Back in 2007, this article on the situation of Textiles was forecasting what time has proven to be true. China has moved from a low cost producer to a major consumer market of the finest Textile manufacturers in the World, mainly from Europe.

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According to the European Commission,
“quantitative limits were reintroduced
on the ten most sensitive categories of
products, with the aim of achieving fully
liberalized trade by January 1st, 2008. This
agreement reflects the difficult balance the
EU had to strike between retailer, importer,
producer and consumer interests.” But none
of these categories included yarns and fabric
design. Most of the categories included were
garment and underwear finished products.
Up to now, officials have not considered
yarn and fabrics to be the most threatened
areas.
On the other hand, Chinese authorities have
recently announced that this nation’s eco-
nomy reached its 13th year high in 2007,
surpassing the previous year by an incredi-
ble 11.4% increase, thanks to the boom in
the construction industry and, especially, to
increased exports. However, there are still a
few shadows in this growth rate, such as the
overheating of the economy and dramatic
inflation. In fact, such a situation counteracts
the so-called dumping in exports denounced
by many European entrepreneurs in almost
every field. In a few years, dumping in China
will belong to the past.
Nevertheless, Chinese manufacturers are
still alive and strong. Another major issue
concerning the Chinese economy is that the
Chinese Government raised interest rates six
times in order to slow expansion. And, the
worst is yet to come, if, as many analysts
suggest, China will likely have to raise them
again, if a sustainable level of growth in the
economy is not reached.
To us Europeans, there are other symptoms
that should interest us. Until now, China has
basically been a poor importer and a huge
exporter, as everybody knows. Things are
changing: an imposing bourgeois class is on
the rise and the consumption of high-end
products is to follow. And this is the niche in
which Europeans, especially Italians, excel.
Exporting to China:
A major opportunity
If we take a look at EU27 imports of Textiles
and Clothing from China (both fabrics and
garments alike-January-August 2007), it is
striking to notice that China is first amongst
other competitors with a 37% market share
and a value of 18 billion euros. On the
Selling yarns and fabrics to China has always been thought to be out of reach. And
that is the way reality has proven to be in the recent years. Major concern from the
European authorities has been set on importing, rather than on exporting to that
country. Who could hope it to be otherwise? Being China such a huge market didn’t
mean it was big for European exporters as Chinese people were hardly able to feed
themselves, as it is well known.
Hugo Heusch, Barcelona (Spain)
Is China the new eldorado
for European producers?
Chinese consumer is expected to reach 600 Million by 2020
China is over nine millons square kilometers big and home to over 1,3 billion inhabitants

2. report 1 / 2 0 0 8
other hand, EU27 exports to the Asian
giant amount to a shrinking rate of 2.3%
(6.5% less than in 2006), a “light weight”
of less than 187,000 tones (whereas China
exports two million tons) and less than 800
million euros in value (see chart #1).
The frightening meaning of these figures
should be taken as an opportunity to grow,
because performing better is within reach
of our weavers and spinners. European tex-
tile exporters only need the right combined
strategy to, on the one hand, multiply the
opportunities to sell to Chinese markets, and,
on the other hand, invest in facilities such
as logistics and distribution platforms in-situ
(keep in mind that China has an area of over
nine million square kilometers and is home to
over 1.3 billion inhabitants), together with a
more significant purchase order from Chinese
manufacturers. Many would ask why there
should be any increase, if Chinese manufac-
turers are not interested in buying such high
quality products, since they are exporting
rather than consuming. This might be true
today, but it won’t be true tomorrow.
Change of economic cycle
In such a scenario, Chinese exports of industrial
goods, especially garments, seem to get closer
and closer to a slowdown. This will give fresh
breath to European manufacturers, if there are
still any left! But it might make European wea-
vers and spinners, who were up to now signifi-
cantly less threatened by Chinese exports, pro-
ne to despair. According to experts in China’s
economy, such as Ms. Lisa Wang, a Consultant
at InterChina Consulting, one of the world’s
leading consulting firms in the Chinese market,
“recently, the competition from Chinese com-
panies is moving forward to goods of better
technology and quality levels. This means that
in the near future, even sectors that involve the
use of certain technology such as machinery
will face challenges from Chinese exports”. This
is the reason why sooner or later in the Yarn
Fabrics district we will be facing a new situation
that might bring every leading industrial Euro-
pean manufacturer that is already in China or
is willing to be there to increase investment in
facilities in this Eastern country.
