Outlook for China’s Textile and Apparel Industry (2021-2025)

The China National Textile and Apparel Council (CNTAC), the governing body of China’s textile and apparel industry, recently released its 14th five-year plan, detailing the development objectives, growth strategies, and priority tasks for China’s textile and apparel sector from 2021 to 2025. Unlike most market economies, the “five-year plan” serves as China’s top economic development guidelines. Therefore, companies at the micro-level study and follow the “five-year” plan closely to ensure their corporate business strategies align with the tones and visions set out by policymakers.

Based on the plan, several trends are worth watching regarding the future of China’s textile and apparel industry:

#1 Complicated by both economic and non-economic factors, the growth prospect for China’s textile and apparel industry is facing more uncertainties over the next five years.

#2 “Growing bigger” will no longer be a priority for China’s textile and apparel sector over the next five years. However, China has no intention to cut textile and apparel production capacity or shrink its size substantially either.

#3 China intends to develop a more sophisticated and high-tech-driven textile and apparel industry and engage in more value-added functions in the supply chain. Notably, in recent years, while China’s shares in the total world apparel exports declined, China is playing a more significant role as a textile supplier for many apparel exporting countries, especially in Asia.

In almost all markets, China is losing market shares for its apparel exports
China is playing a more significant role as a textile supplier for many apparel-exporting countries

#4 As the export market deteriorated, China plans to rely more heavily on its domestic market to support the textile and apparel industry’s growth. Industry sources predict that China’s annual clothing retail sales could exceed $415 billion by 2025 (vs. $347 billion in the U.S.).

China’s annual clothing retail sales could exceed $415 billion by 2025

#5 China will continue its efforts in “going global,” i.e., investing in textile and apparel factories overseas, mainly through the “Belt and Road Initiative.” According to CNTAC, China’s outbound foreign investments in the textile and apparel sector exceeded $6.7 billion from 2015 to 2020. Nearly $1.8 billion (or 26.6%) went to neighboring southeast Asian countries, including Vietnam, Cambodia, Thailand, Lao, and Myanmar.

China will continue its efforts in “going global,” i.e., investing in textile and apparel factories overseas, mainly through the “Belt and Road Initiative

#6 China intends to develop a “greener” and more sustainable textile and apparel industry. However, instead of simply reducing pollutants and water usage, China plans to develop a sustainability-led growth model, emphasizing areas including circular economy and creating new value-added products based on recycled material.

By Sheng Lu

Further reading: Lu,Sheng (2021). The plan for China textiles and apparel over the next 5 years. Just-Style.

Apparel Sourcing and Trade: Washington Trade Policy Perspectives

Speaker: Julia Hughes, President, United States Fashion Industry Association (USFIA)

Topics covered:

  • US fashion companies’ latest sourcing trends and sourcing strategies during COVID-19
  • 2021 US textile and apparel trade policy (e.g., China section 301 and product exclusion extensions, and WROs against forced labor)
  • Biden administration’s trade policy agenda (e.g., worker-centered trade policy, climate change, retaliation against DST, GSP, MTB and TPA renewal, potential trade sanctions against Myanmar, promote domestic PPE production, and new FTA negotiation)   

The event is part of the Apparel and Textile Sourcing 2021 S/S virtual seminar series

COVID-19 and U.S. Apparel Imports: Key Trends (Updated: June 2021)

First, thanks to consumers’ resumed demand and a more optimistic outlook for the U.S. economy, U.S. apparel imports continue to rebound. However, uncertainties remain. On the one hand, mirroring retail sales patterns, the value of U.S. apparel imports in April 2021 went up by 66% from a year ago, a new record high since the pandemic. The absolute value of U.S. apparel imports so far in 2021 (January –April) also recovered to around 88% of the pre-Covid level (i.e., January to April 2019). However, the value of U.S. apparel imports in April 2021 was 11.2% lower than in March 2021 (seasonally adjusted), suggesting that the market environment is far from stable yet as the COVID situation in the U.S. and other parts of the world continue to evolve.

Second, data indicates that Asia as a whole remains the single largest sourcing base for U.S. fashion companies, stably accounting for around 72-75% of the import value. Studies show that two factors, in particular, contribute to Asia’s competitiveness as a preferred apparel sourcing base—price and flexibility & agility.  Asia’s highly integrated regional supply chains and its vast production capacity shape its competitiveness in these two aspects.

