Women's pullovers: Administrative policies avert economic fallout

Although impacted heavily by the global financial downturn, China's sweaters and pullovers industry has been able to stay relatively stable due in part to support from the national and local governments.

Beijing raised the export tax rebate for all types of garments four times since August 2008. From 11 percent, the reimbursement was increased 5 percentage points to the current 16 percent.

While this measure mainly allowed companies to discount export prices proportionately, it has enabled several businesses to remain competitive.

Recognizing that the industry needs more than just higher VAT refunds, a number of provincial and city governments are implementing their own set of measures aimed at helping sweater and pullover companies weather economic challenges.

Since 2H08, Haiyang, a third-tier city in Shandong province, has been offering a 3 percent rebate to factories that procure more than 30 flat-knitting machines from Japan or Germany, or computerized units locally. It also gives a $30,000 to $150,000 reward to suppliers awarded with the China or Shandong Well-Known Brand. To be recognized for the prize, makers' products and in-house brands must be accepted nationally or provincially for their quality. Their revenue and capability must also be among the highest in the industry.

Moreover, Haiyang will reimburse property taxes to plants that have been operating in the city for at least three years.

The capital city of Hangzhou in Zhejiang province implements similar measures, offering subsidies to companies that will purchase additional knitting machines.

Even smaller locales such as Dalang, a town in the Guangdong province city of Dongguan, have similar incentives in place. Businesses in Dalang can receive between $45,000 and $150,000 if they are conferred with a China or Guangdong Well-Known Brand award.

Many suppliers are taking these practices as an opportunity to upgrade their manufacturing equipment. Several factories are importing computerized knitting machines from Stoll in Germany and Shima Seiki in Japan. Doing so has not only improved production efficiency but has also softened the need to hire additional skilled workers.

Not all companies are adopting this measure, however, particularly those who are not as liquid. Nonetheless, they are implementing several cost-effective ways to upgrade machines and enhance efficiency. For instance, some of them are attaching a $0.30 blade near a sewing machine needle. The blade cuts the thread as soon as the label is stitched onto the garment, thereby saving time and streamlining the process.

Even with these steps, however, most factories saw business slow down in 2008 through the first half of 2009. Because of the low entry barrier, there are thousands of factories competing in a tight market.

Many of them had to cut prices to their lowest levels just to stay ahead of the competition. From 7 to 8 percent in early 2008, profit gains fell to just 4 to 5 percent.

But the global financial crunch exacerbated makers' problems as exports began declining despite the low prices.

China customs statistics show that the country sent out more than 3.4 million sweaters and pullovers at a value exceeding $16 billion in 2008. Compared with the previous year, this represents roughly 5 percent and less than 1 percent reduction by volume and value, respectively.

At some companies, shipments to the US plunged 70 percent. Others indicated a 10 to 20 percent decrease in exports to the EU.

Exports in the first four months of 2009 showed an even more significant decline, falling 8 percent by volume and 5 percent by value.

Because of these factors, many of the smaller manufacturers operating 100 to 200sqm factories were forced to close.

These plants generally have about 100 workers and process mainly orders from larger enterprises or trading companies. Once overseas demand at the latter started falling, production at the smaller factories decreased as well.

Several businesses that targeted the high-end market are also experiencing slow exports. This has led several such suppliers to reduce export quotes, thereby intensifying competition in the low-end and midrange segments further.

China is home to about 9,000 women's sweater and pullover manufacturers, based generally in the provinces of Guangdong, Zhejiang and Jiangsu.

Contributing nearly one-third to national shipments in the line, Guangdong exported 1.3 billion pieces worth $4.6 billion in 2008.

Suppliers are generally clustered in Dalang, although several businesses are also based in Chenghai, a district in the city of Shantou. More than 60 percent of Dalang's output is exported. There are roughly 3,000 knitwear makers in the city offering low-end and midrange designs.

Chenghai has at least 1,500 knitwear manufacturers, producing approximately 200 million pieces yearly. About 40 percent is exported.

The second-largest hub for sweaters and pullovers, Zhejiang turned out almost 536 million pieces worth $2.8 billion in 2008. This represented nearly 20 percent of national shipments.

