China’s fashion and apparel industry continues to thrive, despite complicated economic and non-economic factors. The China National Textile and Apparel Council (CNTAC), the industry’s governing body in the country, estimates that China’s annual clothing retail sales could exceed US$415 billion by 2025 (vs. US$347 billion in the U.S.).
China has been the world’s largest apparel manufacturer and exporter for more than a decade. Benefiting from the World Trade Organization’s agreement on textile quota lifting, China’s clothing exports boomed after the turn of the millennium.
The country accounted for more than half of the global textile and clothing production, as well as more than 30 percent of worldwide apparel exports. However, in recent years, China’s clothing sector has slowed down its expansion, aiming to build a more sustainable and technology-intensive industry.
In 2020, China’s textile exports jumped by 30.4%, boosted by the demand for face masks and personal protective equipment (PPE) in the wake of the COVID-19 pandemic. Its closest rival, the European Union economic bloc, did only 75% of that. Currently, China remains unrivaled as the top clothing manufacturer and exporter in the industry.
However, according to the CNTAC, “growing
bigger” will no longer be a priority for China’s textile and apparel sector. The country has no intention to cut textile and apparel production capacity or shrink its size substantially either. The plan in the next few years is to develop a more sophisticated and high-tech-driven textile and apparel industry and engage in more value-added functions in the supply chain. Though China’s shares in the total world apparel exports declined, China is playing a more significant role as a textile supplier for many apparel exporting countries, especially in Asia.
According to CNTAC, China intends to focus more heavily on its domestic market to support the textile and apparel industry’s growth.
Since 2015, China’s apparel manufacturing industry has undergone a profound transition. The rising labor costs shifted the sector towards a less labor-intensive and highly automated direction. Geographically, many apparel enterprises have relocated to lower-labor cost labor regions, such as Western and Middle China.
Technologically, apparel enterprises upped their research and development spending. In 2020, more than 26,000 R&D projects were carried out in the textile and clothing sector. Nevertheless, an increasing number of apparel enterprises exited the market during the industrial upgrade and structural transformation.
Apart from manufacturing, China’s apparel export industry faced significant challenges resulting from international trade disputes and increasing production costs. China’s clothing export value and global share have continuously dropped between 2014 and 2020. In the meantime, several rising apparel manufacturing counties in Southeast Asia started to threaten China’s leading position.
Despite this circumstances, China’s garment exports saw an upsurge amid the COVID-19 pandemic in 2021. In contrast to many countries that shut down clothing manufacturing during lockdowns, Chinese clothes makers benefited from the country’s effective pandemic control.
Given the fierce competition in the international fashion markets, China is looking for more opportunities at home. In the past two decades, the average expenditure on clothes and shoes in China increased dramatically.
Chinese consumer’s willingness to buy domestic brands also went up substantially. According to a recent survey, around 60 percent of Chinese consumers had bought fashion items from domestic clothing brands.
The prevalence of online shopping also boosted China’s apparel retailing sector. In 2020, more than one-third of the apparel sold in China was via online retail platforms. To improve consumers’ online shopping experience, Chinese apparel retailers have invested in innovative technologies.
In spring 2020, China’s online retail leader Alibaba rolled out its first virtual dressing room. Consumers could virtually try on more than 600 pieces of luxury items. According to Statista’s Digital Market Outlook on the apparel industry, by the end of 2025, nearly 60 percent of China’s apparel market revenue will be generated through online sales, well ahead of the global average of 43 percent.
COVID-19 affected retailers around the world, but China controlled well the impact of the pandemic. Fashion stores resumed their operations, ready-to-wear and accessories saw a quick recovery in 2021 after a strong decline in 2020, reaching value sales exceeding the pre-pandemic level. Riding on the ongoing healthy living trend, sportswear kept on recording impressive momentum and outperformed the average industry growth.
The revenue of the global apparel market was calculated to amount to US$1.53 trillion in 2022, a slight decrease on the previous year. However, revenue was forecast to increase in 2023, to more than US$1.7 trillion.
From January to August 2022, China's exports of clothing and accessories were US$118 billion, up 11.6% year-on-year and 20.39% higher than the same period in 2019. According to Statista, the revenue in the apparel market will amount to US$318.10 billion in 2023. The market is expected to grow annually by 4.28% (CAGR 2023-2027).
In the fashion market, the number of shoppers is expected to amount to 819.7 million by 2025.
To have an idea of how big the Chinese market is, it makes sense to look at the figures of the main e-commerce player in China. Alibaba’s performance last year was remarkable: the e-commerce platform increased its consumer reach by over 140 million, reaching over 1 billion active consumers in just 12 months.
The main sales channels for the fashion industry in China include department stores, specialty stores and online platforms. Almost 50% of fashion consumers still shop in physical stores because they can feel the texture of the products and try them on if necessary. A secondary reason is that they can make sure the quality of the product matches their expectations.