While the know-how is almost reaching Eu-
ropean levels, the current Chinese yarn and
fabric production is likely to be aimed more
at the domestic market, and what until now
has been sold to Europe and other developed
countries (mainly synthetic fibers and low cost
yarns and fabrics) is likely to be relocated to
other countries . So, it is essential to gear pro-
duction at this special new market. It is time
to turn our heads to China with a fresh new
look, as Lisa Wang insists: “before, the goal
of Western companies´ investment in China
used to be to reduce costs, and production
was aimed at export. Now, the Chinese mar-
ket where high-end products can be sold is
getting bigger. Costs are increasing, so the
advantage of relocating to China is being
reduced. A Western company should consider
the opportunity of the Chinese market for
its products, rather than just going to China
for cost purposes. However, in some sectors,
such as fashion… foreign companies will not
be able to compete with domestic companies
in low- to mid-range sectors, so they should
target the high-end sector.”
The sector Ms. Wang has in mind is the
high-end Chinese consumers of high-quality
products, such as the increasing medium/high
and high classes. Instead of producing low-
cost textiles in China, it is more reasonable to
develop a growing market will reach over 400
Million people by 2012, the largest market in
the world for European production according
to statistics gathered by InterChina Consul-
ting. It is definitely a perfect target.
Italians to move ahead
Let us take a look at Italian high-end producers
such as the well-known producer of wonderful
yarns in cashmere and alpaca, LaneCardate
from Cossato in Biella. According to Sales
Manager Chiara Bianchi, European producers
seem to be expecting something to happen as
confusion and misunderstanding are at realm:
there is an “increase in competition - confusion
in our referral market (RTW producers) but spe-
cially for the final consumer that doesn’t have
clear information about quality (for ex: a 100%
cashmere sweater can be bought at a retail
price ranging from 70 euros to 600 euros) – the
result is that the final customer gets confused.”
But with this new extravagant Chinese elite,
things could be changing: the best strategy
for European producers in every market is to
“keep the standard high. Higher quality, higher
price, higher service.” Ms. Bianchi doesn’t be-
lieve that investing in China is a good strategy,
but there is something extremely important
that she considers true and has to be kept in
mind: “Chinese exporting capabilities will not
increase in quantity, but will increase in quality
and service.”
However, the most accurate and balanced
opinion probably belongs to Mr. Paolo Zegna,
heir of a respected family tradition of weavers
and spinners and, at the same time, President
of Sistema Moda Italia, the Italian Textile Asso-
ciation of fine textiles, and President of Milano
Unica, the international trade fair for high-
quality fabrics. He is also head of Ermenegildo
Zegna, a brand that needs no introduction. In
his opinion, the Italian Textile Industry has go-
ne through several changes due to the increa-
se in Chinese exports and exports from other
countries, and all of the changes have been
extremely significant: “China and developing
countries have not been the sole cause of the
difficulties our industry has had to face in the
recent past, but certainly they have been one
of the reasons; however, it would be incorrect
to entirely attribute our difficulties to them.
The Italian Textile Industry in the last five to
six years has faced the post September 11th,
2001 situation, a fall in spending in the EU,
the strengthening of the Euro against the US$
and the Yen and the increase in the sales of
products from countries with low labor costs
in the markets in which we have always had
a great presence. Because of all these factors,
in the last two to three years the entire clo-
thes and textile industry in Italy has lost about
15,000 companies and 100,000 employees.”
On this note, Lisa Wang’s opinion highlig-
hts the situation: “European companies have
been forced to either relocate their production
to Asian companies (mostly in China, but also
in India, Vietnam, etc.) in order to take advan-
tage of cheap labor in emerging countries or
to move to the high-end sector so as to cap-
ture the niche market where Chinese goods
cannot yet compete in quality or design.”
