Jonathan Fenby: Forget bra wars. Just wait for zip, laptop and car wars

Click to follow

By next year, the frenetic construction of steel mills on the mainland will lead to over-capacity and a surge of metal exports on to world markets. Japanese manufacturers have just begun to ship cars from plants in China to the Middle East. What happens when China makes everything from zip-fasteners to laptop computers, and uses free trade rules to swamp the globe with its goods?

From one viewpoint, the shambolic textile saga, with which EU negotiators are grappling in Beijing this week, is a comic tale of a bureaucratic failure to grasp the elementary fact that clothing retailers place orders months ahead of receiving the goods - and, in this case, long before the EU curbs were agreed in June. No doubt a fudge will be found to enable the entry of the container loads of underwear and T-shirts stacking up at European ports - even if it means just deferring the problem.

Manufacturers in Italy and other European countries that still have a textile industry will gain some short-term grace. Consumers will be prevented from getting the full cost benefit. Trade Commissioner Mr Mandelson may even dare to declare, as he did at the time of the three-year quota agreement, that he has found a "win-win" solution.

This episode has some worrying implications for the West. The lifting of quotas on China's textile exports had been known about for years. When the mainland reached an agreement to enter the World Trade Organisation in 2000, there was no doubt of its intentions to make the most of free trade.

Makers of textile goods, such as footwear, invested in state-of-the-art plant in readiness for a global assault. When the quotas went at the start of this year, the entirely predictable outcome kicked in. Beijing reported this week that textile exports were growing by up to 27 per cent a month to reach $61.5bn (£34bn) so far this year. But, despite all the time they had been given to prepare, European manufacturers reacted as though there was something untoward, unfair even, in the challenge from the East and turned to Mr Mandelson for protection. With Silvio Berlusconi facing a tough election next year and the Commission jittery after the anti-constitution referendum votes in France and the Netherlands, the political fix went in.

Across the Atlantic, Congress - having blocked a Chinese takeover of a US oil firm this month - is to consider punitive tariffs on Chinese goods unless Beijing greatly increases the revaluation of its currency.

There are a number of questions in all this, including whether advanced economies should be making T-shirts at all. However, what we are seeing is an asymmetrical paradox stemming from Western eagerness to get the last major power ruled by a Communist Party to play by international rules.

Corporate executives from Pittsburgh to Paris calculated that, if this happened, the final great business frontier would open, with a consumer market of more than a billion people. As a former chairman of Coca-Cola remarked to me after visiting the mainland, he could not stop himself dreaming of the day when every Chinese family would be sipping from a can of his fizzy drink.

Foreign penetration of China has forged ahead, but most of those involved will admit that progress is tough. Despite the growth in wealth, most Chinese do not have much money to spend. Shoppers in Shanghai may snap up Western brands, but these do not mean much way up the Yangtse.

The well-oiled wheels of Western commerce ensure that imported goods flood through established channels under local brand names. Throw in China's low-wage production and the boost the state system gives to export industries, and there can be only one winner.

Now we see China favouring free trade as the West goes for protectionism. It will take more than Mr Mandelson's fine-tuning to confront a country that is becoming a source of fear, as well as opportunity.

Jonathan Fenby is editorial director of earlywarning.com and former editor of the 'South China Morning Post'

Comments