December 24, 2004
In Roaring China, Sweaters Are West of Socks City
ATANG, China - You probably have never heard of this factory town in coastal China, and there is no reason why you should have. But it fills your sock drawer.
Datang produces an astounding nine billion pairs of socks each year - more than one set for every person on the planet. People here fondly call it Socks City, and its annual socks festival attracts 100,000 buyers from around the world.
Southeast from here is Shenzhou, which is the world's necktie capital. To the west is Sweater City and Kid's Clothing City. To the south, in the low-rent district, is Underwear City.
This remarkable specialization, one city for each drawer in your bureau, reflects the economies of scale and intense concentration that have helped turn China into a garment behemoth. On Jan. 1, a new trade regime will end the decades-old system of country-by-country quotas that divide the world's exports among roughly 150 countries. Now, China is banking on its immense size and efficient operators to grab an even larger share of the world's clothing orders.
Neither Adam Smith nor Karl Marx could possibly have imagined that this kind of capitalism would evolve from a communist system in quite this way, with an obscure town in the middle of nowhere becoming the world's socks capital. But these days, buyers from New York to Tokyo want to be able to buy 500,000 pairs of socks all at once, or 300,000 neckties, 100,000 children's jackets, or 50,000 size 36B bras. And increasingly, the places that best accommodate those kinds of orders are China's giant new specialty cities.
The abolition of quotas is expected to accelerate this trend over the next decade or so, particularly under the guidance of China's visible hand. The niche cities reflect China's ability to form "lump" economies, where clusters or networks of businesses feed off each other, building technologies and enjoying the benefits of concentrated support centers - like the button capital nearby, which furnishes most of the buttons on the world's shirts, pants and jackets.
The new era, thus, offers a glimpse into how China's fast-paced economy is developing into more than just a beehive of individual private enterprises. Beyond the entrepreneurial vigor so palpable here, the textile business is a prime example of how the Chinese government's attempt to guide development more indirectly through local planning instead of outright state ownership is starting to pay off in a big way.
China is not just becoming the leader of the pack. In many ways, it hopes to run away with as much of the market as possible.
New import limits by the United States, along with other external and internal forces, are expected to hamper China's progress in apparel and textiles for several years, if not longer. That should allow several other countries to maintain vigorous garment industries as well. But there is little question that China will ultimately be the dominant force in the business, and the growth of its industrial enclaves here highlights just how powerful a force China's industries are becoming in almost every sector they have entered.
In the late 1970's, Datang was little more than a rice farming village with 1,000 people, who gathered in small groups and stitched socks together at home, and then sold them in baskets along the highway.
Back then, government officials branded Datang's sock makers as capitalists and ordered them to stop selling socks. Now, they produce over a third of the world's output, and the government has nothing but praise for such entrepreneurs and their domination of the sock business.
"If the restrictions are dropped, there'll be even more production here," says one government official, Weiming Feng, the town's deputy party secretary and an official at the city's sock market.
Signs of Datang's rise as a socks capital are everywhere. The center of town is filled with a huge government-financed marketplace for socks. The rice paddies have given way to rows of paved streets lined with cookie-cutter factories. Banners promoting socks are draped across buildings. And each year, Datang is decorated with balloons and flags for the annual sock fair.
And rags-to-riches tales abound in Datang. Just ask Dong Ying Hong, who in the 1970's gave up a $9-a-month job as an elementary-school teacher to make socks at home. Now, she is the owner of Zhejiang Socks - and a sock millionaire.
Hai Yun Shi, the 41-year-old founder of Hongyun Socks, has a similar tale.
"I started out making socks by hand when I was 18," he said at the company's headquarters. "In '96 we founded this company. Now, we have a contract with Wal-Mart."
These kinds of gains have sharply eroded America's old sock-making might. American textile companies filed a petition earlier this year asking Washington to place limits on Chinese sock imports. Hoping to ease trade tensions, the Chinese government said in early December that it would voluntarily add tariffs on some of its own textile and apparel exports to reduce their competitive thrust.
That is one reason, among others, why many specialists believe that China's wallop will not come all at once.
"It won't happen overnight," said Bruce Rockowitz, president of Li & Fung, a Hong Kong company that is one of the world's largest apparel distributors. "It's not a big movement to China right now for retailers. There's too much uncertainty."
Smaller countries, like Bangladesh and Cambodia - which feared they could not keep up with China - are breathing easier. At least for now.
Still, China already accounts for about 16 percent of all apparel imports into the United States. And several studies project that in the next few years, once all the limits are lifted, that figure could soar to 50 percent to 70 percent.
"There's no question, at the end of the day, China ends up a much bigger player in the global apparel business," said David Weil, an associate professor of economics at Boston University.
Textile and apparel makers in China have long been preparing for the coming boom. In recent years, they have invested billions of dollars in new factories along the country's eastern seaboard, particularly here in the Yangtze River Delta.
Many of the old government-owned operations are gone. Private enterprises are importing high-end machinery and luring millions of peasants from the countryside.
