Coronavirus: China’s textile exporters brace for pain amid wave of cancelled overseas orders

Sidney Leng

The most frequent query that Jeremy Maclaurin has received from Chinese textile and apparel makers in recent days is: when are our next orders coming in?

MacLaurin runs China Textile Traders, which helps brands source from the southern Chinese manufacturing hub Guangdong province, as well as from other Asian countries like Vietnam.

Normally at this time of the year, brands are looking for new product samples to use for the winter season, he said.

But the coronavirus pandemic has disrupted the entire cycle of fashion sourcing and is threatening to slash orders in coming months, making the manufacturers’ questions very tough to answer.

“At the moment, we are still catching up with post-Lunar New Year orders. We just anticipate that once these orders are fulfilled, we are going to have a very quiet three to four months – probably until August or September,” MacLaurin said on the phone from his office in Vietnam.

The situation for Chinese exporters has changed dramatically over the past two months. In February, they were unable to work on overseas orders due to draconian lockdowns imposed by the Chinese government.

By March, most were able to resume operations, but they were then forced to stop or cut back on production after the pandemic turned into a full-blown crisis in the United States and Europe, closing retail outlets and leading brands to cancel orders.

This put significant stress on one of China’s largest industries – textile and apparel manufacturing – which in recent years has slowly been losing market share to Vietnam and Bangladesh where labour is cheaper.

Last year the value of the country’s textile and apparel exports fell 1.85 per cent from a year earlier to US$271 billion, according to China Customs Administration data.

Shipments dropped an additional 20 per cent to US$29 billion in the first two months of this year, as China’s economy was battered by the coronavirus.

Some 86 per cent of large and small manufacturers in 28 textile industrial estates across China had resumed work by the end of March, according to the China National Textile and Apparel Council, an industry group supervised by the State Council, China’s government cabinet.

But in a survey conducted among 190 firms in the last week of March, more than 60 per cent said their current export orders were less than half of normal levels, with just over 50 per cent of respondents saying their production had reached 80 per cent of capacity.

The entire export-oriented supply chain is facing pressure, so production capacity has started falling

China National Textile and Apparel Council

“The entire export-oriented supply chain is facing pressure, so production capacity has started falling,” the council said.

In Keqiao, a textile manufacturing and distribution hub in eastern China’s Zhejiang province, a lack of new orders from abroad and the delay in normal spring trade fairs due to the coronavirus outbreak have put manufacturers and traders in limbo.

James Wang, a sales manager for Puhong Textile, which mainly supplies fabrics to manufacturers in Vietnam and Bangladesh, said he had been furloughed for nearly two weeks after just coming back to the office in early March.

It was a similar story for export department staff at some large textile firms in the area, he said, adding there was not much he could do about it at the moment.

“If we develop new products for clients now, the cost could be high considering expensive delivery costs because of the virus. And if buyers don’t place orders, then our efforts would be in vain,” Wang said.

Export-oriented textile firms are also finding it difficult to shift to produce for the domestic market because it would require major changes in the way they do business. Many do not have large warehouses to store finished goods and would have to adjust to longer invoice payment periods common in the domestic trade.

Some manufacturers had turned to live streaming to sell their products to domestic consumers, although not everyone agreed it was a winning strategy.

“It’s hard to sell a piece of fabric via live streaming, because it’s not a finished product like a garment,” said Cherry Song, general manager of Keqaio-based Shuangsuo Textile, whose primary market for textile products was Bangladesh.

“Clients still want to see the actual product to decide whether they want to place orders. So the benefit from live streaming is minimal.”

Bach Zhang, a small textile manufacturer from Keqiao, said he had been thinking about trading personal protective equipment such as masks because textile orders from the US and Europe had dried up. But slim profits, unstable market prices, and tightened export regulations on medical supplies in recent weeks have made the idea look much less attractive.

Keqiao’s export-oriented economy has been hit hard by the pandemic. Last year, the district’s exports rose 15.6 per cent year-on-year, well above China’s total export growth of 5 per cent. But in the first two months of the year Keqiao’s exports fell nearly 20 per cent from a year earlier, according to the local government.

Daily traffic at Shaoxing Textile City, a large marketplace in Keqiao for trading fabrics, is only half of its normal volume almost two months after reopening in mid-February, said local exporters and traders.

The wave of cancelled overseas orders has also rippled through to upstream industries – like cotton yarn and chemical fibre production – in the textile and apparel supply chain.

The price of polyester staple fibre, a material commonly used to make sportswear, has plummeted from 7,005 yuan (US$992) per tonne at the beginning of the year to 5,200 yuan per tonne this week, partly due to the sharp decline in the price of oil, from which it is made.

During good times in previous years, lower costs for raw materials could offset rising wages in China’s labour-intensive textile and apparel manufacturing sector. But lower material costs caused by the unprecedented global economic impact of the coronavirus have proved to be little help as there are so few orders to fill.

Song, from Shuangsuo Textile, said her company normally bought materials when orders came in, but some manufacturers had stocked up before the Lunar New Year, anticipating prices would go up after the holiday. Now they cannot sell the materials without taking a large loss.

Gaurav Sharma, head of sales and sourcing for Chinese textile and apparel trading firm Yukun Group, said his operation in the mainland had been paralysed.

The company’s factory in Hubei, about 50km from the initial coronavirus epicentre Wuhan, used to employ 450 to 500 workers, but would likely remain a “ghost building” for some time, even after the government lifted citywide lockdowns this week.

Despite signs that China is bringing the outbreak under control, Sharma, who is based in Hong Kong, is worried that clients may not be mentally prepared to do business in the country any time soon over concerns that something could go wrong again in the future.

“I am doing three things at the moment: I am in a lifeboat, which means I will do whatever I can when orders come. I am also seeking new opportunities [to sell clothing products]. And I have also been looking for options aside from sourcing [for the fashion industry],” Sharma said.

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