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What Fashion Can Learn From China’s Corrupt PPE Supply Chain

While the world was facing a crippling shortage of face masks to fight off a then incomprehensible pandemic, sending fashion brands and at-home crafters alike into PPE production, China was stockpiling them, dealing some on the black market, and stalling exports to the States.

China, perhaps not wrongly, kept the masks it made. The problem for the rest of the world was that China was manufacturing as much as 80 percent of the global face mask supply. And that level of dependency is largely what has crippled global supply chains, including fashion, in the first half of 2020.

As demand ballooned exponentially with the virus reaching more and more corners of the world, China also capitalized on its opportunity. The government took control of many top PPE suppliers, managing their distribution, and incentivized manufacturers to switch over to making masks, which forced the kind of corner cutting-that meant—and may still mean—the market has been flooded with non-compliant masks sold at excessively inflated prices.

“It’s a Wild West…There’s a lot of capacity, but also there’s a lot of demand, and it is a market full of a lot of scammers…and poor quality and fake product,” Siva Yam, president of the U.S.-China Chamber of Commerce, told Sourcing Journal. “Manufacturing demand had dropped dramatically and face masks [were] one of the oases for them to survive.”

For POB Trading, an independent buying office that helps companies create their presence in China, finding a reliable supplier proved a particularly trying challenge.

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“Many manufacturers would just sell to agents, or they would work only with certain buyers, so it was difficult to access the good sources,” said POB Trading director Brigita Polgariova. “Even though many new factories for PPE open up, many of those haven’t had even a set up workshop nor had the license to export, but they tried to pre-sell the products, while they were setting up the production lines.”

The rush to manufacture face masks has also mimicked much of what has happened in fashion, where the sole aim is to push product out quickly, at whatever quality and whatever expense. That rush to churn, coupled with a concurrent compliance scarcity, was one ember that helped spark the trade war between the U.S. and China, with tariffs being weaponized in the fight against fake products and intellectual property infringements.

But those same tariffs are part of what further hampered domestic PPE manufacturing, whether it would have returned pre-pandemic or not.

“There was initially a shortage of PPE due to two reasons: one, there really isn’t a good stockpile or hasn’t been a good stockpile in years,” said Daniel Sparrow, COO of Oberon Health and Medical Technologies Co. Ltd, a U.S.-China joint venture developed to produce critical protective gear in the fight against COVID-19. “And then, with the tariff war and trade war that’s been going on, when you consider these masks had a 7 percent duty and then the U.S. president raised it to 25 percent duty, that’s one of the reasons countries and hospitals weren’t stockpiling these masks.”

Tariffs have had a similarly cooling effect on other textile—as well as apparel—imports from China.

What’s more, Sparrow said, as tensions escalated between President Trump and Chinese President Xi Jinping, with the former charging the latter with starting and spreading the virus—going as far, even, to label it the “China virus”—restrictions on exports tightened in tandem.

“Every single time that this kind of comment is made, something in retaliation happens over here,” said Sparrow, who is based in Jiangsu, China, where the Oberon facility is located. “The Chinese government really is throwing up roadblocks, putting up all kinds of things to make it very hard to get product out of China. They’re making it especially hard to get product to the U.S.”

As Yam added, in the weeks when the news and number of coronavirus cases really ramped up in March, the Chinese government did add several steps to the export clearance process.

“If you want to export medical supplies or medical equipment like PPE, you have to get the customs clearing in China first,” he said. Customs paperwork must now be completed by the manufacturer rather than the trading company, and goods for export must be FDA-certified. There was also no third-party guaranteed payment, which meant the payment terms were cash and carry, which some companies aren’t able to accommodate.

Companies making masks also had to be on a government-approved export list, meaning products couldn’t leave the country unless the manufacturer, essentially, makes the cut.

“You would think that’s a good thing, right, because they’re weeding out the junk,” Sparrow said, adding that it hasn’t slowed fakes or substandard products. “But the only people really approved are the government and state-owned enterprises.”

So-called “constant changes” in export-import policies and the list of certified or approved factories, put pressure on purchasing for POB.

“Sometimes the goods [have] already been produced and while waiting for the next available flight, the new policy would be implemented, which created constraints to export,” Polgariova said. “This rapid change especially occurred after many countries started to complain about the quality, therefore the rules for export tightened up.”

As such, unsound practices in the PPE supply chain were coming from all sides, with the government taking control of manufacturers who could export, and allegedly profiting as a result, and other manufacturers falsifying FDA certifications or clearances to get goods out—which also means compliance and product safety checks would have fallen by the wayside.

“You cannot do the due diligence or even quality control, and so many people don’t have the information because of the travel restriction, you…cannot visit the factory,” Yam said. In line with the collective hindrances, ready-for-export masks stayed stuck behind borders and banned from shipping, he added. “A lot of Chinese companies are using loopholes to avoid the customs in China, as well as to avoid the problem of getting into America.”

In short, as Sparrow charges, politics largely kept the U.S. from the product it needed. But the larger lesson, here, is that the U.S. kept itself from certain self-sufficiencies in sourcing born by offshoring nearly everything.

As the fashion industry works to reimagine itself, innovative options for making more closer to home while still keeping costs down, will come to the fore.

In answer to what’s expected to be a slew of new demands in the sector, Sparrow has designed a popup mask manufacturing center that Oberon will produce, which he says can spit out 100,000 face masks per day. Both the environmental footprint and the operation costs are kept low, and the mobile center can be set up in hospitals or other hotspots, like shopping malls.

The mini mobile popup factory, according to Sparrow, can assure regulatory compliance and authenticity, and it was developed to operate using Oberon’s highest-quality and safety-certified raw materials. The operator can monitor output capacity, environmental power and wear analytics remotely using an internet connection.

It’s a model that could work for fashion players beyond what will likely be their long-standing production of PPE as part of their product ranges, equipping the industry for a level of self-sufficiency that will also improve sustainability and speed to market.

“Without secure supply chains, the risk to healthcare workers around the world is real,” World Health Organization (WHO) director-general Dr. Tedros Adhanom Ghebreyesus, said early in March, speaking specifically to the medical sector. But supply-chain security could come to eliminate risk across sectors with globalization under pressure. “Industry and governments must act quickly to boost supply, ease export restrictions and put measures in place to stop speculation and hoarding,” he added.

Just as consumers have quickly, and increasingly, realized they can’t rely on retail or restaurants to be open to supply what they may need, which has spawned a slew of home cooking and at-home vegetable gardens, the U.S. may have to determine which manufacturing sectors should be reshored, and put enough support behind it to see it effectively executed.

“We’re running around the world trying to buy what we could get,” Sparrow said. “Why not just make it on the ground?…That’s going to be the future of supply chains.”