By  on January 10, 1994

HONG KONG -- Manufacturers and industry analysts here took a pragmatic approach over the weekend to the impending U.S. slashes of China's textile quotas, claiming the cuts could even help Hong Kong but that the American consumer might have to pay a little more for some goods.

"We don't depend on China quota that much," said Kenneth Fang, an industry spokesman and head of Fang Bros. Manufacturing, one of the territory's largest privately owned apparel makers. "Speaking for Hong Kong as a whole," said Fang, "I don't think the U.S. action is fair, but we do hope both sides will negotiate. China is already doing a lot to prevent illegal shipments at the source. They cannot control what happens after the goods leave China."

"If the U.S. cuts China quota," said Melina Tse of Esquel Enterprises, manufacturers for J.C. Penney Co. and J. Crew, "we would just move our U.S.-destined production to some of our other off-shore sites.

"We would use our China facilities, which we are expanding, for production to other places. Eventually, we would probably benefit from a China cutback by picking up more orders."

"The China cutback would not affect us." said Bing Chan, managing director of Merrison Garment Co., which makes clothes for DKNY and Ellen Tracy. "One way or the other, we would find the quota. Our customers are high-end and can afford to pay the increased costs."

But ultimately, warned Chan, it will be the American consumer who has to pay.

"The China situation is not reliable," he continued. "We always keep a lot of production space in Hong Kong -- about half our production is China, half Hong Kong -- just for this problem."

"Up to three years ago," said industry expert David Birnbaum, "Chinese factories were indeed sewing on third-country labels, but Chinese authorities have made great efforts to stop this. But even the most legitimate exporter anywhere cannot control what happens to garments once they leave their factory."

"Honest Hong Kong businessmen would welcome a reduction in China quota because it means orders will move back into Hong Kong," said a shirt manufacturer who produces in China and in Hong Kong and who requested anonymity. "Obviously, quota costs will go up, and we'll probably lose some orders to other places because of higher labor costs."We're lucky because we have a stable long-term customer base. Our customers know that Hong Kong production is costlier but more reliable, and they'll be ready to pay the extra 20 to 30 percent over China costs.

"Dishonest Hong Kong businessmen are definitely going to lose some business, but the attitude is that at worst, it's a 30 percent cut. Hopefully, you're not doing all your business to the U.S., so you make a few adjustments here and there and life goes on."

Meanwhile, the Hong Kong stock market took a hit on Friday, falling 373.02 points in reaction to the news of quota cuts. Analysts, however, say that the drop -- part of a dramatic three-day 1,200-point slide in the Hang Seng Index -- represents overall correction to recent spectacular surges and predict the market will fall another 500 points this week.

And in the South China Morning Post, the territory's leading English-language newspaper, an editorial Saturday called on the U.S. and China to come to their senses to avert a trade war.

The editorial said that while Hong Kong textile companies in China are admittedly at least partially responsible for disguised third-country shipments, such evasion of quota limits -- and the ensuing trade battle -- were the result of U.S. trade protectionism.

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