Gucci is manufacturing its newest $1,000 sneakers in China rather than Italy, marking a sharp break with the luxury fashion house’s 105-year-old tradition and signaling a broader shift in global manufacturing. The Italian brand told Reuters that it selected a Chinese manufacturer specifically for its “technological know-how” and ability to meet the brand’s quality standards, rather than for cheap labor.
The move highlights how Chinese factories have advanced beyond producing low-cost apparel and electronics into high-end consumer goods, challenging Europe’s most storied industries.
### The Shift to High-End Chinese Manufacturing
For decades, the “Made in China” label carried connotations of low-cost, mass-market production. Today, that perception is changing as Chinese factories acquire advanced capabilities in sectors traditionally dominated by European firms.
Ker Gibbs, former president of the American Chamber of Commerce in Shanghai, told Fortune that the shift is symbolic. “I think symbolically, China has arrived,” Gibbs said. “It’s no longer a place where only cheap stuff gets manufactured and poor quality this and that.”
Some economists, including Torsten Slok, chief economist at Apollo Global Management, refer to this evolution as the second China Shock. While the first wave in the early 2000s flooded Western markets with inexpensive clothes, furniture, and electronics, the current wave involves high-end goods, industrial machinery, and electric vehicles that compete with European manufacturers.
Howard Yu, a professor of management at Switzerland’s International Institute for Management Development, told Fortune that China is following the path of South Korea, Taiwan, and Japan. According to Yu, much of this know-how came from Europe. Volkswagen, for example, has built cars in China since the 1980s, and “essentially has trained up a generation of suppliers to meet Western standards.”
“The moment Chinese suppliers have enough capabilities, then you want to branch out to develop your own brands for better margins,” Yu said.
### Economic Pressures and Cost Disparities
The transition comes as European luxury brands face severe financial headwinds. Gucci’s sales have halved over the past three years, prompting parent company Kering to cut prices to deal with slow demand.
At the same time, significant cost disparities continue to favor Asian manufacturing hubs. According to a survey by Japan’s trade agency, Chinese manufacturing workers earned an average of $629 per month last year, compared to $1,341 in Taiwan and $2,075 in South Korea.
Despite shifting production for the new sneakers, Gucci told Reuters that it will keep making its other products in Italy.
### Impact on Germany’s Industrial Sector
Among European nations, Germany—the continent’s leading economy and the fourth largest globally—has experienced the strongest impact from this transformation. Research released by economists at the European Central Bank revealed that starting in 2019, the composition of Chinese global exports began tracking closely with Germany’s traditional output of automobiles and industrial machinery.
Trade data underscores the changing dynamic. Last year, German exports to China fell 9.7%, while imports from China rose 8.8%, expanding Germany’s trade deficit with China by a third, according to Germany’s statistics office. German car exports to China alone fell by a third last year.
Automotive giants like Volkswagen have borne the brunt of this shift. Once supplied half or more of Volkswagen’s profits, Volkswagen reported a 36.6% drop in deliveries in China in the second quarter. Peers Mercedes-Benz, BMW, and Porsche posted similar losses. To address these challenges, Volkswagen revealed plans to slash 100,000 jobs and reduce its vehicle portfolio by as much as 50 percent, marking the most severe overhaul in its 90-year history.
Chinese-owned carmakers are also gaining in Europe. In May, Chinese brands outsold Japanese brands for the first time, according to the European Automobile Manufacturers’ Association. To defend local manufacturers against this competition, the European Union implemented a 10% baseline tariff on imported cars, followed by supplementary levies reaching up to 35.3% on electric vehicle batteries originating in China.
Pointing out how the transition to electric vehicles eliminated Germany’s primary competitive edge in internal combustion engines, Yu observed that the defining metrics of vehicle performance have shifted toward software and batteries—areas of immense strength for China. “Now electric vehicles have changed the performance dimension towards battery and software, where China is extremely strong,” Yu said.
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