Rising tide of price increases and wages under the tide of the Pearl River Delta garment industry

The Pearl River Delta remains the heart of China's garment manufacturing industry. However, recent reports from Guangzhou and Dongguan indicate that many low-profit apparel companies are facing closures or downsizing due to rising fabric and labor costs. In response, manufacturers are adopting strategies such as brand development, order transfer, and automation in an effort to survive and adapt to the changing market. "Prices are going up, but sales aren't keeping pace," said Chen Bo, owner of Takeoff Garment Factory, located in Kangle Village, Haizhu District, Guangzhou. A Sichuan native who has worked in Guangdong for over a decade, he described this year as the most challenging period in his career. "Everything is getting more expensive, but the prices we can charge haven’t increased." Liu Huisheng, owner of Friendship Garment Factory, echoed similar sentiments. He explained that the peak season at the end of the year used to be crucial for annual profits. This year, however, business has been barely holding on. “We’re struggling just to break even,” he said. The surge in cotton prices since September has only worsened the situation. According to data from the Zhengzhou Commodity Exchange, the main contract for cotton (CF105) rose from 17,895 yuan per ton in September to 33,720 yuan per ton by November — nearly doubling. Although prices have slightly dropped in recent weeks, they remain at historically high levels. This price increase has had a ripple effect across the industry. At the Humen International Cloth Trade Center in Dongguan, polyester and other synthetic fibers have also seen sharp increases. Chang Feng, head of Changfeng Mesh Weaving Co., Ltd., noted that nylon prices have risen by over 10,000 yuan per ton compared to last year. As oil prices rebounded, so did the cost of nylon, which many factories use as a substitute for cotton. This shift has led to a 70% drop in orders for some stores. In addition, accessories like zippers, buttons, and Glass crystals have also seen significant price hikes. At Zhenkou Industrial Road in Humen Town, where many garment companies are concentrated, nearly all of them have posted job recruitment notices. However, in the workshops, only a fraction of the usual number of workers are present. Labor shortages have become a pressing issue. Unlike the 2008 crisis, which was driven by external demand, this year’s challenges stem largely from internal structural issues. “Wages have to go up, or we can’t find workers at all,” said Zhang Wenjian, general manager of Dongguan Jiawen Garment Factory. This year, the monthly wage for general workers increased from 1,600 to 2,500 yuan, with technical staff earning up to 3,000 yuan. Despite this, worker turnover remains high. At Takeoff Garment Factory, employees often leave after just two or three months. “You see, our workers are mostly over 30. Where do we find young people now?” Chen Bo asked. Many small and medium-sized enterprises are struggling under the pressure of rising costs and wages, leading to the closure of several processing factories. Some companies are refusing to absorb losses. Li Yasheng, head of Dongchen Costumes, said that their main customers are Japanese buyers who are very sensitive to price changes. “We don’t accept price increases, but our costs keep rising. Once we calculate the numbers, only a few orders come back.” He added that this month, they managed to produce only 2,000 to 3,000 pieces out of a target of 10,000. Due to fierce competition, smaller factories lack bargaining power and are forced to absorb most of the costs. Yu Hongfeng, head of Tianshi Fashion Co., Ltd., said that even a 5% price increase this year caused a major client, American brand MissMe, to shift part of its orders to Vietnam and India. As a result, this year’s orders have dropped by one-third compared to last year. Chen Bo is now considering moving his factory back to his hometown, where costs are significantly lower. “People move up when water rises, but it’s not enough to just move the factory back — the cost is much lower there.” Meanwhile, branded apparel companies are faring better. During the 15th China (Humen) International Apparel Trade Fair in November, local brands such as Chun and Song Ying showcased their latest collections, emphasizing “brand, wealth, fashion, and international” in their presentations. Li Yasheng, head of Dongchen Clothing, said, “No matter what, we have to fight for the next couple of years.” Branding and e-commerce are both being considered, though he expressed concerns about the weak brand presence and the unpredictable nature of online competition. “Right now, I just hope that prices stabilize quickly, or else we won’t be able to do business with our customers at all.” To cope with rising costs and labor shortages, many Dongguan garment companies are shifting their focus to the domestic market and building their own brands. Qin Yingfu, deputy secretary-general of the Humen Garment Association, noted that in the past two years, some original export-oriented factories have begun transforming into domestic brands. Small and mid-sized brands like Kai Luobini, K Brand, VOZO, and Fren Pak have emerged as a growing trend. At Jiesheng Clothing Co., Ltd., a banner advertising the Spring-Summer 2011 Fashion Conference was prominently displayed. Hu Xiangyun, head of the production department, said the company launched its own brand earlier this year. While still in the early stages, the brand model has already started showing results, with prices increasing by 7% to 8% compared to simple processing. “It’s really hard to build a brand, but once you do, you have more control,” she said. Some companies are also relocating their production lines to inland provinces. Tan Zhihui, manager of Shantong Garments Co., Ltd., said the company plans to move its factory to Jiangxi, expecting a 30% reduction in rent and lower wage costs. Tianshi Fashion Co., Ltd. has also shifted one-fifth of its orders to factories in Jiangxi, where overall costs are about 10% lower. Additionally, some companies are investing in automation to address labor shortages. Zhang Wenjian recently purchased an apparel plotter for 22,000 yuan, which saves around 3,000 yuan per month. Lin Chao, deputy general manager of Humen International Garment Machinery City, noted that garment companies have increased their purchasing power in response to rising costs. During this year’s Humen International Garment Fair, the event generated 2.5 billion yuan in turnover in just four days, with monthly sales in the second half of the year seeing a significant rise.

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