Spotted Again in America: Textile Jobs - One Chinese Yarn Maker Finds Savings in South Carolina Hard to Resist

From The Wall Street Journal:

Zhu Shanqing, who owns a yarn-spinning factory in Hangzhou in China's Zhejiang province, is struggling with rising costs for labor, energy and land. So he is boxing up some of his spindles and moving.

To South Carolina.

Mr. Zhu is one of a growing number of Asian textile manufacturers setting up production in the U.S. Southeast to save money as salaries, energy and other costs rise at home. His company, Keer Group Co., has agreed to invest $218 million to build a factory in unincorporated Lancaster County, not far from Charlotte, N.C. The new plant will pay half as much as Mr. Zhu does for electricity in China and get local government support, he says. Keer expects to create at least 500 jobs.

There is another benefit. As costs continue to increase in China, Keer can ship yarn to manufacturers in Central America, which, unlike companies in China, can send finished clothes duty-free to the U.S.

The move by Mr. Zhu and others will scarcely revive a once bustling Southern textile industry. But it illustrates how shifts in global trade are creating advantages for U.S.-based manufacturing.

"We are on the leading edge of a mature cycle" with rising costs pushing Asian companies to consider moving to the U.S., said Robert Hitt III, South Carolina's commerce secretary.

In October, Mumbai-based ShriVallabh Pittie Group announced it would build a $70 million yarn operation in rural Sylvania, Ga., bringing 250 jobs. The company wants to avoid paying U.S. duties and to secure "cheap, plentiful and importantly reliable" energy, crucial in yarn production yet erratic in India, said Zulfiqar Ramzan, vice president for international development. Yarn spinning runs 24 hours a day, seven days a week, for most of the year, and any energy disruptions cause substantial delays and waste, he said.

 

In April, Alok Industries, another Mumbai textiles producer, said it would build a yarn-spinning factory in the South, though it hasn't said where. The company expects to save on duties by making yarn in the U.S. and pay less than 10% of what it pays for energy in India, said Chief Executive Arun Agarwal.

 

In September, JN Fibers Inc. of China agreed to build a $45 million plant in South Carolina that turns plastic bottles into polyester fibers used to stuff pillows and furniture. That investment is expected to create 318 jobs. Development officials in South Carolina and Georgia say more Asian textile manufacturers have contacted them this year.

 

Rising costs have made it more expensive to spin yarn in China than in the U.S., said Brian Hamilton, a 2012 doctoral graduate of North Carolina State University's College of Textiles, who wrote his Ph.D. dissertation on the global textile industry.

 

He found that in 2003, a kilogram of yarn spun in the U.S. cost $2.86 to produce, while it cost $2.76 to produce a kilogram in China. By 2010, however, it cost $3.45 to produce a kilogram in the U.S. and the cost in China had jumped to $4.13 per kilogram. U.S. production costs were lower than Turkey, Korea and Brazil.

 

The new investments bring only a few jobs to a textile industry that all but died in the late 1990s, as many mills shut down or moved overseas for cheaper labor. In November, 114,900 people worked in U.S. textile mills, a sharp decline from 1993, when 477,300 people worked in the mills, according to the U.S. Bureau of Labor Statistics.

 

U.S. duties on imported yarn and clothing have existed for decades. But trade pacts such as the North American Free Trade Agreement created duty-free zones between the U.S. and several trade partners.

 

In those agreements, the U.S. imposed a "yarn forward" requirement, meaning that textiles imported from partner countries have to be made completely from material produced in those countries or the U.S.

 

If not, they face duties, usually ranging from 5% to 6% for yarns, 10% and 12% for fabrics and 15% to 20% for clothing, according to the National Council of Textile Organizations, a U.S. textile trade group.

 

For years Asian clothing producers just swallowed the duties because production and transport costs were so low. Now they are reassessing that practice.

Mr. Zhu at Keer said that U.S. duties figured into his decision to set up shop in the U.S. so that he could take advantage of cloth makers in Central America, and not be solely dependent on an increasingly expensive China.

 

Mr. Zhu said that in Hangzhou—one of China's wealthiest cities—industrial land prices have soared, making expansion difficult. China's textile industry is plagued by overcapacity, which has squeezed margins, and local governments are reluctant to sell land to producers.

 

U.S. labor costs outstrip what Keer pays in China, but that difference will shrink as Chinese salaries keep rising, said Mr. Zhu, adding that he expects the gap will be more than compensated for by other savings. The company settled on South Carolina's Lancaster County in part because of the proximity to Charlotte's banks and the port in Charleston, S.C., he said.

 

Lancaster County, which once had 11,000 residents working in textiles and now has 8.1% unemployment, has set an annual fixed fee in lieu of taxes that Keer will pay for 30 years. Sixty percent of that annual fee will be returned to the company each year until it has paid off a $7.7 million bond that the county issued to help buy the land, said Keith Tunnell, president of the Lancaster County Economic Development Corporation. The state also provided benefits.

 

ShriVallabh Pittie Group plans to finance its plant with loans at interest rates much lower than it could get in India, plus generous state and local tax breaks and other benefits, Mr. Ramzan said.

 

The yarn spun at the new plant, about 50 miles north of a port in Savannah, Ga., will be shipped to Latin America to be made into clothing that can then be shipped back to the U.S. duty-free, he said.

 

"It's been a barrier to access," Mr. Ramzan said of U.S. duties. "As an Indian company, you have to try to make everything for 12% to 15% less to make a profit. Now we won't have to do that."