China’s Textile Industry Quicken Its Pace of Overseas Investment

“China ranks the first place in the world’s textile trade, accounting for 37% of it.” Lin Yunfeng, the director of International Trade office of CNTAC, said at the Working Conference for the First Half of 2017 of ICC China Trade Investment Policy Committee and Forum on Chinese Enterprises Investing in the United States.

It is learned that China’s textile and garment industry mainly exports labor-intensive products. Many textile and garment enterprises run foreign export business. Thereinto, these enterprises’ exports are relatively large, such as Jiangsu Guotai International Group Co., Ltd., Shangtex, Guangdong Textiles Imp & Exp Co., Ltd., etc. In 2016, their exports were US$ 2.77 billion, US$ 2.61 billion and US$ 1.56 billion, respectively. The main export markets of China’s textile and garment products are the United States, the EU, Japan and other nations. Since the beginning of 2016, China’s textile industry export was under great pressure. According to China’s customs, in 2016, exports of textile and garment decreased by 1.7% (in CNY term) year-on-year, of which textiles up 1.9% but garment down 3.9%.

Lin Yunfeng mentioned that, “In recent years, under the effect of factor cost and trade policy, Chinese textile and garment enterprises have accelerated the pace of overseas investment.” According to the Ministry of Commerce, from 2003 to 2016, the OFDI (outward foreign direct investment) of China’s textile industry totaled US$ 7.63 billion, it is noteworthy that the OFDI in 2016 accounted for 34.86%, more than one third of the whole from 2003 till 2016, of which excluding the investment to the third countries through Hong Kong, Singapore and offshore companies. This demonstrates that the “go global” pace of textile industry is rapidly accelerating. The overseas investment of China’s textile and garment industry is featured by large-scale, and wide-range of destinations, involving more than 100 countries and regions, covering the key areas like Southeast Asia, North America, Europe, Australia, Africa, etc.

Lin Yunfeng introduced that, “there are two modes of overseas investment of China’s textile and garment enterprises. One is investing in manufacturing base, namely, setting up local factories and then manufacturing the products. This mode is mainly located in Southeast Asia and South Asia. For example, Chinese enterprises have invested in 2.5 million spindles in Vietnam, and 70% of the garment factories in Cambodia are invested by China; the other is the value chain integration, i.e. extending worldwide reach by acquisition and merger of raw material resources at both ends of the supply chain, design and R&D resources, brand resources and marketing channels.”

The main driving force for attracting Chinese enterprises to invest in the United States is the legal policies, tax and trade policies. Lin Yunfeng reckoned that, “investment of China’s textile and garment industry in the United States is less but representative. For example, under the South Carolina investment preferential policies, Zhejiang Keer Textile Co., Ltd invested US$ 218 million in South Carolina and got more than 1,000 acres of land to establish a spinning mill; and Suzhou Tianyuan garment Co., Ltd, China’s largest supplier of Adidas, invested US$ 20 million in Arkansas, building fully automated, intelligent garment factory.

However, Chinese enterprises should also be cautious in overseas investment. Lin Yunfeng explained that, “cultural issues and localization of the workforce are the main problems that need to be focused during the process of Chinese enterprises’ investment.” If an enterprise is going to invest in the United States or Europe, it needs to pay attention to cultural differences. Different ways of thinking may lead communication more time-consuming and may encounter problems and misunderstandings during the process of investment and M&A. Besides that, it also needs to consider the local situation to operate during the production process after the investment, otherwise it may lead to investment failure.