Due to rising domestic labor costs, Chinese garment companies have accelerated their move to transfer their production bases to Vietnam. Vietnam’s labor costs are nearly 60% cheaper than those in China, and its geographical location is adjacent to China, making it a major candidate for relocating its production base. Although there are uneasy factors such as the confrontation between China and Vietnam on the South China Sea issue, the trend of exploring the transfer of production bases to Vietnam, a new “textile power”, seems to continue.
Shirt sewing factory in Nam Dinh Province, Vietnam
Chinese clothing company Nanxuan, which receives orders to produce sweaters and other knitwear, will expand production in Vietnam. Nanxuan is headquartered in Huizhou City, Guangdong Province. In 2015, it built a factory on the outskirts of Ho Chi Minh City, Vietnam and started production. The second phase of the factory is scheduled to be completed in April 2017.
The main supplier of Nanxuan is Japan’s Fast Retailing Company, which operates the clothing chain “Uniqlo”. Orders from Fast Retailing account for more than 50% of its sales. The Economic Cooperation Agreement (EPA) signed between Vietnam and Japan came into effect in 2009. In principle, Vietnamese textile products exported to Japan will not be subject to tariffs, which also promotes the transfer of production. Nanxuan also plans to explore other new Japanese corporate customers.
Chinese down jacket manufacturer and seller Bosideng will also expand production in Southeast Asia. Leveraging its capital partnership with Japan’s Itochu Corporation, Bosideng has begun experimental production at a Vietnamese textile factory related to Itochu Corporation, and plans to further expand production based on production trends.
Bosideng Chief Financial Officer (CFO) Mai Runquan said in a telephone press conference that the trend of ordering parties to implement a multinational production system is increasing, which has become the reason why the OEM (OEM) business has lost some orders. It shows that the purpose of transferring production is to cut manufacturing costs.
China’s apparel product exports exceed 20 trillion yen per year in Japanese yen, and it has always been firmly established as Asia’s “textile power”. But China’s domestic labor costs have doubled in five years. As this labor cost rises rapidly, cost-cutting pressure from overseas ordering companies that entrust OEM production is increasing, and Chinese companies have to discuss shifting the production of low-value-added goods.
On the other hand, in the spring of 2014, large-scale anti-China demonstrations took place in Vietnam to protest against China’s oil exploration in the South China Sea. Factories of Chinese mainland and Taiwanese companies were targeted. Therefore, transferring production to Vietnam also involves geopolitical risks such as supply chain interruption.
U.S. President-elect Trump has stated his intention to withdraw from the Trans-Pacific Partnership (TPP). The difficulty of the TPP entering into force may also hinder the transfer of export bases that are expected to reduce tariffs. Chinese garment companies move to Vietnam
