Three essays on the estimation of Chinese textile demand and its implications for the world cotton market

Date

2012-08

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Abstract

Chinese consumption of textiles has grown rapidly in recent years, along with the increase in Chinese household income. This, in turn, has made China an important market for textiles. Yet, China’s population has been growing steadily at a slower rate and has become older compared to previous years. Such changes, according to recent literature, could have negative implications in terms of the growth rate of Chinese textile consumption. The objective of this study is to analyze the textile consumption pattern in China by taking into account consumers’ socio-economic profiles and choice of retail outlets and fibers for textiles. Textile expenditure data constituting over 6000 urban Chinese households from a Cotton Council International (CCI) consumer tracking study for 2009 is used. This study makes three important contributions to the empirical investigation of household textile demand. First, it integrates household choice decisions, which are likely to be concerns of decision-makers involved in direct product sales, into a formal demand analysis. Second, it utilizes a semi-parametric regression to model a system of censored equations where censored observations are common in household studies. The advantage of this procedure over the parametric method is that it allows for a more flexible functional relationship among variables than the traditional parametric approach. Last, the study integrates results from Chinese textile demand and investigates the implications of increases in per capita income, declines in family size, and increases in the proportion of the elderly on both the Chinese and global textile and cotton markets. Results concerning commodity group demand (apparel, home-textiles, and footwear) indicate significant effects of store choice and household demographics on household textile consumption. Households that often buy their apparel from department and chain stores bought more apparel when compared to households that buy their apparel from hypermarkets, independent stores, and stores in the “others” category. In regards to household demographics, households either headed by a ready-to-retire age person or have an elderly member appear to spend more on home-textiles compared to the younger age group, indicating the need for examining the Chinese market as several segments instead of one. All demand elasticities with respect to total expenditure, own-prices, and cross-prices are also estimated. The own-price elasticity for apparel products is higher when compared to home-textiles and footwear suggesting more price sensitivity in apparel purchase. Results from product level demand (apparel) also indicate significant effects of household fiber choice on apparel demand. For example, households who often favor denim as their choice of fiber for their pants spend more for their pants when compared to households who favor artificial fibers. Expenditure and price elasticity estimates are also significant.
Finally, a simulation that involved a 20 percent increase in per capita income, 0.05 percent increases in a ready-to-retire age group and 1.2 percent decline in family size is conducted to examine the implications on Chinese and world textile markets. Results suggest that such changes are likely to increase the domestic textile price index and textile consumption. In regards to the global market, the changes in Chinese socio- economic variables considered is expected to affect positively the A-index, world cotton production, and world mill use.

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Keywords

Chinese textile market, Demographic and economic changes

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