• Tech

The Price is Right

6 minute read
Peter Gumbel | Paris

The clothing importer’s application last month was routine. The Chinese firm wanted to bring some bras into Italy. Anything but routine, however, was the size of the shipment and the price at which the firm planned to sell the bras: 10 million of them, wholesaling for just 50 cents a dozen. Italians buy about 40 million bras a year, so the 10 million represents three months of total Italian sales. For Paolo Zegna, that request to the Italian government confirmed his worst fears. “It’s predatory pricing,” fumes Zegna, president of the Italian textile trade group Sistema Moda Italia and co-chief executive of the Italian menswear giant founded by his grandfather, Ermenegildo Zegna. If such practices continue, he says, “in the coming months, many Italian textile and clothing firms could be overwhelmed by impossible price competition.”

European and American clothing and textile companies knew they would be in for some hard knocks this year following the expiration on Jan. 1 of a decades-old quota system that limited exports from low-cost producers like China and India. But the reality is worse than their most dire expectations. Chinese companies have massively ramped up foreign sales even as they drop prices. Chinese textile exports to Italy alone jumped by 64% in January and February, according to the Italian national statistics office. In the 15 countries that made up the European Union before last year’s accession of a further 10, the volume of Chinese textile and clothing imports rose almost 47% from January 2004 to January 2005. And in some categories, the increases are astronomical. According to the Brussels-based industry group Euratex, imports of jerseys and pullovers to the E.U. have soared more than sixfold, while prices have dropped by over a third. The volume of imported women’s shirts and blouses has tripled, and imports of Chinese bras have jumped by almost 500%, as prices have plummeted.

Manufacturers and unions alike are howling for protection. Adrià Serra, president of Spain’s textile trade group Consejo Intertextil Espaol, says unless urgent action is taken, the import flood will spell “a disaster.” Mario Maselli, owner of Emmetex, a textile producer in the Italian town of Prato, complains that “this is ever more a market where one side battles with two hands and the other has one hand tied behind its back.”

Certainly, there’s a lot to lose. The E.U. is the largest world market for clothing and textiles. But it’s also a huge exporter: its 170,000 textile and clothing firms have annual revenues of more than 200 billion and employ 2.6 million people. In France, Italy, Spain and especially the E.U.’s newest members in Central and Eastern Europe, the sector is a critical part of the economy. In Lithuania, for example, it accounts for as much as 8% of gross domestic product. “The authorities must either take whatever steps are appropriate to persuade the Chinese to limit their appetite for the E.U. market or they will bear the heavy responsibility of further factory closures, rising unemployment and the resultant impact on tax and social security revenues,” says Euratex President Filiep Libeert, who is urging the European Commission to limit Chinese exports by invoking a “safeguard clause.” The E.U. is allowed to take such action under world trade rules if it deems that markets have become disorderly.

So far the Commission is wary of imposing restrictions, despite pressure from some member-state governments. Last month Commission President José Manuel Barroso urged China’s Foreign Minister Li Zhaoxing to curb the export explosion. Without returning to quotas, the Commission is working on guidelines that would establish acceptable levels of imports. “My aim is to find an acceptable equilibrium beyond [this] initial surge,” E.U. trade commissioner Peter Mandelson told the European Parliament last month.

In the U.S., too, where Chinese imports jumped by 41% in January, industry wants protection. Commerce Secretary Carlos M. Gutierrez announced last week that the government would start special monitoring of imports in April. But American retailers, who see an opportunity to offer customers lower prices, have been actively opposing any trade-retaliation measures and have even used legal action to forestall any government response. For their part, Chinese authorities say the increased exports merely reflect the end of the old quota system. Cao Xinyu, vice chairman of the China Chamber of Commerce for Import and Export of Textiles, said last week that the export growth “was very normal” and would stabilize in the medium term.

The export surge is also putting the squeeze on some of the world’s poorest countries. In Africa, for example, textile production has boomed since 2000, as Asian manufacturers set up shop in countries like Kenya, Madagascar and Swaziland to take advantage of a U.S. initiative to open the American market to African products. The tiny mountain kingdom of Lesotho has in just five years become one of Africa’s biggest textile manufacturers, accounting for 31% of the textiles exported from Africa to America under the initiative in 2003. But by the first half of January, six factories in Lesotho had shut down. In all, Lesotho has lost about 15,000 jobs, according to Daniel Maraisane, head of the Lesotho Clothing and Allied Workers Union. Clothing companies in Algeria, Morocco and Tunisia — which have had privileged access to the E.U. market — fear a similar fate.

Back in Europe, not everyone sees the situation as hopeless. In the Lithuanian town of Klaipeda, Snieguole Kerpiene, who set up her own firm in 1994 sewing high-quality garments for brands such as France’s Cacharel, is confronting the Chinese threat by creating her own line of clothing. Her company, S. Kerpiene’s Firm, which has about j2 million in sales, has retained advertising giant Saatchi & Saatchi to advise it on branding, and later this month she’ll travel to Beijing with executives from 18 other Lithuanian clothing firms with the aim of sourcing some materials directly from China. For the moment, it’s possible to compete with the Chinese because her 40-employee firm’s turnaround time is faster than theirs, she says, “but I’m afraid of the future competition when they become more flexible.”

Xu Qiu Lin has a unique vantage point on this growing China-European textile competition. A Chinese immigrant to Italy, he has found his fortune selling “Made in Italy” leather and other goods throughout Europe. But Xu, 39, believes China ultimately is an opportunity, not a threat. The trick for firms is to focus on quality. “China produces a lot, but it also consumes a lot,” says Xu, dressed in a black suit and fish-skin tie. “And more and more, it is ready to consume products that Europe is producing.” It’s a controversial message in Prato — and in the rest of Europe. And unless those bra imports slow down, it’ll be harder and harder to convince anyone that it’s right.

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