Fashion trends in China
Clothing and footwear in China are very fragmented, with both local and international fashion brands competing in different price ranges. However, the COVID-19 pandemic changed consumers’ habits. They now spend more time at home, wearing relaxed dress codes and working from home attire, which means that sweatshirts and jogging bottoms saw impressive results.
After the sales downturn in 2020, retail channels (especially brick-and-mortar stores), started to recover in a steady manner throughout 2021, in line with the proactive channel revolution by clothing and accessories players to get the most out of traffic to physical stores.
With the shift in shoppers’ behavior post-COVID 19, and to better-equip offline channels with the ability to combat unexpected events such as extreme weather and natural disasters, fashion retailers are adapting to new levels of operational efficiency pursuits in a consumer-oriented manner.
The pandemic accelerated the adoption of new technologies. When stay‑at‑home orders made it harder for consumers to do shopping in stores, a lot of brands launched “virtual fittings”, where consumers could try fitting at home using online meetings and 3D body scanning technology.
The growth of the luxury market was pushed by second, third and fourth tier cities in China. As a result, 88% of China’s luxury growth was driven by new consumers. One group of shoppers who has made a huge impact is Generation Z consumers, representing 40% of the industry growth.
However, Chinese Gen-Z consumers have a different shopping behavior from their predecessors when it comes to luxury purchases. Whereas a decade ago, 90% of Chinese luxury consumers would have first purchased leather goods, today’s Gen-Z consumers are more likely to first buy a ready-to-wear item, such as a signature T-shirt from an up-and-coming designer.
Statistics show that China should be a priority for any fashion brand that is looking for new markets to tap into. The European market is slowing down, and the upside is limited. In addition, consumers are relatively conservative.
Chinese shoppers are more open minded and welcoming towards niche brands that have something special to offer. Because the revenues generated are significantly higher, it makes China one of the most competitive fashion markets in the world.
Marketing campaigns can be expensive and the best approach for brands with a low budget remains the wholesale market. Major clothing players with a strong position in the Chinese clothing industry include Li Ning, Semir, and Adidas.
The clothing segment is among the most popular selling product categories in the retail industry. Clothing has varieties across different age groups and includes menswear, womenswear, and childrenswear.
Another important factor to consider is the recent impact of the sustainable fashion movement in the apparel industry. People around the world are increasingly conscious of the environmental impacts of their consumption habits. Young, urban, and increasingly environmentally conscious consumers in China are following this trend.
With the rise of fast fashion – the mass production of cheap and readily disposable clothing – the fashion and apparel industry has come under increasing scrutiny from environmental activists. By some measures, the fashion and apparel industry is responsible for 4-10 percent of global greenhouse gas emissions.
In contrast to fast fashion, sustainable fashion emphasizes low-emissions clothing products that are made to last. As China seeks to radically reduce its greenhouse gas emissions, sustainable fashion has the potential to transform the country’s fashion and apparel industry – but requires long-term investments to drive cultural change among consumers.
China’s most prominent sustainable fashion brands, such as Icicle, Klee Klee, Krop, and Ziran, largely cater to a higher-end market. Other companies, like Bastine, focus on sustainable textile production. Some foreign brands specializing in sustainable fashion have entered the Chinese market, such as Everlane and Allbirds, to mixed success.
Although sustainable fashion is currently a high-end market in China, there is potential for it to go mainstream, as Chinese consumers display some underlying behaviors that support sustainable fashion.
In recent years, this fiercely competitive environment has been pushing some international players out of China. Foreign brands are struggling to compete with domestic brands who leverage large social media followings to offer cheaper products at lower prices via live-streaming and e-commerce platforms.
Chinese e-commerce users can buy clothing products for less than 50 yuan (US$7.5).
Data from iiMedia Research showed that 62 per cent of Chinese consumers bought clothes via e-commerce platforms in 2022, while 58.5 per cent of all customers spent between 201 (US$30) and 600 (US$ 90) yuan on making clothing purchases via traditional offline and online platforms combined.
The rise of nationalism is also stimulating the apparel industry to adopt more Chinese essentials, with “being a Chinese brand” and “having Chinese elements” top considerations for young Chinese consumers, according to the “China Youth Consumption Report” from iiMedia Research.
The boycott of Xinjiang cotton by predominantly Western firms further exacerbated the trend, with Baidu’s 2021 big-data search report showing that the search volume of Chinese clothing brands increased by 137 per cent after the moves due to concerns over human rights, which China has denied.
H&M, which drew criticism for being the first company in China to publicly boycott Xinjiang cotton, reported a nearly 40 per cent year on year decline in sales in China. The company announced the closure of its flagship Shanghai store but returned to Tmall having previously been dropped from the business-to-consumer online retail platform.
