Driven by higher cotton prices in China, Keer Group Co Ltd, a Hangzhou-based textile company, will set up a plant in South Carolina, which will make it the first Chinese textile enterprise to shift its manufacturing capacity to the United States amid increasing costs in the domestic market. Keer Group will invest US$ 218 million to build a factory, which will employ 500 people, South Carolina's Department of Commerce said in a statement.
The company will build and operate a 230,000-square-foot manufacturing facility in Indian Land, Lancaster County, which will produce industrial cotton yarn, taking advantage of South Carolina's location in the heart of the nation's cotton-producing region. Keer expects to break ground on the facility in early February, the Department of Commerce statement said.
Huang Guogang, a Keer Group spokesman, said that production is expected to start in October 2014. South Carolina's logistics strengths were an important factor behind the company's decision. The yarn produced in the plant will be exported in containers to China via Charleston Port, the Department of Commerce said.
The increasing prices of cotton, a major raw material for the textile sector, have been eroding the profit margins of textile companies. According to data from the China Cotton Textile Association, the gap between the average cotton price in China and that in the US is about 5,000 yuan ($824) per metric ton. Huang said that if consumption of cotton for the Keer plant in the US is about 150,000 metric tons a year, the material cost gap would represent 750 million yuan.
Zhou Xiangsheng, a textile company owner in Xiaoshan, Zhejiang province, said that many textile business owners are now using imported cotton yarn to save on raw material costs. The China Cotton Textile Association said that China imported 176,000 metric tons of cotton yarn in November, up 20.74 percent year-on-year.
"Imported yarn is cheaper than domestic cotton. Big companies with financial power can shift capacity to overseas locations, where material costs are much lower. For smaller companies, like mine, the choices are limited to mergers with other companies, a capacity reduction, or simply shutting down," said Zhou.
Direct investments in overseas markets may help Chinese companies to reduce costs, and are a normal pattern for any profit-driven company in mature economies, a research note from China Galaxy Securities Co Ltd said.