US Xinjiang Imports Ban Takes Effect, Further Darkening Trade Relations

US LEGISLATION BANNING the import of products made in Xinjiang unless the importer can prove the product was not created with forced labour went into effect today.

The Uyghur Forced Labour Prevention Act was passed last December and presumes that goods from Xinjiang are made with forced labour. That flips on its head the burden of proof required under existing US bans on importing products made with forced labour.

The act has been roundly condemned by Beijing.

Given the near impossibility of US importers verifying their Xinjiang supply chains on the ground as independent auditors are being denied access, the law will become as good as a blanket ban. How it is implemented, particularly the rigour with which US authorities pursue the diffusion of Xinjiang products throughout supply chains in the rest of China and the region, will determine how dampening the blanket is on trade.

Xinjiang produces more than 90% of China’s cotton, which is used by the textile and apparel industries across the country. Thus the impact of the law will be widespread in those sectors.

According to the South China Morning Post, stocks of unsold cotton are piling up at Xinjiang mills as US importers get their supply chains into compliance. With the next harvest less than three months away, half the cotton harvested last autumn has yet to be sold.

Xinjiang is also a grower of tomatoes for export and a producer of solar-grade polysilicon and electronics components.

The act will further harm China-US relations, regardless of any cosmetic changes the Biden administration may make to Trump-era tariffs on Chinese imports of consumer goods, semi-manufactures and raw materials.

A Sewbot In Time

CHINA IS THE world’s largest exporter of garments, worth some $170 billion a year. So far, the industry has escaped the retaliatory tariffs Washington is to impose on more than 1,300 Chinese exports, no doubt much to the relief of members of US President Donald Trump’s family with clothing brands whose merchandise is made in China.

If any industry is emblematic of China’s rise as an economic power on the back of low-cost export manufacturing, it is probably textiles and apparel.

Low-cost labour has underpinned an army of seamstresses and tailors churning out garments by the million for retailers from the world’s leading brands to cheapest stores. It has also enabled the growth of an extensive ecosystem of spinners, weavers, knitters, dyers, processors and finishers, not to mention makers of fasteners, zippers and trimmings, all backed by cheap and efficient trade logistics.

As happened in Japan and South Korea before it, this has lifted millions of people out of poverty. But rising wages and a greying workforce are putting an end to that model.

Like the car and electronics industries before it, textile and apparel manufacturers in search of lower costs first offshored production, particularly in cheaper labour nations like Bangladesh and Myanmar. The industry’s outbound foreign direct investment hit a record $2.7 billion in 2016.

Now it is turning to automation not so much there but in its developed markets.

One striking example of this that caught this Bystander’s eye. Suzhou-based Tianyuan Garments Co., one of the biggest apparel makers in the country and which numbers Adidas, Armani and Reebok among its customers, is opening a $20 million factory of 300 sewing robots (‘sewbots’) in the United States.

It will make T-shirts for Adidas; 23 million a year once it is running at full pelt by the end of this year, a volume of relentless production that means its economies of scale will make it impossible for cheap labour anywhere to compete with it. Robots can sow faster, indefatigably and more consistently than humans: sweatshops without the human sweat.

The 400 human jobs that will be created at the new factory will support and maintain the robots and in logistics. The twist to the tale is that the sewbots are developed by a US company, SoftWear Automation, whose initial R&D was funded by the US Department of Defence. The US military needs domestic manufacturers of uniforms, clothing and basics such as towels and mats as it has a mandate from the US Congress to buy ‘Made in America’ yet three decades of offshoring has decimated the US textile and apparel industry and thus its potential suppliers.

SoftWear’s sowbots use computer vision to steer the fabric first through cutting and then along the production line through series of sewing needles. This is an automated step beyond the sort of manufacturing companies like Adidas are doing in their robot-aided production lines in Germany.

Tianyaun’s new factory is located in Little Rock, Arkansas, with the state providing $3.2 million in incentives and a 65% break on property taxes to attract it. Another Chinese company, Shandong Ruyi Technology Group Co., is investing $410 million in an automated yarn spinning factory in Forrest City less than 100 miles from Tianyaun’s T-shirt operation.

