Major textile companies and organizations are saying that a mechanism to control export prices should be established to suppress price wars after quotas are removed in 2005.

"We should find a floor price for exports," said Xu Xiaochuan, of the Sichuan Xinlixin Textile Company, which is suffering from declining prices.

He expects some Chinese companies to export more by lowering prices after the quota barring the flow of textiles is eliminated in 2005. "A mechanism to help the voluntary limit on prices is important for us," he said.

Falling prices of textile and garment exports are already taking a toll on industry profits. Export prices of clothing have dropped by about 30 percent from the levels of five years ago, with prices of woven garments down 27 percent and those of knitwear 33 percent.

A senior official from the China Chamber of Commerce of Import and Export of Textiles, who refused to be identified, noted that uncontrolled price competition invites international criticism and trade protectionism that would target the entire Chinese industry.

Some 90 textile trade associations around the world have been campaigning for months to have the World Trade Organization consider delaying quota eliminations, saying that cheap Chinese textiles will sweep the world.

Under the Agreement on Textiles and Clothing (ATC), all quotas restricting textiles and clothing trade between WTO members will be eliminated by December 31, 2004.

The impact of quota eliminations might well be less earthshaking than the textile trade organizations think, and governments of the United States, European Union and Canada have made it clear they will remove the quota. Nevertheless, said the Chamber of Commerce official, some Chinese textile exporters should watch their behavior.

There are signs that some countries will use methods such as safeguards to bar a free flow of textiles.

Price agreements are a mechanism often used by powerful foreign industrial associations, noted the official, but a new concept in China. He indicated that his office is currently studying whether and how to build such a mechanism with some of the big textile companies.

"It is complicated. We must be careful with it in case someone accuses us of price manipulation," he said. A non-government-imposed mechanism should establish the lowest price at which acceptable profits may be generated, budgeting for research and development.

Many textile manufacturers continue to rely solely on the advantage of low labor cost, overlooking improvements to efficiency and technology and establishment of brand recognition. China is already losing its price advantage to developing countries that are strengthening their own textile industries.

A recent WTO report concluded that other developing countries are catching up with China in terms of unit labor costs in the textile and clothing sector, and China has as yet not shown competitive strength in the design and fashion segments of the markets.

"I think the enterprises should make changes for their own benefit," the official said.

China's total revenue in the textile and clothing sector is forecast to reach 1.4 trillion yuan (US$169.0 million) in 2004, up about 30 percent, and total profits are expected to reach 38.0 billion yuan (US$4.6 billion), up about 5 percent.

(China Daily August 23, 2004)