Since the early 1980's, when China began moving to a market economy, much of its competitive advantage was built on low-cost labor. Companies spend about 92 cents an hour for each worker in China, versus $1.20 in Thailand, $1.70 in Mexico and about $21.80 in the United States, according to a study by Goldman Sachs. Among big exporters, only India, at about 70 cents an hour, is cheaper.
Investors from Hong Kong, Taiwan, Japan and South Korea were among the first to come. But in recent years, Chinese entrepreneurs set up their own shops, starting out with small stitching operations and quickly expanding into gigantic factories.
For instance, Shengzhou, now popularly known in Chinese as International Necktie City, developed after a Hong Kong investor moved his necktie operations there in 1985 and brought modern tie-making techniques to the city. That was only a few years after China opened itself to capitalism when Deng Xiaoping in 1978 declared, "To get rich is glorious."
Later, some of the company's managers broke away to start their own tie companies. And within a decade, Shengzhou was awash in tie makers and suppliers.
Similar stories can be heard throughout the province of Zhejiang, which is considered one of this country's most enterprising regions.
But textile specialists say China's boom is not simply the product of the newfound entrepreneurialism that is sweeping this country; it is also the nation's ability to form what are called lump economies, focused on one product.
Savvy entrepreneurs started out by luring suppliers, like fabric, dye or tool makers, to their cities, and as these clusters grew, they attracted more local investors who competed by trying to further specialize in socks or jeans production.
"The clusters are getting more and more specialized," says Qingliang Gu, a professor of textile economics at Donghua University in Shanghai. "It's a little like Italy, where you have the city of Como making silk fabric, Vicenza with fine wool and Veneto for knitting."
The Chinese government has also played a crucial role, opening huge swaths of land for development, forming giant industrial parks, doling out tax benefits and developing the infrastructure and transportation networks needed to move products quickly to market.
"The textile cities started initially from the spontaneous development of private companies," said Chunyi Xie, an economist at the Shanghai Garment Trade Association. "But when it reached certain dimensions it drew attention from the government."
Private companies, with the support of the government, now build huge textile factory complexes, complete with dormitories, hospitals and even curfews to replace the state role in providing food, shelter and health care, along with close supervision. Many textile companies in the province of Jiangsu house and feed thousands of migrant workers who are bused in from the countryside, often for three- or four-year factory stints.
The campus of the Huafang Group, one of China's largest textile companies, has over 100 factory buildings, 30,000 employees and round-the-clock operations.
On any day, it teems with more than 20,000 workers, who live free of charge in Huafang's dormitories. Conditions are hardly heavenly, but they are often a step up for these workers, who are mostly young women from poorer inland provinces like Anhui or Henan. Many of them come here after high school, intending to stay for a few years before returning home to be married.
Then, after those women return home, another 10,000 or so are bused in from the countryside, beginning yet another cycle in the pool of migrant labor that perpetually feeds China's bustling mills.
"When we need new workers," said Wei Xin Shi, a Huafang Group executive, "we just announce it and people here call home and tell their friends to come to work at our factories."
Yun Liu, 23, is one of those workers. She left a small town in northern Jiangsu four years ago. Now, she makes $130 a month in Huafang's cotton spinning mill, where she spins raw cotton into fine threads eight hours a day.
"I really like being here," she said one afternoon outside the factory. "It's a stable job, and I like the environment."
Few places on earth can match the sheer scale and variety of textile and apparel companies clustering in this region.
"In terms of vertical supply chain, China has no competition," says Ruizhe Sun, president of the China Textile Information Center, a government-sponsored agency in Beijing. "We have button makers, fabric makers, thread makers, zipper makers, you name it."
That situation is luring investors and competitors from other parts of the world.
"A few years ago, when I came here there were no Italians," said Ellen Zhou, a Chinese citizen now working for a textile company based in Thiene, Italy. "Now they're everywhere, in the hotels, at the cafes."
Chinese textile executives, however, are well aware of the risks of overexpansion. And there are other problems looming as well. The market for labor has tightened in the past year, pushing up wages.
Companies and even government officials have long ferried migrant workers into Zhangjiagang from the nearby province of Anhui, many of whom were willing to work for $4 a day. But recently some factories have been struggling to find workers, and many executives say they expect wages to rise.
"We feel labor costs are going up," Jianhong Gu, vice general manager of Pukun Textile, a Zhangjiagang suit maker whose factories operate 24 hours a day. "There's tremendous competition."
Moreover, foreign designers and retailers are keen to keep a network of business ties with other countries with relatively modern factories, like India, Pakistan and Bangladesh.
Fred Abernathy, a researcher at the Center for Textile and Apparel Research at Harvard, says retailers in the United States will continue to buy quantities of textiles and apparel close to home, particularly in Latin America and the Caribbean, because of the need for "just in time" delivery for some items.
He also expects specialty clothing and textiles operations to continue to survive in New York, North Carolina, France and Italy. But, he concedes, "China will gain over the long run."
Jinfei Wang, the chairman of the Jiangsu Diao Garment factory in Tongzhou, just outside Nantong, says there's no doubt about that.
"I've been to factories all over the world," he said in a recent interview while walking his own bustling factory floor, observing women's suits destined for J. C. Penney stores. "And we can compete with any of them. Without restrictions, certainly China is going to be No. 1."