There are about 5,000 makers in Zhejiang, with the majority based in Jiaxing. The town of Puyuan is the largest hub, contributing 50 percent to the province's output. Products are typically midrange and high-end and priced almost 50 percent higher than in Guangdong.

At approximately 1,000, Jiangsu suppliers are located mostly in the towns of Xingang and Tanqiao. The former is in one of the province's main textile centers, Changshu. Tanqiao is in the metropolitan city of Zhangjiagang.

The province shipped out more than 362 million sweaters and pullovers worth nearly $2.2 billion in 2008, contributing 14 percent to China's exports in the line.

Apart from these main centers, Haiyang in Shandong province and Ordos in Inner Mongolia are among the major manufacturing hubs for sweaters and pullovers.

About 90 percent of the supplier base consists of private locally owned businesses. Joint ventures and SOEs constitute the rest.

The number of companies has been decreasing since 2008 due to economic challenges. Apart from being small plants processing orders from traders and larger factories, the suppliers that folded generally dealt with OEM orders and did not use computerized knitting machines.

Besides offering women's sweaters and pullovers, makers produce designs for men and children. Some also have lines for other types of women's wear such as blouses, skirts, pants and jackets.

OEM continues to dominate the industry. Most businesses do not have in-house designers, and those that do have about five in their R&D teams. Even then, the emphasis is on color themes and design details, not on developing in-house collections.

The manufacturing process is generally the same regardless of the factory's size. Larger companies only have advanced equipment and carry out more steps in-house.

Almost all suppliers source yarn, which is sent through a cheese winder to make the material suitable for knitting. The twisted yarn is knitted in flat or circular units, depending on the design.

If required, the knitted pieces are sewn together by hand or machine. Embroidery and buttonholing are done afterwards. The finished garment is then ironed and sent to QC teams for final evaluation.

There are typically three main testing steps. Inspectors examine incoming yarn for density and physical specifications. Knitted pieces are checked for puckering, consistency in the dimensions, and missed or skipped stitches. The completed sweater or pullover is evaluated again for size, physical flaws, piece weight, density, loose seams and other imperfections prior to packaging.

In general, small factories are built on 100 to 4,500sqm of land. They have no more than 200 workers, including 10 QC inspectors, at most. All of the equipment is sourced locally and consists of manual and mechanical knitting machines. Printing, dyeing and embroidery are subcontracted.

Midsize companies have up to 500 workers, of whom between 10 and 30 are in the QC department. Such suppliers utilize computerized flat knitting machines, including some imported versions. Embroidery can be done in-house but printing and dyeing are subcontracted.

Large enterprises employ more than 500, including 20 QC inspectors. Workers produce at least 2 million pieces using imported computerized flat knitting machines from Japan, Italy or Germany.

Makers that specialize in sweaters and pullovers can carry out printing and dyeing in-house.

Women's sweaters made in China typically adopt pure cotton, wool, angora, acrylic, wool-cashmere, cotton-viscose and cotton-acrylic. Some models incorporate 100 percent Lurex for the lining. Knitted on 1.5 to 16GG machines, designs generally weigh between 120 and 410gsm. Sweaters come in V-, round or turtlenecks. Long-sleeved versions dominate. A few models feature decorated collars.

Pullovers can be made from rayon-nylon, combed cotton, ramie-acrylic, cotton-spandex, silk-cashmere, pure cashmere and other types of yarn used for sweaters. Some high-end models adopt bamboo fiber. Most designs have round or V-necks. Sleeves can be long or short, although sleeveless versions are also available.

Prices of women's sweaters and pullovers range from $3 to as much as $100 each. Designs incorporating yarn from New Zealand, Italy or Australia are generally 30 percent more expensive than models knitted with locally sourced yarn.

This article "Women's pullovers: Administrative policies avert economic fallout" is originally posted in Global Sources.

Hangzhou Pashing Woollen & Fashion Co. Ltd
Hangzhou Suntex Apparel Co. Ltd
LETIZIA KNITTING FACTORY CO., LTD
Shanghai Hercules Industry Shanghai Office
Tonglu Spring River Knitting Co. Ltd
Zhejiang Orient Creation Imp. & Exp. Corp.