In the first half of 2026, China's textile exports show an unusual split: raw materials such as yarn, fiber, and fabric are growing steadily, while garment exports are slowing down. This divergence underscores a hidden challenge in the 'China Plus One' supply chain model—rules of origin that can undermine the benefits of overseas relocation.
The Data Behind the Supply Chain Shift
According to China Customs, garment exports saw limited growth in June, while textile raw material exports performed well. US market data is even more telling: imports of Chinese knitted and non-knitted apparel have declined, while Vietnam and Bangladesh have increased their apparel exports to the US. However, these two countries continue to import large volumes of Chinese man-made filaments and staple fibers, creating a triangular trade pattern: China supplies materials, Southeast Asia sews, and the US and Europe consume.
This division of labor appears efficient but carries risks. Vietnam and Bangladesh lack sufficient local spinning and weaving capacity, making them heavily dependent on Chinese upstream materials. For Chinese companies, this means order relocation does not sever ties with domestic supply chains; instead, it creates new growth points for raw material exports. But the higher the dependency, the more sensitive the origin determination becomes.
Rules of Origin: An Underestimated Compliance Hurdle
The EU and US enforce strict yarn-forward rules for textiles, meaning the origin of a garment is not solely determined by where it was sewn but traces back to the source of the yarn and fabric. If the core fabric is made in China and only assembled in Southeast Asia, customs may still deem it as Chinese origin, denying tariff preferences and risking back duties or shipment holds.
This implies that simply relocating sewing operations overseas does not automatically bypass tariff barriers. Many companies focus only on labor cost advantages and overlook upstream material compliance. A seemingly successful order transfer may fall into the origin trap, undermining earlier investments in factories, equipment, and personnel. For buyers, this adds new uncertainty to supply chain stability.
Industry Impact: Upstream Strength Meets Downstream Risk
From an industry perspective, China's upstream textile sector remains highly competitive, with technological sophistication and scale that Vietnam and Bangladesh cannot quickly replicate. However, the compliance risks of the 'China Plus One' model are forcing companies to rethink the role of overseas plants—whether they are mere cost centers or genuine bases with local material supply capabilities.
For Chinese fabric suppliers, this is both a challenge and an opportunity. The challenge is that if downstream clients reduce purchases due to origin issues, raw material exports may suffer. The opportunity is that suppliers offering compliance solutions and helping clients complete origin tracing will gain stronger bargaining power. In the future, supply chain competition will shift from price alone to a combination of price and compliance.
Practical Recommendations
For Buyers - Reassess the origin compliance of existing 'China Plus One' supply chains, mapping fabric and yarn sources and processing steps, and establish complete traceability files. - Include clear origin liability clauses in contracts, requiring suppliers to provide certificates of origin that meet EU/US rules to avoid delays from customs inspections. - Monitor the development of local spinning and weaving capabilities in Vietnam and Bangladesh, adjusting sourcing strategies to balance cost and risk.
For Trading Companies - Before expanding overseas, thoroughly research target market origin rules, especially yarn-forward provisions, and incorporate compliance costs into investment calculations. - Explore partnerships with local Southeast Asian fabric suppliers to gradually reduce reliance on Chinese materials, or build supporting dyeing and weaving capabilities locally. - Establish internal compliance review mechanisms to regularly check origin labels and processing records of exported goods, preventing potential legal risks.
Amid the global supply chain restructuring, the textile industry faces both opportunities and risks. The outflow of garment manufacturing is inevitable, but China's upstream raw material industry retains global competitiveness. Enterprises that understand the rules will secure their footing in the global chessboard.