BEIJING, China — Executives from Adidas, Under Armour, Reebok and more than 160 other companies urged US President Donald Trump to remove footwear from a proposed 25 percent tariff on Chinese imports in an open letter shared this week.
The authors of the letter said the tariff “would be catastrophic for our consumers, our companies, and the American economy as a whole.” Adidas alone works with 128 different suppliers and contractors in Chinese cities such as Ningbo, Fuzhou and Dongguan, and made around 18 percent of its footwear in China last year.
In China, however, responses to proposed tariffs on apparel and footwear have ranged from stoic to curiously optimistic.
Alibaba's Executive Vice Chairman Joe Tsai said he “could not think of another company” in a better position to benefit from the trade war than his. He said efforts to address the trade deficit, US President Donald Trump’s ostensible motivation for the conflict, will only drive more American businesses to the Chinese e-commerce giant.
Valued at over $27 billion, more than a third of the apparel the US imports comes from China.
“We are the platform of choice for global producers of products and brands selling into China,” he said on the company’s news site, Alizila.
When trade negotiations broke down in Washington earlier this month, Trump raised tariffs from 10 percent to 25 percent on everything from frozen sea cucumbers to railway sleepers, including fashion industry staples such as leather, textiles, handbags and luggage.
The US has also started a formal process to slap 25 percent tariffs on an additional 3,805 tariff lines, worth $300 billion annually. The new targets include not only manatees and fire extinguisher parts but finished fashion products in some shoe, apparel and accessory categories.
Valued at over $27 billion, more than a third of the apparel the US imports comes from China. China also provides 72 percent of America’s imported footwear and 84 percent of its imported travel goods, which include wallets, backpacks and handbags.
"The tariff increase entirely indicates the unilateralism of the United States and is brought about by political factors," says Chen Dapeng, president of the China National Garment Association and the Shanghai-based international fashion trade fair CHIC.
"This impacts the stability of trade and the cooperation of the industry between the two countries. It does not meet the expectations of the international community, and not only harms the interest of both sides, but also harms the interests of Chinese companies and US consumers," he adds.
Despite such high stakes, some manufacturers in China seem largely unconcerned about the threat of hefty tariffs.
“All the big guys already shifted to Southeast Asia,” says Gerhard Flatz, managing director at KTC, which has manufactured sportswear in Guangzhou Province's Heishan city since 1981. A dozen other factories have come and gone from Heishan over that period, he says, with the last of them closing down about two years ago.
These days, plants in Laos cost Flatz a third as much to run as those in China. Because Chinese manufacturers can no longer compete with Southeast Asia on the price of labour, those that remain have largely upgraded to more high-tech or nimble manufacturing. Meanwhile, many lower end Chinese manufacturers simply opened factories abroad in low-cost manufacturing centres across Asia and Africa.
“What remains in China, they can’t produce anywhere else,” Flatz says. That means the cost of the tariffs will likely be passed on to brands and US consumers. “It’s basically a tax and not a duty,” he says.
Sabrina Finlay is the chief executive of Otabo, which has helped dozens of US fashion brands make their products in over 50 Chinese factories. She says while moving production to countries like Cambodia, Indonesia and Vietnam has been happening for years, those countries still specialise in very specific types of production.
“Because the infrastructure in those countries isn’t developed the way China is, those industries aren’t as adaptable or flexible,” says Finlay. They’re not dexterous or responsive enough to produce different product lines and new styles when brands need them, which these days changes at social media speed.
“If you start cutting off American brands from [manufacturing in] China, there isn’t another place they can do this,” she says, and the ramifications will be broad and long lasting.
As prices go up, sales go down, jobs get lost.
“For me the conversation isn’t about what’s going to happen in the next six months or the next two years but what happens in the next 10-20 years. This decision drastically hinders America’s ability to grow manufacturing, companies, brands and talent within the [US].”
The notion that America will pay for the tariffs on China squares with research by Goldman Sachs that found the cost of Trump’s China tariffs have thus far been “entirely” passed on to US businesses and consumers.
How much of the 25 percent tariff US consumers are willing to pay remains to be seen. Rick Helfenbeim, president and chief executive of the American Apparel and Footwear Association, says when it comes to footwear, “even at the high end, there is little price elasticity.”
“As prices go up, sales go down, jobs get lost,” says Helfenbeim.
A survey conducted by The American Chamber of Commerce in February found that 54 percent of American companies operating in southern China lost market share to competitors, compared with 33 percent of Chinese respondents and 20 percent of respondents from other countries.
According to Wells Fargo analyst Ike Boruchow, large US companies that could be most negatively impacted include Steve Madden, Skechers USA Inc., Gap Inc. and Urban Outfitters Inc. As BoF has previously reported, brands such as Ralph Lauren and Calvin Klein — whose diffusion lines are made in China — and digital-native brands such as Away, Everlane, Allbirds and ThirdLove, are also at risk.
Small US businesses are likely to be hit even harder. Dan Harris, a partner at US law firm Harris Bricken, which gives advice on China law, says, “I am always shocked at how many smaller companies still have their clothes and shoes made in China, in large part because they don’t really know how to have them made elsewhere.”
