Apparel Sourcing Intelligence - Worldwide

2014’s Next Big Things that weren’t.3, Part 3: China’s mass relocation

The next set of misguided predictions in 2014 – usually presented as outright facts – were that the world was populated by Chinese garment and textile tycoons desperate to escape their business-unfriendly nation.

1. The Forecasts

Here’s a sentence that could have come from any representative of any country incapable of developing its own garment or textile business. “China’s textile industry is losing its share in the world market and it is very much interested in relocating production facilities to Pakistan to export from here.”  It took me just 22 seconds to find among 476,000 similar examples of self-delusion Google returned.

2. What Happened

Although it is frequently claimed that most Chinese garment making companies are relocating abroad, it is impossible to find any serious attempt to work out how many have.

In the Clothesource database, there are 17,689 factories in China listing some kind of garment making capability – but just 189 of Cambodia’s 994 GMAC members have any Chinese finance. Our best estimate is that outside Greater China (People’s Republic, Taiwan, Macao and Hong Kong)  there are at most 1,000 garment factories in Asia financed by businesses controlled from Mainland China.

We have been unable to find a single significant example of a Greater China garment making business that has gone so far as to close its Chinese operations and open elsewhere in the world. In autumn 2014, though, some other things were apparent:

  •  Some East Asian garment makers headquartered outside Mainland China began to announce that their Chinese factories were becoming less significant contributors to their global production. Hong Kong-headquartered lingerie makers Top Form, for example, announced that its Thai factory now accounted – like their Chinese factories – for 47% of its global bra production. Taiwan-based Tainan Enterprises announced an expansion in Indonesia to 16.8 million pieces a year and in Cambodia to 9.6 million pieces a year by the end of 2014 – both overtaking the group’s 8.4 million capacity in China.

 But Tainan is showing no interest in reducing that formidable Chinese capacity

  •  Media love creating myths of Chinese world take-overs. For example:
    • Yuemai Group, based in Zhuji (Zhejiang province) invested over $50 mn in 2007 to construct Yuemai Nigeria Textile Industry Park, “to facilitate more Chinese textile enterprises to do business abroad”, and since then “has gradually created a complete production chain of spinning, weaving, embroidery, knitting, and garment making in the park”, its President Xu Zhiming claimed  in 2012.

Yet, five years after moving to Africa, and allegedly now claiming it has a  “foothold in seven African countries including Nigeria, Ghana and Tanzania“ Yuemai has just 2,600 African workers – half its claimed global workforce, but fewer than a single serious Chinese factory. It provides no data for African sales or profits.

    • In June, the Chinese press trumpeted the significance of China-Africa Cotton Development, China’s largest agricultural company in Africa. But  though it claims “a presence in Malawi, Mali, Mauritius, Mozambique, Tanzania, Zambia and Zimbabwe,” its  total worldwide 2013 cotton production was 35,000  tons – roughly 0.1% of the world’s total. Its general manager, Wang Chuanyuan, sees the company as a minnow  “forced to compete with the giant multinational cotton companies in the international market, such as ADM, Bunge, Cargill and Louis Dreyfus,” which he believes “have invested billions of dollars over the past decade and developed a complete industry chain including seedling, procuring and processing – but so far we have managed to invest just $60 million.”
  • There have certainly been apparently serious Chinese overseas investments. In early December, for example, Reliance Industries – which became India’s largest private company after pioneering its modern textile industry but tried to exit textiles in 2012 – announced it would put its textile assets into a joint venture with China’s Shandong Ruyi. Ruyi’s agreement to fund a claimed $2 bn Apparel Park at Lahore in Pakistan’s Punjab province, has had a messy history, with October reports it had been unable to secure the finance. But, by year end,  Punjabi officials were insisting there was still Ruyi money in the project. In mid December, Shanghai Challenge Textile announced it had acquired a 24.3% share in Pakistan’s Masood Textile Mills.
  • But a more common phenomenon remains a Chinese announcement of interest being exploded into something far bigger than it really is.
    •  Jiangsu Lianfa Textile,  quoted on the Shenzhen exchange, and currently employing 6,000 with total annual profit of $46 mn on $535 mn sales and assets of $180 mn, was reported in Ethiopia on September 7 to have committed to spend $500 mn on a 20,000-worker apparel plant in Ethiopia.  Three days later, Kenyan TV reported the company had announced it would spend $439 mn on a 30,000 worker factory, with annual sales of $1.5 billion, in Kenya’s Naivasha. There has been no word about any of this from Jiangsu Lianfa. But on January 25, the Kenyan government claimed to have a new mystery suitor: this time promising 40,000 jobs for just $400 mn. In just five months, we’ve gone from $25,000 a job to $10,000.
    • The Rwandan government announced on July 13 it had agreed a previously unknown company, claimed to be the “Chinese based garment company C&H Garments” would spend $10 mn establishing a pilot garment plant in the country’s capital Kigali, recruiting 200 workers by September 2014. Within 24 hours, the factory’s Chinese promoters, “Candy” Ma  Guangsheng  and “Helen” Hai Yu (the C&H) were talking about “employing  more than 30,000 in the next 5 years.”

