In September 2020, Swedish retailer H&M, the world’s third-largest fashion retailer by revenue last year said it had stopped using Xinjiang cotton, following advice from the Better Cotton Initiative. US sportswear retailer Nike also said it would no longer source products from the region and would also ensure that its suppliers were not using textiles or spun yarn from the region. This unprecedented situation led many brands into a tricky situation where they also have China as one of their largest markets and avoiding Xinjiang cotton leads to a bad press in China and clash with the Chinese govt.

China Backlashes Global Brands

For the apparel brands, their dilemma is heightened by the fact that the Chinese government has weaponized China’s consumer market. In fomenting nationalist outrage, Beijing is seeking to pressure the international brands to pick a side — to ignore reports of forced labour or risk their sales in the world’s largest potential consumer market. Even as statements about Xinjiang cotton from apparel companies have failed to ease human rights concerns, they have provoked outrage among Chinese consumers. It was also worth noting that the flurry of boycotts came just a week after the US, EU, UK and Canada imposed sanctions against several Chinese officials over suspected human rights abuses in the Xinjiang region.

Erasing H&M From Internet

State media accused H&M and other brands of improperly profiting from China while criticizing it. That prompted Chinese retailers and internet companies to distance themselves from the Swedish retailer, though other brands still were available on e-commerce platforms. H&M products were missing from major e-commerce platforms including Alibaba and JD.com following calls by state media for a boycott over the Swedish retailer’s decision to stop buying cotton from Xinjiang. That hurts H&M’s ability to reach customers in a country where more than a fifth of shopping is online.
To cope with the massive loss, H&M issued a new communication, beseeching Chinese consumers to return. “We are working together with our colleagues in China to do everything we can to manage the current challenges,” said the statement, which did not mention Xinjiang. “China is a very important market to us.”

Nike and Adidas under social media heat

Major sportswear brands Nike and Adidas also came under attack on Chinese social media over past comments that the fashion brands have made about labour conditions in Xinjiang. The sportswear companies were the latest caught up in a backlash prompted by a Chinese government call to stop foreign brands from tainting China’s name as internet users found statements they had made. Both Nike and Adidas, which have been growing rapidly in China, have said previously that they do not source products or yarn from the Xinjiang region. Adidas declined to comment and Nike did not respond to requests for further comment. Some internet users said they would stop buying Nike and will support local brands such as Li Ning and Anta, while others told Adidas to leave China.

Luxury brand Burberry faced China’s wrath

Burberry lost a Chinese brand ambassador and its hallmark tartan design got scrubbed from a popular video game, becoming the first luxury brand assailed by the Chinese backlash. The company’s iconic plaid design was also removed from the clothing worn by characters in Tencent Holdings Ltd’s wildly popular video game “Honor of Kings”, according to a post on the game’s official Weibo account which won praise from China’s netizens. Last year, Burberry said it did not have any operations in Xinjiang or work with any suppliers based there, adding that it did not approve any form of modern slavery among its suppliers.

Fila, Anta and Levi Strauss Quit BCI

US denim retailer Levi Strauss has stood down from the Better Cotton Initiative (BCI) leadership according to reports . Levi’s s chief sustainability officer, Jeff Hogue, is longer listed on the BCI Council which guides strategy at the cotton NGO . No statement has been issued on this matter – perhaps due to its sensitivity . China-based subsidiary of Italian sportswear brand FILA said that the company had always used cotton produced in Xinjiang. FILA was acquired in 2009 by Chinese company ANTA Sports, which said that it had started the process of quitting BCI. The company’s announcement came after the BCI decided to suspend licensing of BCI cotton from Xinjiang on the ground that it has become increasingly difficult to conduct credible due diligence in the region, echoing Western accusations of labour abuse in the region.

How BCI falls to the ground with its allegations

The Better Cotton Initiative is a not-for-profit organization that was founded in Switzerland in 2005. One of their prime missions is to certify cotton farms globally. BCI has about 2,100 members including cotton farmers, textile companies, and retail brands. In October 2020, BCI said that they planned to stop servicing the area because of persistent reports of forced labour. China, of course, was not pleased with BCI’s statement and in a curious twist of fate, their local BCI Shanghai branch remarked (in total contradiction to BCI Headquarters) that: “they never found a single case related to incidents of forced labour” in the area.

