WWD.com/fashion-news/fashion-features/the-china-syndrome-742574/
government-trade
government-trade

The China Syndrome

For many people, the Chinese icon that most clearly illustrates that nation’s character is the Great Wall, the 4,500-mile series of barriers started by the Qin dynasty more than 2,200 years ago intended to protect the then-fledgling empire from...

View Slideshow

For many people, the Chinese icon that most clearly illustrates that nation’s character is the Great Wall, the 4,500-mile series of barriers started by the Qin dynasty more than 2,200 years ago intended to protect the then-fledgling empire from barbarian invasion and foreign influences.

But today, the issue China-watchers in the apparel industry — and in most manufacturing businesses — think most about is what’s coming out of China, not who’s going in.

Wednesday will mark the world’s most populous nation’s one-year anniversary in the World Trade Organization. China’s exports to the U.S. surged 28.6 percent to $6.44 billion in the first nine months of 2002, according to U.S. government trade data. The strongest increases have come in the few categories like bras and dressing gowns that the 144 member nations of the WTO dropped quotas on at the beginning of the year. Chinese imports of bras for that period were up almost fourfold, to $147.64 million. In dressing gowns, China has quickly grown to be the market-share leader, passing a handful of other countries.

For the year ended in September, Chinese apparel and textile products represented 11.4 percent of all U.S. imports in those categories. China is rapidly gaining ground on Mexico, which has been the U.S.’s largest trading partner in those categories since NAFTA went into effect in 1994.

China’s explosive growth in textiles and apparel has sourcing managers across the industry pondering how strong it will become after 2005, when the WTO will drop all quotas on textile and apparel products, and China’s 1.28 billion citizens will be free to produce as much as the world can buy.

Preparing themselves for the expected surge in Chinese production, textile companies, including DuPont and Burlington Industries, have stepped up their presence in China, while sourcing companies like Li & Fung Ltd. and the sourcing arms of industry giants from Liz Claiborne to J.C. Penney Co. also expanded their operations in the area.

The U.S. is not China’s sole export focus. The members of the Association of Southeast Asian Nations last week were already starting to grumble about the surges in Chinese exports their nations have seen since the group recently inked a free-trade pact with China, according to published reports.

But it is widely believed that Chinese textile and apparel manufacturers eventually could produce enough clothes to meet all the U.S.’s needs and probably those of many other nations. The U.S. government estimates that about half of China’s working-age population of 706 million is employed on small farms, and many farm workers are considered underemployed. With only 23 percent of the working population employed in industry, the continuing migration from rural areas to city centers is bringing more people to factory work. Last year, China’s per capita gross domestic product stood at $4,300, up 7.3 percent from the prior year, with 10 percent of the population living below the poverty line.

While standards of living in southern Chinese manufacturing centers like Guangzhou have started to improve, and Shanghai has enjoyed explosive growth, apparel manufacturers looking for low wages have started to open factories in rural northern areas of the country, where poverty rates are higher and the acceptable wages lower. Only last week, Long Yongtu, China’s vice minister of foreign trade and economic cooperation, said in New York that China can sustain its position as a top spot for cheap labor for the next 20 years. “We will always have a large army waiting to work,” he said. “We have to create 15 million jobs per year or we wouldn’t be able to sustain the sociopolitical stability.”

The expected surge in Chinese apparel exports, in addition to taking a heavy toll on remaining U.S. manufacturers, could have a devastating effect on the economies of many developing nations in Asia, Latin America and sub-Saharan Africa that rely heavily on apparel exports as a source of foreign exchange.

That has many importers convinced that the U.S. will take advantage of the safeguard measures China agreed to in a bilateral trade deal between the nations that cleared the way for its entry into the WTO. Under the terms of China’s admission, the U.S. and other importers have substantial flexibility to impose temporary quotas or increase duties to limit Chinese imports if they are disrupting the market.

Sourcing executives also note that China makes money from quota rights, which are traded like a commodity in that nation, as is common in exporting nations.

Still, administration officials have suggested they do not intend to try to limit China’s exports as long as it obeys WTO rules.

At a meeting of importers in New York last month, David Spooner, special textile negotiator for the Office of the U.S. Trade Representative, said: “The administration is serious about adhering to our commitments.”

Observers said it’s likely that the U.S.’ handling of Chinese imports will be influenced by how China handles its market-access obligations under the WTO.

So far, China has taken a number of steps to lower duties and remove barriers to foreign retailers and financial service interests. Capitalism has taken root in the communist country, and the ruling party has increasingly made it easier for domestic and foreign investors to build businesses and fortunes.

A key question will be how smoothly power shifts from President Jiang Zemin to his apparent successor, Hu Jintao, who last month was named to succeed Jiang as head of the party. That is expected to presage Hu’s eventual rise to the presidency.

Jiang’s key contribution to the party dogma has been the “three represents” policy, which holds that the party can represent workers, society as a whole and advanced forces — a euphemism for business investments.

Hu’s willingness to privatize China’s state-owned companies and further open Chinese markets to foreign investment is expected to have a major affect on the development of Chinese industry and the further integration of China’s economy into the rest of the world.

View Slideshow