Just read an excellent article describing what is happening with China’s textile industry, in light of China’s most recent (and quite recent) Five Year Plan. The article is entitled, “Five-Year Plan launches China textiles on a new course,” but before any of you non-textile people flee this post, let me tell you: DON’T. This post is relevant for anyone who manufactures product in China, has their product manufactured in China or is contemplating doing either one.

I like the article because it essentially says exactly what I have been constantly hearing: China is no longer necessarily the lowest cost producer, but it still has supply chain advantages far surpassing its nascent competition. The article quotes our own Steve Dickinson, regarding the decline of China as the low-cost producer and why the Chinese government has no problem with China’s low end manufacturers shutting down:

In past years, such companies might have borrowed their way through lean times, but the flow of credit and subsidies has been severely restricted. Steven Dickinson, an international law specialist at the  US-based law firm Harris Bricken, believes the government is deliberately allowing these companies to fail. “They have been tolerated in the past solely because they provide jobs,” he explained in a July 21 post at the China Law Blog. “They provide no other benefit to China and are, in many cases, actually harmful. Moreover, the jobs they provide are for migrant labor, which is a source of social unrest in China. China wants these migrants to return to Sichuan and elsewhere. They want the businesses to operate according to the requirements of Chinese law.”

The article then talks of how many companies are moving some or all of their operations to Vietnam or Indonesia, but many are staying put in China because of its far better developed infrastructure:

Such issues illustrate why China continues to attract investment. “Despite labor costs increasing dramatically in China, one advantage that remains in doing business in China is the quality of the supply chain,” Runckel notes. “In China, everything you need in the textile industry is close at hand, and there are generally multiple suppliers and good competition among them. Recently, many suppliers are also investing in more modern equipment and running continuous operations to better increase their competitiveness. This is helping China to stay at the forefront of textile production.”

In Vietnam and Indonesia, markets are still being developed and the supply chain tends to be less mature, the pool of suppliers more limited and raw material prices higher than in China, Christopher Runckel says.

Chinese textile companies are already using countries like Vietnam for their own production, but using mostly textiles from China. More and more textile and clothing manufacturing will be taking place outside China in the coming years and the article has an interesting graphic predicting where this is all trending. What holds true for textiles and clothing manufacturing holds true for many other low value added products as well and eventually will hold true for higher value-added products as well.

There are all sorts of factors that go into a company’s determining where to produce its product and China is still going to be the best place for most of them. But for many products, it is no longer the slam-dunk that it once was.

What do you think?