Since the announcement of tariffs, he says, “we have brought on two business specialists who focus on Vietnam, Thailand, the Philippines, Malaysia, Cambodia and Indonesia, and they have gotten very busy the last few weeks helping companies make this move.”
While not all Chinese fashion manufacturing is high tech, lower end manufacturing is not especially vulnerable to the tariffs either, claims Nikko Chen (also known as Chen Xin), Managing Director of Chinese conglomerate Fosun Fashion.
“There are still quite a few factories producing low end products in China but they’re more serving the Chinese market [than export markets],” he says. “There’s definitely going to be an impact at the very low end, for instance for products in Walmart, but I don’t think there will be an impact on the rest of the industry.”
The Chinese apparel manufacturers that BoF reached out to supported Chen’s assessment. Most had little to say about the US tariffs, they said, because they now manufacture mostly or exclusively for the domestic market.
There’s definitely going to be an impact at the very low end... but I don’t think there will be an impact on the rest of the industry.
Even Orolay, makers of the so-called 'Amazon Coat' that went viral in Manhattan last winter, responded with considerable equanimity. “I think this policy will have a [small] degree of impact on all industries,” a spokesperson said.
Another explanation for the lack of outcry over the tariffs in China is Chinese companies’ extreme aversion to speaking out publicly on issues that the government is watching closely.
“It’s quite a sensitive topic,” says a close collaborator of the China National Garment Association, who wishes to remain anonymous.
Indeed, Chinese manufacturers may suffer more from the proposed 25 percent tariff than they have so far let on. But given how much China has already started turning away from the US market, such pain may not be as great — or last as long — as Trump expected.
“The Chinese government has done a lot of things such as emphasising the One Belt One Road policy, to increase trade between China and non-US countries,” Nikko Chen says. Earlier this month, for instance, the China National Garment Association announced it was organising a Sino-Italian Fashion Summit, which will take place in Hangzhou from June 24 to 26.
In the long term, Alibaba’s Tsai holds that China’s growing middle class will more than offset any decrease in exports to the US. “Over the last five years, while China lost 14 million manufacturing jobs, the economy added 70 million service jobs that drove real disposable income growth and consumption,” he said.
FASHION & BEAUTY
Vogue China's Vogue Me Edition Accused of Copying Tim Walker
Vogue China has been accused of knocking off the iconic photographer’s work in an editorial from its bimonthly Vogue Me magazine, featuring stars from hit reality show “Produce Camp 2019.” On Weibo, top influencers Dipsy and Gogoboi posted the editorial alongside Walker’s own photos of Eddie Redmayne and Tilda Swinton — Dipsy opined that the young TV stars were a poor choice for the creative direction, which lacked substance and originality. “How do you ruin idols? Just ask Vogue Me to shoot an editorial with them,” said Gogoboi. Elsewhere, netizens made fun of the shoot’s styling and lamented that the stylist did their idols dirty, though a few disagreed — user Honghuo60210 said, "It's not the styling that's at fault, but the models...the photography and direction are fine, but fans can't appreciate it and attack people online." The hashtag #VogueMeStylist has been viewed over 39 million times on Weibo since. (Sina Fashion)
Fashion To Capitalise on China’s Child Obesity Problem
Though a mere 2.6 percent of Chinese children aged 7-18 were overweight or obese in 1985, that number has since gone up to nearly 20 percent and is slated to hit 28 percent by 2030. The trend has been traced back to rising incomes and doting grandparents, many of whom experienced periods of extreme poverty and want to spoil their grandchildren with food. This means big business for retailers catering to larger sizes in childrenswear: the market for larger kids' clothing is expected to be worth $9.1 billion by 2020, says Coresight Research. (CBS)
Sneaker Con Sweeps Shanghai
China’s sneaker fever is in full force. From May 17-19, Shanghai’s cavernous West Bund Art Center was overrun by over 20,000 sneakerheads and their most prized possessions. Founded by Wu Yuming, Alan Vinogradov and Barris Vinogradov in 2009, Sneakercon has become the world’s biggest sneaker event and a meeting point for sneaker fans to buy, sell and trade shoes and interact with brands and the community. There was even an authentication zone for people to ensure their purchases were the real deal, and vendors selling fake shoes would be blacklisted for life. (Jiemian)
TECH & INNOVATION
Chinese State Launches App To Combat Fake Makeup
On May 20, China’s National Cosmetic Safety Week launched in Beijing. At the opening ceremony, the country’s State Pharmaceutical Regulatory Bureau launched an app to help consumers decipher counterfeit cosmetics from the real deal. With an interface featuring an information portal and complaint reporting mechanism, consumers can also scan barcodes to identify products to ensure authenticity. It remains to be seen whether one app can fix the country’s big counterfeit problem — in 2017, over 53 million products were confiscated in Ningbo, the same place where over 82,000 lipsticks and 18,000 bottles of perfume were seized just this month. (Jiemian)
Asia Pacific’s AI Spending Up 80% From 2018
