SHANGHAI — Even as the ongoing trade war between the U.S. and China rages, spinners and weavers showing at SpinExpo Shanghai maintained a generally upbeat mood. In fact, it seems the diplomatic spat has spawned creativity in China and led to local companies chasing opportunities domestically and internationally.
Uncertainty surrounding U.S. business was rife, though, due to the Trump administration placing tariffs on certain consumer goods produced in China, which reached as high as 25 percent, and threatening even higher tariffs and on more products. This has led some Chinese manufacturers to turn their attention away from the U.S. market and focus on drumming up business from within the country in order to maintain high demand.
The belief that China is capable of maintaining strong growth through domestic demand is ingrained in many local suppliers. State-owned enterprises in the sector have an added advantage. “Our company is a state-owned company and we do a lot of business with the Chinese government, such as with the police department and other government departments. For instance, making the railway bureau coat. We do very little business with American clients,” said Tom Tsai, a sales manager at spinning and knitwear manufacturer Jiangsu Jianlu Worsted Co.
China is a nation that is proud of its achievements and recent rapid economic growth, with nationalistic sentiment simmering on the surface of the trade war. “If we did some business with the Americans, our price would be higher because the tariff is going up about 25 percent,” said Tsai. “For the American market, of course, we will not lower our prices. It is a war caused by America, not China. Why should we decrease the price to satisfy America? It is not fair. We don’t need to do business with America. Actually, now we do very little business with America. We can do business with other countries. The world is not only America, there are many other countries — England, Italy, Germany, some other European countries. I’m going to do business with Kuwait and Nigeria.”
There is a worry that Chinese manufacturers’ more recent focus on domestic growth could have a negative impact on international buyers.
“I think maybe they are becoming a bit more focused on themselves. I have felt that in the last 10 years. [Chinese manufacturers] are not as interested in foreign buyers as they are in their local Chinese buyers. I feel like they are not as dependent on foreign buyers anymore and you don’t get as much attention as you got 10 years ago,” said Pernille Halle, creative director of Danish brand Style Butler.
However, Halle made the point that manufacturers are more likely to do customized orders for Europe, whereas domestic buyers will choose from a selection already created. “For innovation, they still need Europe,” said Halle.
The trade war did not dampen spirits at the fair, with many suppliers claiming it actually provided a good incentive and opportunity for Chinese businesses to further climb the supply chain to luxury products.
“The trade war is not affecting our business now, but somehow we think it may become an opportunity,” said Nicolas Denna, export manager for Italian spinner Zegna Baruffa Lane Borgosesia. “We are working in the high-end sector. Most of the textiles being exported to the U.S. are the very competitive mass market and if this mass market moves to Vietnam or Burma, it means that the people here will have to find a way to reinvent themselves. And what can you do if you are not in the mass market? You go to a higher level of clothes. This is where we can have our product to sell.”
Some secondary businesses in the sector are experiencing uncertainty over the long-term potential knock-on effects of the trade war on the industry. “At the moment, I have to say that a big part of our business is in China, so the trade war doesn’t directly influence us that much. But we don’t know. If the trade war influences our customers, then it will influence us. The exchange rate is the biggest worry as it influences the price directly. Then, if a lot of tax is added, maybe producing in China would not be that profitable,” said Leila Guo, marketing manager for knitting machinery manufacturer Santoni Shanghai.
However, exhibitors referenced the strong domestic market and rapidly growing e-commerce sector as the solution to the uncomfortable position in which a trade war could put local suppliers and manufacturers. “It could push Chinese factories to put more eyes on the Chinese domestic market. Especially now, as e-commerce is booming a lot. I think in the past year it contributed a lot to our business. In China, on WeChat, every one of us is the seller. I think this also encourages the buying process,” said Guo.
American manufacturers and buyers were also at the show, putting on a positive face and citing their innovation and creativity as unique selling points to weather the trade war storm. “It hasn’t affected us yet, but I think we are going to be OK. I don’t speak Chinese, but as far as I know there aren’t any concerns [about the trade war with potential domestic customers],” said Roberta Ruschmann of U.S. fiber manufacturer Meadowbrook Inventions, which produces distinctive soft metallic staple fiber.
