NEW CHINA TRADE PACT IGNITES HOPES; PAYOFF MAY BE YEARS AWAY
Byline: Jim Ostroff
WASHINGTON — For U.S. apparel, the China gold rush may be years away, but the fever is beginning to rise.
As reported, the new trade accord signed with China over the weekend, according to U.S. trade officials, provides for the first time practical access to China’s consumer market, the largest in the world.
Rita Hayes, the U.S. chief textile negotiator who led the American delegation through five days of intense talks, said that China had agreed to drop duty and non-tariff barriers against U.S. textile and apparel products. Hayes said the concord would immediately affect U.S. shipments to China of knit, printed and upholstery fabrics, high-volume knit apparel — including T-shirts, sweatshirts and underwear — branded apparel and sportswear, yarns and industrial fabrics.
However, Hayes declined to provide the pact’s specifics, which analysts said are necessary to determine just how quickly U.S. products could be sold in China. It was learned Monday the market access provisions are to be phased-in over three years, beginning in 1998.
Until now, China has virtually banned imports of many products by maintaining very high duty rates, requiring that licenses be obtained from a myriad of agencies and even limiting the number of products that can be imported for sale by specific retail establishments. According to Hayes, China also agreed in cutting tariffs to bind them, so they cannot arbitrarily be hiked later.
Hayes, who also is the U.S. textile ambassador, said the accord would help narrow an enormous trade deficit with China in these sectors. It is estimated the U.S. imported $4.9 billion worth of apparel from China and $1 billion worth of textiles last year.
The American Textile Manufacturers Institute reported total textile exports to China during 1995 totaled just under $63 million and the U.S. Trade Representative Monday said these exports slid to $55.2 million in 1996.
Some trade analysts, speaking anonymously, contended that it’s unlikely any U.S. makers — other than those producing yarn and industrial fabrics — can expect to sell much of anything in China for years to come.
Any hardheaded analysis of the new, four-year accord must await release of its details later this week. Some of the biggest apparel companies in the country seemed fairly unmoved by the agreement, or at least were guarded about their reactions. Even though some firms already have sales or production ventures in China, it was difficult to find U.S. companies ready with new in-depth plans to invade the Chinese market.
A spokesman for Levi Strauss & Co. — the largest manufacturer of apparel in the world, which pulled production out of China some years ago because of its human rights abuses — said the company “has not taken an official position” on the pact. However, the firm continually reevaluates its position, and the agreement will be part of the that reevaluation, he said.
James C. Jacobsen, vice chairman of Kellwood Co., a large and diversified manufacturer of apparel, said, “The U.S.-China textile and apparel pact signed over the weekend will have minimal impact on Kellwood’s business. We have no immediate plans to ship into China.”
However, the enthusiasm for China’s potential was evident among a number of other companies turning out a varied range of products in textiles and apparel, as well as some in retailing.
“This is one of the world’s largest markets, and it has incredible potential,” said Susan Lord, Springs Industries’ federal government relations vice president, who served as an industry adviser to Hayes during the talks.
Lord said she could not say what, if any plans Springs has for China, or even if its products would be helped by the market access agreement. But clearly she’s bullish on the prospects for sales in larger cities such as Beijing.
“There are a number of department stores in those cities, and the apparel people are wearing no longer is just green and blue,” she said in an interview here Monday. “There is a tremendous amount of color in apparel, interest in fashion and there are shopping malls.”
Russ Pearson, director of international government relations for J.C. Penney, who also advised Hayes and the U.S. delegation, said Hayes “should be considered a hero for American interests in China” — a statement that was echoed, though in more reserved tones, by other retail, importer and domestic industry advisers. Pearson said retailers are ecstatic about the pact because it gives them a shot to do business in China.
“Of 1.2 billion people, there are currently 70 million middle-class consumers and it’s important to remember that China’s economy is growing at a 12 percent annual rate. So its economy and the numbers of middle-class consumers, will continue to grow,” he said. “It behooves those who want to be in the global economy to establish a base in China.”
Pearson declined to say whether Penney’s had any plans to do business there in the near future. He did note, though, that the retailer has a worldwide franchised catalog operation.
Robert Hall, the National Retail Federation’s vice president and trade counsel, said retailers take a positive view of the accord, but he added that other issues need to be addressed before U.S. department stores or boutiques set up shop in China.
“Anything that makes it easier to bring in branded American apparel there is a good first step, but there are problems for companies that would consider opening a retail store there,” Hall said.
A review of consumer data makes it clear one cannot generalize — at least about the buying power of Chinese consumers. In 1995, the average per capita income for Chinese living in urban areas was $466 for that year, and $189 for those living in rural areas, according to the China State Statistical Bureau.
The World Bank estimates China’s consumers’ average per capita income is about $650 currently, but this rises to $5,000 annually in four coastal economic zones established by China’s government, the bank reported.
To put these earnings figures in context, Ira Kalish, a senior economist with Management Horizons, Price-Waterhouse’s retail consulting division, noted, “In Shanghai, a taxi driver might earn $240 a month, but pays only $1 a month for rent.” Kalish said there is at least some evidence to support the contention that Chinese consumers first go for the “big ticket” items when their disposable incomes rise.
“In 1994, a survey of consumers in affluent Chinese cities found that 86 percent of them had color televisions and 62 percent owned refrigerators,” he said, adding that apparel purchases were measured in the low single-digits, or at zero, by the survey.
Fashion firms attempting to simply sell wholesale to Chinese retailers may also come across difficulties. Bud Konheim, president of Nicole Miller, said he met with department store executives to discuss selling in China but was disappointed to discover that those stores mainly sell merchandise on consignment.
“I won’t do that with stores here, so I’m certainly not going to sell that way to stores 12,000 miles away,” Konheim said.
However, Konheim added, “Having said that, the whole business trend is toward a global economy, and this is a big step in making China a part of that economy. The best defense against war and aggression is being a trading partner.”
Nicole Miller, he noted, does sell some merchandise in China under licensing agreements and has found that the consumer there with disposable income is sophisticated and wants up-to-date fashion.
Jeffrey White, president, S. Shamash & Sons, a New York importer of Chinese silk, which it weaves in its own factories, also pointed to a developing affluence. “There is a market there for apparel, but on the higher end. We sell synthetic and silk fabrics made in Asian factories into China. It is a business that has grown 10 percent each year for the past three years. The better-priced goods are doing well as the population becomes more affluent,” White said.
Elizabeth Coleman, chairman and chief executive officer of foundations maker Maidenform Worldwide, noted Maidenform bras have been sold to China through a Hong Kong distributor since 1990.
“Any reduction of import duties and non-tariff barriers could have a very significant impact on helping us take on the Chinese market going forward,” she said. “I was in China last year. I think the middle class in China is growing significantly, and I see a very large opportunity there.”
Peter Friedman, trade counsel, Reebok International, said, “For us, the focus in China is so overwhelmingly footwear. We sell some apparel — jogging suits, T-shirts and shorts — but not the fashion where we have the higher volume.”