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Source: http://www.economist.com/

 By John Richardson

RISING China labour costs are compounding weakness in the manufacturing sector and thereby, of course, damaging chemicals and polymer markets.

The country’s garment exports fell by 0.2 percent in the first seven months of this year, compared with a 24 percent increase in January-July 2011, says the Association of Chinese Textile Exporters.

China’s garment exports totalled $250bn in 2011, which could well mark an all-time peak as China tries to move up the manufacturing value chain – a key objective of its 12th Five-Year-Plan (2011-2015).

Meanwhile, the association estimates that Japan’s imports of garments from Southeast Asia rose 22 percent in H1 2012. What is China’s loss is a gain for countries such as Vietnam, Indonesia and Bangladesh that have lower labour costs.

But, of course, the timing for China could not be worse. The impact of higher labour costs is occurring at a time of weak global growth. This was reflected in the final reading of the HSBC August China purchasing managers’ index, which fell to its lowest level in three years.

As China’s textiles industry struggles, a great deal of new domestic purified terephthalic acid (PTA) capacity is being brought on-stream. Eleven new plants are due to start-up over the next three years, with a total capacity of 18.5m tonnes/year. The country’s total PTA capacity is due to reach 39m tonnes/year in 2015 – double that of 2011, according to ICIS.

These new plants will benefit from low-cost local supply of paraxylene (PX), and are likely to have also benefited from cheap financing.

The outlook for exporters of PTA to China is therefore not good.

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