Colombian textile firms point to China as cause of industry slump
Trade with China may be helping to lift Colombia’s economy to new heights, but don’t ask Alvaro Hincapie to sing the Asian dragon’s praises.
Legal and illegal Chinese textile imports have clobbered Enka, the Medellin textile company he runs, and forced him to refocus operations to rely more on recycled, environmentally friendly threads.
Industrywide, Colombia’s textile and apparel makers saw sales slump 13% to $6.1 billion last year from $7 billion in 2008 — and there is little sign the slide is ending.
Hincapie and other industry executives blame Chinese imports, 40% of which are contraband or dumped, meaning sold unfairly at below-cost prices, according to the nation’s largest business association, known as ANDI.
“It has been a depressing decade,” Hincapie said recently at Colombiatex, the Medellin trade show that is the Andean-region textile industry’s most important annual exhibition. “We have been under attack by the Asiatics.”
Complaints from Hincapie and other manufacturers have been drowned out by headlines touting the huge growth in Colombian trade with Asia. Exports to China last year exceeded $2 billion, a sevenfold increase over 2000, thanks to booming sales of oil, coal, steel and other commodities.
The Asian giant’s appetite for natural resources and farm goods is expected to boost Colombia’s economy — and that of Latin America at large — to as much as 6% growth this year from 4% last year.
But Chinese imports, as wide-ranging as telecom equipment, appliances, fertilizers and tennis shoes, probably exceeded $4 billion last year, meaning Colombia’s bilateral trade balance for the year was $2 billion in the red.
Officials here complain that China’s undervalued currency and industrial subsidies have created an unfair playing field.
The trade deficit illustrates a downside to Colombia’s — and the region’s — deepening relationship with China.
Latin countries are being inundated with an ever-rising tide of cheap, often smuggled Chinese manufactured goods priced so low that domestic producers like Hincapie can’t hope to compete.
As a result, factories are closing and thousands of industry workers are losing their jobs. Sales at Hincapie’s Enka plunged 40% in 2008, and he had to lay off 500 of his 2,000 workers.
The loss of manufacturing jobs to cheap Chinese imports isn’t just Colombia’s problem, it’s one that’s raising howls of protest across Latin America, including Brazil and Mexico.
Brazil has an overall $5-billion trade surplus with China, but the Sao Paulo Industrial Federation viewed the relationship as “extremely negative” because in the manufactured goods sector, Brazil has a trade deficit of $20 billion.
Such a deficit is keenly felt because industrial jobs have a broader, more beneficial ripple effect on an economy than mining or farming, for example.
China’s dominance in global textiles over the last decade is a phenomenon that few saw coming, said economist Gary Hufbauer at the Peterson Institute for International Economics in Washington.
“It’s beyond anyone’s expectations, and the rules haven’t caught up to it yet,” said Hufbauer, a former U.S. Treasury Department trade negotiator.
Ariel Armony, who heads the University of Miami’s Center for Latin American Studies, said that by hammering Latin American manufacturing, imports from China and other Asian countries are forcing the region’s economies to focus too much on natural resource exports to achieve balance.
“The danger is a reversion to a 19th century economic model that stressed agricultural exports at a time when the region really needs to be focusing on the development of technology and products that require higher education,” Armony said.
Colombian manufacturers in the rag trade grudgingly admit that other factors also are to blame for their problems, some self-made.
Political differences between Venezuelan President Hugo Chavez and former Colombian President Alvaro Uribe resulted in Chavez closing his country’s borders to Colombian products in 2009 and freezing $800 million owed to Colombian suppliers, about a quarter of it to fabric and apparel companies.
Although new President Juan Manuel Santos has tried to mend fences with Chavez, trade with Venezuela, the industry’s top export market two years ago, remains mostly frozen, and Colombian manufacturers such as Fabricato, to which Chavez owes $6 million, are still waiting to get paid.
The 30% appreciation of the Colombian peso against the dollar over the last five years also has made exports less competitive. For example, Colombian exports of denim, once a signature product , fell to $74 million in 2009, the last year for which statistics are available, less than half the $160 million in 2007.
Colombian fabric and apparel manufacturers may have gotten too comfortable under the global quota system, which assured them access to U.S. and European markets. Even though the system was phased out in 2004, Colombian companies didn’t come up with enough innovative products to vie with Chinese imports, said Paula Trujillo, a competitiveness expert at the Inexmoda trade group based here.
Hincapie thinks the worst is past for Enka and other Colombian textile companies. From 2007 to 2009, the industry as a whole shed 35,000 jobs, or 15% of its employment base, ANDI said.
Enka is retrenching, hoping that its new focus on recycled threads will appeal to the “green” market and save the company. Its booth at the Colombiatex convention was among the show’s most popular, showcasing a synthetic thread made from recycled plastic beverage bottles.
The product fit in with the show’s theme, “Nature Into Technology.” Many of the 500 exhibitors promoted recycled, indigenous and environmentally friendly products, niches that many see as the industry’s way out of its morass.
“People don’t just like our product, they like what it does,” said Oscar Zuluaga, president of Fabricato, a Medellin fabric manufacturer that is Enka’s partner in a new denim fabric, 32% of which is made from recycled bottles.
If it weren’t for the denim, the plastic bottles otherwise might take a century to degrade, he said.
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