The National Council of Textile Organizations (NCTO) has issued a stark warning to Congress and the administration, calling for urgent and robust measures to address the surge of imports tainted by forced labor, narcotics, and counterfeits originating from China. 

NCTO President and CEO Kim Glas delivered this message during her testimony at a congressional hearing on "Exploitation and Enforcement: Evaluating the Department of Homeland Security's Efforts to Counter Uyghur Forced Labor."

Glas highlighted the influx of Chinese cotton products produced under abhorrent conditions, particularly in Xinjiang, flooding global markets and indirectly making their way to the United States. 

This has led to forced labor textiles infiltrating American supply chains, causing textile plants to idle and workers to lose their jobs, while some companies have shuttered entirely.

The urgency of the matter lies in the fact that Congress is failing to stop forced labor trade, despite the enactment of the Uyghur Forced Labor Prevention Act. Glas also pointed to the misuse of the de minimis provision in trade law, allowing illicit goods to enter the U.S. unchecked. 

She stressed the need for immediate action, including closing the de minimis loophole, increasing customs enforcement, expanding the UFLPA Entity List, and enhancing penalties and inspections to combat this alarming trend.

NCTO urged Congress and the administration to take swift and decisive action to extinguish this economic, health, and human rights crisis, protecting American companies and workers from exploitation while preserving the nation's manufacturing base.

The US, the UK and the EU are continuing with their rhetoric about decreasing dependency on China but the ground reality is on the contrary as the Chinese footprint is spread far, wide and deep – from basic items to high-level industrial equipment. The three huge consumer markets may speak from the moral high ground of Western democracies but insiders know well that developing other supply sources that are as resourceful as China is going to be a long-haul, hoping that India, Mexico, Brazil and South Africa could be brought forward as the diverse basket of options the US, the UK and the EU need. 

In a series titled ‘Worlds Apart: Risks and opportunities as deglobalization looms’, RBC Wealth Management has paid particular attention to this situation as it explores the trend away from globalization and its ramifications for investors, economies, and financial markets. 

China’s sophisticated production makes it aleader

For a start, there are quite a few points which make China’s case as the global king of production irrefutable. More often than not and much to the displeasure of the US, China has proven its ability to overcome the impact of technological restrictions in the past and its massive manufacturing scale and well-established supply chains are laying the foundation for future technological innovation. It is already a well-known fact that China is shifting away from low-end, labour-intensive component manufacturing to higher-tech, full-spectrum product manufacturing. 

According to the report, the high complexity of global supply chains, combined with the extensive scale of China’s industrial sector and manufacturing competencies, makes it undesirable and unrealistic for many multinational companies to make a complete break with China anytime soon. Additionally, this break-up could lead to multinational brands finding themselves in a precarious position as the country’s domestic consumer population is just too large to ignore. China has migrated from low-cost manufacturing to one that increasingly focuses on innovation and complex manufacturing techniques. China will maintain its manufacturing dominance while at the same time make inroads into emerging and strategic fields such as electric vehicles, telecommunications, bioengineering, artificial intelligence, and other areas. 

In recent years, the West has started implementing restrictions on China’s access to critical technologies, such as AI, quantum computing, and advanced semiconductors, raising concerns about the country’s ability to move further up the supply chain and achieve its stated “technological self-reliance” goals. However, the resourcefulness of the Chinese has not prevented their progress in these areas at all. 

Western on-shoring and friend-shoring isn’t ready to deliver

The Chinese approach to the pandemic was indeed a stringent one and hurt supply chains like never before, leading to many importers seeking to not only diversify their points of sourcing but also set up manufacturing in locations closer home and in regions that are on friendly terms with importing countries. For the US, the opportunity lay in cost-efficient Mexico and the cluster of Central American countries – however, whilst Mexico being a North American country has the basic infrastructure and cheap talent pool in place, it cannot deal with even 15 per cent of the Chinese capacity and that too with huge production line investments. 

The Central American countries are a no-go as they are in continuous socio-political conflicts, have huge illegal and criminal bases that can jeopardize operations and supplies and most importantly have no skilled labour or infrastructure worthy of complimenting Mexico’s production capabilities. In The EU, Turkey has always been a viable option and now that the nation is undergoing economic downturns regularly, it does not guarantee a stable environment for a steady supply and the East European countries that don’t fall within the EU are not ideal places to develop as friend-shoring hubs. 

As things are, trade relations with China will continue and a slowdown will take decades to achieve. 

H&M Group has successfully issued a EUR 500 million green bond with an 8-year maturity, signaling a significant move towards sustainable finance. This green bond attracted immense interest, being oversubscribed by over 3.5 times, from a diverse group of international institutional investors. 

The funds raised through this issuance will be dedicated to projects falling within five distinct categories, as outlined in the Sustainable Finance Framework introduced on September 1, 2023. These categories include Circular Economy, Green Buildings, Renewable Energy, Energy Efficiency, and Sustainable Water Management & Wastewater Management.

H&M Group's Chief Financial Officer, Adam Karlsson, expressed satisfaction with the strong demand for their inaugural green bond, emphasizing its role in extending the company's debt maturity profile. 

Moreover, this move reinforces the group's commitment to leading the fashion industry towards circularity and a net-zero climate impact. It is also noteworthy that H&M Group's investor base has broadened to include prominent green investors, reflecting the company's commitment to sustainability.

The bond will be listed on Euronext Dublin, with support from financial institutions such as BNP Paribas, ING, J.P. Morgan, SEB, and UniCredit, while ING played a pivotal role as an advisor for the Sustainable Finance Framework.

Fashion for Good and Spring Lane Capital have teamed up to help unlock the capital needed to scale sustainable innovation in the textile industry. Their new report, “The Great Unlock: Closing the innovation commercialisation gap through project finance solutions”, reviews the different types of capital available to close the funding gap within the commercialisation stage.

The report discusses the benefits, requirements, and opportunities related to project finance as a funding solution in this space, and highlights the roles that various stakeholders would need to play in order to bring this to life.

The report aims to enhance innovators’ understanding of relevant industry stakeholders and ultimately assists in further enabling the scaling of much-needed innovation.

Project Finance as a Solution

The bulk of the funding needed will come from debt financing, with project finance serving as a key solution due to the strong focus on risk mitigation and allocation, which the structured nature of such funding provides.

Project finance is a specialized type of financing in which the project's assets and cash flows serve as collateral for the loans used to finance the project. Project finance distinguishes itself by mitigating risks, bolstering credit ratings, and allowing for greater borrowing capacity based solely on the project's viability. It thereby offers a lifeline to innovators who may lack creditworthiness in traditional financing channels.

Project finance is particularly beneficial for new technologies because it allows them to scale effectively and faster compared to traditional funding channels. Project finance also gives access to broader debt capital markets and offers longer repayment periods compared to corporate finance, making it more attractive for technology development.