Equity Analysis /

Vietnam textiles can win more market share in the US from China

  • China remains the top supplier in the short term

  • But the US government's measures to deal with the Xinjiang issue saw US import of Chinese textiles fall by nearly 40%

  • As Vietnam sources cotton from the US and Brazil, there is potential for local companies to gain competitive advantage

Tam Pham
Tam Pham

Fishery, Insurance

Rong Viet
13 April 2021
Published by

The Covid-19 pandemic and the US-China trade tension has created a turbulent business environment for US fashion companies, resulting in changes in their sourcing strategies. Although Vietnam has strengths to attract orders, China remains the top supplier in the short term. However, the Xinjiang issue is going to be an opportunity for Vietnam, at the expense of China.

Vietnam apparel exports to the US suffered the lowest decline among all sources in 2020 because of its competitive advantages

Among leading suppliers of textile and apparel (China, Vietnam, Bangladesh, Indonesia, India), China continued to lose its market share (33% in 2019 to 28% in 2020) while Vietnam was the largest gainer (13% to 15%). The market redistribution has accelerated since 2019, as a result of the US-China trade tension. Vietnam has emerged as the first choice for US fashion companies to replace part of the Chinese source. The reason is that Vietnam has lower costs than China and India, and is more efficient than Bangladesh.

Still, although brands are reducing exposure to China, they are not giving up yet. China has unique advantages that other major apparel supplying countries cannot replicate in the short term:

  • Its large scale production capability allows China to offer material for apparels at low prices with diversified types and designs. However, under the high tariff barriers as a result of the US-China tension, the redirection of sourcing from China to other countries has increased costs for US companies togo up as high as 63% in 2020 .

  • China is the sole country that has fully integrated production chain from yarn to garment. This minimises the risk of supply disruptions during difficult times such as the Covid-19 pandemic or the Suez Canal blockage. We note that Asian garment producers had experienced a textile shortage in Q1 20 when China applied quarantine rules. China supplies 40-50% of the materials to other Asian textile-producing countries.

There is a non-economic factor that has significantly and negatively affected the prospect of China as a source for textiles from 2020. The US government has implemented a series of actions, including the US Customs and Border Protection withholding the release orders of products that contain Xinjiang cotton, as measures to deal with the forced labor issue in Xinjiang (China). Hence, the US cotton textile and apparel import from China has reduced by nearly 40% while the total US import of Chinese textile and apparel fell 30.7% in 2020.

As Vietnam mainly sources cotton for its cotton yarn production from the US and Brazil, there is potential for Vietnam cotton yarn and fabric production and export to gain competitive advantage. VGT, TCM, PPH, TNG, ADS, KMR, HSM, HDM, TET, FTM, SVD, SPB, NDT, NTT, MPT, HLT, G20 are the listed companies that can benefit from the situation