Located in London & Geneva, BCI has gone “radio silent” on the Xinjiang subject and remains unresponsive to inquiries about the situation. BCI even removed their October 2020 Headquarters posting from their website. Faced with a barrage of anger over its position on Xinjiang, an organisation that prides itself on “creating transparency” – has gone to the ground.

With the BCI allegation floating in thin air, and BCI members (like H&M, Nike, Adidas, & Burberry) are still under full attack from Chinese social media accounts. The South China Morning Post reported that China has developed a replacement strategy for the Better Cotton Initiative program. China will use Beijing based Zhongnong Guoji to analyze conditions on the farms and to handle certifications in the region. The new group is called Weilai Cotton. Weilai Cotton spokesperson Zhao Yan said: “We have been living with Switzerland’s (BCI) standards for years, but the country doesn’t even produce cotton. Now It’s time to form our national standards.”

Battle lines have been drawn for long now . We all need to see how the situation pans out in coming months . The whole issue has wide ramifications on the supply chain – increasing its complexities – and we have seen how it has been affecting the whole industry besides a larger impact on cotton grown areas like India .

Table Of Contents

1. All Denim Apparels

a. China

Q. Please let us know more about your company and its history.

Foison is a company focused on denim and we are one of the important denim mills representing China globally. But we are now also going to be focused on non -denim. We will be setting up 4 CDRs this year and making another 5 million yards of piece dyed fabrics. We will have a lot o f new system including water recycling and also we are going to reduce sulphur ,carbon and sodium release by about 80%. We are going to have the entire new machine at this mill and we will focus to make sustainable product in order to protect the environment besides using liquid sulphur.

Q. How much is the capacity of Foison Textile?

Currently, we have the production capacity of 4 million yards of denim fabric and 3 million yards of PFD. We have one rope dyeing and 3 slash dyeing machines.

Q. Amongst the Chinese Denim Manufacturers, where do you see the positioning of Foison Textile?

We are definitely in Top 5 in terms of global recognition and appreciation. Production wise we might soon by 2^nd or 3^rd in China.

Q. Which market is important for Foison? US or Europe?

European Market is used to be a good market but now we have also a good market in America and have associated with lot of good American brands but still Europe is a big market for us. We are exporting 70% to Europe, 20% to America and the rest 10 %; we are making for the domestic consumption.

Q. How’s the domestic market in China?

Not so good, may be few big players can be long lasting and stable. A lot of small brands have come up and their business is based largely on internet (e-commerce) but it’s not easy for them to survive as there is a lot of competition.

Q. There is lot of premium denim brands in China which is selling at very higher prices . Your take on that?

Yes, there are some good brands. But in terms of being able to trust, only a few can be relied upon . Payments are a problem with many of the local brands. Therefore we find that export is better.

Q. Are you not planning to go into Garments Manufacturing?

No! We would like to concentrate on producing best Fabric only. Garment manufacturing side of China is no more competitive as labor cost has been rising for last few years and also we are facing pressure in RMB (Chinese Currency). In 2000, one USD equaled 10 RMB which have reduced to 6.4 RMB now, a reduction of 36.4%. So it’s not easy to survive and also the labor cost was earlier USD 110/month but today we have to pay more than USD 600/month on an average . For very high skilled labor the cost can even go upto USD 2000/Month . So if you compare from Bangladesh, Cambodia and Vietnam, we are far getting much more expensive for Garment production. China has over-developed in last 20 years and it is no more kingdom of Manufacturing. But fabric production is different. It is very capital intensive and investment is huge . China continues to be a very important player for fabrics.

Q. Do you have any specific plans for Sustainability as it is the most important direction the industry is taking

Material wise we have done lot of polyester recycling , cotton recycling programmes and we also use liquid indigo . So according to our record we are number one in water and indigo recycling and we got the last license in China for a dyeing mill. This is a great achievement for us !

Looking at the history of Chinese Denim Market ,Thirty years ago , denim giant Levi Strauss & Co. began producing its iconic jeans in China , eager to tap a evidently endless lot of workers willing to work for few cents an hour which now apparently is starting to vanish. Believing on the economic statistics and market research , over the coming decades , a labor crisis like situation may evolve which will force Levi and other global brands to reconsider their operation in China or even lead to a situation of pack and leave.