According to a new report released by IDC, spending on artificial intelligence systems in the APAC region is slated to hit $5.5 billion this year and outpace the rest of the world over the next three years. That equals an almost 80 percent increase from 2018, driven largely by China, which will account for nearly two-thirds of AI spending in the region excluding Japan. Retail is expected to lead growth as AI increasingly takes over solutions across merchandising, product recommendations, customer service and supply and logistics. (Techcrunch)
Minority Stake Acquisitions Could Be Facebook’s Path Into China
According to sources close to the matter, the social network is eyeing a way around China’s Great Firewall. Though Facebook has been blocked from operating there since 2009, the company is considering alternatives that include taking minority stakes in local tech firms, Reuters reports. As it’s unlikely that the company will consider pulling a Google and building a site to comply with local censorship requirements, the investment route would follow in the footsteps of Yahoo’s co-founder Jerry Yang, who invested $1 billion in Alibaba in 2005 for a 40% stake. (Reuters)
CONSUMER & RETAIL
Tmall: 80% of Brands to Drop New Products For 618 Festival
Alibaba’s e-commerce platform Tmall has announced that a majority of its core brands will be launching over 1.5 million products to celebrate “618”, the shopping festival to take place on June 18 and a mid-year sibling to the company's Singles' Day extravaganza. As such, “Tmall 618” will become China’s biggest product release platform, and local media outlets have reported that over 50 million new products will be launched on Tmall in 2019, equal to a new product launched every 0.63 seconds. While mobile and digital, home appliances, beauty and personal care and fashion are the fastest-growing categories on the site, all eyes will be on the mid-year festival and how it reflects the country’s consumer sentiment amid current trade war volatility. (Ebrun)
86% Beauty Consumers Opt For Offline Retail, Says Reuters
Reuters released a report this month having interviewed hundreds of beauty consumers in first-tier cities across China. The study found that 86 percent of respondents prefer immersive physical shopping experiences over shopping for beauty online, while consumers’ preferences — particularly male beauty consumers — are shifting from well-known brands to niche new players, and 85 percent of respondents are more willing to pay more for organic products. Importantly, influencers continue to play a significant role in marketing beauty to shoppers, and social e-commerce app Xiaohongshu is the most popular platform for Chinese cosmetics consumers. (Jumeili)
Post IPO, Influencer Incubator’s Market Value Plummets 70%
Not even 50 days after listing on the Nasdaq last month, Chinese influencer incubator Ruhnn Holdings saw its market value shrink from an initial $1 billion to $310 million on May 21. On its first day, Ruhnn suffered a low opening and a decline, with the largest drop in the session reaching 38.2 percent. At closing, the company’s share price fell 37.2 percent from the issue price of $12.5, with a market value of $650 million. Some experts reckon that Ruhnn’s troubles have to do with a lack of knowledge about China’s so-called 'wanghong' (influencer) economy, while those back home continue to doubt the scalability of its business model. (Sina Finance)
POLITICS, ECONOMY, SOCIETY
Taiwan's “Men’s Skirt Week” Becomes a Viral Hit in China
It's been a good week for LGBT activists in Taiwan, and netizens from the mainland have also shown their support for the cause. On Friday, Taiwan became the first place in Asia to give LGBT couples many of the same rights as their heterosexual peers after legislators passed a sam-sex marriage bill. Earlier this month, students at a Taipei high school fought for gender equality and freedom of dress by promoting “Men’s Skirt Week.” Within days, the hashtags “Taiwanese High School Boys Collectively Wear Skirts to School” (#台湾高中男生集体穿裙上学#) and “Breaking Gender Stereotypes: Taiwan High School Boys Wearing Skirts to School” (#打破性别刻板：台湾高中男生集体穿裙上学#) had drawn over 235 million views on Weibo. Many praised the cause and expressed their admiration for the students, but there were also commentators who called the movement "unhealthy" and "sick." (What's on Weibo)
Assault Footage Pushes Domestic Violence Into Spotlight
Public awareness of domestic abuse is growing in China, where laws against such crimes only came into effect in 2016. Last week, a woman published footage of her husband beating her at what appears to be their home, in front of a toddler. The video was published on Weibo and has since drawn over 18 million views, and though netizens were quick to demand that the man be arrested, he was in fact already in custody — local police said in a statement that the 43-year-old man, surnamed Chen, was taken into custody soon after the woman called police from hospital. (SCMP)
Luckin Coffee Stuns in US Stock Debut While Hemorrhaging Money
Starbucks’ fastest-growing Chinese rival Luckin Coffee saw its shares soar 20 percent in its US stock market debut Friday. The Beijing-based start-up was founded less than two years ago and currently operates 2,370 small pick-up-focused locations across China, but it plans to surpass Starbucks’ 3,700 store mark by the end of the year. Despite its impressive growth, Luckin is losing money: $125 million in revenue last year was exceeded by spending on coffee beans, store rent and other costs, amounting to a loss of $475 million. Experts are forecasting that the company’s fate could mirror that of automobile start-up Nio, whose stock slumped a few months post IPO. (AP News)
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