European textiles buyers are increasingly switching their sourcing and supply chains back to Europe because of China’s rising labour, raw material, and energy costs.
Although China remains a world leader in textiles and apparel with exports of $284 billion in 2015, wages there have been rising at an annual compound growth rate of more than 12% and are no longer cheap enough to compete just on price, Reuters reports. At the same time, China’s textiles sector faces rising costs of raw materials, large import taxes for basic manufacturing equipment, and costlier environmental rules.
The Chinese government’s five-year plan for textiles, released in September, acknowledged that higher costs were weakening China’s competitive advantage over developed countries like Italy with better technology and developing countries with lower wages. The labour cost gap between Italian and Chinese yarn narrowed by around 30% between 2008 and 2016, to $0.57 per kg from $0.82/kg, according to International Textile Manufacturers Federation (ITMF) data.
Reuters reported that although the hourly wage for a Chinese weaver last year was $3.52, according to the ITMF, up 25% since 2014, it was still a fraction of the more than $27.25 paid in Italy. But with China’s wages no longer so low, the process of shipping materials to China and then shipping products back to Europe becomes a lot less attractive.
Western clothing brands are also under pressure to offer more collections and customised looks, requiring their suppliers need to be closer, and faster. In China, in contrast, the supply chain is longer and often scattered, giving countries such as Italy a competitive advantage.
Italy’s textile imports from China fell 8.7% in the first 10 months of last year, to €347 million ($370 million), according to SMI, Italy’s textile and fashion association. Its exports to China rose 2.8% to €165 million in the same period, though total textile exports last year dipped 2% to €4.3 billion, Reuters reported.
Other buyers have been looking to eastern European locations such as Bulgaria, or to Turkey, for fabrics, because of quality, price and proximity to Europe.
For some buyers, quality and transparency are also increasingly important. And some brands are also increasingly motivated by concerns over product traceability, and want to avoid potential reputational risk.
Some producers and buyers said it was too soon for data to show the flow out of China. China’s textile exports to the European Union grew a modest 1.4% in the first ten months of last year, but dropped 4.1% in October, according to Chinese data, Reuters reported.