In recent times, both in industry interviews and in major media reports, the impact of the strong recovery of Vietnam’s textile industry on China has been mentioned many times. Some companies have even raised concerns about labor costs, trade agreements, etc. Analysts believe that in the future, more textile orders from China will be transferred to Southeast Asian countries such as Vietnam. So is this a long-term trend or a short-term phenomenon? To this end, reporters analyze the situation through authoritative interpretation based on the current situation.
Recently, the Industrial Economics Research Institute of the China National Textile and Apparel Industry Federation released news that since the second half of 2021, with the increase in COVID-19 vaccination rates, relevant epidemic prevention measures in Southeast Asian and South Asian countries have gradually been relaxed, and trade and manufacturing have experienced a severe epidemic in 2020. After the shock, there was a rapid recovery, and the economic recovery process of emerging economies in the Asia-Pacific region such as Vietnam, Bangladesh, and India has accelerated. The strong recovery of the domestic demand market and the continued growth of export trade have become the core support for the continued recovery of the manufacturing industry in Southeast Asia and South Asia, and have driven their international trade in textiles and clothing to achieve good growth for several consecutive months.
Signs of strong recovery in Vietnam’s textile industry can also be seen from its exports. Since 2022, driven by the strong rebound in manufacturing, Vietnam’s textile and apparel exports have achieved substantial growth. Vietnam Customs data shows that from January to April, Vietnam exported yarn, other textiles and clothing to the world totaling US$13.77 billion, a year-on-year increase of 21.4%. Among them, the export value of yarn was US$1.94 billion, a year-on-year increase of 14.9%; the total export value of other textiles and clothing was US$11.83 billion, a significant year-on-year increase of 22.2%. The continued recovery of overseas terminal demand has accelerated the recovery of Vietnam’s textile supply chain, and the demand for textile raw materials and finished products has rebounded significantly. From January to April, Vietnam imported cotton, yarn and fabrics from the world totaling US$7.17 billion, a year-on-year increase of 14.4%. Among them, the import value of cotton, yarn and fabric was US$1.22 billion, US$900 million and US$5.05 billion respectively, a year-on-year increase of 22.2%, 3.4% and 14.8% respectively.
According to data from the General Bureau of Statistics of Vietnam, in the first quarter of 2022, Vietnam’s gross domestic product (GDP) reached approximately US$92.175 billion, a year-on-year increase of 5.03%, continuing the growth momentum since the fourth quarter of last year.
RCEP expands trade with ASEAN
China still occupies the dominant position in the chain
On January 1 this year, the Regional Comprehensive Economic Partnership Agreement officially came into effect, injecting new vitality into free trade and multilateralism. Relevant data shows that in the first quarter, my country’s textile and apparel exports to the other 14 RCEP member states totaled US$21.4 billion, a year-on-year increase of 12.3%, accounting for 29.6% of my country’s total global textile and apparel exports during the same period.
On May 13, Vietnam’s “Customs Online” also reported that Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association (Vitas), said at a seminar on sustainable production of textile supply chains organized by Vitas and IFC that in the first four months of this year, Vietnam’s textile and apparel industry Export volume has reached nearly 11 billion US dollars, a year-on-year increase of nearly 21%. The signed free trade agreement brings huge opportunities to Vietnam. In particular, the RCEP agreement that has just come into effect in early 2022 is a great opportunity for Vietnam.
In fact, China plays the role of the main engine in RCEP.
For example, we export cotton to Vietnam, which processes it into primary products such as fabrics. In this chain, Vietnam only develops processing trade, and the chain is still dominated by China. Of course, countries such as Vietnam, Cambodia, Laos, and Indonesia will take advantage of RCEP in the future to keep up with China and achieve their own development.
So, why is China playing the main engine role in RCEP? Wei Jianguo, former Vice Minister of the Ministry of Commerce, believes that there are several reasons:
First, after years of reform and opening up, China has accumulated rich experience and has one of the most complete industrial systems and chains in the world, as well as an efficient, high-level and flexible technician team.
Second, China has a large consumer market, including a large market for production materials and a large market for daily necessities. No matter which country in RCEP it is, none has the size, capability and level of development of China’s economy.
Third, China has always treated other countries as equals and coexisted peacefully. It has not established any trade discriminatory rules or policies, and it is not like the United States that frequently wields the big stick of trade protectionism and hegemonism. I believe that under the system of global trade rules such as equality, mutual benefit, and common development, China can win more friends, and these countries will also be embedded in China’s supply chain and industrial chain.
In short, in the industrial chain within the RCEP framework, China has the status and role of the chain leader. While China itself is developing, it will also drive the development of downstream countries such as Vietnam, and even drive the development of buyer markets such as Japan and South Korea. It is unlikely that Vietnam will replace China as the world’s factory.
Chinese textile companies have a global presence
Complementary with Vietnam in the industrial chain
It is worth noting that although many orders go to countries such as Vietnam, many are still undertaken by Chinese companies.
