China'S Dilemma Faced By Swiss Textile Machinery Industry

In 2014, the same year that the China Switzerland free trade agreement came into effect, a group of industry colleagues, including the representatives of Swiss company Uster technology company, visited cotton ginning plants and spinning mills in Xinjiang, Western China.

In the next few years, the Swiss textile machinery industry will benefit from the expansion of Xinjiang's textile production. According to customs data, by 2017, Switzerland is the largest exporter of knitting accessories (such as spindles and spare parts) in Xinjiang.

Some time ago, the U.S. government imposed sanctions on some textile manufacturers in Xinjiang, which attracted attention to brands such as Nike and H & M, which fell into the fierce opposition of consumers. Swiss companies such as Rieter and Uster, which sell textile machinery to Chinese factories, including Xinjiang, are also being watched as they face the industry's heavy dependence on China.

Niche market

It's hard to know how many Swiss textile machines there are in Xinjiang.

According to customs data, the value of various machines imported from Switzerland in Xinjiang will be $640 million (chf60000 US dollars) in 2019. In terms of textile machinery, most of the machinery in Xinjiang is imported from three countries: Germany (26.8 million US dollars, 46.5%), Japan (23.4 million US dollars, 40.6%) and Italy (7.4 million US dollars, 12.8%). Switzerland is a major exporter of knitting machine accessories such as spindles, dobby machines and automatic stop devices for large spinning machines, looms or knitting machines.

According to customs data, knitting accessories are Switzerland's second largest export product to Xinjiang in 2019, second only to industrial printers. Over the past three years, Switzerland has exported about $2 million worth of knitwear accessories to Xinjiang each year. Although the total value is small, China relies heavily on Switzerland for some machinery and parts.

Although the vast majority of knitting machine accessories in Xinjiang were imported from Germany in 2019 (nearly 91%, accounting for 39.7 million US dollars), Switzerland played a particularly important role in the peak period of the main textile industry expansion in Xinjiang a few years ago. In 2017, Switzerland led Germany, accounting for about half of the export of knitting accessories in Xinjiang.

According to the Zurich based International Federation of textile manufacturers (ITMF), shipments of rotor spinning machines to China have increased significantly from 383000 in 2015 to 634000 in 2016, from coastal areas in China to major cotton growing areas in the western region.

Subsidiaries, mergers and acquisitions

But the picture shows only part of the export data. Ernesto Maurer, President of the Swiss Textile Machinery Association, noted that through its numerous international subsidiaries, Swiss textile machinery manufacturers actually control far more market share than the national customs statistics show. This is because most of the large Swiss textile machinery companies have sales agents and subsidiaries in China, which produce locally and export only high-end components from Switzerland.

In addition, the number of mergers and acquisitions in the industry also makes it difficult to see where the origin is.

Itama, a textile machinery company headquartered in Italy, is the result of the integration of several brands including the Swiss brand sultex; Yida has production bases in many countries including China, Switzerland and Italy; Japanese company Toyota Industries took over Uster technologies in 2012.

Some companies have been fully acquired by Chinese investors, with offices or research institutions only in Switzerland. Chinese company Ningbo Cixing acquired Swiss company Steiger in 2010, making it one of the largest flat knitting machine companies in the world. In 2012, Jinsheng, another Chinese company, acquired the 150 year old Sura brand from orecan group. In its 2017 annual report, Sura said 37% of its 4400 employees are in China, while only 3% are in Switzerland.

In the same year, Sula set up a wholly-owned subsidiary Sula Xinjiang, which produces 2 million carding machines, roving frames, winding and rotor spinning systems to meet the growing demand brought about by the expansion of textile production in the region. The plant will be fully operational in 2019.

Supplier relationship

Machines from Switzerland, no matter where they are eventually produced, are used in factories that have been sanctioned by the United States. According to Le Temps, a Lausanne newspaper, in 2019, the Swiss leader group sold 66 ring spinning G32 machines for cotton weaving to Chinese company Huafu top dyed melange yarn. According to reports, the Swiss company Uster also sold equipment to Huafu, which was blacklisted in the United States in 2020.

Another company on the US blacklist, the Hong Kong based Yida group, has a cotton mill in Xinjiang using USTER equipment. Two mills, Xinjiang Changji Yida Textile Co., Ltd. and Turpan Yida Textile Co., Ltd., won the USTER quality mark in 2019.

Yida, which has been operating in Xinjiang since 1995, denied the allegation of forced labor and pointed out that the third party audit found no evidence. The company said on its website that its Changji spinning plant is an "advanced, highly automated factory" that requires only 45 technicians compared to a traditional spinning plant that requires 150 employees to operate. Some highly automated machines come from Rieter, Switzerland.

When asked for more information, Yida said it did not provide information on business relationships with individual customers.

Zhuo Lang's 2019 annual report shows that its Xinjiang factory has participated in the local government's plan to increase the employment of ethnic minorities, and the new factory employs 95 minority employees.

In response to a request for more details, the company said that "ethnic minority employees of the company's Urumqi plant work in various industries, from workshop workers to university graduates.".

Cut and run

Can an industry selling machines bear the same degree of responsibility as the brands of fabrics or cotton t-shirts suspected of being made by forced labor?

Geneva people believe that machinery companies should know who they do business with.

Delicate position

Swiss companies are in a particularly delicate position. China is Switzerland's third largest trading partner, and Switzerland is the first western country to sign a free trade agreement with this superpower.

China accounted for 17% and 16% (474 million Swiss francs) of Swiss textile machinery exports in 2019 and 2020, respectively. During the covid-19 pandemic, the Chinese market was seen as the key to helping the export sector withstand uncertainty.

But the industry is facing fierce competition from China itself. As China's own machinery industry becomes more mature and Swiss companies establish more local production in China, the total export of Swiss textile machinery has declined in the past few years. Most textile machinery is now produced in China and by Chinese companies.

"Foreign competitors are not sleeping. They are catching up technically, "said Stefan brupbacher, head of swissmem, a mechanical umbrella group“ Banning Swiss companies from selling and serving in China as a market will give Chinese and foreign companies an advantage over Swiss companies in a booming market. ". Production in China serves not only the local market, but also many other manufacturing markets.

(source: China Textile News)