There was a fire in Urumqi, China. And repercussions in Beijing. Media reports suggest ten people died in a high-rise fire recently. A tragedy. But for some observers, the tragedy was avoidable; if only firefighters had arrived at the building sooner.

Some claim they were delayed because of government-enforced Covid restrictions. Whether that was the case or not may be up for debate. Nevertheless, that perception was a catalyst for unrest throughout the country. 

For Xi Jinping and the Chinese Communist Party (CCP ), big-picture control of its people may miss the little things. Yet, if history tells us anything, seemingly isolated, local events can act as catalysts for sweeping social change. Widespread resentment and fatigue with Xi’s zero-Covid policy may represent a turning point for the CCP and its relations with the Chinese people.

China zero-Covid policy made sense until it didn’t

At the beginning of the Covid outbreak, strict Covid protocols seemed like a sensible, effective policy. This was notable compared to the struggles (and deaths) witnessed in the United States and elsewhere in the West. However, the longer Beijing’s zero-Covid policy has remained, the more it looks like a form of social control.

Is this an example of overreach by the government? Perhaps. Yet the social contract between the CCP and China’s people, where political freedoms were ditched in exchange for economic gains and social stability, appears to be fraying. But now it seems that zero-Covid may be ratcheting down political liberties further.

“The shift strikes at the party’s longstanding social contract with its people. After violently crushing pro-democracy demonstrations at Tiananmen Square in 1989, Beijing struck an implicit bargain: In exchange for limitations on political freedoms, the people would get stability and comfort,” reports the New York Times.

Chinese authoritarianism has been put through its paces in recent years. First, Xi strove to take control of the country in a way not seen since Mao — and now he has it. Although the question remains for how long? There are tensions in the streets over Covid policy, galvanised by the tragedy in Urumqi. And there’s something new: tepid calls for Xi’s resignation, a slap in the face for a man who just secured an unprecedented third term as leader of China.

Is China a stable supplier — or not?

It’s hard not to discuss politics when considering economics in China. But, in turn, there are significant implications for the apparel industry. Suppose unrest grows throughout the country over the zero-Covid policy and other grievances? Will China remain a stable, reliable supplier to the world’s clothing brands? That’s the question of the day for our industry. Increasingly, as a consequence, western brands and retailers aren’t waiting for an answer as they reassess their prospects in China.

As our industry knows so well, the pandemic laid bare for the world to see that global supply chains are fragile. When pressure-tested, the chains knotted up, buckled in the face of unforeseen disruptions in consuming markets, ports, shipping lines — and in producing countries like China. Indeed, just-in-time became take-a-ticket-and-stand-in-line.

Global buyers had to deal with the implications. They couldn’t afford to stand in line. Delays in deliveries cost them dearly, with blown sales, lost revenue, and reputational harm with consumers. Hence, the reassessment that has consumed the industry since the darkest days of the pandemic to rework supply chains has resulted in greater diversification of supply and sourcing closer to consumer markets.

The traditional approach of sole sourcing in China has morphed into sourcing some production from China as other sources of supply are brought online to compensate. As a result, risk management has taken on new importance in our industry. Only now, we have social unrest in China, which only adds urgency to solving a new sourcing puzzle.

Be careful what you import

An aspect of globalisation often ignored is that when a brand or retailer sources from a global supply chain, it not only imports products from a given country. It also imports that country’s problems, whether social or political. In China, tensions are simmering as the social pot boils, raising the stakes for continuing to source products from the country.

Ironically, it was a fire in a region in China already the focus of global condemnation for allegations of forced labour which has caused so much trouble for Xi. Protests erupted all around China. Urumqi was ground zero, the catalyst helping to focus public anger over repressive Covid policies. Indeed, there was so much friction that China’s information censoring apparatus had difficulty blocking all the comments on social media critical of Beijing’s policies. Word travelled. Chinese citizens, tired of endless Covid lockdowns, protested.

So social unrest remains a problem for Xi. Interestingly, Beijing recently eased zero-Covid policies in response to protests. However, restrictions — albeit looser — remain. Even so, public resentment continues to simmer. And should general disdain for the policy eventually evaporate, it will be curious to see if Beijing reimposes restrictions. If Covid cases were to spike, that could give Beijing a justification for reimposing more challenging lockdown procedures. 

An exercise in risk management

We’ve discussed the pressures roiling Chinese society, but what about the country’s economy? For sure, Covid has had a significant impact. Zero-Covid lockdowns have crippled vast swaths of the Chinese economy, further inflaming social unrest.

Moreover, China now appears to be caught in a middle-income trap, which typically plagues countries with rapid economic increases. As a result, it’s hard to break away from the labour-intensive industries that helped build a nation. So, the Chinese economy has already consumed low-hanging industrial fruit (like apparel manufacturing). Only to realise that the best fruit is much higher on the economic development tree (such as high technology). And it’s hard to get.

That may be the point: economically, China may be peaking. Indeed, it is faced with unfavourable demographics as its population ages prematurely, an implication of the one-child policy of years ago. And with this breeds further societal discontent: fewer young people have to support a growing older population. Beyond zero-Covid, this may add to a simmering stew of resentment and cause concerns for Beijing’s leaders.

Also, toxic politics between China and the West has complicated apparel sourcing. Protests in Shanghai? Not helping matters for Chinese authorities. No wonder they continue to rattle sabres at Taiwan to stir nationalist fervour, deflecting attention away from other problems — like Xinjiang.

Textiles and apparel represent steppingstones on the way to full industrialisation. In fact, history is bereft of examples — the UK, the US, Hong Kong, Taiwan, Korea, and on and on. Today, rising stars include Bangladesh, Cambodia, and others throughout Asia follow the same economic path of development.

However, once the greatest economic benefit was derived, the Chinese government shoved the industry to the side in favour of high-value-added industries favouring technology and complex manufacturing. In turn, the industry — once centred primarily in eastern China — has re-emerged in western provinces such as Xinjiang.

Further, Chinese economic policy encourages local manufacturers to focus more on the domestic consumer market than on export markets, as it did in the past. As an export earner, apparel has passed a point of diminishing returns for the country as other more profitable sectors have expanded into global markets.

Sourcing companies are left scrambling to find alternative sources of supply to hedge against an uncertain future for China. Make no mistake: what China has accomplished over the past 40 years is unprecedented in world history. However, the forces that helped China to become the economic powerhouse it is today have lost vitality. In contrast, concurrently, Chinese society has matured.

More importantly, the fundamental bargain made by the CCP with its people — peace and prosperity in exchange for fewer personal freedoms — may have seen its day. Will China collapse? That is not likely, but current events suggest change is around the corner, along with risk and uncertainty. How that plays out is anyone’s guess.

But this is the point for our industry: we don’t know.

By Just Style