China's textile industry: Added value upgrade, stability highlights, new opportunities for global expansion

Trend 1: China's textile industry upgrading trend, value-added enhancement has broad prospects

(1) There is still a gap between China's textile added value and that of developed countries, but there is a trend of narrowing the gap

Export structure dimension: the proportion of special textile exports with Japan, South Korea and Taiwan has narrowed significantly, in the past 20 years, the proportion of high value-added special textiles in China's textile exports has increased rapidly, although there is still a certain gap with Japan, South Korea and Taiwan, but it has been greatly reduced. Export unit price dimension: there is a significant gap with Japan, synthetic fibers have the trend of catching up with South Korea and Taiwan, although the price is affected by the supply of raw materials and the trade environment will fluctuate in different years, but to a certain extent, it can also reflect the added value of export commodities in the region.

(2) Upstream technology breaks through raw material supply barriers, and leading enterprises continue to research and develop to drive industrial upgrading

On the one hand, with the breakthrough of domestic production of some high-performance chemical fiber products raw materials, the supply of raw materials and the reduction of costs provide favorable conditions for Chinese textile enterprises to produce high value-added textile materials, and drive the upgrading of the industrial chain structure; On the other hand, in the face of mature industrial chain supporting and continuously rising human costs and environmental constraints, no fewer high-quality leading enterprises actively seek transformation and upgrading, enter the high-quality development route, actively invest in the research and development of differentiated products and production processes, and obtain the recognition of international leading brands.

Adiponitrile mass production is imminent, with reference to the history of nylon 6, 66 demand is expected to be released, accelerating the domestic replacement of high-end products. 20 years adiponitrile key technology breakthrough, the domestic Huafen Group first put into production 50,000 tons, the current domestic adiponitrile expansion plan in the next 2 to 3 years more than 1 million tons. With reference to the 12-14 years of nylon 6 raw material caprolactam domestication, the price of nylon 6 slices has fallen sharply, which has greatly increased the demand for nylon 6 and realized the history of domestic replacement. We believe that the expansion of adipdinitrilene is also expected to help nylon 66 cost decline and help downstream civil demand release a large number of products. Accelerate the process of 66 domestic replacement, and manufacturers who master the core technology and equipment of nylon 66 fiber are expected to expand and upgrade the industrial structure.

(3) The policy promotes product innovation, intelligent upgrading, clean and high pollution capacity, and the industry turns to high-quality development

According to the "14th Five-Year Development Outline of the textile industry", China's textile industry has achieved structural optimization during the 13th Five-Year Plan period, high-performance fiber production accounts for 1/3 of the world, and the R&D cost rate of large-scale textile enterprises has increased by 0.4p.p. To more than 1%, domestic textile equipment domestic share of more than 75%, the unit output value of comprehensive energy consumption -25.5%, printing and dyeing unit product water consumption -17% and pollution wastewater discharge -10% of the results, basically achieve the 13th Five-Year period goals.

For the future, China's textile industry will continue to achieve all-round upgrading from all aspects, specifically:

1) Industrial structure optimization: The Textile "14th Five-Year" Outline pointed out that by 25 years, the proportion of fiber consumption of China's clothing, home textiles, and industrial three categories of end products will be adjusted from 40:27:33 to 38:27:35.

2) R & D and innovation to create differentiated products: The Textile "14th Five-Year Plan" points out that the R&D cost rate of large-scale textile enterprises will increase by 0.3p.p in 25 years. To 1.3%, high performance fiber self-sufficiency rate of more than 60%; "Chemical fiber" 13th Five-Year "guidance" pointed out that 16 to 20 years, the chemical fiber differentiation rate target to increase by 1p. "Textile Development (2016-2020)" pointed out that the 16-20 years of the textile industry invention patent authorization target annual growth of 15%.

