China Bristles at Textile Trade Backlash

Chinese apparel and textile factories shed more than 1 million jobs between 1997 and 1999 as the government cut credit to money-losing factories, according to a national trade group. The remaining players have since geared up for the end of the old global quota system, pouring $25 billion into improving their plants over the past two years alone, according to Cao.

This retooling and streamlining has increased the efficiency of China's textile producers, a trend accelerated with the lifting of quotas. Previously, China's factories had to buy rights to export from state trading companies, increasing the price of Chinese goods. The end of the quotas eliminated such payments. In the months since, wholesale prices for Chinese-made blue jeans reaching the United States have dropped by nearly a third, according to Pietra Rivoli, a trade expert at Georgetown University's McDonough School of Business. The wholesale price of cotton underwear from China has dropped by nearly half, and cotton knit shirts have fallen by 60 percent, as volumes of imports have surged. Retail prices have fallen only marginally over the past year, meaning the bulk of the savings is being enjoyed by retailers and wholesalers, Rivoli said.

"This rapid rise in imports reflects Chinese competitiveness, not illegal trade practices," said Scott Kennedy, a China expert at Indiana University.

Wuhan, capital of Hubei province, bears testament to the refashioning of China's textile industry. Sometimes known as China's Chicago, this city of 5 million in central China is a crucial transport junction, its pell-mell assemblage of skyscrapers and warehouses occupying the muddy banks of the Yangtze River.

Li began working in the early 1980s at what was then the Wuhan Number One Knit Mill, one of many state-owned plants. It made one-size-fits-all underwear, navy blue only. He took home about $3.50 per month.

In those days, the factory made what central planners dictated. Profit was not in the lexicon. But that changed in the early 1990s as price controls were lifted and managers became more accountable for their balance sheets.

The factory was then losing about $120,000 a year, subsisting on fresh loans from the state-owned Industrial and Commercial Bank of China. In 1993, Li approached the managers with a plan to lease an idled production line and hire 40 workers who had been laid off. He would hand over 30 percent of the profits to the state managers. They agreed. Over subsequent years, he took over more of the factory.

The first year, he made underwear for the domestic market, relying on scraps for fabric. Often he could not get enough. The next year, he borrowed $6,000 -- most of it from the Agricultural Bank of China, where his wife's sister worked -- and bought woven cotton from a local producer. By 1995, he was earning nearly $4,000 a year.

That same year, a Chinese trading company approached him about making goods for export. He sent a shipment of pajamas to Germany, then another to Belgium. By 1997, nearly three-fourths of Li's business was in exports. Last year, he exported his entire production, racking up about $3 million in sales.

Along the way, Li has added a Peugeot sedan, a new apartment. He has spent about $60,000 improving the factory's machinery. His office remains a monument to thrift: the walls bare save for a calendar, the furniture mostly bench seats scavenged from a passenger van.

Last fall, as the new quota-free era approached, Li and his staff set up a booth at a manufacturing fair in the southern city of Guangzhou to try to attract American buyers. There, they met Albert Chami, president of Omega Apparel. He ran his hands over the polo shirts on display and asked for a price -- about $2.60 each. In December, he placed his first order, but now he is holding back on new purchases, worried they will get caught up in a trade war.

"China is very important, not only for us, but for everyone in America," Chami said by telephone. "I don't know why they want to make a fuss out of it. The Chinese are the best. The price. The quality. Everything is there."

As Li sat beneath a whirring ceiling fan, he wondered why anyone would want to put a stop to it.

"We're not taking jobs from America," he said. "The competition is good."

Special correspondents Eva Woo and Jason Cai contributed to this report.