Eclat Textile plans to close its Chinese manufacturing base in Wuxi

ECLAT Textile, Taiwan’s largest technology-based textile company, professional functional and flexible knitwear fabric producer and apparel manufacturer decides to completely close Chinese manufacturing base it has had since 1998, in the city of Wuxi, due to deteriorating investment conditions and surging wages.

Roger Lo, Eclat’s vice president, said that over the past three years, their Chinese site has continued to lose money and they don’t see any way to turn that situation around in the future.

The “most challenging” aspects of doing business in China have been not only rising wages but also the difficulty of finding employees “who would want to work in a garment factory under the nation’s previous one-child policy.”

Following the announcement, Eclat shares advanced more than 2% to close at 342 New Taiwan dollars on Thursday.

The Taiwanese company has been gradually scaling down the Chinese factory’s capacity this year. The Wuxi facility once accounted for about 5% of Eclat’s monthly output but now produces only 1.8% of the 6.2 million clothes the company churns out.

Meanwhile, Eclat aims to continue building up its presence in Vietnam. It plans to add two new Vietnamese facilities in the first and third quarters of 2017, with a combined capacity for 1.3 million more garments. Nearly 70% of the company’s clothes production and half of its fabrics output are coming from the Southeast Asian nation.

According to Livia Wu, an analyst at Yuanta Investment Consulting, it will cost up to 20% more to produce in China than in Vietnam. The key reason for textile makers to kill operations in China is mainly due to soaring wages.

Eclat is still looking for new locations in other Southeast Asian countries. It is also eyeing the feasibility of U.S. production, especially given Trump’s vow to increase stateside manufacturing.

Lo said that they will watch whether Trump offers some favorable terms to bring manufacturers there. In their case, the garment plants which are labor intensive are not likely to move to America, but their fabrics-weaving factories, which can be highly automated, could be an option when they are doing the evaluation.

Last year, Eclat generated 65% of its revenue of NT$25.52 billion ($806 million) by making garments for global brands and retailers such as Nike, Under Armour, JC Penny, Costco and others. Another 35% of the company’s sales came from producing high-end fabrics that are used in sportswear.

Eclat is not the only Taiwanese company looking to make a southward move out of China. Pou Chen, the world’s largest shoemaker and a supplier to brands including Nike and Adidas, is also boosting its output in Southeast Asian countries to reduce its reliance on China.