Shandong Ruyi has a growing portfolio of some 40 global fashion brands, including Bally, Gieves & Hawkes, Aquascutum, the Paris-based fashion group SMCP (Sandro, Maje and Claudie Pierlot) and Italy’s Cerruti 1881. It is moving into an old Sanyo plant that closed in 2007, an unintended symbol of how the industrial world is turning — and one that raises some questions about what ‘America First’ really means in such circumstances.

Once tariffs, duties and shipping costs are factored in, the case for shortening supply chains by shifting production closer to consumers in developed markets becomes compelling. It makes the turnaround of new lines quicker, essential in the fickle and fast-moving world of fashion.

For Tianyuan (and Adidas) there is the additional benefit of its robots being able to sew “Made in the USA” labels into the T-shirts it will be making for its German client. Xu Yingxin, vice-president of the China National Textile and Apparel Council, says Arkansas is becoming another centre for China’s textile industry.

So far, sewbots are limited in their ability to replicate the dexterity of the human hand. They can manage something simple like a T-shirt, but even hemming is challenging, and it will be several years before they can produce more complex garments like a dress shirt.

The industry’s vision of on-demand custom-made clothing that can be delivered to a customer overnight is still far off, but no longer unimaginable. E-commerce retail giant Amazon recently received a patent for a manufacturing system that produces “on-demand” apparel.

For low-wage countries like Cambodia or Vietnam, hoping to follow China’s development path the prospect should be terrifying. The International Labor Organization estimates that more than 43 million people are employed in the textile industry in Asian developing countries. Those jobs will not just go elsewhere; they will just go. The ones that will replace them will require different skills.

With hefty government support, China’s textile and garment makers may be moving out of the labour intensive end of the industry and into higher value-added specialty textiles for medical, engineering, filtration and automotive applications and into highly automated mass production overseas at just the right time.

From Sweatshops To Catwalks

With China fashion week in Beijing in full swing (above), and a recent report that international fashion houses are starting to shifting production out of China, this Bystander thought it worthwhile to republish our piece from last month about the challenges facing China’s textile and apparel industry, and its need to move up market:

 China’s rag trade is the world’s largest. It consumes 45% of the world’s fiber, accounts for a third of world textile exports and now has a huge and fast-growing domestic market for textiles and apparel into which to sell. As best we can guess, the industry has half a trillion dollars in annual sales and employs more than 20 million people. A further 140 million are involved in cotton farming, and millions more in the chemicals industries producing man-made fibers. Our numbers, though based on commerce ministry data, are a guess. Many of the businesses operating in the industry are too small to get counted in the official figures.

One thing we do know is that the textile and garment industry is both privately and foreign owned to an uncommon extent for such a significant Chinese industry. Another is that it faces the challenge of breaking away from its low-cost, high-volume model, like other industries that have thrived in the export-driven phase of China’s growth over the past three decades. The slump in demand in its export markets in the developed world may be temporary, but rising labor costs will be permanent, and the more painful as industry wages are generally lower than in other parts of manufacturing. The high value added parts of its supply chain lie in the hands of others, notably specialist logistics companies.

The rag trade globally has always been a hybrid of  the high-quality fashion market, characterized by modern technology, relatively well-paid workers and designers and a high degree of flexibility, and the low-end, mass production of cheap and standard clothing, such as t-shirts and uniforms by semi-skilled and unskilled, usually female, labour, in which international retailers have the dominant market power. The potentially highest value added part of the business, internationally recognizable fashion brands, are almost completely outside the Chinese industry’s orbit. The country, and Shanghai in particular, does have an emerging cadre of world-class couture designers, some of those work has been making an increasing splash at the biannual Shanghai Fashion Weeks. A collection from Zhang Zhifeng’s Ne Tiger line opened the most recent show, seen above. Yet Shanghai’s best labels are still far from challenging the likes of Louis Vuitton, Chanel, Gucci, Dior and Armani, even inside China where those European labels are the ones that dominate the domestic fashion market.

