The relocation of China’s garment industry to ASEAN has become an unavoidable trend, driven by rising labor costs, global trade tensions, and the increasing appeal of ASEAN countries like Vietnam and Cambodia. These nations are emerging as key beneficiaries due to their lower labor costs, strategic trade agreements, and proximity to China’s established supply chains. Investors seeking high ROI and sustainable growth should look closely at ASEAN’s burgeoning garment sector, which offers significant returns as the global landscape shifts.
The Driving Forces Behind Delocalization: Why is China Losing Momentum?
China’s garment industry once-dominant position as a low-cost garment production hub is eroding. Between 2010 and 2024, wage increases in cities like Shanghai and Beijing have nearly doubled, prompting manufacturers to relocate to countries with more affordable labor markets like Vietnam and Cambodia. This rising labor cost is pushing companies to explore alternatives where operating costs remain favorable for labor-intensive industries (Shenglu Fashion).
Trade tensions between China and the US, marked by tariffs on Chinese exports, have pushed manufacturers to relocate to ASEAN to circumvent these barriers. Vietnam and Cambodia, with their favorable trade agreements such as the EU-Vietnam Free Trade Agreement (EVFTA), have become go-to destinations for cost-effective production and access to Western markets. The diversification of supply chains post-pandemic has reinforced this shift, allowing companies to mitigate risks and ensure stability in uncertain times (Texleader).
Supply Chain Diversification: In the wake of the COVID-19 pandemic, global supply chains have undergone significant changes. In terms of China’s garment industry, Chinese manufacturers are diversifying their production lines to mitigate risks and ensure more resilient supply chains. ASEAN’s geographic proximity and improving infrastructure make it a favorable destination for these relocated garment factories. As manufacturers move to create more balanced production bases, ASEAN countries have benefitted from increased investment and job creation.
Figure 1: % of apparel import from China per macro-region (UNComtrade – Dr Sheng Lu)
China’s Garment Industry: Why ASEAN is the New Manufacturing Hub?
ASEAN nations provide a distinct labor cost advantage compared to China, which has increasingly positioned them as global garment production hubs. In China, monthly wages for garment workers have risen significantly, averaging around $500 to $650 in 2024, compared to $192 in Vietnam and Cambodia. Indonesia, monthly wages for garment workers average $220, offering another competitive option within the region, while Thailand remains slightly higher at $290 but still far below China’s wage structure (ILO Report).
Figure 2: Labour cost among selected countries since 2015 (ILO report)
One of ASEAN’s growing advantages is the increasing availability of a skilled workforce in high-tech manufacturing and garment production. Over the past decade, ASEAN governments have invested heavily in technical training programs to enhance workforce capabilities. A prime example is Vietnam’s Vietnam-Germany Vocational College in Hanoi, which provides hands-on training aligned with industry demands. Such initiatives allow ASEAN nations to offer a cost-effective, technically skilled workforce, making the region an attractive hub for global manufacturers seeking skilled labor (TVET Vietnam site)
In response to the COVID-19 pandemic, global supply chains have been reshaped. Businesses have started to diversify production to ensure resilience. ASEAN’s proximity to China, combined with improvements in infrastructure, has made it an ideal destination for companies aiming to maintain flexible and secure supply chains. Countries like Vietnam, Cambodia, Thailand and Indonesia offer more affordable alternatives while keeping close ties to China’s larger production networks (Vietnam Plus). In the wake of this restructuration, ASEAN countries have extensively joined strategic commercial partnerships like the Indo-Pacific Economic Framework (IPEF) or Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), China holding, due to its geopolitical position, a shallower access to such key commercial deals.
Figure 3: Stakeholder’s mapping (Fash455 – Dr Sheng Lu)
Case Studies: Vietnam and Cambodia as new Garment Hubs
Vietnam’s rise as a leading garment exporter is underpinned by its competitive labor force, favorable trade deals, and increasing foreign direct investment (FDI). Global brands like Nike and Adidas have shifted significant portions of their production to Vietnam, capitalizing on lower labor costs and tariff reductions through the EU-Vietnam Free Trade Agreement (EVFTA). Nike, for instance, now produces over 50% of its footwear in Vietnam—a major shift over the past decade. By 2021, Nike’s supplier factories in Vietnam employed nearly 500,000 workers, underscoring the country’s role as a strategic hub in Nike’s global supply chain. Vietnam’s strategic location and government policies supporting high-tech and skilled labor training have attracted FDI not only in traditional manufacturing but also in sustainable and automated production methods (Vietnam News).
