The Pearl River Delta used to account for 80 per cent of the apparel exports handled by Li & Fung, Hong Kong's largest trader with an annual turnover approaching US$5 billion. Today that percentage stands at 60 per cent, as the Yangtze River Delta begins to reassert itself as a textile centre. 'The Yangtze River Delta has taken a lot of [apparel] business from the Pearl River Delta,' said Li & Fung managing director William Fung Kwok-lun. Is this more anecdotal evidence of the rise of Shanghai and its hinterland at the expense of Hong Kong and the Pearl River Delta? Not exactly. As early as the late 19th century, greater Shanghai was the centre of China's textile industry, given its proximity to raw material sources and convenient transport along the Yangtze River. The emergence of Hong Kong - and subsequently the Pearl River Delta - as China's major textile producer was in many respects a historical accident brought about by the Chinese Communist Party's victory in 1949 and the flight of Shanghai's textile magnates to Hong Kong. With China's reform and opening, it was only a matter of time before natural economic patterns re-established themselves. Indeed, Li & Fung's other core business areas - light-industrial, labour-intensive products such as toys - remain firmly rooted in the hinterland. The slow but steady movement of industries around China also represents the beginning of an important new phase in the country's industrial development. For two decades, the mainland was remarkable for the flexibility of its labour force. 'The [economic] emancipation of women has been a key, key thing in China,' said Mr Fung. 'All these girls think nothing of travelling thousands of miles to work in factories in Shenzhen.' While it will be decades before China's pool of poor migrant labour is exhausted, that does not mean factories will remain fixed in certain coastal areas, content to let the labour come to them. As transportation infrastructure improves, manufacturers will move further inland in search of lower fixed costs, such as land and power. 'There will be less need to move people as China's infrastructure gets better,' said Mr Fung. He points to the re-emergence of traditional manufacturing centres in remote areas. In pockets of inland Jiangxi province, for example, porcelain manufacturers have revived their ancient trade using state-of-the-art German kilns. From a western trade unionist's point of view, competing with China's vast, cheap and highly mobile workforce was bad enough. Add to this increasingly flexible manufacturing industries backed by even better infrastructure, and the mainland begins to look unbeatable in just about every industrial sphere - with the exception of, surprisingly, textiles. China should be one of the biggest beneficiaries when international textile quotas are abolished in 2005 under the Multi-Fibre Agreement. Thanks to the United States, however, its gains will be limited. As it now stands, apparel is still produced in some of the most unlikely countries simply because they have export quotas, such as Mauritius. 'Quotas are the worst form of protectionism you can have. When this system came in, it distorted the whole industry,' said Mr Fung. 'Mauritius, for example, shouldn't be in the textile business. It's in the middle of the Indian Ocean.' In addition to the distortions quotas cause by country-of-origin, they are also 'cascaded' on to companies. In many countries, for example, certain manufacturers are awarded quotas simply because they have always been awarded quotas - and not because they are the most efficient producers. The scrapping of textile quotas therefore promises two major shakeouts - one at a country level affecting places such as Mauritius that are close to neither raw materials nor markets, and the other at a company level as manufacturers can no longer count on preferential access to quotas for survival. However, in the great scramble for market share that will start in 2005, China will be handicapped by so-called 'safeguards' in its World Trade Organisation accession agreement. These will allow the US to unilaterally act against import 'surges' from China, but not from other WTO member nations. For many apparel products, the 'trigger level' at which the US can implement safeguards is just 7.5 per cent year-on-year growth. 'That's nothing. That's just ordinary growth,' said Mr Fung, who predicts 'textile exports from China [to the US] will exceed 7.5 per cent in every country'. As a first step towards full liberalisation, quotas have been lifted on a small number of textile categories such as gloves, dressing gowns and brassieres. Chinese exports to the US in each of these categories have soared, provoking howls of outrage from domestic industry. 'Brassieres are a good example. This is something you have to watch,' Mr Fung said without a hint of mischief. According to the American Textile Manufacturers Institute, the market share of China-made brassieres shot up from 5 per cent to 32 per cent after quota controls were removed.