Every fashion industry cascades down from couture through ready-to-wear to the cheap knock-offs sold on market stalls and needs a textiles industry underpinning it. Redressing China’s textile and garment industry’s structural shortcomings will require a level of innovation beyond anything the domestic textile industry has known. Inevitably, there is a plan. It has been devised by the China Textile Industry Association, a trade body, and officials in Songjiang, one of the satellite towns on the western outskirts of Shanghai and better known for Thames Town, the surreal facsimile of an English home counties market town that has been built there. They plan to build a 2,000 acre industrial zone for the textiles and fashion industries that will be part business park, part R&D center, part fashion expo and shopping mall, and part brand incubator. Two years in the making, a small corner of this project opened a few months back. The full vision will take six or seven years to realise.

The notion of clustering firms, in the hope that the cross-pollination of people, ideas and capital, will foster innovation, is taken from high-tech industries. Fashion Valley, as the zone is being called in an echo of Silicon Valley, will sit alongside Songjiang’s existing industrial zone, already home to biotech, semiconductor and pharma firms.

It will also be close to another essential component of a high-tech industrial cluster, a leading university. Songjiang has several. In particular, the fashion and fabrics-centric Donghua University, whose roots go back to the Shanghai Textile Engineering Institute and which absorbed the textile sections of a number of regional institutions in East China after the Communist Party took power in 1951, maintains a campus in Songjiang. Over the road is the Shanghai University of Engineering Sciences’ new home for its Institute of Clothing Technology, arguably China’s leading fashion design college thanks to its partnership with Paris’s IFA. Neither campus is far from the proposed fashion incubator.

Songjiang is not an illogical spot for such a project. The district has been associated with the textile industry ever since the Mongols replaced rice with cotton as the area’s main crop in the 14th century, leading to spinning and weaving becoming prominent local industries.

The question, asked a thousand times by economic development planners everywhere, and yet to be convincingly answered, is can innovation be systemized? This Bystander doesn’t doubt local bureaucrats’ natural affinity for expensive, large-scale real estate and infrastructure development. And up to a point, in China, if you build it, they will come. Some are told to; others just know to hear the call. Several local firms are already signed up. Developing creative industries and expanding China’s soft, cultural power are all now national priorities.

No doubt, too, that if China’s textile and apparel industry is to escape being stuck in the low-value end of the business it will have to become vertically integrated. To do that it will need to develop both management skills and quality standards along the value chain, as well as dealing with the sustainability and labor issues surrounding the fashion industry internationally. One point in its favor is that the textile and garment industry is suitable for the sort of incremental and process innovation that Chinese firms are starting to become adept at, rather than needing to search for breakthrough products and technologies. Another is that if the textile industry diversifies into technical textiles, for use in the medical, aerospace, automotive and green-technologies industries, for example, it can ride the development arc of those industries, all of which are being championed as strategic national interests.

Best business practice can always be taught, but industrial clusters tend to emerge despite the best intentions of planners. In the U.K. it took more than three decades of economic planning to develop a high-tech company incubator around Cambridge University, known as Silicon Fen. Yet, over the past couple of years, London’s Silicon Roundabout had emerged organically as the place for web start-ups. Closer to home, as well as a thriving fashion industry, Shanghai has an vibrant modern art scene that has grown up around 50 Moganshan Road to the north east, organically and unplanned.

The challenge for the textile and garment industry is give the creativity of designers and fashion entrepreneurs enough free rein to develop world-class brands and labels while providing them with both the technical advances and the business and production disciplines to compete with the established fashion multinationals. In the world’s fashion capitals it is the design and fashion schools rather than industrial parks that play a crucial part in that, places like London’s Central St. Martin’s, New York’s Parsons and FIT, Paris’s Ecole de la Chambre Syndicale and Esmod, Milan’s Instituto Marangoni and Tokyo’s Bunka Fashion College, all of which would fall into the top 10 of most lists of the world’s top fashion schools. SUES and Donghua, which woldn’t rank in many top 50s, will have to break into those ranks.

