Textiles and Apparel—Expanding Production Bases Overseas While Moving Up the Industry Chain

The textiles and apparel industry has long been a crucial part of China’s national economy, driving the country’s early development and continuing to be an important industry that generates a trade surplus. The production of textile intermediate goods requires significant investments in capital and technology, while apparel production is labor-intensive. China boasts an extensive, comprehensive textiles and apparel industry chain that shows significant potential for technological advancements in upstream sectors, and it leads the global market in terms of apparel manufacturing efficiency. Given the current global landscape, we believe it is crucial for China to make a steady transition from quantity-oriented textile and apparel manufacturing to quality-oriented manufacturing to ensure its competitiveness in the global economy. This chapter provides a comprehensive analysis of the factors driving the development and transformation of the textile and apparel industry chain, and offers insights to the future. Changes in the industry chain: Driven by the impact of deglobalization policies, the apparel manufacturing industry is undergoing industrial relocation. The industry may also face new green trade barriers in the future. In response, China is addressing these trade barriers. Although it is currently the world’s largest apparel exporter, China’s export share has declined since its peak in 2013, with countries such as Vietnam and Bangladesh gaining the lost market share. Throughout history, the textiles industry has undergone five strategic shifts, all driven by the pursuit of cost reduction. In the current phase of industrial transfer, garment manufacturers are expanding to South and Southeast Asia. This strategic relocation is primarily motivated by the attraction of lower labor costs and more favorable tax policies. In addition, China’s robust competitiveness in textile manufacturing exports has made it vulnerable to the “decentralization” policies of developed countries. We believe US-China trade frictions have accelerated the process of industrial relocation. We also think that China’s textiles industry is facing significant environmental pressure. In response, over the past decade, China’s textiles industry has taken measures such as expanding overseas while also developing textile intermediates and establishing close relationships with Southeast Asian countries along the supply chain. China’s textiles industry has also made significant progress in sustainable transformation. Retaining key segments in China and expanding along the value chain to drive development. In our view, investing resources to retain the entire apparel manufacturing industry with the sole purpose of “safeguarding the security of the entire industry chain” may not be economically feasible as the industry has been steadily eroded its comparative advantages. The current relocation phase differs significantly from previous ones, mainly due to China’s substantial economies of scale within the industry, which has resulted in only some segments relocating to other countries. We believe China may prioritize retaining the textile intermediates and apparel segments that serve domestic demand. As for the segments that would be relocated, we believe Chinese textile companies have distinct advantages in terms of brand relationships and are adaptable to the ongoing trend of relocating. As the textiles and apparel industry chain transforms, we believe the main challenges will be a shortage of skilled labor and limited employment opportunities. Within these challenges, however, we see abundant opportunities arising from technological breakthroughs and digital upgrading in key segments. We expect high-value-added upstream segments such as high-performance fibers, functional fabrics, sustainable textiles, industrial textiles, and local brands to be retained in China. We also believe that digitalization and automation will mitigate the labor shortage, create new competitive advantages, and facilitate the cost-effective development of the textiles and apparel industry chain.