Nevertheless Paolo Zegna asserts that Italian
producers still have the possibility to counte-
ract the situation: “one fact is quite evident:
the low end of our production is, in the short-
term, inexorably lost! We can and must ask
the Italian government and European Union
to help companies that still focus on such
production, avoid ruin and request as-
Lisa Wang
“Chinese exporting
capabilities will not
increase in quantity, but
will increase in quality
and service”

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sistance so that the whole sector can
aim its production higher, but we must be
aware that we cannot defend the undefenda-
ble. Italian weavers have demonstrated that
they are competitive in terms of their creative
skills, innovation and services in the mid- and
high-market brackets. In our work, we should
continue to stress these elements in order to
place even more emphasis on the differences
among the finest Italian products.” However,
his opinion on investing in facilities in China
is mixed: “there is not one recipe valid for all
companies. Every company must find its own,
best solution, but it is necessary to keep in
mind that the Chinese market is becoming
more and more important.” It has become
the third largest importer for Italian firms! He
firmly believes that relocation to China has to
be done at one’s own risk. “Relocation can be
an opportunity for some companies, but it is
never an easy choice. To enter into a very di-
fferent social and cultural environment like the
Chinese one needs not only financial capacities
but also suitable professional skills to properly
manage the business These capacities and ski-
lls often are not inside the company and it is
not easy to find them on the market.”
A logical recipe
Lisa Wang insists that high-end segments are
the best solution for European producers: “the
best strategy would be to become specialized in
higher-end segments by using RD capacity, as
China still has a low level in this aspect. Diffe-
rentiating from Chinese goods in terms of qua-
lity, functionality and design will certainly help
companies position their products on a safer
ground and allow them to set higher prices.
Currently, this kind of higher-end product even
has a market in China, as the number of the
Chinese middle class and rich people is expec-
ted to go from 100 million in 2007 to 500-600
million by 2020.” There is still a struggle ahead
for both European and Chinese weavers alike,
when it comes to achieving a better situation in
the Chinese market. “In general terms, the do-
mestic market is significant. The exported go-
ods sector is usually of a low to medium level,
whereas in the Chinese market, consumption is
targeted at all levels: low, medium and high.
At the moment, China is dealing with the fact
that foreign buyers put a lot of pressure on the
price of goods produced in China. However,
the overall increase in costs in China (land,
utilities, labor, etc.) will force production to be
relocated from the coastal areas of China to
inland China and also to other low-cost coun-
tries such as India, Vietnam, Indonesia, etc.
This is especially evident in the textile sector.
The trend, which is very much in line with the
Chinese government’s policy of developing
its domestic technology level and brands, is
that China will be less interested in foreign
investments for low value added sectors such
as those we mentioned above.”
An unclear future
Europeans should definitely start considering
both the Chinese market and competition from
China in every market as a priority. This is a
contest that is played on both arenas, as Lisa
Wang reasserts: “Chinese products are still very
competitive in Western markets, due to good
resource management, labor productivity, etc.,
despite the fact that costs are increasing now.
The main problem is the restrictions of Western
companies. Limitations on Chinese exports cu-
rrently come from Western governments´ trade
barriers such as anti-dumping, tariffs, etc.”
Paolo Zegna replies from his viewpoint that
Chinese authorities are getting ready for the
fight: “The Chinese five-year plan (2007-2011)
foresees over 3 million people employed, an
increase of 10% production per year, greater
attention paid to quality and an increase in Chi-
nese brands, plus an intensification in contacts
with the international distribution network.
It is anyhow true that a lot of the additional
production in China is also an answer to the
constant increase in local spending. These
trends will probably be followed very shortly by
similar trends in other countries, such as India,
Vietnam and, I imagine, Bangladesh. This is the
main reason why the Italian industry must focus
on a gradual but continuous shift towards su-
perior quality products.”
Let us see what the next years bring to this
amazing sector.
Europeans should definitely
start considering both
Chinese market and
competition from China in
every market as a priority
Chart #1. EU 27 imports of Textiles Clothing from China
and exports to China in euros (January-August 2007)
Imports: 18 billion euros
Exports: 800 million euros
Chart #2. Imports of Textiles Clothing from EU 27 China
(2006-2007) in Thousands tons
2006: 199
2007: 186 (-6.5%)
From EU 27
2006: 1,815
2007: 2,258 (+24.4%)
From China
2006: 714
2007: 794 (+11.2%)
From EU 27
2006: 15,152
2007: 18,406 (+8.2%)
From China
Imports of Textiles Clothing from EU 27 China
(2006-2007) in Million euros