China’s reopening a double-edged sword for Vietnam’s textile sector

As China reopens its economy, Vietnam’s textile-apparel sector will have the opportunity to start exporting to its northern neighbor again, but will also face competition from its main export rival to the U.S. market.

In its latest report for the sector, VnDirect said the export revenue of the apparel-textile sector in the first two months of the year fell 17% year-on-year, after a fall of 6.8% in Q4/2022. The major securities broker attributed the results to decreasing purchasing power in the U.S. and Europe.

It expects China to fully reopen its economy in Q2/2023, boosting Vietnam’s exports of yarn in the latter half of this year. China is a major export market for Vietnamese yarn, accounting for 48% of export revenue.

The demand for textile and apparel products is likely to recover in the U.S., in line with the personal consumption expenditures (PCE) price index of nondurable goods in January 2023 that increased 0.8% from the previous month, versus a decrease of 0.7% in December 2022, VnDirect said.

It added the changes indicated that consumers in the U.S. have started to purchase more fast-moving goods, including clothing and other textile products.

However, China is Vietnam's main rival in the U.S. apparel market. Last year, China was the biggest apparel exporter to the U.S. with 25.65% of the market share, followed by Vietnam with 14.87%, according to VnDirect.

As a result, firms focusing on exports to the U.S. are expected to face difficulties in the last six months of this year.

Yarn producers are expected to recover from Q3/2023, earlier than apparel firms. Meanwhile, apparel firms might recover from Q4/2023 when inflation in the U.S. and Europe cools, the broker anticipated.