Executive Briefings

Will 'Made in Italy' Replace 'Made in China'?

China's textile industry is a world beater, accounting for over 60 percent of world chemical and synthetic fiber production. Cotton production is lower, but still large, at over 20 percent of the global total, ranking only behind India in 2016. The trend, however, is downwards as China is caught between rising domestic costs, persistent technical and distribution advantages elsewhere.

Will 'Made in Italy' Replace 'Made in China'?

A recent decision by a European clothing manufacturer to source its wool supply in Italy, rather than China, is a sign of changing times, but the implications of this wider trend for China are pretty stark. Although it is just one story, and given the scale of the industry worldwide, could never be more than a straw in the wind, it nevertheless represents the kind of granular detail of widely telegraphed changes in China's economy.

This is not necessarily a new trend. Even in textiles, it has long been clear that China is no longer the prime destination for new investment. About a year ago, for example, stories appeared about Chinese investment in cotton processing in South Carolina in the U.S. This particular story, however, showed how low U.S. energy costs were making it worthwhile to locate processing equipment in the U.S.. There were one or two other factors involved in the decision, such as tariffs on raw cotton imported into China, and no tariffs on processed fabrics etc, but nevertheless, the story highlighted a welcome further integration of Chinese investment into global supply chains, and signaled a hoped-for rebalancing, offering good employment in exactly the parts of the U.S. that were thought vulnerable to Trump's protectionist appeal.

Come November and Trump won South Carolina anyway. But the detail of that story was really about energy costs and raw materials. Labor costs are higher in South Carolina than in China, but no longer so much higher as to discourage the investment altogether. Equally, this investment was part of a pattern of offshoring from China's textile industries, although the biggest movement has been towards South East Asia, and very much in search of lower labor costs.

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A recent decision by a European clothing manufacturer to source its wool supply in Italy, rather than China, is a sign of changing times, but the implications of this wider trend for China are pretty stark. Although it is just one story, and given the scale of the industry worldwide, could never be more than a straw in the wind, it nevertheless represents the kind of granular detail of widely telegraphed changes in China's economy.

This is not necessarily a new trend. Even in textiles, it has long been clear that China is no longer the prime destination for new investment. About a year ago, for example, stories appeared about Chinese investment in cotton processing in South Carolina in the U.S. This particular story, however, showed how low U.S. energy costs were making it worthwhile to locate processing equipment in the U.S.. There were one or two other factors involved in the decision, such as tariffs on raw cotton imported into China, and no tariffs on processed fabrics etc, but nevertheless, the story highlighted a welcome further integration of Chinese investment into global supply chains, and signaled a hoped-for rebalancing, offering good employment in exactly the parts of the U.S. that were thought vulnerable to Trump's protectionist appeal.

Come November and Trump won South Carolina anyway. But the detail of that story was really about energy costs and raw materials. Labor costs are higher in South Carolina than in China, but no longer so much higher as to discourage the investment altogether. Equally, this investment was part of a pattern of offshoring from China's textile industries, although the biggest movement has been towards South East Asia, and very much in search of lower labor costs.

Read Full Article

Will 'Made in Italy' Replace 'Made in China'?