Gucci has broken with a 105-year tradition of Italian manufacturing by producing a new pair of luxury sneakers in China, marking a significant shift for one of the world’s most recognisable fashion houses.
The Italian luxury brand’s latest sneakers, reportedly priced at around $1,000, carry a “Made in China” label rather than the traditional “Made in Italy” designation associated with Gucci’s products.
However, Gucci said the decision was not driven by the perception of China as a source of cheap labour.
The fashion house told Reuters that it selected a Chinese manufacturer because of its “technological know-how” and ability to meet Gucci’s quality standards.
Gucci also said it would continue manufacturing its other products in Italy.
The move nevertheless highlights the growing technological capabilities of Chinese manufacturers and their increasing role in industries historically dominated by European companies.
Ker Gibbs, former president of the American Chamber of Commerce in Shanghai, told Fortune that the development was symbolic of China’s changing position in global manufacturing.
“I think symbolically, China has arrived,” Gibbs said, noting that China is no longer viewed simply as a destination for low-cost and low-quality production.
China’s Manufacturing Industry Moves Upmarket
The Gucci sneakers are part of a broader shift in China’s manufacturing sector, which economists have described as a new phase of competition with established Western industries.
Torsten Slok, chief economist at Apollo Global Management, has referred to the trend as the “second China Shock.”
The first wave, particularly during the early 2000s, saw large quantities of Chinese-made clothing, furniture and electronics enter Western markets.
China’s manufacturing industry has since moved into more technologically advanced sectors, including electric vehicles, industrial machinery and high-end consumer products.
Howard Yu, a professor of management at Switzerland’s International Institute for Management Development, said China is following a path previously taken by Japan, South Korea and Taiwan.
According to Yu, China has progressed from producing basic goods and cheaper versions of established brands to manufacturing increasingly sophisticated products at a large scale.
Much of that expertise was developed through years of cooperation with European companies.
Volkswagen, for example, began producing cars in China in the 1980s, helping create a generation of Chinese suppliers capable of meeting international manufacturing standards.
“The moment Chinese suppliers have enough capabilities, then you want to branch out to develop your own brands for better margins,” Yu said.
Chinese Manufacturing Challenges Germany’s Industrial Base
The shift has created a difficult situation for European manufacturers as Chinese companies increasingly move from being suppliers to becoming direct competitors.
Germany has been particularly exposed to the change because of its longstanding strength in automobiles and industrial machinery.
An analysis by economists at the European Central Bank found that the composition of Chinese exports has increasingly overlapped with Germany’s exports since 2019.
At the same time, Germany has been importing more from China while exporting less.
German exports to China fell 9.7% last year, while imports from China increased 8.8%, according to Germany’s statistics office.
Germany’s trade deficit with China consequently increased by about one-third, while German car exports to China fell sharply.
Economists Brad Setser and Sander Tordoir wrote in May that China had already taken a significant share of Germany’s industrial market and was expanding its competitive reach.
Volkswagen Faces Growing Chinese Competition
Volkswagen provides one of the clearest examples of the changing relationship between European manufacturers and China.
China was once responsible for a substantial share of Volkswagen’s profits, but the company has faced increasing competition from Chinese automakers.
Volkswagen’s deliveries in China fell 36.6% in the second quarter, while other German manufacturers, including Mercedes-Benz, BMW and Porsche, also recorded declines.
The company has also announced major restructuring measures as it seeks to respond to changing market conditions.
Chinese-owned automakers are meanwhile expanding their presence in Europe.
The European Automobile Manufacturers’ Association reported that Chinese-owned carmakers outsold Japanese brands in Europe for the first time in May.
The European Union has responded with tariffs, including a standard 10% tariff on cars and additional duties of up to 35.3% on Chinese-made electric vehicles, depending on the manufacturer.
Electric Vehicles Challenge Germany’s Traditional Advantage
Yu said the transition from internal-combustion engines to electric vehicles has weakened one of Germany’s longstanding competitive advantages.
German automakers built global reputations around engineering expertise in petrol and diesel engines.
Electric vehicles, however, place greater emphasis on batteries, software and related technologies—areas where Chinese companies have developed significant capabilities.
“Now electric vehicles have changed the performance dimension towards battery and software, where China is extremely strong,” Yu said.
Europe Could Retain an Advantage in Luxury Markets
Yu compared Europe’s current industrial challenge with the crisis that confronted Switzerland’s watch industry during the 1970s.
Cheap and accurate quartz watches from Japan severely disrupted Swiss watchmakers, forcing many companies to retreat toward the luxury end of the market.
Brands that survived increasingly positioned mechanical watches as high-end luxury products.
The Swiss watch industry consequently became smaller, with employment falling significantly from its peak in the 1960s.
Yu believes a similar division could emerge across parts of European industry as Chinese manufacturers become more competitive.
According to him, Europe’s strongest remaining advantage may increasingly be concentrated at the highest end of the market, while the middle of the market faces growing pressure.
That presents a particular challenge for mass-market manufacturers such as Volkswagen, which cannot simply abandon volume production and compete exclusively in the luxury segment.
“If you are in the mass market, such as Volkswagen, selling 9 million cars a year, you cannot retreat to the top end alone,” Yu said. “The whole enterprise cannot survive on such a small volume, like Ferrari.”
European Brands Turn to Chinese Expertise
As Chinese manufacturers become more capable, European companies are increasingly partnering with the same firms that once relied on European expertise.
Gucci’s new sneakers illustrate this emerging relationship by combining an established Italian luxury brand with Chinese manufacturing capabilities.
Volkswagen has also moved in this direction.
In 2023, the German automaker invested $706 million for a nearly 5% stake in Chinese electric vehicle manufacturer Xpeng and agreed to collaborate on developing vehicles for the Chinese market.
The developments suggest that the relationship between European and Chinese manufacturers is evolving from one based primarily on supply chains and outsourcing to one increasingly defined by technological cooperation and competition.
For Gucci, the decision to manufacture a specific sneaker in China does not mark the end of its Italian production model. But it does provide a prominent example of how Chinese manufacturing capabilities are increasingly being used to produce goods for some of the world’s most established European brands.