CHIC Shanghai: China's garment manufacturers navigate trade conflicts and rising costs

Rising pressure surrounding the trade conflict between China and the US, as well as growing competition domestically and in other Asian countries such as Vietnam and Bangladesh, demand new measures for China's garment manufacturers.

To understand how manufacturers are handling the situation, while rising costs and consumer reticence shape the global market, FashionUnited spoke with exhibitors at the China International Fashion Fair (CHIC) in Shanghai.

Focus on domestic market

While Chinese President Xi Jinping commemorated the 80th anniversary of the end of the Second World War with high-ranking guests in Beijing last Wednesday, business continued on the busiest day of the Shanghai fashion fair. Events surrounding the military parade in the capital were also followed at the fairgrounds.

The bi-annual fashion fair takes place in March and September. While various brands and designers present their collections at the spring edition, there is a clear focus on production in September. The exhibiting factory operators are mostly active both as Original Equipment Manufacturers (OEMs), where the design comes entirely from the brands, and as Original Design Manufacturers (ODMs), where brands adapt the manufacturers' designs to their specifications.

The majority of manufacturers focus on the domestic market. Only about 20 to 30 percent of exhibitors export goods abroad, according to CHIC President Chen Dapeng at a press conference last Wednesday. This share has decreased since the pandemic, while the number of visitors and exhibitors has continued to grow this year compared to previous years.

Textile and apparel exports remain constant

The global market is shaped by challenges, said Chen, of the China National Garment Association. This includes the trade conflict between China and the US. So far, however, the impact on Chinese manufacturers has not been so severe. According to Chen, exports to the US declined only slightly between January and June. However, deliveries to Europe have increased.

In the first six months, China's cumulative exports of textiles, apparel and accessories grew by 0.8 percent year-on-year, according to the General Administration of Customs of China (GAC). The value of goods in this period was 143 billion US dollars. Looking at the individual segments, apparel exports fell by 0.2 percent to 73.5 billion US dollars. Textile exports, meanwhile, recorded an increase of 1.8 percent to 70.52 billion US dollars.

Manufacturers respond to trade conflict with US

The trade dispute between the US and China is currently on hold until November 10. This also means that the top tax rates announced in April – import duties of up to 145 percent on Chinese products and 125 percent on US products, respectively – are suspended for the time being. However, high levies of 30 percent on Chinese imports to the US and 10 percent on US goods to China already apply. In addition, the duty-free allowance for the import of commercial packages worth less than 800 US dollars has been abolished. This previously exempted them from duties through the so-called de-minimis rule. The change has applied to all countries since the end of August, but China has been affected since May.

The Shanghai Dragon Corporation is responding to the changes in the US market and is changing the product range for its underwear brand Threegun. The Chinese textile producer, which belongs to the Shangtex Fashion Company, is dispensing with products made of cotton in its direct sales via the US online giant Amazon in the United States. This is intended to save costs, explained Samuel Feng, general manager at Dragon. Previously, the products had a cotton content of 40 to 50 percent.

Due to the changes in the US market, the group, which generates the majority of its revenue abroad (90 percent) as a producer for other brands, now hopes to work more with European clients again. It is currently working with 15 larger and several smaller partners in Europe. At the fair, it also held talks with clients from Norway. Together, they are building on long-term cooperation and are already planning for next year.

In addition to Europe, business in the Middle East and several African countries would also continue to grow. The figures speak for a successful strategy. According to Feng, the group is said to have achieved an increase of 5 percent in sales and profit last year compared to 2023.

The Qingdao Qianfeng CapArt International Corporation has raised prices per product by between 0.1 and 0.2 US dollars, a company spokesperson explained. The Chinese cap specialist counts major US sporting goods companies such as New Era and Fanatics, but also clothing suppliers in Europe such as the German menswear brand Lerros and the Bestseller brand Jack & Jones, among its clients.

The US market remains the company's strongest market with a sales share of up to 80 percent. The remaining 20 percent mainly comprises Europe and Southeast Asian countries such as the domestic market and Korea. However, as the cap specialist is also struggling with declining figures overall, it is increasingly looking for new clients in South America.

Last year, production costs rose by 5 to 10 percent for the company from the eastern Chinese city of Qingdao, and order volume fell by about 10 percent. In addition to new clients, the company is particularly reliant on long-term cooperation such as with New Era during this time. "The clients remain, only the volume is decreasing," the spokesperson summarised.

Close exchange between producers and brands is all the more important in the current climate. This is the only way to overcome obstacles such as higher import duties together. The two parties are negotiating the additional costs and sharing them, according to Chen.

Outsourcing and cost reduction

To keep up with increasing competition and reduce costs, Qingdao Qianfeng CapArt has also been investing in a production facility in Ghana since the beginning of the year. In the long term, about 30 percent of the products are to be manufactured there. The focus is on simple models. More complex models and details such as embroidery will continue to be produced in the domestic factory.

The CHIC boss is also observing such a change. Chinese manufacturers are turning to other countries such as Vietnam, Bangladesh, Myanmar and Egypt to outsource part of their production. However, Chen also emphasises that it is only products such as simple knitwear and T-shirts that are manufactured in these countries. For high-quality manufacturing, which requires more technical know-how, production remains in China.

In addition, companies that cannot relocate to other countries because of their specialisation are increasingly turning to new digital solutions. Among other things, the use of artificial intelligence is intended to make production more efficient. This would also allow them to react better to the changes in the US market.

Minimum wages

Another important factor for Chinese manufacturers and their export business is the region in which they are based. Depending on the province, different minimum wage standards apply, which are set by the local government, based on factors such as the minimum cost of living and economic development in the region, according to Chinese minimum wage regulations.

Shanghai currently has the highest monthly minimum wage at 2,740 Renminbi Yuan. The amount was only increased at the beginning of July from 2,690 yuan previously, as various media outlets such as Bloomberg reported at the time. As a result, brands from the US in particular tend to favour suppliers from other provinces, explained Annora Qin, Marketing Manager at Shanghai Senfang Textile Apparel.

The jacket specialist recently entered into talks again with a representative of the kidswear line of Ralph Lauren, but was unable to reach an agreement because the price was too high. The company's export focus is particularly on Europe, where it works with brands such as Helly Hansen, Paul Smith, Pinko and Le Coq Sportif. Japan is also an important export market.