China has the potential to reshape the global couture market, as it does all luxury markets, because its domestic market is likely to grow so fast and so far. In white goods, Haier is a harbinger of what is possible. It turned a high-end consumer good, wine-cooler refrigerators, into a much cheaper middle-market product, and grabbed a 60% global market share in the process. Unlike as it seems now, it is perfectly conceivable that Shanghai, perhaps even Songjiang, will one day be spoken of in the same breath by fashionistas as Milan, Paris, New York and London.

The Catwalks Of Songjiang

China’s rag trade is the world’s largest. It consumes 45% of the world’s fiber, accounts for a third of world textile exports and now has a huge and fast-growing domestic market for textiles and apparel into which to sell. As best we can guess, the industry has half a trillion dollars in annual sales and employs more than 20 million people. A further 140 million are involved in cotton farming, and millions more in the chemicals industries producing man-made fibers. Our numbers, though based on commerce ministry data, are a guess. Many of the businesses operating in the industry are too small to get counted in the official figures.

One thing we do know is that the textile and garment industry is both privately and foreign owned to an uncommon extent for such a significant Chinese industry. Another is that it faces the challenge of breaking away from its low-cost, high-volume model, like other industries that have thrived in the export-driven phase of China’s growth over the past three decades. The slump in demand in its export markets in the developed world may be temporary, but rising labor costs will be permanent, and the more painful as industry wages are generally lower than in other parts of manufacturing. The high value added parts of its supply chain lie in the hands of others, notably specialist logistics companies.

The rag trade globally has always been a hybrid of  the high-quality fashion market, characterized by modern technology, relatively well-paid workers and designers and a high degree of flexibility, and the low-end, mass production of cheap and standard clothing, such as t-shirts and uniforms by semi-skilled and unskilled, usually female, labour, in which international retailers have the dominant market power. The potentially highest value added part of the business, internationally recognizable fashion brands, are almost completely outside the Chinese industry’s orbit. The country, and Shanghai in particular, does have an emerging cadre of world-class couture designers, some of those work has been making an increasing splash at the biannual Shanghai Fashion Weeks. A collection from Zhang Zhifeng’s Ne Tiger line opened the most recent show, seen above. Yet Shanghai’s best labels are still far from challenging the likes of Louis Vuitton, Chanel, Gucci, Dior and Armani, even inside China where those European labels are the ones that dominate the domestic fashion market.

Every fashion industry cascades down from couture through ready-to-wear to the cheap knock-offs sold on market stalls and needs a textiles industry underpinning it. Redressing China’s textile and garment industry’s structural shortcomings will require a level of innovation beyond anything the domestic textile industry has known. Inevitably, there is a plan. It has been devised by the China Textile Industry Association, a trade body, and officials in Songjiang, one of the satellite towns on the western outskirts of Shanghai and better known for Thames Town, the surreal facsimile of an English home counties market town that has been built there. They plan to build a 2,000 acre industrial zone for the textiles and fashion industries that will be part business park, part R&D center, part fashion expo and shopping mall, and part brand incubator. Two years in the making, a small corner of this project opened a few months back. The full vision will take six or seven years to realise.

The notion of clustering firms, in the hope that the cross-pollination of people, ideas and capital, will foster innovation, is taken from high-tech industries. Fashion Valley, as the zone is being called in an echo of Silicon Valley, will sit alongside Songjiang’s existing industrial zone, already home to biotech, semiconductor and pharma firms.

It will also be close to another essential component of a high-tech industrial cluster, a leading university. Songjiang has several. In particular, the fashion and fabrics-centric Donghua University, whose roots go back to the Shanghai Textile Engineering Institute and which absorbed the textile sections of a number of regional institutions in East China after the Communist Party took power in 1951, maintains a campus in Songjiang. Over the road is the Shanghai University of Engineering Sciences’ new home for its Institute of Clothing Technology, arguably China’s leading fashion design college thanks to its partnership with Paris’s IFA. Neither campus is far from the proposed fashion incubator.

Songjiang is not an illogical spot for such a project. The district has been associated with the textile industry ever since the Mongols replaced rice with cotton as the area’s main crop in the 14th century, leading to spinning and weaving becoming prominent local industries.

