HONG KONG, Mar 20: 'Made in China' has a way to go as a designer label, but Top Form International Ltd. is determined to reach the woman who wants to be proud of her underwear.
The world number-one brassiere maker and its peer group of China-based manufacturers have already shifted bargain-basemen t garment production abroad and into Hong Kong to escape the effects of a textile trade war.
For its mainland China operations, Top Form now sees dumping cheap and cheerful for racy and lacy as a route out of the mire.
''They tend to be more elaborate, they tend to be sexier ...
with little stars and things,'' says Michael Austin, Top Form's chief financial officer, on a southern China factory floor where bra designers pored over high-quality lace swatches.
''The bra is becoming more and more of a fashion item ... It doesn't make sense economically that China would want to do very low-value, labour-intensive work when they can get more for doing high-value work ... China is moving up the value chain.'' Top Form's sheer size has helped it survive torrid times since around 88 million T-shirts, bras and other items from China were impounded by EU customs last June.
Global textile export quotas ended at the start of 2005, but an ensuing surge in Chinese shipments spread alarm, prompting Brussels and Washington to negotiate new limits with Beijing.
New quotas were agreed last year, but months later, textile makers are still struggling to cope with the fall-out.
The trade war forced Hong Kong firms with factories in China, such as Luen Thai Holdings and Top Form, to move production elsewhere in Asia.
The functional end of Top Form's bra range is now made in Thailand. Other producers have shifted output across the border from the Chinese mainland back into Hong Kong, where clothing exports are not affected by western restrictions on Chinese goods.
Some smaller producers have closed because western retailers went elsewhere while the politicians wrangled. They lacked the capital to invest in cutting-edge equipment and were penalised by the way quotas are doled out.
''The current quota allocation methodology tends to favour existing large export companies and manufacturers focusing on higher-end products,'' Morgan Stanley analyst Angela Moh wrote in a recent research report.
Companies say margins remain deflated. Production is down because their Chinese factories lay idle, only to be swamped by large orders that they could not fill once business resumed.
''There's a lot of business out there, but if you haven't got the right (capability) levels in the right places, then you can't take it on,'' Austin said from one of Top Form's factories, in Shenzhen, just over the border from Hong Kong.
The yuan's appreciation adds to pressure on exporters -- which have thrived on low wages and high-tech machinery but operate on razor-thin margins.
Adapting to life under quotas, the emphasis on quality is just one response.
Fountain Set (Holdings) Ltd. -- an upstream fabric maker at the receiving end of erratic lead times from retailers -- is looking to cash in on China's booming domestic market.
Luen Thai, which makes clothing for Polo Ralph Lauren, Abercrombie&Fitch and Liz Claiborne at plants in China, Cambodia and the Philippines, has boosted its Hong Kong production capacity to get around the 'Made in China' label.
Demand from large U.S. retailers like Gap Inc. and Wal-Mart Stores Inc. will probably stay steady now they can plan with certainty until 2009, analysts say.
Still, U.S. Department of Commerce data out earlier in March showed U.S. imports of some garments plummeted in the first two months of 2006. Cotton knit blouses, for example, were down 78 per cent.
Industry executives also say some European retailers seem to be getting cold feet about buying from China after the trauma of having mountains of imports impounded for weeks.
''What has happened, especially in Europe, is that a lot of brands or importers switched their buying to other countries,'' said Wing Hin Chung, director of garment maker Hansa Trading.
''They said, 'We don't want to deal with China's quota system ever again' and went back to Bangladesh, to India, to Thailand.'' Some of that uncertainty is reflected in the Chinese textile sector's dismal share price performance. Since the start of last year, Luen Thai has slid 36 per cent, knitted fabric maker Texwinca dived more than 22 per cent and Fountain Set has shed 31 per cent of its value.
Luen Thai now trades at 13 times prospective earnings and Texwinca at 14, comparable with the 14 times of Japanese textile maker Shikibo, according to Reuters Research.
The EU's quotas lapse at the end of 2007 while the U.S.
restrictions last a year longer. But who knows whether other barriers will be erected in their place? ''There are still some serious long-term worries. You never know whether there'll be a new bonfire,'' said Paul McKenzie, a consumer research analyst with brokers CLSA.