China’s pain, Italy’s gain: High costs push textile buyers west

HONG KONG/BIELLA, ITALY: International textiles buyers are increasingly switching away from China, and back to Western suppliers, as rising labour, raw material and energy costs make the world’s dominant producer more expensive.

In Biella, a small town in the foothills of the Alps at the heart of northern Italy’s wool industry, factory owners say a narrowing price difference with China and demands for nimbler production nearer home are winning back higher-end customers.

In the office of his family business, Alessandro Barberis Canonico recounts how one highprofile European client called him recently to say he was giving up on China because of rising costs there and the increased demand for quality – and would need help from Biella for a big collection.

“He had tried his luck going abroad; things did not go well, so he’s now back,” Barberis Canonico said.

For sure, China remains a world leader in textiles: employing over 4.6 million people, contributing a tenth of GDP and with exports, including apparel, of US$ 284 billion in 2015, according to data from China’s National Bureau of Statistics, the Ministry of Industry and Information Technology, and the China Chamber of Commerce for Import and Export of Textile and Apparel.

But wages there have been rising at an annual compound growth rate of more than 12 per cent, outpacing the economy, and are simply no longer cheap enough to compete just on price.

At the same time, China’s textiles sector faces rising costs of inputs such as cotton and wool, hefty import taxes for basic manufacturing equipment, and costlier environmental rules.

The government’s five-year plan for textiles, released in September, acknowledged that higher costs are weakening its international advantage, and it faces a ‘double whammy’ from 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 per cent between 2008 and 2016, to US$0.57 per kg from US$0.82/kg, according to International Textile Manufacturers Federation (ITMF) data.

The hourly wage for a Chinese weaver last year was US$3.52, according to the ITMF, up 25 per cent since 2014, though still a fraction of the more than US$27.25 paid in Italy, an increase of 9 per cent over the same period.

“When China’s wages are not that low, the process of shipping materials so far to China and then shipping products back to Europe becomes a lot less attractive,” said Shiu Lo Mo-ching, Chairman of Hong Kong General Chamber of Textiles Ltd and CEO of textile manufacturer Wah Fung Group.

“They’d rather take the production back to Europe. This trend has been very obvious.” — Reuters