASEAN has been the fastest growing market for Chinese textile and garment exports, with an average yearly value growth of 35% over the past three years. In 2011, ASEAN became China’s fourth largest market, behind the EU, the US and Japan. In 2012, export value growth to ASEAN was 34% compared to China’s total export value growth of 3.3%.
More importantly, China’s wool textile exports to ASEAN have also recorded fast growth over the past three years, with an average yearly growth of 30%. Chinese wool textile exports to ASEAN were US$192 million in 2010, US$283 million in 2011, and US$319 million in 2012. In 2012, the market value ranking by ASEAN country was; Vietnam, Indonesia, Thailand, Singapore, Cambodia, the Philippines, Malaysia, Myanmar, Brunei, and Laos. The volume and share of China’s 2012 wool exports to ASEAN follow:
|China 2012 Wool Exports to ASEAN||Volume||Share of China's exports|
|Fabric||22.13 million metres||25.5%|
|Knit and Woven Garment||1.83 million pieces||1.1%|
More revealing is the comparison of China’s 2011/12 wool volume export growth to ASEAN in comparison to total export growth.
Export growths to ASEAN have increased strongly for wool yarn (29%), and wool knit and woven garments (40%), albeit from a low base in the case of garment exports. However, export growth to ASEAN has out-performed export growth to the world, which experienced negative growth. Despite ASEAN experiencing negative export growth for China’s wool top and wool fabric, ASEAN’s export share in comparison to world exports has been maintained in the case of wool fabric or has improved in the case of wool top.
What this means for the Australian Wool Industry
ASEAN’s increasing competitiveness in textile and garment manufacture and exports, in combination with the expected re-emergence of demand from many developed economies, will see ASEAN’s position in the wool supply chain continue to strengthen. AWI investment programs, such as the Out of Vietnam technology transfer program, seek to support this trend, and ensure Australian growers benefit.
Global apparel sales performed well in 2012 at US$1.7 trillion with a growth of 5.8% from the previous year, despite the continued economic uncertainty. The Asia Pacific growth (8%) outperformed the US (2.2%) and Western Europe (0.6%). However, it was China, Russia, Argentina, Brazil, and India that were the best growth markets.
The largest individual apparel market was the US with a market share of 21% of global sales, which was surpassed by the combined market share of the four BRIC countries who increased their share to 26%. The BRIC’s market share is expected to increase to 32% by 2017, but individually China is set to overtake the US as the world’s largest market by 2017.