As we all know, China’s textile industry was one of the first industries to “go global” and lay out the global industrial chain. �Hong Textile Group is one of the largest cotton textile manufacturers in China. It began to deploy overseas production bases in 2006, mainly purchasing land in Vietnam to expand production capacity. In addition, the company also has factories in Uruguay, Turkey and other places. The company has started building the Haihe Industrial Park in Vietnam since 2014 to create a full industrial chain covering raw materials, spinning, manufacturing, dyeing and finishing, garment making and branding. Up to now, the subsidiaries of Rainbow Galaxy, Rainbow Dyeing and Finishing, Rainbow Technology, Lan Yandenim Clothing and other products have completed their settlement in the industrial park.
Blum Oriental is one of the two giants of colored spinning yarn in my country. It has started building production projects in Vietnam since 2013. At present, Vietnam has a total production capacity of 1 million spindles of yarn, accounting for 60% of Blum’s total production capacity. In July 2021, the company built a new 390,000 spindle yarn project in Vietnam, and it is expected that production capacity will be gradually released from 2022 to 2023. In terms of revenue, Vietnam has also accounted for about 60% of Blum Oriental’s total revenue.
After Vietnam gradually lifted its lockdown, domestic textile leaders continued to focus on the local market. On March 30, Lu Thai Textile disclosed that its wholly-owned subsidiary Wanxiang Textile planned a total investment of approximately US$210 million in Tay Ninh Province, Vietnam, for the construction of a production base for fabric products such as woven and knitted fabrics. Lutai Textile stated that this investment is intended to efficiently integrate domestic and foreign resources and effectively avoid the impact of potential trade barriers. At present, due to epidemic prevention and control, containers cannot be guaranteed and logistics is not smooth. As a result, orders from China are still decreasing, while orders from Vietnam are increasing. But when we look at the development of an industry, we cannot just look at the performance of one month, one quarter, or one stage, but we must look at the development performance of the entire year or even longer. Compared with countries such as Vietnam, the complete and efficient supply chain system established by my country’s textile industry reform and opening up is obviously beyond the reach of Vietnam in the short term.
Labor force is the bottleneck of development but not the biggest constraint
To occupy the high end of the value chain
In recent years, due to the gradual disappearance of the demographic dividend, the phenomenon of relocation of China’s textile industry has attracted attention. That is, some people attribute industrial relocation to the increase in wages of Chinese workers.
For example, in Shenzhen, you may not be able to recruit workers with a monthly salary of four to five thousand yuan. In Vietnam, workers’ monthly salary is only about 1,500 yuan. The wages of Chinese workers are several times that of Vietnam, which has led to the loss of China’s manufacturing advantage. So, how does China’s manufacturing industry maintain its advantage? In this regard, some people have proposed two solutions: one is to lower workers’ wages, and the other is that in the future, China will mainly develop mid-to-high-end and high-end industries and transfer some low-end or labor-intensive industries out of the country.
In this regard, Wei Jianguo believes that these views and solutions are all misjudgments and wrong. Industrial relocation cannot be attributed to the disappearance of the demographic dividend. On the contrary, we should solve the problem of income gap and the gap between east and west by raising workers’ wages and achieve common prosperity. “To follow the trend, China’s manufacturing industry must work hard to improve the allocation of total factor productivity, rather than reducing workers’ wages to maintain the competitiveness of the manufacturing industry.” Wei Jianguo said, “Germany and Japan, two manufacturing powerhouses, Not only do they have high manufacturing levels and high-end industrial chains, but their labor costs, that is, workers’ wages, are also much higher than ours. Therefore, it is untenable to say that high workers’ wages lead to the outflow of orders or even the relocation of manufacturing industries.”
The solution lies in improving total factor productivity and labor productivity, and China’s manufacturing industry is developing from low-end to high-end. In the future, we will increase the level of opening up to the outside world, further create the best business environment in the world, respect the protection of intellectual property rights, etc., through a series of measures to stir up global production factors, attract global capital, technology, talents, etc., and ultimately realize the optimal configuration. Through more than 40 years of reform and opening up, China has established itself as the world’s factory. In the next step, China should aim to become the world factory for global high-precision manufacturing.
Wei Jianguo believes that there are prerequisites for becoming the world’s factory, and the most important conditions are three:
First, there must be a production chain and supply chain with complete departments, complete efficiency, flexibility, and seamless upstream and downstream connections. Just from the perspective of logistics efficiency, Vietnam’s current infrastructure such as ports, airports, and highways is not perfect.
Second, in addition to hardware facilities, from the perspective of software facilities, becoming a world factory requires a high-level team of technicians. For example, the reason why China has become the world’s factory is not only because it has a large labor force, but also has a skilled workforce of one to two hundred million people.
Third, there must be a market-oriented, legal and international business environment. From the top to the grassroots, various departments can quickly negotiate and form synergies, instead of having to deal with multiple policies and hinder investors.
Judging from the above three conditions, Vietnam still has some way to go. It will not be able to become the world’s factory for a while, nor will it be able to replace China as the world’s factory.
</p
