Unraveling the Changing Made-in-China Clothing Business

BEIJING (TheStreet) -- It's no secret that textile and garment manufacturers in recent years have been shifting production from China to countries with cheaper labor such as Vietnam.

What's less evident is that Chinese companies, including several that trade on China's stock exchanges, are still very much in control of key industry segments -- and deserve investor attention.

These include companies that, despite this foreign flight, help China stand tall as a manufacturing center for all kinds of basic clothing ingredients from silk to spandex, yarn to buttons.

Stock analysts lately have raised red flags about Chinese producers of finished garments. But they've encouraged investors to buy stock in companies on lower rungs of the industry ladder.

A standout is Huafon Spandex, whose stretchy products are found in sportswear, undergarments and leggings. The company, which trades on the Shenzhen Stock Exchange, reported a 37% jump in 2013 earnings from the previous year to 278 million yuan. Revenues also rose 37% to 2.3 billion yuan.

Huafon's parent Huafon Group is China's largest maker of polyurethane, a spandex ingredient. Buyers of the parent's chemical ingredients include shoe giants Adidas  (ADDYY) and Nike (NKE).

Based on expectations that Huafon Spandex's revenues will double in 2014, and that the cost of chemicals used to make spandex will continue a fall that started last year, Goldstone Securities recently rated the stock a "buy."

Tayho Advanced Materials is another Shenzhen-listed maker of spandex, most of which is made in China. Overseas rivals of the Chinese include the Invista division of privately held Koch Industries, which makes the Lycra brand of spandex, and the world's largest spandex maker Hyosung, which trades on the Korean Stock Exchange.

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