3) Equipment innovation, automation and digitalization, continuous improvement of human efficiency: the Textile "14th Five-Year Plan" points out that by 25 years, the level of automation will be greatly improved, the development of filament intensive high-speed winding equipment, the development of automatic rotary spinning machine, high-speed shuttleless loom, automatic warp threading machine and other intelligent high-end equipment, while vigorously promoting digital information reform; The average annual growth of labor productivity of large-scale textile enterprises is higher than the growth of industrial added value (the average annual growth of labor productivity of all employees of large-scale textile enterprises in the 13th Five-Year Plan).

4) Adhere to sustainable development, eliminate and optimize high-emission and high-pollution production capacity: The textile "14th Five-Year Plan" pointed out that by 25 years, the textile industry is required to reduce energy consumption and carbon dioxide emissions per unit of industrial added value by 13.5% and 18%, respectively, and the water reuse rate of the printing and dyeing industry has increased to more than 45%. The output of biodegradable materials and green fibers increased by more than 10% annually, and the annual processing volume of recycled fibers accounted for 15% of the total fiber processing weight. The "China Chemical Fiber Green Development Plan" points out that by 2020, caprolactam production lines with unit energy consumption 25% higher than the advanced value in 2017 and processing costs 30% higher will be eliminated or optimized; Eliminate or optimize the production line of recycling and reuse polyester bottle flake with the unit comprehensive energy consumption higher than the 2017 advanced value by more than 20%, the wastewater discharge higher than 40%, the COD discharge per unit product higher than 10%, and the processing cost higher than 30%.

Trend 2: The epidemic highlights the stability of China's supply chain and its global core position

Under the digital wave, brands pay more and more attention to real-time capture and response to changes in consumer demand, and gradually build a channel system that faces consumers and shortens the whole industrial chain. With the improvement of the brand's demand for supply chain response speed and delivery reliability, cost is no longer the most core factor for brands to consider suppliers, and companies that can reduce waste by improving commodity sell-out and turnover efficiency, feed the supply chain and enhance product power, and gradually build a new core competitiveness. In this context, China's textile manufacturing industry with a complete industrial chain supporting and advanced production technology reflected in the short delivery, high quality and other advantages to gain brand favor. Especially during the epidemic, textile orders returned to China, proving the advantages of the reliability of the Chinese supply chain.

The impact of the epidemic in Southeast Asia can be seen from several perspectives:

1. Nike and Adidas have lost hundreds of millions of pieces of production capacity due to the epidemic in Vietnam, and the losses will continue in the next two quarters

Adidas management pointed out in early November 21 that the blockade in Vietnam has led to the loss of 100 million pieces of production capacity in the second half of the year, and the actual situation of Vietnam's unsealing and workers' rework is slower than the company expected, the company expects that 21Q4 and 22Q1 revenue will continue to lose due to the epidemic in Vietnam. Losses amounted to 400 million euros and 600 million euros, respectively, for a total of 1 billion euros. Coincidentally, in late October this year, a senior analyst of BTIG in the United States said that Nike will lose about 116 million pairs of shoe production capacity due to the epidemic in Vietnam.

2. The shortage of supply has led to sharp price increases in the US retail industry this year

Affected by the ongoing lockdown of the epidemic in Southeast Asia, the power rationing in China and the global shipping congestion, the retail industry has experienced a reduction in production capacity of different categories of goods this year, resulting in higher prices. According to the US Bureau of Labor Statistics, the current inventory sales ratio of the US retail industry is far lower than the level of 10 years ago, footwear prices rose 4.6%/5.1%/6.5% from July to September this year, and American clothing/sporting goods rose 10%/16% compared to last year on Black Friday. FDRA also pointed out that footwear prices in the United States so far this year have increased at the fastest pace in more than 20 years.

Since the epidemic, China's supply chain advantages have been highlighted, and its export share has been significantly increased:

1) China's textile export share in the past 20 years +8p.p., clothing share reversed: In 2020, under the impact of the epidemic, Vietnam's textile and shoe exports continued to decline year-on-year, and the export share of clothing and textiles also increased rapidly from the past to just flat; India's share of textile/garment exports was -1.0/0.6p.p. to 4.6%/3.1% respectively. At the same time, China, due to the rapid recovery after the epidemic, quickly undertook a large number of global textile orders, in the case of global textile exports declined year-on-year, China's annual textile exports increased by 29%, the share increased by 8p. To 47%, the share of apparel exports rebounded for the first time since 2014, +0.9p.p. To 34 per cent.