However, the recent surge of COVID cases in India and its neighboring Southeast Asian countries has raised new worries about the potential sourcing risks and supply chain disruptions for U.S. fashion companies currently sourcing from there.  

Third, as the direction of the US-China relations becomes ever more concerning, U.S. fashion companies seem to accelerate diversifying sourcing from China. Even China remains the top apparel supplier for the U.S. market, from January to April 2021, China’s market shares fell to 32.1% in quantity (was 36.6% in 2020) and 20.2% in value (was 23.7% in 2020).  Also, the HHI index and market concentration ratios (CR3 and CR5) suggest that US fashion companies are increasingly moving their apparel sourcing orders from China to other Asian countries. For example, according to a leading U.S. fashion corporation in its latest annual report, “in response to the recent tariffs imposed by the current US administration, the Company has reduced the amount of goods being produced in China.”

Further, the latest data suggests that the concerns about the alleged forced labor in Xinjiang hurt China’s prospect as an apparel sourcing destination, BOTH for cotton and non-cotton items. Measured by value, only 11.9% of U.S. cotton apparel came from China in April 2021, a new record low since implementing the CBP WROs, which impose a regional ban on any cotton and cotton apparel made in the Xinjiang region. The latest data also suggests that China is quickly losing market shares for non-cotton textile and apparel items.

Fourth, U.S. apparel sourcing from CAFTA-DR members gains new momentum, reflecting the strong interest in sourcing more from the region from the business community and policymakers. For example, 17.5% of U.S. apparel imports came from the Western Hemisphere in 2021 (Jan-Apr), higher than 16.1% in 2020 and 17.1% before the pandemic. Notably, CAFTA-DR members’ market shares increased to 10.8% in 2021 (Jan-Apr) from 9.6% in 2020. The value of U.S. apparel imports from CAFTA-DR also enjoyed a 25.8% growth in 2021 (Jan-Apr) from a year ago, one of the highest among all sourcing destinations. The imports from El Salvador (up 29.2%), Honduras (up 28.0%), and Guatemala (27.0%) had grown particularly fast in 2021.

Meanwhile, U.S. apparel imports from USMCA members stayed stable overall. CAFTA-DR and USMCA members currently account for around 60% and 25% of U.S. apparel imports from the Western Hemisphere. They are also the single largest export market for U.S. textile products (around 70%). The Biden administration has signaled its strong interest in strengthening the western hemisphere textile and apparel supply chain by leveraging CAFTA-DR along with other trade policy tools.

by Sheng Lu

COVID-19 Hits the Bangladeshi Garment Industry

Discussion questions [Anyone is more than welcome to join our online discussions; For FASH455, please address at least two questions in your comment; please also mention the question number (i.e., #1, or #3; no need to repeat the question) in your comment.]

  • #1: How to understand apparel is a global sector from the video?
  • #2: How to understand the economic, social, and political implications of apparel sourcing and trade from the video?
  • #3: What are the top challenges facing Bangladeshi garment factories during COVID-19? Why or why not do think these challenges will go away soon?
  • #4: How is the big landscape of apparel sourcing changing because of COVID-19? Any apparel trade or sourcing patterns that COVID-19 didn’t change based on the video?
  • #5: Anything else you find interesting/intriguing/controversial/thought-provoking from the video? Why?

How COVID-19 has shifted US apparel companies’ sourcing strategies?

The article is available HERE (need Just-Style subscription)

Key findings

First, more US apparel companies prioritize consolidating their existing sourcing base than diversification during the pandemic. Nearly half of the top 30 US apparel companies we examined explicitly say they either sourced from fewer countries or worked with fewer vendors in 2020 than 2017-2019 before the pandemic. In comparison, only about one-third of respondents say they were sourcing from more countries in 2020 than two years.

Second, the desire to form a closer relationship with key vendors and ensure social and environmental compliance are the two primary factors behind US apparel companies’ consolidation strategy. In a time of uncertainty like the pandemic, apparel companies are leaning more heavily on suppliers that have proven reliable, capable, and flexible. Working closely with the suppliers and building an efficient and trust-based supply chain also play a central role in US fashion companies’ COVID-mitigation strategies. Meanwhile, with social and environmental compliance becoming increasingly crucial in apparel sourcing today, companies are cutting ties with vendors that are not adhering to government mandates and proprietary codes of conduct. Notably, US apparel companies’ higher expectations for sustainability as well as social and environmental compliance may have resulted in a smaller pool of qualified suppliers.