Figure 4: Evolution of Vietnam’s garment exports VS China (OTEXA)
Cambodia, though smaller in scale, presents a viable alternative for Chinese manufacturers seeking cost-efficient garment production. With labor costs lower than in many neighboring countries, Cambodia attracts a steady flow of FDI in the textile and apparel sectors. Major players like H&M have leveraged these advantages, establishing sourcing bases to capitalize on Cambodia’s affordability. However, limited infrastructure and regulatory complexities, including reliance on imported raw materials pose operational challenges. Still, Cambodia’s cost-effective model and growing network of special economic zones as Manhattan Special Economic Zone (MSEZ) in Bavet near Vietnamese border position it as a competitive option within Southeast Asia’s garment manufacturing landscape (Fashionating World).
Economic and Social Impacts on ASEAN
Job Creation in Vietnam and Cambodia: The relocation of Chinese garment factories to Vietnam and Cambodia has driven significant job creation. Both countries have benefitted from increased employment in the textile sector, which has contributed to economic growth and improved living standards for workers in rural areas.
Figure 5: GFS CAGR, 2020-2019 (ILO report)
Positive Feedback Loops: the delocalization of industries to ASEAN has triggered a virtuous cycle of economic growth. Foreign direct investment (FDI) flows into ASEAN countries have spurred job creation and improved infrastructure, making the region more attractive for further investment. As companies train local workforces, productivity rises, driving higher wages and improving living standards. This boosts domestic consumption, reinforcing economic growth and creating a positive feedback loop that attracts even more FDI, fueling long-term development and resilience.
The rapid growth of ASEAN’s garment industry, especially in the big 4 of ASEAN textile industry (Vietnam, Cambodia, Thailand and Indonesia) has triggered a significant rural exodus, with workers leaving agricultural areas for urban garment factories. While this migration has spurred job creation and improved livelihoods, it threatens the sustainability of the agricultural sector. Labor shortages in farming communities could lead to reduced output, higher food prices, and instability in local economies. In Cambodia for instance, garment industry draws much of its workforce from rural areas, and this rural exodus threatens to disrupt traditional agricultural livelihoods (Borgen Project Report).
Risks and Challenges for ASEAN’s Garment Industry
Competition Among ASEAN Nations: While Vietnam and Cambodia have reaped the benefits of China’s delocalization, they face increasing competition from other ASEAN countries such as Thailand and Indonesia, which are also vying for garment production contracts. This competition could lead to overcapacity and downward pressure on wages in the long term.
Regulatory and Labor Challenges: The rapid growth of the garment sector in ASEAN has raised concerns about labor rights and working conditions. Governments in Vietnam and Cambodia must ensure that labor regulations keep pace with the industry’s expansion to protect workers and maintain sustainable growth.
Moving Up the Value Chain: To remain competitive in the long term, Vietnam and Cambodia will need to move up the value chain from basic garment production to more advanced manufacturing processes. This includes investing in automation, technology, and skills training to improve productivity and innovation.
Sustainability Trends: There is an increasing focus on sustainable practices in garment production, with both Vietnam and Cambodia exploring opportunities for eco-friendly manufacturing. By adopting sustainable and environmentally friendly practices, these countries can not only meet global demand for green fashion but also differentiate themselves in a competitive market. Additionally, investors are increasingly focused on the ESG (Environmental, Social, and Governance) score, which evaluates a country or company’s commitment to sustainable and ethical practices. This will be a crucial factor to ensure that ASEAN becomes a durable destination for garment production outsourcing.
Figure 6: SDG Score Overview For Selected Countries (SDGIndex.org) – Prepared by Source of Asia
Final Thoughts: How Investors Can Leverage ASEAN’s Textile Boom – Start in Vietnam, Expand to Cambodia?
For bold investors, ASEAN’s garment industry boom is a strategic entry point with Vietnam at the heart. Vietnam is perfectly positioned to capture redirected Chinese investments due to its competitive costs, strategic trade agreements, and a workforce that’s both skilled and affordable. Establishing operations here enables investors to tap into ASEAN’s rapidly growing textile hub while benefiting from Vietnam’s established reputation as a reliable and scalable manufacturing base.
Take a dual-market approach: Use Vietnam as a launching pad to eventually expand into Cambodia as it stabilizes. Cambodia’s ultra-competitive labor costs make it a powerful, complementary base, ideal for scaling once its infrastructure and regulatory landscapes mature. By prioritizing Vietnam as the initial stronghold and keeping an eye on Cambodia’s readiness, investors can maximize ROI, diversify production bases, and seize long-term growth in the ASEAN textile industry. This approach leverages ASEAN’s economic momentum to the fullest and ensures investors stay ahead in this evolving global market.
Figure 7: ASEAN Strengths Mapping – Prepared by Source of Asia