Old Navy, which is owned by Gap Group, closed all its stores, and exited the Chinese market in March 2020 after six years in the country to focus its business on maximizing efficiency in North America.
British clothing brands Top Shop and New Look suspended their operations in China in 2018 due to weak performance, while Bershka, Pull&Bear and Stradivarius, all brands under the same Inditex Group as Zara, closed their online stores.
According to industry experts, Chinese consumers prefer the lower prices, diverse designs, and higher quality offered by Chinese brands. Overseas fast fashion brands will unlikely respond to changes in design style to suit the aesthetics in China.
The notion that anything hip and trendy must come from abroad is slowly changing, as Chinese companies are establishing their own fashion brands and collections.
Ne Tiger, for example, is the country’s first own luxury fashion brand and big Chinese fashion companies such as the casual wear brand Metersbonwe, the Trendy International Group and jewelry company Qeelin, have discovered foreign shores for expansion, especially Europe and the US.
News of China’s biggest apparel group Bosideng, buying British menswear label Greenwoods shook the industry. The move not only signifies that Bosideng is set to become a true global brand, but it is also a trend setter for other companies.
Anyone wanting to break into the Chinese fashion industry - be it as a brand, retailer, designer or service provider - should first of all understand the market and the consumer, including Chinese sizes and bodies.
Quality is a big draw, with the best example being European products, which Chinese consumers love for their premium quality and fabrics. Geography is also key - keeping the vast market with its regional preferences in mind and that not only first-tier cities are important but also second and third-tier ones.
In terms of channels, anyone approaching China should keep in mind that e-commerce is booming and that a strong, customer friendly Internet presence is a must.
Geographically, the industry is mainly located in the southeast around the Pearl River Delta, Yangtze River Delta, the Bohai Sea region and the southeastern coastal areas. Though there are altogether 50 garment clusters throughout China, it is the total output of the five provinces Shandong, Jiangsu, Zhejiang, Fujian and Guangdong that make up 70 percent of China's total garment output.
Though China is the number one in terms of textile and garment exports in the world, its situation is different from a country like Bangladesh when it comes to the industry’s overall importance. While in Bangladesh it is the main and most important industry (at 85.9 percent of all exports), in China it is one of many major industries such as mining, iron and steel, machinery, automobiles and others.
Challenges of manufacturing in China
In recent years, wages have gone up in China at a faster pace than other Asian countries, forcing foreign brands to look for manufacturing alternatives in the region, such as Vietnam.
Another difficulty has been the long transportation lead time to Europe and the US, and the currently high freight costs. Due to recent supply chain disruptions and the COVID pandemic, some companies find it unbearable to produce in Asia, turning to nearshoring, at least partly.
Additionally, the ongoing trade war with the US has hurt both countries. Imposed tariffs have encouraged foreign companies to look for alternative markets, and to outsource at least part of their production.
One problem companies sourcing from or manufacturing in China encounter, is insufficient lead time assessment. Finding the right materials requires sufficient time and attention and human errors may cause delays.
It is costly and time-consuming to establish efficient supply chain logistics in the region and coordinate all the delivery, storage, and other activities within the supply chain, risking unwanted — and often avoidable — delays.
Ensuring high quality can be tricky. Many factors can negatively affect product quality: insufficient apparel manufacturer assessment, poor quality assurance at the start of production, lack of quality control following production, and no consideration for the quality or suitability of inputs.
A single sample often does not tell the full story about the quality of a product and the reliability of a manufacturer’s quality control mechanisms. Many suppliers in China, Bangladesh, and other major garment-producing countries in Asia either don’t follow production standards closely or have bad production standards.
Some companies don’t conduct a feasibility study before they start production. This often leads to underestimated prices and overestimated production speed, resulting in unpleasant surprises, higher costs, and slower final delivery.
Companies with no presence in the region can face difficulties when negotiating contracts, assessing suppliers, and carrying out necessary due diligence.
On the legal side, intellectual property protection, and trademark and copyright registration is a must in China. In 2020, China concluded 2,429 court cases involving IPR in the fashion industry. The best way to protect a fashion brand against counterfeiters is by correctly registering it as early as possible with the appropriate IPR administrative agencies.
China’s IPR legal framework is similar to that of many countries. However, there are detailed differences that must be considered in the case of any cross-border transactions involving China. Among these, one of the most important is that China is not a signatory of many bilateral judicial assistance treaties. This means that decisions of foreign courts are not enforceable in China and vice versa.
Administrative bodies, such as the State Administration for Market Regulation and its local delegates, typically carry out raids to seize goods from IPR infringers. They also have powers to impose penalties on IPR infringers.
Trademark law, patent law, copyright law and anti-unfair competition law and their matching regulations are the key laws in China to protect IPR.
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