In the first half of 2026, China's textile exports showed a sharp divergence: upstream products like yarn, fiber, and fabric maintained growth, while garment exports grew only marginally. US import data is even more telling: apparel imports from China declined notably, while Vietnam and Bangladesh saw steady growth in garment exports—yet their imports of Chinese fibers and fabrics remained high. This contrast reveals an underappreciated industry truth: capacity relocation hasn't severed supply chains; instead, rules-of-origin compliance has become a new battleground.
Background
The so-called 'China Plus One' model is essentially a tiered division of labor: Chinese companies focus on upstream production, exporting yarn and fabric, while Southeast Asian factories handle cutting and sewing, exporting garments under local labels. On the surface, this leverages Southeast Asia's labor cost advantages and avoids tariffs on Chinese goods. However, US Customs data shows that Chinese knitted and non-knitted apparel imports have fallen, while Vietnam and Bangladesh's imports of Chinese man-made filaments and staple fibers remain high. This means a massive volume of Chinese fabric is processed in Southeast Asia and then sold to the US, with the geographical shift not altering the value attribution.
The crux lies in the strict yarn-and-fabric tracing rules enforced by the EU and US. The origin of a garment is not determined by where it was sewn but traced back to the source of its yarn and fabric. If core fabrics and fibers come from China and only cutting and sewing occur in Southeast Asia, customs verification can still deem the product as Chinese-origin, denying tariff preferences. This directly undermines the investment in relocation and exposes firms to back-duties and cargo detention risks.
Industry Impact
For domestic textile firms, this rule means 'relocation' does not equal 'decoupling.' Southeast Asia's weak local spinning and weaving capabilities prevent full industrial chain localization in the short term, making the region heavily reliant on Chinese fabrics—a vulnerability for Vietnam and Bangladesh, but a potential bargaining chip for Chinese firms. Conversely, if companies only see labor cost advantages and relocate assembly while ignoring upstream material compliance, they risk falling into the 'origin trap'.
From an industrial cluster perspective, the export resilience of upstream hubs like Keqiao and Shengze stems precisely from this raw-material export model. However, as EU and US customs scrutiny intensifies, the sustainability of this model is being tested. For foreign trade factories, especially those with Southeast Asian operations, it's time to reassess: did the sewing relocation truly reduce tariff risk, or merely shift it from finished goods to raw materials?
Practical Recommendations
For Buyers - Require suppliers to provide complete origin documentation, including traceability chains for yarn and fabric sources in purchase contracts. - Maintain compliance files for suppliers, periodically verifying their overseas factories' raw material purchase records to avoid cargo detention due to upstream violations. - Prioritize suppliers with 'full-chain compliance capability'—those who can not only deliver finished goods but also clearly explain the source of materials at each production stage.
For Foreign Trade Enterprises - Before overseas expansion, systematically study target markets' origin determination standards, especially the enforcement details of 'yarn-forward' rules in the EU and US, rather than relying on experience. - Organize full-chain documentation: raw material purchase contracts, processing descriptions, logistics documents, and certificates of origin, forming a traceable compliance file ready for customs audits. - Evaluate the true cost-benefit of the 'China Plus One' model, incorporating potential back-duties and detention risks into investment models instead of only comparing labor costs. - Consider joint ventures or technical cooperation with local Southeast Asian spinning mills to gradually reduce dependence on Chinese materials, fundamentally avoiding origin traps.
The trend of supply chain restructuring is irreversible, but rule awareness must come first. Textile companies should leverage global layout flexibility while understanding the hidden barriers of origin rules, transforming compliance from a cost into a competitive advantage. Safeguarding the bottom line is key to thriving amid change.