US, China struggle to sew up textile accord. Fate of many Chinese factories could hinge on agreement

Six-foot-high piles of cotton-polyester shirts stand on the factory floor, like clean laundry. The labels are Van Heusen, J.C. Penny, Arrow. Brightly colored plaid patterns, the shirts are bound for department stores in the United States.

Young girls sit behind rows of Chinese-made machines sewing the garments by the hundreds. They glance up only briefly as visitors pass by, intent on keeping up production levels. Their pay depends on piece work; monthly wages begin at $14.

This is the Wuxi Guangming Shirt Factory, one of China's largest. The factory exported 3 million shirts to the US in 1986, says factory director Li Zhicheng. Another million went to Canada, Japan, Southeast Asia, and Western Europe.

There are hundreds of similar factories here in Jiangsu Province, in suburban Shanghai, and in Guangdong Province near Hong Kong. They produce high quality, ready-made clothes, many to the exacting specifications of foreign buyers.

The future of some of these factories, with their strong ties to the US market, depends on the outcome of negotiations on a new textile agreement between China and the US. The talks, which began in January, are unusually difficult because of problems in regulating China's textile exports over the past year.

``The negotiations are very, very tough,'' says Wu Shudong, general manager of the business department of China National Textiles Import and Export Corporation. ``It is too early to say whether we can reach an agreement this year.'' Mr. Wu says that up to 85 percent of all China's textile exports to the US come under a quota system.

``We would like to expand our exports [to the US], but we have no room to maneuver,'' he adds.

US officials have said that China must accept a sharply lower rate of increase in textile exports under the next agreement, which is to take effect in 1988. A US official told the Far Eastern Economic Review last month that the US is seeking a growth rate of 1 to 5 percent. This will be a blow to the industry here, which enjoyed an unprecedented 65 percent increase in exports to the US last year.

In general, the US side is facing strong protectionist pressures. But last year's explosive increase alerted everyone to China's competitiveness in textiles.

In 1986, China's textile industry led the nation in export earnings, surpassing petroleum and petrochemical products for the first time. The boom continued during the first half of 1987 with some $4 billion worth of goods exported, a 38 percent increase over 1986. But exports for the rest of the year are expected to be very modest, with a total value of $5.5 billion by year's end, only slightly above 1986.

The reason for the lopsided export pattern is that the industry was thrown into in a panic last February. The US, China's second largest textile trading partner after Hong Kong, embargoed goods in several dozen categories that had been shipped in excess of quota limits during 1986. Chinese-made garments piled up in warehouses at US ports, and importers were squeezed, causing losses to importers estimated in the tens of millions of dollars. There have been similar problems with exports to Britain and West Germany, which also have quota systems.

Officials at the China National Textiles Import and Export Corporation also discovered that because of the overshipment to the US, between 30 to 40 percent of the 1987 quotas for some goods were used up even before the year began. They then pressed their factories to work around the clock to meet production quotas early and to ship by late spring to beat out competitors. Now, at mid-summer, an estimated 80 percent of China's US quotas have been used up. The garment categories most affected include woolen pants and overcoats, shirts, skirts, cotton coats, and knitwear.

Wu says that one way for China to survive the restrictions in the US market is to increase the value of goods shipped. Shirts which sell for $38 a dozen, for instance, could be raised to prices between $46 and $50 dollars a dozen by improving the quality of the accessories and finishing and by shortening delivery times.

``That's our aim, but it can't be done overnight,'' he says. Wu says his office is also looking for new markets in the Middle East and Eastern Europe.