July 2026 trade data reveal a telling divergence: China's exports of textile raw materials kept growing, while apparel export growth slowed markedly. The US market is particularly illustrative—imports of clothing from China continue to decline, while Vietnam and Bangladesh see rising apparel exports to the US but maintain high imports of Chinese fibers and fabrics. This pattern of 'raw materials from the North, garments from the South' is the real-world projection of the 'China Plus One' model, and it harbors hidden compliance risks.
Background
The 'China Plus One' strategy refers to companies retaining Chinese capacity while relocating some manufacturing to third countries. In textiles, the most common approach is moving garment assembly to Vietnam or Bangladesh to leverage lower labor costs while continuing to source yarns and fabrics from China. On the surface, this brings products closer to consumers and avoids certain tariffs. However, US customs data show that Chinese imports of knitted and non-knitted apparel have declined, while Vietnam and Bangladesh's imports of Chinese man-made filaments and staple fibers remain high. Behind these numbers lies a reality where large volumes of Chinese fabrics are cut and sewn in Southeast Asia and exported to Western markets under 'foreign-made' labels.
The crux is that EU and US rules of origin are not simply based on the 'last place of sewing.' For textiles, both regions generally enforce full traceability from yarn to fabric, often under 'yarn-forward' or similar provisions. If the core fabric or fiber in a garment originates from China, even if assembled in Southeast Asia, customs may determine the origin as associated with China, thereby denying tariff preferences. This means that the investment in relocating sewing operations could be undermined by compliance gaps, risking back duties, penalties, or cargo detention.
Industry Impact
For companies reliant on the 'China Plus One' model, rules of origin are emerging as a second barrier after tariffs. Vietnam and Bangladesh lack sufficient local spinning and weaving capacity, making it unlikely they can achieve full supply chain localization in the short term. This ensures their continued dependence on Chinese upstream materials. But it is precisely this dependence that makes the 'simple relocation of sewing' strategy fragile from a compliance standpoint. Once Western customs intensify inspections, those who have only moved assembly without adjusting their supply chains will be the first to suffer.
More profoundly, origin compliance is forcing supply chain restructuring. Companies can no longer view 'China Plus One' as a mere capacity relocation; they must assess raw material sourcing, processing steps, and document traceability from a full-chain perspective. For buyers, this means that when selecting overseas manufacturers, it is not enough to evaluate sewing capabilities—the compliance of upstream materials must also be verified, otherwise whole shipments may face clearance issues due to origin determinations.
Practical Recommendations
For Buyers - When evaluating Southeast Asian suppliers, require complete raw material traceability documents, including certificates of origin and processing records for yarns and fabrics, to avoid origin issues affecting garment eligibility. - Confirm with Western clients the specific rules of origin for the target market, especially textile-specific provisions (e.g., yarn-forward rules), and incorporate compliance requirements into purchase contracts to clarify responsibilities.
For Trading Companies - Before overseas expansion, systematically study the origin criteria of target markets and assess the actual tariff benefits of 'China Plus One' against your product mix, rather than focusing solely on labor cost advantages. - Establish an internal compliance audit mechanism to regularly review the consistency and completeness of raw material procurement, production processes, and export documents, and consider engaging third-party compliance advisors to mitigate potential origin verification risks.
In the wave of supply chain restructuring, China's upstream textile industry retains global competitiveness, but rule-based risks cannot be ignored. Companies must treat compliance as a strategic element, not an afterthought, to succeed in the 'China Plus One' landscape.