Recent developments in the Chinese labor market apparently pointing towards a much bigger crisis for which proactive measures needed to be taken and that too within reasonable time frame. The report mentions about manufacturing units have already started using alternatives and the recent example is an apparel factory in Zhongshan , where lasers are replacing dozens of workers who scrub Levi’s blue jeans with sandpaper to give them the worn look that American consumers find stylish. New Digital printers are being introduced to make intricate patterns on jeans , earlier the workers used to do the same with a mesh screen.

China is also trying its bit to ensure the adequate supply of workforce for the future and therefore announced the abolishment of its one of the old policy which restrict most couples to one child. However , it won’t be able to change much as very few Chinese prefer to have more than one child.

The end of very cheap labor in China is giving a push to many advances in technology resulting of which it will put more emphasis on capital intensive rather than labor intensive techniques of manufacturing but this will make China apparently less central to global manufacturing. But changing consumer tastes—enabled by the same technological change—are diminishing China’s role too.Logistics, taxes and marketing may become more expensive compared to labor costs which could make China less attractive.

Levis began production overseas in Hong Kong in 1966 and later on expanded its production also in Mexico ,Europe and Asia. During the early 1980s, demand for jeans declined, and the San Francisco company laid off a third of its global workforce, according to a Harvard Business School study, and moved more aggressively overseas to cut costs.

In 1986, Levi started to shift its production to China. China’s rise to the world’s No. 2 economy relied on a huge increase in the country’s working-age population, which expanded by 380 million people between 1980 and 2015. In one of history’s greatest migrations, hundreds of millions of rural Chinese headed for cities for manufacturing jobs that were a step up from peasant labor, even though the work paid poorly by global standards.

But China’s working-age population recently peaked, and its so-called demographic dividend has started to turn into a demographic drag. By 2050, the working-age population will decline by 212 million, estimates the United Nations—roughly as many people as live in Brazil, the world’s fifth most-populous nation.

Wages and benefits have already been rising in double-digit percentages for the past decade as workers can command higher rates. Although wage growth may ease this year because of the economic slowdown, the pressure is bound to increase in coming decades as the number of workers plunges.Adding to the shortage, many factory workers will be drawn back to their hometowns to take care of the growing ranks of Chinese older than 60, whose share of the population is forecast to double by 2050 from 2015, to 36.5%. Already, China’s rising labor costs—now $14.60 an hour on China’s coast, adjusted for productivity, compared with $22.68 an hour in the U.S., according to the Boston Consulting Group—have diminished China’s competitiveness. Adding energy costs, China is now a more expensive place to manufacture than Indonesia, Thailand, Mexico and India .

None of this means brands like Levi is going to abruptly pull up stakes. Levi still lists about 200 Chinese factories where it does business, five times as many as any other country. Levi is adapting its laser technology so it can etch different patterns to create the right wash look , avoiding usage of too many workers. Levis is however, using this and many other techniques to bring down its costs . These also include reducing the number of fabrics used in a line and cutting the number of suppliers. It is said to have reduced number of fabrics by 40% in last 3 years and number of suppliers by 50%. But automation is the key which China is going to target. It is already expected to be the largest automation market in the coming years.

China’s loss is becoming gain for many countries including Mexico, Bangladesh, Vietnam and others where the Chinese cake is now spreading out. Factories in Mexico seem to be upgrading productions to take the advantage of new situation and are modernizing and investing.

Still , we need to wait and see how the Chinese govt. aims to handle the demographic changes. However, its unlikely that sectors like apparel will remain lucrative for long as the govt. focuses on hi-tech sectors to get better growth with existing population.

Contrast color trim

Add color to the denim jacket with usage of different fabrics in an interesting way. Designers use a suede or twill come focused pocket, covered shoulders, cuffs and collar, and to create a refreshing summer silhouette, or use a patterned fabric stitching to interpret the folk style theme.

Embroidery at back

Customized denim jacket is one must-have item this season in China. Festival Youth jeans , classic denim jackets with a simple chain stitch embroidery and back positioning design create a refreshing feeling. Designers collections from Japan motorcycle jackets are an inspiration for these jackets.

