China's once-booming textile and garment production industry faces mounting difficulties both at home and abroad, S&P Global Market Intelligence learned July 9 from market players exhibiting at the Hong Kong Fashion Week sourcing fair.
Brands sourcing from mainland China can expect longer lead times as the local production cycle lengthens amid a tough operating environment, according to Jiansen Huang, export manager at Fujian Teamwork Import and Export Co. Ltd., a Chinese producer of swimsuits and sportswear with clients including Spanish apparel chain Mango and Amazon.com Inc.
Fujian Teamwork's production cycle is about three months, but Huang predicted it will eventually extend to four months. "The number of factory workers is decreasing," he said. "As employment opportunities expand with China's growing economy, young people nowadays aren't willing to work in production anymore. The average age of factory labor now is around 40 to 50."
An environmental push by the Chinese government has led to increased closures of dyeing and finishing factories for failing to meet green manufacturing standards. That, in turn, is shrinking the pool of fabric suppliers. "We only needed 10 to 15 days before to have our fabric made; now it takes one month to 45 days," Huang said.
Feng Jiang, an executive at Shaoxing Hourun Textile Co. Ltd., also noted that the crackdown on pollution has hit many small and medium-sized businesses, adding: "In most of the closure cases, it's not because those factories don't want to shift toward being green, it's because they cannot afford to do so."
He said a small-scale factory needs to pay about 4 million Chinese yuan for a sewage treatment facility and typically must spend another 2 million yuan per year to operate and maintain that equipment.
Profit margins for factories are further squeezed by rising labor costs, with Jiang citing his company's home base in eastern China as an example. "The average monthly salary of a textile worker in Shaoxing has jumped to 9,000 yuan from 3,000 yuan over the past eight to nine years," he said.
With expenses escalating domestically, many Chinese manufacturers have turned to Southeast Asia, where labor is relatively cheap and preferential trade agreements with developed economies bring lower tariffs to apparel manufacturers.
However, operating production bases in that region is not an easy task, according to Wenjing Sang, an assistant business manager at Ningbo Seduno Group, a Chinese supplier to brands including H&M Hennes & Mauritz AB, Abercrombie & Fitch Co. and Industria de Diseño Textil SA, also known as Inditex and owner of the Zara brand.
"There is a lot of effort invested into protecting local workers' human rights," said Sang, whose company has factories in Vietnam, Myanmar and Cambodia. Workers in these countries have been vocal about their rights and often go on strike.
"We have to ensure they don't work overtime. We also hired local people who can speak Chinese to enhance communication between our company and the labor unions," Sang said.
"There is too much uncertainty, politically and culturally," Shaoxing Hourun's Jiang added. He said his company just gave up a plan to invest in a Vietnamese factory after a site visit in June coincided with an anti-Chinese protest.
But other mainland Chinese manufacturers lack the scale or financial capacity to move their operations to emerging markets, said Guoping Chen, general manager of Ningbo Baina Fashion Co. Ltd., a childrenswear producer that supplies brands including Seed and Noukie's.
Chen said his company saw former clients such as Armani Junior and Jacadi shift their sourcing to Southeast Asia over the past few years.
"Large orders that have basic designs are normally produced in Southeast Asia nowadays," he said. By contrast, "orders coming to China are typically those requiring special or functional fabrics, sophisticated skills like embroidery, or that come in small batches but varied styles."
In order to survive, a growing number of Chinese garment producers on the mainland are trying to evolve into original design manufacturers. "Based on seasonal trends, we design fabrics, accessories and styles for our clients, hoping to provide them with some inspiration," Chen said. His company also developed its own label called Gabby Loop in 2012, which is said to contribute to 20% of Ningbo Baina's revenue.
"Right now, our focus is on building brands, not on manufacturing," Chen said. "Perhaps someday in the future, we could grow big enough to outsource some of our production to Chinese manufacturers that are busy setting up factories in Southeast Asia today."
As of July 9, US$1 was equivalent to 6.62 Chinese yuan.