Third, the desire to steer away from China and reduce sourcing risks are the two main drivers behind US fashion companies’ recent sourcing diversification strategy. US apparel companies mostly moved their sourcing orders from China to China’s competitors in Asia instead of expanding “near-sourcing. On the other hand, it is not uncommon to see US apparel companies keep a relatively diverse sourcing base to control various sourcing risks in the current business setting.

Fourth, the content analysis further reveals that US fashion brands and retailers commit to sourcing and supply chain innovation in response to COVID-19 and the new business environment. Some specific sourcing strategies are noteworthy:

  • Work with “super vendors,” i.e., vertically integrated suppliers that can execute multiple steps in the supply chain or those with production facilities in numerous countries.
  • Optimize supply chain process to improve speed to market.
  • Adjust fabric and textile raw material sourcing base, although the specific strategies vary from company to company.

By Emma Davis and Dr. Sheng Lu

The State of Apparel Supply Chain Transparency: A Case Study on VF Corporation

With the public’s increasing demand, fashion companies are making more significant efforts to improve their apparel supply chains’ transparency, i.e., mapping where the product is made and knowing suppliers’ compliance with social and environmental regulations.

Recently, VF Corporation, one of the most historical and largest US apparel corporations, released the entire supply chain of its 20 popular apparel items, such as Authentic Chino Stretch, Men’s Merino Long Sleeve Crewe, and Women’s Down Sierra Parka. VF Corporation used more than 300 factories worldwide to make these apparel items and related textile raw materials.

We conducted a statistical analysis (Multivariate analysis of variance, MANOVA) of these factories, aiming to evaluate the state of VF Corporation’s apparel supply chain transparency, including its strengths and areas that can be improved further. The findings of this study will fulfill a critical research gap and significantly enhance our understanding of the nature of today’s apparel supply chain and the opportunities and challenges to improve its transparency.

The results show that VF Corporation’s suppliers in different segments of the apparel supply chain had different transparency performances overall:

  • While more than 92% of tier 1 & 2 suppliers shared their environmental or social compliance information with VF Corporation, less than 60% of VF Corporation’s tier 3 & 4 suppliers did so (note: statistically significant).
  • A higher percentage of VF Corporation’s tier 2 & 3 suppliers (i.e., mills making fabrics, yarns, or accessories) received environmental compliance-related certification than tier 1 suppliers (i.e., garment factories) (note: statistically significant).
  • Meanwhile, VF Corporation’s tier 1 suppliers were more active in pursuing social compliance-related certification than suppliers in other levels (note: statistically significant)
  • However, no evidence suggests that whether from a developed or developing country will statistically affect a vendor’s transparency performance.

The study’s findings have several important implications:

  • First, more work can be done to strengthen fashion companies’ transparency of tier 3 & 4 suppliers (i.e., textile mills making yarns and fibers). Despite the significant efforts to know their garment factories (i.e., tier 1 suppliers), fashion companies like VF Corporation still have limited knowledge about vendors upper in the supply chain. Notably, even VF Corporation doesn’t have much leverage to request environmental and social compliance-related information from these vendors. According to VF Corporation, often “Supplier was unresponsive to VF’s request for information.”
  • Second, the results suggest that vendors at different supply chain levels have their respective transparency priorities. However, it is debatable whether tier 1 & 2 suppliers also need to care about environmental and sustainability-related compliance, and if tier 3 & 4 suppliers should be more transparent about their social compliance record. The growing concerns about forced labor involved in cotton production (i.e., tier 4 suppliers) make the debate even more relevant.
  • Additionally, different from the public perception and previous studies, the findings call for equal treatment of suppliers from developed and developing countries when vetting their environmental and social compliance-related transparency.

Because this case study looked at VF Corporation only, future research can continue to investigate other fashion companies’ supply chain transparency based on data availability. It will also be meaningful to hear directly from tier 3 & 4 suppliers to understand their perception about improving the apparel supply chain’s transparency and related opportunities and challenges.

by Sheng Lu and Lora Merryman

Note: The study will be presented at the 2021 International Textile and Apparel Association (ITAA) Annual Conference in November.