Zipper Jacket

Wind jacket with zipper replaced the classic buttons. It is with a square cut, durable fabrics and dual chest pockets together to create a pure retro silhouette, or add rib detail design, creating a retro aviator jacket.

Pleated front Jackets

Front jacket with pleated design at the 2013 spring and summer were very popular, light wash, colored denim and canvas, stitching trim to create this style of jacket was new this summer and gets carried on to SS’14. . These stylish fabrics and surface finishing combines the traditional round  and dual chest pockets and waist pockets.

Four bags of jackets

Classic profile of a long section of square locomotive air jacket into a new, western style to create a slim silhouette and practical.This style of jacket from the functional wind jacket pocket tooling draws design inspiration, or by adding a low-waist jacket patch or patch pocket design.

Distressed and vintage look

Designers use to create subtle way to do the old jacket – wear effect of the rough edges and creases, this design is widely popular in the season. Decorative patch holes and and unique design is the key to get the worn out look.

Montreal pattern

The printing on the shirts has  rapidly extended to the denim jacket. All over patterns, washed or damaged blue plaids , stripes are the key for men’s printed jackets. Sometimes  small loop jacquard genre paintings prints and pretty blue discharge printing are also used.

Striking blue

Eyecatching bright blue is one of the prominent color to watch out for. It already was quite trendy this summer and is expected to kick up further next season. Glowing bright red, blue and blue-phase coatingand rich saturated color dyeing are used.

However, all is not so well in China nowadays . The days of cheap labour seem to be thing of the past . A recent report by WWD is insightful and brings out the changes in the Chinese economy as it tries to move to its next stage of development. Some excerpts :

• The cost of labour is continuously rising . Three years ago a skilled worker would make less than $400 a month , but now the wages are in the range of $550 to $600+ . Guangzhou province has raised the minimum wages which is again affecting the costs of production.
• The labour is getting assertive and restive and there are reports of strikes and riots by workers in different manufacturing areas . Recently , over 4000 workers staged a three day strike at a Korean owned factory. Such incidents were unheard of before in China.
• As the prices are going up , the orders are going down. Many units in the Xintang area have shut down for not availability of orders .
  Though there are no numbers available,  a large number of factories have closed down as per people having a pulse on the place.  Many orders are being lost to Vietnam and other neighbouring countries.
• The soft demand from EU and US is not helping the units in any way and is only adding to the woes.

The Chinese govt. seems to have already decided that low cost model of Chinese production will no longer work in the future and its emphasis is to create an economy based on innovation rather than manufacturing by 2020 . This vision will have profound effect on the world manufacturing industry as we will see a large number of textile and other products shifting bases of production to other countries. Countries like Vietnam, Bangladesh, Cambodia are sure to gain from this change. But will larger countries like India  also benefit ???   Possibly yes, because the large retailers and brands would not like to be over dependent on smaller countries for their entire productions. We have recently noticed interest by a few international retailers, who did not have presence here ,  to set up the shop in India.

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Xintang , the Denim capital of the world – with over 260 million pieces of denim production and a very large quantity of jeans production is the worst hit . This city is DEDICATED TO DENIM with over 5000 factories from the very small ones to those who make over 60,000 pairs of denim a day can be found here. The quantity of jeans produced here is so high that the Pearl River which flows nearby has actually turned Indigo Blue !!!

So what’s ailing Denim Production in Xintang and China in General ?

• Rising Labour Costs: The labour cost used to be as low as GBP 30 /month – about 350 Yuan and now is as high as GBP 470 ($760 or 5ooo Yuan) in some places .Though the actual labor rates will fall somewhere between, it is still a huge increase. This phenomenal increase in labour cost is crippling the industry and many factories say that they have not made profits for 2 years. Since the labor class cannot get the price they want to survive in expensive South China, they are moving towards inland China where large construction projects etc are coming up and the cost of living is cheap. This has led to a reduction in availability of labor for production. So its double whammy – high labor costs and reduced supply !
• Cotton Costs : Cotton prices have hit all the countries around the world and China is no exception. It has been hit more by the reduced production in Pakistan, Australia and reduced exports by India have complicated the position in China which is highly import dependent when it comes to Cotton. This has led to a very high increase in denim prices in China. Though the buyers are trying to reduce the impact of cotton prices by using polyesters and marketing as shiny denim, it is not really compensating too much. However, cotton impact may fade out in a year or so..
• Factories Loosing : The jeans manufacturers are hardly making profits where they previously could make up 20 percent easily. Now if they make 5% , they consider themselves lucky. The Chinese Govt. is not able to give the kind of support that it used to give before and the units are finding it difficult to survive on their own.
• Currency Impact : The stronger currency is not helping the matters at all. Just to give an example, the Chinese Yuan was 7.29 to USD on 1st Jan 2008 and is now 6.57 . That is a 10% increase in about 2 years.
• Chinese Govt. Apathy : Chinese government seems to have become apathetic to the denim industry . It is tightening the screws on the polluting denim industry and is enforcing the environmental regulations more strictly – closing many of the factories in the process. The govt. has probably reduced priority for this industry and is focusing on generating employment from alternative projects especially in Inland China. This is not going to help the industry.

