China's Textile Industry in Crisis: How War, Oil Prices, and Trade Shifts Are Squeezing Factories

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A Perfect Storm for Zhejiang's Weavers

Factories in eastern China are facing one of the most difficult periods in recent memory. In Zhejiang Province — the heart of China's vast textile industry — raw material costs have surged while orders have dried up. The result: a squeeze so severe that some factory owners say shutting down might be cheaper than keeping the lights on.

The crisis is driven by three forces hitting simultaneously: a war disrupting Middle East energy flows, rising U.S. tariffs pushing global buyers away from China, and a years-long structural shift of orders to competing countries like Vietnam.

Hormuz Shock: When a Distant Conflict Hits the Factory Floor

The closure of the Strait of Hormuz — the narrow waterway through which roughly one-fifth of global oil trade passes — following the outbreak of conflict involving Iran has sent shockwaves through China's manufacturing sector.

Zhejiang Petrochemical, the largest single-site refining and petrochemical complex in China, relies on Saudi Arabia for roughly 60% of its crude requirements, with another 20% sourced from suppliers whose tankers transit the Strait of Hormuz. The company has already brought forward maintenance work in anticipation of potential supply shortages.

The impact on textile producers is direct and severe. Synthetic fabrics — which dominate China's textile output — are made from oil-derived chemicals such as polyester fiber, purified terephthalic acid (PTA), and ethylene glycol (a key ingredient in synthetic fabrics). When crude oil prices rise, the cost of these materials rises with them almost immediately, leaving no buffer for manufacturers.

Analysts note that for labor-intensive, low-value exports like textiles and furniture, transport and fuel costs account for between 10 and 25 percent of total production costs — meaning energy price spikes hit these sectors especially hard.

"The More You Produce, the More You Lose"

Industry insiders in Zhejiang describe a situation where producing goods has become financially irrational. Raw material costs in some segments have reportedly doubled in a matter of weeks, while finished product prices remain stubbornly low because buyers — both domestic and international — refuse to pay more.

Factories without stockpiled materials are unwilling to buy at inflated prices. Factories with existing inventory are reluctant to ramp up production without confirmed orders. The result is paralysis across the supply chain.

Some factory owners have reportedly considered simply reselling raw materials rather than processing them into finished goods — a sign of just how distorted profit margins have become. Smaller operations are said to have only weeks of financial runway remaining. If conditions don't improve, industry observers expect multiple factory closures by mid-April.

Trade War Compounds the Crisis

The Hormuz disruption is not the only pressure bearing down on Zhejiang's textile makers. A wave of so-called "holiday notices" — factory suspension announcements — has been sweeping across export-driven provinces like Zhejiang, Guangdong, and Jiangsu, as manufacturers weighed down by unsold inventory choose to halt operations rather than continue at a loss.

China's factories have seen a sharp run-up in input costs even as industrial activity has returned to modest growth — one of the first concrete signs of spillover from the Middle East conflict threatening profit margins across the manufacturing sector.

The broader trade environment adds further headwinds. More than 80 percent of major U.S. fashion companies now plan to further reduce their apparel sourcing from China over the next two years, with many already moving to limit Chinese-sourced clothing to a low single-digit percentage of their total procurement — driven primarily by concerns over geopolitical and trade policy risks.

The Long Goodbye: Orders Moving to Vietnam and Beyond

The current crisis is accelerating a structural shift that has been underway for several years. Global clothing brands are redirecting orders from China to countries in Southeast Asia, most notably Vietnam.

Vietnam's textile and garment exports reached approximately $46 billion in 2025 — up from around $35 billion in 2020 — cementing its position as the world's third-largest apparel exporter. Many Chinese companies and global brands alike are now building or expanding garment production facilities in Vietnam, partly to avoid U.S. tariffs and reduce geopolitical exposure.

Vietnam has become a preferred sourcing hub for global brands seeking to diversify away from traditional manufacturing bases, combining competitive pricing, short lead times, and growing compliance with international sustainability standards.

As orders migrate and low-cost inventory in China gradually runs out, Chinese factories are being left with higher-priced inputs and fewer buyers willing to absorb those costs.

What Comes Next

April is typically a critical month for Zhejiang's textile sector — a time when new orders are placed and production targets for the coming months are set. This year, industry observers say the month may instead mark a turning point in who survives.

The broader consequences could reach far beyond China. Rising input costs for Chinese textile manufacturers — combined with order shifts to Vietnam and other Southeast Asian producers — may eventually translate into higher prices for clothing consumers in Europe, North America, and beyond.

For now, factory owners in Zhejiang are watching raw material prices, oil markets, and diplomatic signals from the Middle East with a level of attention once reserved for their biggest customers. The distance between a war zone and a fabric loom, it turns out, can be measured in weeks.

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Sources

1. Vortexa – China's crude import resilience amid Hormuz disruption (March 2026): https://www.vortexa.com/insights/chinas-crude-import-stress-resistance
2. TRT World – China's exposure to the Hormuz closure and its economic effects (March 2026): https://www.trtworld.com/article/efd4d6c7d253
3. Bloomberg – China factory activity and rising input costs amid Middle East conflict (March 2026): https://www.bloomberg.com/news/articles/2026-03-31/china-factory-activity-returns-to-growth-despite-war-disruption
4. Radio Free Asia – China's export factory shutdowns amid trade war pressures (April 2025): https://www.rfa.org/english/china/2025/04/18/china-us-tariff-factories/
5. InCorp Vietnam – Vietnam textile and garment industry outlook 2026: https://vietnam.incorp.asia/vietnam-textile-and-garment-industry/
6. University of Delaware / FASH455 – U.S. apparel sourcing trends and China decoupling (2026): https://shenglufashion.com/category/asia/
7. B-Company – Apparel manufacturing in Vietnam: supply chain trends 2025: https://b-company.jp/apparel-manufacturing-in-vietnam-2025-supply-chain-labour-trends-and-sustainability-issues/

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