2) 21 years of Vietnam blockade, China's textile and apparel exports accelerated growth: in the first half of 21 years, Vietnam's textile and footwear exports recovered rapidly, but since the end of July, the epidemic blockade led to Vietnam's exports from August to October in a low base still fell significantly, footwear exports fell even 40%. In contrast, China, with its superior supply chain and stable production environment, took over more orders, apparel export growth accelerated significantly after August, and textile export growth also resumed growth from a high base last year.

Trend three: talent, technology, capital to export, head textile enterprises overseas expansion to build a new growth curve

With the increase in the share of China's leading textile enterprises in international brands, and in line with the supply demand of the global market of brands, Chinese enterprises have opened the process of overseas expansion. On the one hand, Southeast Asia and other regions have relatively low labor cost advantages and tariff concessions, on the other hand, they lack the corresponding mature talent, technology, industrial support and capital accumulation. China's leading enterprises take the domestic industrial base as the core, copy and export to the outside, and well combine the advantages of overseas and domestic industries to obtain greater room for growth.

Southeast Asia imports intermediate goods and textile equipment from China for terminal processing. However, in this process, China still mainly controls the production of intermediate links in the textile industry, and continues to export to Southeast Asia. According to uncomtrade statistics, in 2019, Vietnam is the first/second largest country in China's textile equipment/textile intermediate exports, accounting for 15%/10%, India is the second largest country in China's textile equipment exports, accounting for 12%, and Bangladesh is the fifth/third largest country in China's textile equipment/textile intermediate exports. The ratio is 5.2%/5.4%, which is a big change compared with 2005. At the same time, taking Vietnam as an example, in 19 years, the proportion of Vietnam's textile equipment/textile intermediate imports from China was as high as 57%/52%, while in 2005, it was mainly imported from Taiwan.

International brand supply chain migration: Rapid migration from China to Southeast Asia in the past 10 years. From the perspective of the change in the distribution of Nike footwear production, Vietnam has increased from 2% to 50% in the past 25 years, and China has decreased from 43% in 2000 to 22%. From the perspective of Nike apparel production distribution changes, the proportion of Vietnam has increased from 15% to 28% in the past four years, and the proportion of China has decreased from 26% to 23%. From the Adidas situation, 98% of the current footwear and 91% of the clothing production are from Asia, of which the proportion of shoes produced in Vietnam increased from 31% in 2010 to 43%, the proportion of shoes produced in China fell from 39% to 16%. The share of garments produced in Vietnam rose to 19% from 10% in 2013, while China's fell to 19% from 36% in 2010. PUMA is similar. It can be seen that in the past 10 years, the international big-name shoe and apparel supply chain has migrated from China to Vietnam.

Head manufacturers keep up with the wave of industrial migration, continue to export talent, technology, capital, and build a new growth curve. Bound to the international brands of the Chinese mainland and Taiwan head footwear manufacturers, in the early days followed the wave of the fifth global industrial migration in Vietnam, Cambodia, Indonesia, India and other Southeast Asian, South Asian countries continued to export talent, technology, capital, expansion of production bases, the use of local favorable labor costs and tax policies to achieve rapid expansion. In 2019, Fengtai's production in Vietnam/India/Indonesia accounted for 52%/26%/13%, Yue Yuen's production in Vietnam/Indonesia accounted for 44%/39%, Huali's main production capacity is in Vietnam, and about 16%/16% of Shenzhou's production is distributed in Vietnam and Cambodia. In the long run, China's labor costs will continue to rise, the trend of industrial chain migration is irreversible, the early layout of Southeast Asia's leading manufacturers will have a significant first-mover advantage.