So What Does Future Hold For Jeans Manufacturers In China ?

With the current trends, it seems that the jeans manufacturers in China – especially South China –are going to have a tough time making money. They can only survive if they get high priced orders – which are few to come. This will lead to the survival of the fittest with many factories having to either close down or to shift to alternative products. China may still manage to have the productions shifted to inland China where costs are low, but they cannot do it overnight. It will take a long time .

What are the alternatives to China for sourcing denim garments ?

A number of other countries in the vicinity have developed their industry and are coming up well – whether its Cambodia, Vietnam, Bangladesh etc. However, none of them has the capacity to produce the volumes or has the infrastructure to match that of China. Even countries like India and Pakistan would benefit directly by way of increased garment exports or indirectly by way of increased fabric exports. It will take time for them to come up and match the potential of China. The US and EU are encouraging these alternative destinations as production centres , one of the reasons why EU passed the New GSP Regulation.

Will all the impact on prices of denim products , can there be a scenario where the demand for denim products actually fall as the retailers try to promote alternative products ? We have already seen a massive fall in imports of denim products in US in the last quarter of 2010. Is it an indication of things to come ?

Because of smaller housing in China, most Chinese consumers have smaller closets than Americans. Thus, Chinese tend to purchase and own fewer apparel. The report cites a survey by Cotton Incorporated – according to which -  Chinese consumers on average spent 7 percent of their apparel purchases on denim products, while the figure in the US was slightly higher at 10 percent.

The survey revealed that denim jeans are getting more popular in China, especially among the younger set. Denim products’ share of apparel purchases is 8 percent among the consumer group aged 15 to 29, compared with 6 percent of those from 30 to 54.

Denim jeans are the most purchased denim apparel. On an average, each Chinese consumer owns 4.2 denim jeans. The average unit purchase price of denim apparels is US$12 (RMB89). However, 26 percent of consumers said they don’t have any denim garments.

Denim Products Owned By Urban Chinese Consumers

The retail sector in China is getting sophisticated, from modern shopping malls to open market stalls. However, Chinese consumers’ buying habits differ sharply from that of the US. Nearly half of denim products are purchased at department stores, compared with only ten percent in the US. Thirty-one percent is purchased through supermarkets in the US, and only two percent for Chinese consumers. The clothing market – a traditional sale point – provides 16% of the denim sales .  

Sales and demand potential demonstrated by the China market has successfully attracted more international brands as well as luxury products. All top ten denim brands are available in the China market and Chinese consumers are becoming more brand conscious. When shopping for apparel, 38 percent of Chinese consumers prefer domestic brands and 22 percent prefer western brands. A quarter of Chinese consumers said they usually shop for a particular brand, which is very similar in the States at 24 percent.
The following graph by Cotton Inc shows the Chinese love for denim across various age groups  . It shows that though the denim is , understandably, more popular with the younger age groups , the love is there even in higher age groups – portending well for the growth of the denim market in China.

China is a major exporter of denim jeans – men’s and women’s to the EU.
China is very competitive price wise and seems to have been continuously investing in improving quality also. The exports from China to EU have been continuously rising and China is currently the largest exporter of denim jeans/breeches to EU27.

