There is increasing talk about Vietnam and Bangladesh utilizing inexpensive labor to directly compete with China’s textile manufacturing industry. What implications does this have for the 20 million people employed in China‘s textile sector?
During the economic reforms of the 1970s, China aimed to boost its economy and employ its sizable unskilled labor force. This led to China becoming a global manufacturing giant, commonly referred to as “Made in China,” with 83 million workers in factories by 2000.
The shift towards manufacturing, especially in textiles, significantly lifted a remarkable 800 million people in China out of extreme poverty. More than 700 million Chinese individuals have transitioned to the middle class by 2018.
Most of China’s textile industry is concentrated in major coastal regions like Guangdong, Zhejiang, Jiangsu, and Shandong. These provinces benefit from their historical and geographical advantages, particularly in logistics and shipping due to their proximity to the sea. Given the rapidly evolving fashion landscape, proximity to trade ports for textile manufacturing hubs is crucial.
These regions exemplify China’s rapid development, showcasing how mass manufacturing propelled a developing nation like China into prosperity over three decades.
China’s Changing Landscape: Internal Threats to “Made in China”
The economic growth in China’s coastal regions has spurred rapid development. The increasing prosperity has led to more individuals pursuing higher education, with more than 11.58 million college graduates in China by 2023, an 800,000 increase from the previous year.
As China becomes wealthier and more educated, fewer young individuals are willing to engage in factory work.
A factory owner in Yiwu, Zhejiang province, expressed concern: “College-educated youth seek white-collar roles like accountants, while I require more blue-collar workers. I offer higher pay for blue-collar positions, but there’s a decline in young workers willing to work in factories.”
This shift signifies a significant milestone in China’s progress, showcasing how the nation upgraded the populace’s skills within a single generation. The increased number of educated citizens has led to a scarcity of blue-collar workers, potentially driving manufacturers towards cheaper labor markets like Vietnam.
Could China recruit affordable labor from its less developed western regions? Although labor is cheaper in the underdeveloped west due to higher unemployment and lower education levels, China has already experienced the largest rural-to-urban migration in history between 1978 and 2012, with 260 million farmers relocating to cities for manufacturing jobs. This migration strained urban resources and led to financial burdens.
If relocating workers from the western regions isn’t viable, should China move its factories inland to less developed areas in western China? Despite some attempts, this remains costly due to the initial infrastructure investment required.
Alternatively, China could incorporate more automation in the textiles industry. While this would offset rising labor costs with fewer employees, it would reduce job opportunities in factories, shifting low-skilled labor towards service and delivery roles.
These strategies move towards addressing the looming challenges.
How E-commerce and Consumerism Saved “Made in China”
China’s 1.4 billion population now includes a burgeoning middle class embracing consumerism through digitalization and e-commerce, despite per capita consumption in China falling below the global average. Platforms like Taobao and Pinduoduo focus on affordability, allowing diverse socioeconomic groups to shop online. Digital shopping has become ingrained in Chinese daily life.
As a result, 70% of China’s textile production is consumed domestically. Despite a 3% drop in overall household consumption due to COVID-19, textile consumption decreased by 2% in 2022, but online consumption in China has risen since then. In 2023, China delivered 120 billion packages, nearly 100 packages per person annually, an 8.5% increase from 2022. With the surge in e-commerce and domestic consumerism, smaller orders are placed online each day.
Amid the e-commerce boom, rural villages in coastal areas, where labor is cheap, are forming clusters to produce low-end goods like leather jackets for online platforms, giving rise to “Taobao villages.”
These Taobao village clusters specialize in specific products to reduce supply chain costs by sharing infrastructure and logistics. The shared knowledge facilitates easier entry into China’s manufacturing market. Village clusters foster resilience to external shocks, allowing China to manage rising labor costs and other production expenses.
E-commerce has encouraged more individuals to participate in production and consumption, sustaining the relevance of “Made in China” products. With a population of 1.4 billion consumers, China’s textile output remains in high demand domestically. Unless Vietnam and Bangladesh address non-labor related cost factors, such as infrastructure investment, China can compete in this challenging market.