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China Cautiously Prepares for Textile Export Boom

China, the country that many believe stands to benefit the most from the expiration of world textile quotas, is preparing for a boom in exports. However, expectations are being tempered by labor pressures, and the prospect of angry trading partners. Beijing plans new duties on its textiles to ease fears of a flood of Chinese exports.

Workers at the Xinjiang Esquel Textile Company, in China's Xinjiang Autonomous Region, tend to machines spinning cotton into thread.

This Hong Kong joint venture is the type of business that stands to benefit when international textile quotas expire at the beginning of the year.

With its low labor costs, wool and cotton production, synthetic fiber technology and effective transportation system, some experts predict China may capture up to 50 percent of the world textile market once quotas end. The U.S. government estimates that China had about 25 percent of the market in 2002. China's textile exports are nearing $100 million a year.

However, Ron Ko, one of the managers at the Xinjiang plant, says his company is not rushing to expand.

"At the moment, our company headquarters has a wait and see policy because right now, really, nobody knows what [will] happen, especially what the U.S. government is going to do," said Mr. Ko.

Mr. Ko refers to fears that the U.S. government may impose tariffs to cap the flow of Chinese textiles into the United States. The Bush administration is expected to decide on tariffs in the coming weeks.

Other nations are taking action as well. More than 50 countries have asked the World Trade Organization to keep quotas in place for three more years. So far, though, it does not appear a delay will be approved.

The 30-year-old system allowed developed nations to limit imports from low-cost producers in poorer countries. As a result, importers wound up buying textile products from several countries, instead of focusing on countries with the largest, most competitive manufacturers.

The prospect of new trade obstacles is prompting caution among Chinese manufacturers.

Bryan Chen is product development director at a cashmere yarn factory in Jiangsu province. At a recent Beijing conference, he said the quotas restrained his plant's exports to the United States. Although his company has a large number of tentative new orders, he says there is no rush to expand capacity for the time being.

"Our company will increase production, but not too much at one time. We plan to do it slowly," he said.

Some experts say it is not entirely certain that China will dominate the textile trade in the long term. Henrik Kuffner is director general of the International Wool Textile Organization in Brussels.

"Within our organization we have different opinions," he noted. "Some are saying that in the long term, China will catch it all and will for many decades stay and develop as a super, super textile world power. But we also have other opinions in our organization saying that the development will not continue at this speed and there will also be some breakdowns."

Those breakdowns could stem from a number of factors, including labor pressures, energy shortages, over-investment, and a possible appreciation of China's currency, which would make Chinese exports more expensive.

Already the labor pressures are being felt. Wages have been increasing as manufacturers report a shortage of workers willing to work 10 hours a day or more at sewing machines. With rural incomes up 16 percent since last year, more farmers are choosing to stay home.

This is especially a problem in southern Guangdong province, home to much of China's light manufacturing. Authorities there recently enacted a wage increase of more than eight percent in response to laborers' demands for better working conditions and pay.

China's leaders also worry a boom in textile exports could strain relations with some of its neighbors in Asia who stand to lose market share.

Chinese leaders know that to expand other business with their neighbors and trading partners, they must keep relations good. Earlier this month, Vice Foreign Minister Zhang Yesui said China will work to minimize damage to trading partners.

"We will consider adopting some measures to protect the interests of the Chinese side while at the same time looking after the interests of our cooperating partners," he added.

The government is imposing duties on some textiles to limit the growth in exports. The official China Daily newspaper recently said new taxes will be based on the quantity shipped out, to encourage exports of high-end, lower-quantity, products. Beijing also will make export data available more quickly and encourage manufacturers to invest overseas.

Analysts say the Beijing recognizes that it may not be in its diplomatic interest to overwhelm the market, even in the short term. It is not clear, however, whether Beijing's efforts will be enough to cap exports.

Those who stand to lose are not only China's Southeast Asian partners, but also the United States and the European Union, with whom Beijing has important trade and strategic relationships.

Some of the nations who stand to lose in the textile trade not only buy other Chinese goods, but also sell the raw materials and machinery essential to China's textile industry.

Analysts say Chinese leaders recognize that U.S. garment retailers are by far the largest buyers of Chinese textiles. They say Beijing wants to safeguard that relationship by gradually expanding their sales in the United States.