High costs push textile buyers to Western suppliers

hong kong/biella — 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 high-profile 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 $284 billion in 2015, according to data from China’s National Bureau of Statistics, the Ministry of Industry and Infor- — Reuters mation 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 $0.57 per kg from $0.82/kg, according to International Textile Manufacturers Federation (ITMF) data.

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

That proximity is also an advantage at a time when Western clothing brands are under pressure to offer more collections, and customers increasingly want customised looks. Their suppliers need to be closer, and faster.

“In China ... their supply chain is not close, and is scattered, giving (Italy) a competitive advantage,” said Ercole Botto Poala, chief executive officer of Italian textile producer Reda.

Italy’s textile imports from China fell 8.7 per cent 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 per cent to €165 million in the same period, though total textile exports last year dipped two per cent to €4.3 billion.

For buyers, quality and transparency are also key. “Before, given (brands) were paying much less, they turned a blind eye to quality,” said Giovanni Germanetti, director general of Italian yarn and textile producer Tollegno 1900, one of several producers who told Reuters that clients were returning for what he described was better value for money. — Reuters