China On Clothing: Reflections On Industrial Transformation

In the traditional impression, the most common and labor intensive textile and garment industry has already started a major structural differentiation. Whether it can become a leader in the industry and lead the development direction of the industry is the only way to survive and develop in the era of stock economy. That is where investment opportunities lie.

The clothing industry can be regarded as the leading representative of China's economy in the stock age. No matter from the overall output, sales volume and profit level of the industry, there are obvious characteristics of the stock economy. But from a structural perspective, the differentiation of the garment industry is rapidly increasing: the growth rate of the revenue of public goods tends to be more frequent. Growth in private sector and other emerging sectors has accelerated significantly. Some enterprises pay more attention to the transfer of high-end value chain.

This article is mainly touched by two data, one is the three quarter gross domestic product (GDP) data. In particular, in the first three quarters, GDP grew by 6.2% year-on-year, and saw a 6.4% increase in the first quarter, a 6.2% increase in the two quarter and a 6% increase in the three quarter. It has become the focus of the market for the next four quarter.

One is the 15 price data released in September. In October 15th, the National Bureau of Statistics announced the price data in September, CPI growth rate increased to 3% year-on-year, PPI growth rate further down to -1.2%. It is not surprising that pork prices are still a structural factor affecting prices. Meat prices rose by 15%, of which pork prices rose by 69.3% over the same period, rising by 19.7% compared to the same period. The signs of acceleration were still obvious, affecting CPI's rise of about 0.65 percentage points, and the rise of beef and mutton ring rose by 6.8% and 4.2%, respectively (4.4%, 2% in August).

What attracted attention was the price of clothing, which rose by 1.6% over the same period, rising by 0.8% compared with the same period, of which clothing rose by 1.8% compared with the same period last year, rising by 0.9%. This is not surprising. This is also in line with the rule of replacement clothing. In a year, the price of clothing will rise two times higher than that in the next year. One will change in April and summer in October.

CPI's year-on-year data, or annulus data, can reflect the short-term seasonal characteristics of clothing purchase. If we lengthen the time, we can observe the change of China's economy from the tiny point of clothing change. The change of clothing is actually a manifestation of China's economy in a single specific industry.

Simple analogy, the clothing industry can be regarded as the leading representative of China's economy in the stock age. According to public information, garment industry above designated size enterprises have accumulated clothing output in 2016 after a high level, three years down. The sales performance is also more obvious at the sales side. The average sales profit margin of the whole industry is only around 3.5%, and the annual sales growth of the key circulation enterprises' clothing sales is only 1.6%.

In the three quarter of this year, the proportion of clothing expenditure to the per capita consumption expenditure of the whole nation has been decreasing.

The above data can fully show that the clothing and garment industry has long been a typical representative of the stock economy. But after entering the stock economy, is the industry "stuck"? Is there no chance? This question can also be used to ask the Chinese economy. In the era of entering the stock economy, is the Chinese economy "stuck"? Of course not.

If we use structural perspective, we will find that in the era of stock economy, differentiation is rapidly intensifying. The same is true in clothing and clothing industry. Volkswagen brand as the largest share of the apparel industry, its industry demand volatility and clothing industry overall demand change correlation is relatively high, in the economic downturn period, subject to the drag on the growth of residents' income, the growth rate of public category income tends to be more frequent.

In contrast, some new areas are growing very fast. For example, private clothing customization has already started. According to public data, the annual compound growth rate of China's clothing customization market has reached 22.9% in 2013-2017 years, which is far above the average level of garment industry. The compound growth rate in the future will remain above two figures. By 2020, the market size is expected to exceed 200 billion yuan.

If we further broaden and broaden our perspectives, we will see a similar phenomenon in our neighbouring Japan.

In the 50s of last century, Japan entered the global industrial chain and value chain of textile and clothing through the first transfer from the global textile industry to the "manufacturing power", and became the overseas production base of the textile and garment industry in Europe and the United States by OEM.

By the late 60s, the global textile industry had started second shifts. Japanese textile and garment enterprises began to transfer the OEM links to Southeast Asia, Korea and Hongkong, China, so as to weaken the competitive pressure at home and abroad. With the relocation of OEM, Japan began to focus on high-tech development and transfer to the high-end value chain.

After the signing of the Plaza Accord in 1985, the Japanese yen appreciated significantly. If we only observe the total amount, we will think that the Japanese textile and garment industry has entered a recession. The proportion of added value in textile and garment industry in the manufacturing industry has dropped from 24.6% in 1950 to 3% in 1998.

But in fact, the Japanese textile and garment industry has begun to "transform". Since 2000, Japan's textile and garment industry has changed from single industry to manufacturing industry, circulation industry, advertising industry, cosmetics, clothing and sports, leisure and other related industries ecosystem. A number of world-class designers, from OEM to ODM (independent design and processing) to OBM (independent brand production) evolution, have formed a brand new mode of "Japanese brand, local design, overseas production".

If we take a simple look at the aggregate indicators, at this stage, the growth rate of Japanese clothing sales is much lower than that of China. According to the recent Bulletin of UNIQLO bulletin, gross profit (Gross profit) has exceeded 1 trillion yen in 2019, double that of 2013. Gross profit margin has remained at around 50% for a long time. This shows that in the era of stock economy, the industry difference does not mean that all enterprises are poor.

Some people believe that the Japanese economy is the "lost 20 years", but this is observed from the perspective of aggregate indicators and economic growth. From a structural perspective, the so-called 20 year lost is actually 20 years of industrial transformation and 20 years of economic structural differentiation. China's GDP growth in the three quarter was 6% year-on-year, the lowest since last 90s. Under such circumstances, it is not advisable to look at China's economy in a pessimistic way. Similar to that in Japan, China's economy has already started a process of industrial structure differentiation. You are concerned about the total growth of illusory downhill, or grasp investment opportunities from the structure, we need to think seriously.