With labour and production costs on the rise, the Chinese clothing industry is set to suffer along with its export growth. Increasing production costs is forcing many western apparel brands and retailers divert their sourcing needs from the country to other sourcing destinations. On the other hand, the Chinese government is pursuing a policy of encouraging growth in the domestic clothing market in order to take up slack in its manufacturing sector caused by this apparent loss in competitiveness.

The rise in costs is due to an increase in fuel and shipping costs. Also, wage rates have risen to the point where they are higher than in many other Asian countries. Moreover, wage costs are set to increase further, given the Chinese government's commitment to raising minimum wage rates by an average of 13 per cent, per annum during 2011-15.

The recent shift in apparel manufacturing is evident in the import figures of EU and US clothing trends. In 2013 China's share of EU clothing imports from all sources in value terms fell from 41.7 per cent to 40.1 per cent, having fallen sharply in the previous year. China's share of US clothing imports from all sources fell from 37.8 per cent to 37.3 per cent. In most cases, the companies which are cutting back on having their apparel produced in China are relocating manufacturing processes to other low cost countries in Asia.

One of the biggest opportunities in Chinese retailing lies in e-commerce. This is expanding rapidly in western markets and Japan. Online stores have already been established in China by Burberry, Cherokee, Coach, Hugo Boss, Kering, Levi's, Neiman Marcus, Uniqlo and Zara, to name only a few.