US Apparel Import Prices: China vs. India in 2006
China and India are both increasingly shifting to higher-valued segments on the US apparel market. Direct confrontation is progressively dominating the match between the two textile giants, as a result. India limits the rise in its prices in categories where quotas are maintained on Chinese products while more rapidly raising prices and quality in other categories, as reflected by our series of tables comparing Indian and Chinese prices, category per category.
China and India are increasingly heading towards direct confrontation on the US apparel market.
For decades, Indian exports to the United states were protected by the low level in US quotas that were imposed on Chinese products.
Although Indian apparel exports were also subject to US limits, restrictions on Indian products were more rapidly rising year after year, finally giving India a much larger share of the US import market.
Quota elimination
With the removal of quotas on 1 January 2005, India immediately lost its advantage as China's prices were slashed.
Elimination of quota costs added to strong competition between Chinese exporters resulted in a 50% price cut in Chinese prices, across the board.
Since Washington finally reimposed quotas on most sensitive imports from China, the picture is now excessively contrasted between categories.
First, unit prices of Chinese apparel were significantly raised in 2006, especially in so-called quota categories.
In 338 (men's and boys' cotton knit shirts) for instance, Chinese prices rose from US$30 to US$57 per dozen.
In 339 (women's and girls' cotton knit shirts), prices also jumped from US$32 to US$50 per dozen.
China's prices were raised in order to take a full advantage of new US limits, therefore maximizing exports in US$ terms.
Quota costs were also back, adding to the rise in unit values.
Raising prices
The new US limits clearly forced Chinese exporters in shifting to higher-valued apparel exports, therefore following Indian strategy in the past years.
Confronted with surging competition form other low-cost countries in South Asia and elsewhere, Indian exporters preferred selling higher quality apparel at higher prices.
India's trend in favoring higher prices and qualities was last year confirmed in categories where Chinese products were not subject to US limits.
In 341 (W/G cotton woven shirts) for example, Indian unit prices rose from US$53 up to US$59 per dozen. At the same time, Chinese prices stayed unchanged at US$63 per dozen.
China's prices were 48% lower compared with 2004 and the pre-quota period, as a result. By contrast, Indian prices were 13% higher than in 2004.
China's share of the US import market significantly rose as indicated by our graph below while Indian share stayed unchanged in value terms thanks to a rise in unit prices, while actually falling in volume terms, due to the same rise in prices.
Direct confrontation
In 340 (M/B cotton woven shirts) where Washington reimposed quotas on Chinese imports in 2005, unit prices of Chinese exporters last year jumped by contrast from US$65 to US$84.
Indian prices did not move at US$99 per dozen.
Indian prices that were 27% higher than Chinese prices in 2005 were slightly lower in 2006, as a result.
India's market share in category 340 did not take advantage of the frontal confrontation, however.
Overall prices of Chinese exporters may be expected further rising in the coming years, in line with higher production costs in China and a shift to higher valued products.
China will therefore follow India's example, now fighting on the same market segments, while the very low-cost part of the market will be left to other countries, primarily Bangladesh and Vietnam.
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