Soaring wages at home are prompting Chinese apparel makers to shift production to neighboring Vietnam, where labor costs are nearly 60% lower.Though such moves involve a certain amount of risk due to the nations’ territorial dispute in the South China Sea, among other factors, observers do not see the trend ending anytime soon.Nameson Holdings, which makes sweaters and other knitwear to order, plans to increase production in Vietnam. Based in Huizhou, Guangdong Province, the company began turning out products in the Southeast Asian country in 2015 at a factory in the suburbs of Ho Chi Minh City. It expects to complete the second phase of construction at the plant in April next year.

Nameson mainly supplies garments to Japan’s Fast Retailing, operator of the Uniqlo chain of casual clothing stores. Over half of the Chinese company’s revenue comes from sales to the Japanese retailer. Nameson’s production shift is partly due to a 2009 economic partnership deal that has in principle eliminated tariffs on Vietnamese textile exports to Japan. Nameson is trying to expand its customer base in Japan.China’s Bosideng International Holdings, a major manufacturer and retailer of down jackets, is also boosting output in Vietnam. It currently produces garments on a trial basis at a Vietnamese textile factory affiliated with Japanese trading company Itochu, with which it has a capital partnership. Bosideng will closely monitor the situation at its Vietnam plant and base its expansion moves on developments there.

“Our clients are increasingly looking for a cross-border supply network, and that’s partly why [Bosideng] is missing out on potential orders in original equipment manufacturing(OEM),” said Bosideng Chief Financial Officer Mak Yun Kuen. The shift to Vietnam is intended to cut production costs, he said.

China exports about $169 billion worth of clothing annually. It used to be the unrivaled textile king of Asia. But with wages in China having doubled in the last five years and apparel makers there under heavy pressure from clients to cut costs, companies are increasingly moving production of low value-added goods out of the country.

Setting up operations on foreign shores carries risks, however. In the spring of 2014, Vietnamese protesters gathered for a huge demonstration against China’s oil exploration in the South China Sea. Chinese and Taiwanese companies were targeted by violent protesters, leading to supply chain disruptions.Meanwhile, U.S. President-elect Donald Trump has announced his intention to pull the U.S. out of the Trans-Pacific Partnership, a free trade accord encompassing 12 countries, including Vietnam and Japan. With the future of the agreement looking increasingly murky, the shift of textile production to Vietnam by Chinese businesses wanting to take advantage of lower tariffs may slow.

Source:Nikkei