Let’s have a look at the figures of exports of denim jeans/breeches from China  to EU27 

For the years 2007 and 2008, China has experienced a phenomenal growth in exports of denim jeans with more than 50% and 78% growth in the two years respectively. This kind of growth in exports over an existing large base is really good and shows the power of Chinese denim manufacturers to compete with the rest of the world , specially their competitiors like Bangladesh , Vietnam etc who are cheaper to them.  During 2009, the growth in exports slowed down during to general slowdown in Europe , but still maintained  decent 8% plus levels. We may see decent increase in exports in the year 2010 also.

However, this growth that we are witnessing in the last 3 years would fade in comparison to the growth of 960% !that China got in the year 2005 over 2004 when quotas were lifted. China was only restricted by the quota regime and currently nothing seems to hold it back.

Price wise , Chinese exports have registered slight downfalls but their prices still cannot be called as the cheapest as there are other countries exporting at lower prices. But China will not always remain very price competitive. It has issues on its currency – which it may have to devaluate slowly – and it may not always be able to provide the kind of export subsidies it is currently providing with export tax rebate at 16%.

Note:      The EU27 region comprises of the following countries -:

Austria , Belgium , Bulgaria , Cyprus , Czech Republic , Denmark , Estonia , Finland , France , Germany , Greece , Hungary , Ireland , Italy ,Latvia , Lithuania , Luxembourg , Malta , Netherlands , Poland , Portugal , Romania , Slovak Republic , Slovenia ,Spain , Sweden and United Kingdom.

With about three decades of experience , Guangdong province has a developed  denim industry supply chain,  support systems and hence a fully integrated industry. In addition to OEM exports, Guangdong manufacturers have developed their own brands for the domestic market. Guangdong produced about 1.26 billion mtrs of denim fabrics in 2007-2008 ie nearly half of the entire production of China. To put that into perspective, the total production of denim in India is about 600 million mtrs and in US the production is only about 90 million mtrs !! . The total production of denim fabric is estimated to be anything between 2.3 and 2.6 billion mtrs.

Main Denim Production Centres

Xintang, Kaiping, Jun’an and Dachong of Guangdong province are the major denim manufacturing bases in South China. Xintang wholesale market is the world’s largest for denim apparel. Xintang houses over 2600 denim related factories and produces about 31% of total Chinese denim production. The top three export markets for Xintang are US, Panama and Hong Kong.

Kaiping : Three hours drive southwest of Guangzhou , Kaiping has developed a comprehensive denim production chain from raw materials to garment sewing. The area has over 450 companies involved with the denim industry with a denim related turnover of over US$ 600 million .

Ju’nan : An another area of  important denim manufacturing base in China is Ju’nan  where over 1000 denim related companies produce over 100 million mtrs of denim apparel each year ! .

Costs of denim production. Are they increasing ?

Labor Cost :Denim production requires skilled labor and the cost of skilled labor seems to be increasing in China with some factories claiming the monthly cost of skilled labor to be in range of US$ 190-220 and this cost is on the increase. The Chinese Labor Contract Law implemented on 1st Jan 2008 require the employers to the employee’s social security fund – which has further increased operational costs (around $30 per person per month).The increased costs have pushed many factories to relocate to less developed regions in central China, such as Hunan province and Jiangxi province
Environmental issues : According to the Chinese Ministry of Environmental Protection , the textile dyeing industry discharges over 7.5% of national wastewater. Only about 7 % of the waste water produced by the textile industry is recycled . The Pearl river delta is one of the most polluted areas in China and the main reason for this pollution is denim production.The denim manufacturers are  being forced by the government to recycle and reuse effluent waste chemicals such as dyes.  The pressure from the US and the European governments , the Chinese textile manufacturers are forced to upgrade their technology and manufacturing facilities – forcing add on costs .

Appreciation of Yuan : Yuan has appreciated over 8% during the period from 2007 to 2009 and that has again eroded the margins . The currency is further expected to strengthen in the coming times and will further affect the margins of the manufacturers.

Export rebates : But where on the one hand, the costs are increasing, the government has increased export tax rebates for textile and apparels to balance the same. The same was increased on 1st Jan 2009 to 16% from 11% . This has helped the industry suffer the impacts of increased costs , exchange rate losses etc.

The denim industry is China is still growing and with increasing costs, it is trying to upgrade itself with new technology, product innovations , design skills, local brand development . To take  an example , a  Zhongshan denim factory has adopted the latest nano technology to produce lighter and more durable denim fabric.