The question, asked a thousand times by economic development planners everywhere, and yet to be convincingly answered, is can innovation be systemized? This Bystander doesn’t doubt local bureaucrats’ natural affinity for expensive, large-scale real estate and infrastructure development. And up to a point, in China, if you build it, they will come. Some are told to; others just know to hear the call. Several local firms are already signed up. Developing creative industries and expanding China’s soft, cultural power are all now national priorities.

No doubt, too, that if China’s textile and apparel industry is to escape being stuck in the low-value end of the business it will have to become vertically integrated. To do that it will need to develop both management skills and quality standards along the value chain, as well as dealing with the sustainability and labor issues surrounding the fashion industry internationally. One point in its favor is that the textile and garment industry is suitable for the sort of incremental and process innovation that Chinese firms are starting to become adept at, rather than needing to search for breakthrough products and technologies. Another is that if the textile industry diversifies into technical textiles, for use in the medical, aerospace, automotive and green-technologies industries, for example, it can ride the development arc of those industries, all of which are being championed as strategic national interests.

Best business practice can always be taught, but industrial clusters tend to emerge despite the best intentions of planners. In the U.K. it took more than three decades of economic planning to develop a high-tech company incubator around Cambridge University, known as Silicon Fen. Yet, over the past couple of years, London’s Silicon Roundabout had emerged organically as the place for web start-ups. Closer to home, as well as a thriving fashion industry, Shanghai has an vibrant modern art scene that has grown up around 50 Moganshan Road to the north east, organically and unplanned.

The challenge for the textile and garment industry is give the creativity of designers and fashion entrepreneurs enough free rein to develop world-class brands and labels while providing them with both the technical advances and the business and production disciplines to compete with the established fashion multinationals. In the world’s fashion capitals it is the design and fashion schools rather than industrial parks that play a crucial part in that, places like London’s Central St. Martin’s, New York’s Parsons and FIT, Paris’s Ecole de la Chambre Syndicale and Esmod, Milan’s Instituto Marangoni and Tokyo’s Bunka Fashion College, all of which would fall into the top 10 of most lists of the world’s top fashion schools. SUES and Donghua, which woldn’t rank in many top 50s, will have to break into those ranks.

China has the potential to reshape the global couture market, as it does all luxury markets, because its domestic market is likely to grow so fast and so far. In white goods, Haier is a harbinger of what is possible. It turned a high-end consumer good, wine-cooler refrigerators, into a much cheaper middle-market product, and grabbed a 60% global market share in the process. Unlike as it seems now, it is perfectly conceivable that Shanghai, perhaps even Songjiang, will one day be spoken of in the same breath by fashionistas as Milan, Paris, New York and London.

Latest U.S.-China WTO Trade Dispute Baffles

There is a certain ritual to complaints to the World Trade Organization. And like many rituals its meaning can be opaque to outsiders.

The WTO action the U.S. instigated on Friday against China falls into that class. Washington alleges that Beijing is using export subsidies to promote Chinese-branded exports through cash grant rewards for exporting, preferential loans for exporters and payments to lower the cost of export credit insurance, all in contravention of WTO rules. China said on Sunday that its so-called Famous Brands program operates within WTO rules.

There is a certain irony in the fact that the U.S. Trade Representative announced the action the same day her colleagues in another part of the Executive Branch were announcing that $17.4 billion of taxpayer funds to bailout financial institutions would be used to prop up U.S. carmakers. But we digress.

The timing of the trade action is confusing, though it has been in the making in Washington for at least the past nine months. The current U.S. administration is done in a month. So while it has kicked off the process with a formal request for dispute settlement discussions, it will be up to the new administration to decide whether to take the next step, should those discussions go nowhere, as is usually the case. WTO rules allow the two sides 60 days to resolve the dispute between themselves, before one or the other can call for the case to go to a dispute settlement panel.

At the same time the action comes a couple of weeks before U.S. quotas are removed on January 1 on Chinese textile and apparel products.  So President-elect Obama, who promised to be tougher on China on the campaign trail, has two potential tests of his free-trade resolve in his early weeks.

Whether that is the intention behind this latest action this Bystander frankly has no idea. But what he does know is that this is no time for protectionism to rear its ugly head — in either country.