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How long can China textile industry sustain boom?

MEMPHIS, Tenn. – Representatives of China’s textile industry told members of a National Cotton Council delegation that China does not intend to voluntarily scale back the volume of textiles and apparels it exports to the United States when textile quotas are eliminated in the United States in January 2005.

The move sets up the likely imposition of safeguards by the United States that will limit annual growth of textile and apparel imports to 7.5 percent and adds fuel to a growing movement to delay removal of the import quotas until 2008.

“I was hopeful that we could get the Chinese to consider a discussion of a more orderly process, both from the standpoint of protecting U.S. textile mills as well as stabilizing sales of cotton into China,” said Mark Lange, NCC president and CEO.

“We didn’t obtain what we had hoped for. The discussions were candid, but we were just unable to find any grounds for the Chinese to impose any voluntary standards on themselves.”

Lange visited China in late March and early April to participate in a global textile conference sponsored by China’s cotton association and the China National Textile and Apparel Council. He was also asked to participate in a delegation developed by the Department of Commerce to discuss trade with Chinese textile manufacturers and representatives from China’s Ministry of Commerce.

The United States has the right under the accession agreement that the Chinese signed when they entered the WTO to reinstate quotas on specific shipments of textile and apparel from China if the U.S. textile industry establishes that there has been a market disruption from a surge in imports from China.

In 2003, the United States sought and was awarded applications of safeguards for brassieres, dressing gowns and knit fabric. Growth rates of over 1,000 percent in imports from China were hurting both U.S. and foreign manufacturers, including Turkey and Mexico.

Prior to implementing safeguards, the United States is required to ask the Chinese to implement the safeguards voluntarily. “If they don’t, then the United States reimposes the quota,” Lange noted.

In the talks in March and April, both the Ministry of Commerce and China’s Textile and Apparel Council “reiterated that they were making the necessary changes in their system to meet the WTO obligations and felt that they had earned the access to the U.S. market,” Lange said.

“They did not want to impose any disciplines on themselves other than the ones that were necessary to meet the WTO.

“We came away with a sense of frustration,” Lange said. “And that was felt by everyone. Buyers from VF Corp. and J.C. Penney are very concerned about engaging in long term agreements with China for the delivery of textile apparel, for fear of safeguards applications.”

Safeguards allow the most recent volume of imports to stand, increases it by 7.5 percent and establishes that as the quota for the next 12 months. “It’s not a draconian thing,” Lange said, “but it does limit further surges for at least the next 12 months.”

Lange also got an up-close view of China’s Huan Yu and Wei Qiao textile mills. The latter is the largest in the world. “None of the equipment in the mills was over two years old. One mill had virtually all European equipment and another had virtually all Chinese equipment.”

Both mills “had significant plans for expansion in their yarn spinning already underway. Foundations were being poured and walls were being erected.”

While the expansion in the Chinese textile industry is breathtaking, “it probably exceeds what the world market can absorb in the near term,” Lange said. This could result in a furthering of non-performing loans, “as Chinese banks have been lending money at a tremendous rate.

“And at some point, you do pay the piper.” Lange said. “Those disruptions would be adverse to us. It would happen over time. But it could be avoided if Chinese banking authorities had more discipline applied to them.”

While China has the capacity to grow a substantial amount of cotton for its own use, Lange adds that there is “enormous concern inside China over the availability of grain – that China should not be growing cotton at the sacrifice of wheat and corn.”

Lange does expect that China will expand their cotton acreage above 12 percent from 2003. For the long term, “the Chinese believe that they should be able to sustain cotton production in the 27-million to 28-million-bale range.”

Forecast use for cotton in China next year is about 31 million bales. “At that sustained production, plus their tariff rate quota allotment (3.5 million to 4.0 million bales), they can make it. If their mill use of cotton grows, obviously they will be in the market for more cotton.

“I expect on a long-term basis, year in and year out, China will be importing a substantial amount of cotton,” says Lange. “We also need to be aware that there will be a year when they have record yields and their demand for foreign cotton will be substantially less.

“When that happens, that has obvious implications for the United States where we need to be exporting 60 percent to 65 percent of our production if we’re going to maintain a production system of 17 million to 17.5 million bales.”

Lange has mixed feelings about the quality of the cotton that the United States has to produce to compete the Chinese market. “I think there are textile mills out there accustomed to using a higher quality of cotton in their mills than is actually necessary for them to use.

“There’s no denying that the technology inside the textile complex worldwide is evolving, and it’s increasing its speed and it’s going to be asking for stronger, longer fiber that goes into the process.

“But at the same time, the entire world doesn’t need a 35 staple. The Indian spinners in particular are quite used to spinning cotton that is shorter than an inch. There’s a market there. Some of it determined by price, some by the capacity of the machine, and some is end product.”

One end product that is getting a lot of attention in China’s burgeoning middle class sector is the Jackie Chan line of clothing. Lange attended a fashion show in China, where the Hong Kong movie star made an appearance. “The show looked like something straight out of Italy or France. A thousand people were there, a glassy runway, music booming, hundreds of movie cameras, a huge production.”

Lange noted that Chan and a group of promoters are opening 30 retail stores in the urban areas of China that will sell Jackie Chan products – from outerwear to suits and casual wear.

There are good opportunities to promote cotton in those products, which could keep U.S. cotton going there for years to come.

“We are going to have to find a way to collaborate with the appropriate organizations in China to promote cotton to Chinese consumers,” Lange added. “The Council is trying a number of ways to engage China’s cotton association and the Chinese Textile and Apparel Council to create enthusiasm for cotton.”

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