The official announcement of the development limits itself to a pilot phase of importing equipment from China and training 200 staff, though it quotes the promoters’ “recruiting 200 workers by September 2014.” No-one gave any indication where the $10 mn would come from, or whether C&H Garments actually existed.

Though this project has since maintained an “undead” existence, occasionally being referred to on news aggregation sites as a real factory, September 2014 passed without any evidence of any workers being recruited. No more has been heard of C&H Garments. Ms Hai is now described by a United Nations website as a “Goodwill Ambassador for the UN Industrial Development Organization (UNIDO) and adviser to several African leaders on industrialization.”

Both the Ethiopia/Kenya project and the Rwanda one may have some grounding in reality, and simply be taking longer than anyone expected to show any signs of life. Or they may both be the figments of delusional publicity-seekers,  or of journalists seeking a story. It is impossible to tell in these two cases: but the recent story of Ningbo Shantex casts some light on another explanation:

Rarely daunted by boring things like facts, though, China’s state-controlled media waited a couple of weeks (boring stuff like deadlines don’t matter much if you’re a journalist with a government-imposed mandate to tell then people what the dictator wants them to hear) before dreaming up an extraordinarily different story.

According to Ecns.cn, an online version of the Chinese Communist Party’s People’s Daily on February 3, “the international business news is once again dominated by Chinese companies’ overseas investment and expansion plans. ” Because “Chinese textiles group Ningbo Shantex Co Ltd may make a takeover bid for United Kingdom-based apparel chain Phase Eight.”

Maybe I only read specially censored editions of the WSJ, the Financial Times, Bloomberg or The Economist. Maybe in Beijing, where Ecns.cn is based, a one-off, three week old, 15 second piece on Fox TV’s UK sister company Sky, counts as “dominating the international business news.” But somehow I missed the excitement about the possibility a zipmaker in Ningbo with half a dozen staff, no experience of running a shop and a turnover of less than $5 mn (that’s how Ningbo Shantex describes itself) was going to buy a business a real retailer had just spent about $330 mn (or at least 60 years’ worth of Shantex sales.)

But  they think differently in China. Six weeks after she’d been due to open her garment factory in Rwanda, with not a hint of those 200 workers she’d said she’d recruit. Helen Hai (a former actuary) was summarising the difference between how Chinese and Europeans see business. “The Chinese are willing to jump at an opportunity, not study it at length from outside like in Europe” she told an audience.

Which of course is our problem. We do insist on things like honouring commitments, hiring staff we say we’re going to hire, raising funds and getting buildings put up honestly, and safely. We do have this quaint belief there’s more to doing business than jumping.

Chinese state apologists, on the other hand, see bold action as a benefit in itself. Whatever the consequences. By the following morning, Ecns.cn’s fantasies were being reprinted around the world by other journalists too lazy to check the claims.

3. Why did that happen?

The instinct to show any interest in anything by anyone Chinese as evidence of Chinese gold arriving immediately seems universal: in November an innocent remark by Gao Jung, vice-president of the Chinese Confederation of Associations of Clothes and Textiles, that his members were “interested in importing textiles from Kyrgyzstan” was publicised as “People’s Republic of China to enter the textile markets of CIS through Kyrgyzstan”

Many textile and garment businesses, both in China and elsewhere in Asia, see more scope for new investment outside China than in it: but businesses continued to expand in China as well during 2014. The ideas they are all leaving China, or constitute a soft touch for other countries’ pet schemes, are both equally unrealistic.

4. Is that all?

As with most of these Next Big Things, there’s more to this than just denying the sillier stories. Ecns.com did get one thing right.

Chinese businesses are looking abroad to make things, to buy things and to sell what they’re making – and doing so will expose their management to all sorts of new influences.  That Chinese overseas investment and expansion really will result in a large injection of international business cultures and styles into the way things are done in China – which will probably start with a lot less mindless jumping around and a fair bit more of that studying things at length Chinese like Hai despise so much.

But it’ll probably change the Chinese a lot more than the Chinese will change the places they’re likely to invest in. Especially if they study a few things at length before shooting their mouths off.