THE strengthening yuan and rising costs of raw materials and labour are spelling bad news for clothing manufacturers and consumers.

The 'perfect storm', as one manufacturer put it, is likely to send clothing prices up by as much as 20 per cent by Christmas, say experts.

Manufacturers told a panel discussion at yesterday's Asia Fashion Summit that the rising yuan has cut into margins as it raises costs all along the supply chain, from raw materials to labour.

The Chinese currency has appreciated by more than 5 per cent against the United States dollar since it was de-pegged from the greenback in June last year.

To compound the problem, wages in China are on the rise. Between 2005 and last year, the minimum wage jumped 14 per cent.

This year, at least 12 Chinese municipalities and provinces have raised their minimum wages, half by over 20 per cent.

'It's a perfect storm,' said Sing Lun Holdings chief executive Mark Lee. The Singapore-based firm manufactures garments for international brands such as The North Face, Puma, Reebok and Gap, for sale mainly in the United States and Europe.

About 80 per cent of Sing Lun's raw materials, including zippers and buttons, come from China, said Mr Lee, and the strengthening yuan means the costs have risen, thus cutting into his margins.

And it is not as if the firm can go elsewhere.

'No other country can replace the breadth and depth of the Chinese supply chain,' he said.

Sing Lun has had to raise its prices by 15 per cent to 20 per cent this year, while its clients will likely raise the retail prices of their apparel by the same amount.

These higher-priced garments are now being shipped out and should reach store shelves next month or a bit later, noted Mr Lee.

This could push up the price of a pair of women's Gap jeans, which is around $99 now, to $118 by December.

However, given the weakening greenback and the strong Singapore dollar, distributors should hold off raising prices by that much here, even if the fashion labels jack up their prices.

Companies that think they can lower their operating costs by moving manufacturing out of China will find little reprieve, Mr Lee said.

'All countries look to China for pricing direction and if China raises its minimum wage, everyone else will follow.'

Mr Lee has seen this for himself. Most of Sing Lun's production lines are in factories in Vietnam, Cambodia and Sri Lanka, and wages there have risen as these countries take their cue from the world's manufacturing giant.

'Everyone in the fashion industry expects that apparel will never be a cheap commodity again in the United States and that is a reality that the consumer will have to get used to,' noted the president of Sycamore Marketing Group, Ms Barbara Ende. Sycamore is a US-based trade development firm focused on the apparel and textile industry. It helps connect sourcing directors from the West with factories around the world.

Ms Ende's comments will likely apply to the rest of the world too.

'In China, manufacturers are being sandwiched by cost pressures and in the past year we have also applied pressure on our buyers in terms of price increases,' said Beijing Smart Garments (BSG) chief executive Dorothy Seet.

BSG runs several factories in Beijing, making suits for brands such as Ralph Lauren, Calvin Klein and Burberry for sale in Japan, the US, Europe and Australia. It also produces suits for its own Smart Garments brand, which it sells in China.

Rising operating costs have squeezed weaker manufacturers around the world out of business, said Sing Lun's Mr Lee.

This leaves an ever-shrinking number of textile and garment producers to cope with the increasing demand for goods.

However, this could change once shoppers start feeling the pinch of heftier price tags, he noted.

'What remains to be seen now is whether consumer demand will fall once people start seeing higher prices for their clothes. We'll just have to wait and see.'

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Source - The Straits Times (http://www.straitstimes.com/Money/Story/STIStory_670903.html)