Textile war is on ahead of WTO cut
Zakki P. Hakim, Jakarta
The government and the local textile industry are clearly worried about taking on China in the U.S. and EU market when the World Trade Organization removes all quota systems on Jan. 1, 2005.
Forget next year -- the battle is already taking place, not on foreign soil, but here in Tanah Abang, Central Jakarta, the region's largest textile market. Casualties have fallen to the influx of Chinese textile products and more are thought to come.
The market, which is home to 7,500 kiosks owned by some 4,700 traders, turned over Rp 15 trillion a year until a fire burned it to the ground in February 2003.
One of the casualties is 29-year-old Rusdy Said, who runs a family business that was started in the late 1960s. It has suffered approximately Rp 600 million in losses in five months thanks to Chinese textile products.
"Earlier this year, I bought a local brocaded fabric at Rp 11,000 per meter. Then, Chinese fabrics entered and sold for Rp 7,000 per meter. Today, frantic local traders sell their products at Rp 5,000 per meter. How can I make a profit, let alone survive?" he told The Jakarta Post.
According to Rusdy, the Chinese products penetrated Tanah Abang after last year's fire, most of which were smuggled into the country.
"Almost 60 percent of textile products now sold in Tanah Abang are from China," said Rusdy, who was forced to lay off 10 of 20 employees to cut costs.
He went on that many traders now chose to relabel imported Chinese products for export to Africa.
"Chinese products are taking the locals' market share in Africa," he said, adding that he was unsure whether his business would survive until the end of this year -- the same worry voiced by thousands of fellow traders in the market.
Director of Institute for Development of Economics and Finance (Indef) Aviliani said the government should draw up a blueprint to revitalize the upstream-to-downstream industry toward gradually improving its future competitiveness against China.
In the meantime, the government could encourage the textile industry to innovate in terms of design and production systems.
China can produce textile products that are better in design and lower in cost than locally made products, because it has an integrated system from upstream to downstream, Aviliani said during a workshop on Chinese and Indonesian textiles.
Analyst Poltak Hotradero, who specializes in Chinese economy, explained during the workshop that China was able to make cheaper textiles because it produced cotton and machinery itself. Furthermore, textile producers were protected against the fluctuation of the U.S. dollar, since their goods were all bought in the local currency, yuan, which is pegged to the dollar.
In contrast, Indonesian producers import their cotton and machinery and are thus vulnerable to currency fluctuations.
"China has encouraged investors to establish factories in the country and has ensured a transfer of technology ... apparently, China has succeeded," Poltak said.
The current quota system has benefited Indonesian textile producers, enabling them to export their products to countries such as the U.S., despite their lower efficiency than Chinese producers.
Over the past couple of years, the country's textile industry has been plagued by a host of problems, including labor disputes, rising labor costs and ageing machinery. In addition, many textile companies have either gone bankrupt or are producing below capacity.