In terms of domestic innovation, Chinese knitter Di Wei is a good example. The company has invested heavily in new technology to offer luxury, seamless knitwear. “We are a little bit worried [about the trade war], but we are unique and we pay attention to investing in the machinery. The U.S. market does not have our technique. But for the coming year, we will be looking for other countries like the U.K. and Northern Europe because of the trade war. We don’t want to stop [business with the U.S.], but maybe it will slow down. The U.S. companies, before they buy 10 styles, now they buy four or five styles, because of the tax,” said Debbie Leung, general manager of Di Wei.
As the domestic market climbs the supply chain toward luxury production, smaller knitters, weavers and yarn producers have closed, unable to compete with the lower prices offered in other Asian countries. “Smaller factories are slowing down due to globalization. Lots of production has passed to Cambodia, Thailand, Morocco, Bulgaria, Vietnam,” said Leung. However, companies that invested in machinery to create innovative products are surviving and continuing to compete on the global market.
Fair organizer Karine Van Tassel remains positive about the outlook for China in the face of recent challenges. “It’s booming and it is going more and more sophisticated. It is no longer a market of manufacturing. It is definitely a market of fashion. They have moved up. They have a young generation that is rich and consuming luxury products. So, this is driving the market, luxury,” said Van Tassel, who also organizes SpinExpo in New York and Paris.
In total, 10,322 visitors attended the 32nd edition of the Shanghai fair for fall-winter 2019-20, with neighboring Zhejiang province representing a higher proportion of attendees than Shanghai. It was also noted by the fair organizer that there was a growing number of European and Taiwanese visitors at the three-day show.
“Most of the exhibitors from China are facing a domestic market that is better and better, and asking for more and more luxury products. Our show is not a low-level show. Most of the people selling here are medium to high-level and the market is fitting our exhibitors. It is what we forecast from the very beginning — that China would be the luxury market,” said Van Tassel. “China is buying more expensive than the export market, yet they are much easier in terms of quantity and delay because they are at home, so there is no shipment. It is an easier market for [domestic manufacturers].”
Buyers and suppliers talked about the surge in demand for high-end goods in the local market. “Everyone is doing [the China] market right now as the American market only requests lower and lower prices because they are under pressure. They only ask about the price because most of them are on the stock market, so are controlled by calculations and not by the real situations. Chinese buyers have a different customer base,” said Carly Chan, a yarn designer for spinners Wuxi Shilead Spinning.
Recently, in the region surrounding Shanghai, many dye houses were shut down by the local authority because of stringent environmental laws being put in place by the central government, which impacted the supply chain domestically and internationally. “This year, the government imposed very strict rules about dyeing and environmentally friendly practices. For a lot of factories, the [authorities] controlled the production and controlled their working time. Even stopped them,” said Chan.
For forward-thinking factories, such as Wuxi Shilead Spinning, that invested in environmentally friendly practices, this recent clampdown has created more opportunities and increased business. “We have become more stable. Even those offshore companies in Bangladesh, they have a lot of mills, but they are not working well because they also purchase the yarn from China. They cannot get all the yarn because of the dye house situation, so a lot have been asking us if we can help,” said Chan.
For the Chinese consumer, there is a consensus that eco-friendly products and practices do not necessarily increase sales. “Chinese brands are huge, but consumers are still in the phase of liking quality, the content, wool, cashmere and silk, as it sounds more luxurious. Also, if the customer is shopping online, they search those key words and will pay for this quality. They are not very concerned about environmentally friendly practices and synthetics yet, because they still like the natural, luxury fibers,” said Chan. “I think they will go to organic cotton, and this kind of thing, gradually.”
For foreign luxury companies competing on the differentiating features of sustainability and eco-friendly products, the market is still hard to navigate. “Honestly, we still cannot really communicate on this. It’s not easy. There are some markets, like if we look at Scandinavia or the U.K., where it is totally necessary, you cannot sell one gram of yarn if you don’t have some certification,” said Denna.
Eco-friendly products were not demanded by all international brands attending the fair, and they were not marketed by all suppliers. “I personally would look for [eco-friendly yarns], but my company is not that into it. The suppliers all kind of have it somewhere, but you don’t kind of see it everywhere,” said Gesche Alemann, a designer at German men’s wear fashion brand Tom Tailor Denim.