Yangtzekiang Garment Manufacturing is investing hundreds of millions of dollars to ramp up yarn production in China, targeting the European market to hedge against possible new US import quotas.
The Hong Kong-listed firm and other textile players predict China will lure high-end yarn and fabric orders from west European countries such as Italy, which are keen to keep its high value-added garment industry afloat amid competition from Asia and eastern Europe.
Yangtzekiang managing director Chan Wing-kee said the company would increase yarn production capacity in Wuxi from 350,000 spindles to more than 600,000 in the next few years.
The huge Wuxi mills will produce yarn to be made into fabric, which in turn will be used in Chinese-made garments and high-end European branded clothing.
The expansion will require future investment of up to $1 billion. This is in addition to the $500 million spent over the past three years on one mill in Wuxi that houses 120,000 spindles making high-quality 'complex yarn' used in high-end European branded shirts.
'I will spend more money on high-end yarn manufacturing in China instead of garments. Why? There will be no more quotas in Europe on Chinese textiles next year,' said Mr Chan. 'The price of garments can go only one way - down. Garment manufacturers will have to fight on price. I don't.'
Although Europe, like the US, was allowed to apply one-year 'safeguard quotas' on Chinese textiles until the end of 2008, the European Union probably would not do so because many European nations no longer manufactured garments but imported them, he said.
