A Detailed Analysis Of China Textile And Apparel Industry Chain
As a relatively capital-intensive textile industry in China, it has very significant economies of scale. From cotton to garments, the entire textile industry chain covers all processes of garment manufacturing. The core of the study of the textile and apparel industry, which is traditionally a good cash flow industry, fundamentally lies in the study of the supply chain and supply chain management, which is delivered to consumers in different ways through brand owners and channel operators.
Currently, the Chinese market is both the world’s number one consumer market for clothing and China is also the world’s number one supplier of textiles and clothing, and the share of textiles continues to rise. The various segments of the textile and apparel industry chain mainly include raw material supply, spinning, weaving, printing and dyeing, finishing, garment production, and branded garment management. Among them, the most prominent technical barriers are spinning and dyeing.
Upstream Of China Textile And Apparel Industry Chain
The upstream textile manufacturing industry is affected by commodity prices such as cotton and oil, similar to the manufacturing industry, and is cyclical, with exports for export, labour, fixed assets, production efficiency, production scale, exchange rates and environmental policies.
Raw materials include cotton, chemical fibers, leather, wool, etc. In general, the cost of cotton accounts for 50-70% of the cost of textile manufacturing enterprises, China’s cotton imports are limited by quotas, and cotton prices fluctuate more significantly up and down. Data show that in 2020 China’s cotton production 5.91 million tonnes, an increase of 21,000 tonnes or 0.4% over the previous year. From the supply side, China’s cotton supply is currently maintained at the level of 6 million tonnes per year, while the current warehouse consumption ratio is already in a normal state.
From a structural point of view, China’s domestic northwest inland, the Yellow River basin, the Yangtze River basin, three major cotton areas, including the northwest inland in Xinjiang cotton area is the main force. Mainly due to the alkaline nature of the soil in Xinjiang, the summer temperature difference, sunshine, with the unique conditions for growing high-grade cotton. Based on this, Xinjiang’s cotton sowing area continues to increase as a percentage, with Xinjiang accounting for 76% of China’s total sown area in 2020, with a production of 5 million tonnes in the same year, contributing to 85% of the total production in China.
The chemical fibre industry is the upstream of the textile and apparel industry, mainly providing the chemical fibers required for fabric spinning. According to statistics, the global fibre market has a market share of over seven layers of chemical fibers. Spinning yarn is divided into white yarn, colour yarn and colour spun yarn, etc. Currently, about 90% of the global production capacity of colour spun yarn is concentrated in China, which has formed an oligopoly pattern. By the end of 2019, the total production capacity of China’s colour spun yarn industry was about 10 million spindles and the industry market size was around US$5.7 billion.
The weaving segment is relatively standardised and garment manufacturing is more labour-intensive. Although there are still distinctive processes in the production process, the barriers are relatively low. The printing, dyeing and finishing process mainly reflects the company’s pollution treatment and finishing capabilities. The finishing process, which gives the fabric functional characteristics such as waterproofing and UV protection, is the most technical barrier to the dyeing and finishing process.
Upstream industry manufacturing enterprises mainly rely on export sales, the core competitiveness is mainly in technology research and development capabilities, supply chain management capabilities, production capacity layout, scale effect and other aspects.
Middle Reaches Of China Textile And Garment Industry Chain
The garment manufacturing industry is in the middle and lower reaches of the entire garment industry chain, and is also a more concentrated area for operators in China’s garment industry, characterised by a fully competitive industry.
The garment manufacturing segment, being mainly labour-intensive, has relatively small capital expenditure, but at the same time has less added value and relatively low gross profit margins. The improvement of profitability mainly relies on the improvement of per capita efficiency and the rational planning of the use of raw materials. Midstream garment manufacturing has three modes of OBM/ODM/OEM, with lower gross margins in that order. The direction of product sales is divided into export and domestic sales, with export processing and manufacturing accounting for approximately 60% and the rest being domestic brand retail sales. The proportion of domestic sales is on the rise due to the year-on-year increase in labour costs and raw material costs in China.
Downstream Of The China Textile And Apparel Industry Chain
The core competitiveness of the downstream brand retail industry is mainly reflected in the layout of sales channels, brand development and operation capabilities, product design and development, supply chain management and other aspects.
The further downstream the textile and apparel industry chain is, the higher the gross profit margin. The profits of brand owners and sellers are much higher than those of processing manufacturers, at around 40-50%, while the gross margin of garment manufacturers is only around 15%. The Chinese apparel industry has a CR8 of 9.4%, much lower than Japan, South Korea, the US and the UK, and is in a lower level of fragmented competition.
Looking at specific industry chain segments, top companies with R&D, efficiency and vertical integration capabilities at the manufacturing end have broader development prospects, while top companies with potential for increased concentration of functional brands, as well as outstanding brand value and efficient retail management deserve more attention.
Competitive Pattern Of China Textile And Industry Chain
China’s textile and apparel industry chain is currently growing slowly and highly fragmented as a whole. However, the industry top has strong bargaining power, a mature industry chain and leading international competitiveness. On the one hand, overcapacity and cost pressures are squeezing small and medium-sized textile enterprises that are not doing well; on the other hand, the trend of consolidation within the industry and the tendency of brands to select the best from the best in terms of suppliers are favorable to the top of the industry.
The simple business model of the textile and apparel industry is a cycle of demand-driven capacity investment, profitability and cash from production and sales, and further cash investment to drive growth, so core indicators of concern include production and sales volume, unit price, gross margin, accounts receivable and payable period and capital expenditure.
Against the backdrop of rising labour and material costs in China’s apparel industry, demographic dividends are gradually emerging in countries such as Cambodia and Vietnam. Leading Chinese apparel manufacturers are pushing forward with global capacity allocation and shifting production bases from China to low-cost overseas regions such as Southeast Asia, helping to reduce costs, increase gross margins and create higher barriers to entry.
Over the past decade, both the supply and demand sides of China’s textile and apparel manufacturing industry have been in an environment of reshuffling and change following the waning of the dividend. With the opportunities and challenges, a number of top companies with competitive advantages have emerged in China. Some Chinese domestic brands have returned to a rapid growth track after the inventory crisis in 2012-2013, and continue to increase their market share in response to competition from international brands.
China Textile And Industry Chain Continue To Grow
Dividing finished textile and apparel products by category, we compare the growth and pattern of each category: sportswear > children’s wear > women’s wear > men’s wear and men’s shoes > women’s shoes.
The sportswear and children’s apparel sectors are in a high boom track going forward. Sports brands have built up deep barriers with their continuous investment of resources in R&D and marketing, and likewise built up resource barriers in the industry chain. Similarly, top upstream suppliers and top downstream channel players also tend to cooperate with top brands that have long-term growth prospects, and strong alliances are the way for top players in the industry chain to maintain long-term competitiveness.
China’s textile and apparel industry as a whole is growing slowly, with an outflow of low-entry barrier and value-added industries to low-cost countries and regions, and a clear structural differentiation in the industry. But the industry as a whole with strong international competitiveness, companies that can form a virtuous cycle of barriers in terms of demand, inputs and profitability will continue to have opportunities for growth beyond the industry, thus forming a virtuous cycle where the key lies in leading cost control capabilities and high value-added output.
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