Tipping the scales

Xu Xianghong and her husband, Yin Qiulei, own the Chun Fu clothes shop in Barcelona's bustling and colourful Eixample district, which has become known to the Spanish locals as Chinatown. Originally from Shanghai, the couple sell clothes made by the 2,000 workers in the factory owned by Mr Yin's family in Luodian, in the Baoshun district of the booming mainland city. Mr Yin, 40, and Mrs Yin, 37, moved to Barcelona 15 years ago and have brought up their two teenage daughters in one of Spain's most cosmopolitan cities. Although they have established a successful clothes shop, it has been a struggle. 'For us, it has been hard work,' Mr Yin said. 'It is always difficult to establish yourself in another country.' They are typical of mainland Chinese migrants, who left their homeland for Europe, in many cases having established small businesses importing cheaper Chinese-made clothes to their new countries and then selling them to local bargain-hunters. But for Mr Yin, the margins are no longer rewarding as the gulf widens between small outlets and the bigger importers who can afford to sell their goods for higher prices. 'For this bikini, I pay Euro3.50 [HK$40], tax and transport included, and I sell it for Euro4.50. But in some shops, the same item is on sale for Euro30. It is a question of margins. We can't put up the prices any more or people would not buy from us.' Their situation typifies the way the bargain bonanza, which hit Europe with the arrival of cheaper Chinese goods two years ago, has had mixed benefits in different parts of Europe, according to a report prepared for the European Commission (EC). Released earlier this month, the study by the respected German economic think-tank, the Kiel Institute, says consumers in Spain, Greece and Italy have not seen the same low-price benefits as those in other parts of Europe such as Britain or Ireland, since a five-year trade deal has been struck between China and the European Union and the US to regulate the amount of Chinese imports. The deal ended the trade war that broke out between Beijing, Brussels and Washington over fears that local producers in Europe and the US would be overwhelmed by cheaper competition from China. But instead of high street customers benefiting across the board, the dividends have differed across Europe. European trade groups representing smaller businesses claim that bigger companies, many with production plants in China, have taken advantage of a fall in production costs - but failed to reduce prices in the shops. Smaller companies, many run by Chinese emigres such as the Yins, do not have the same financial muscle as major chains which can absorb transport costs more easily. They find it harder to compete with the wave of cheaper clothing being shipped in by the larger stores. The Kiehl report says that since the liberalisation of the Chinese imports to Europe, cheaper textiles from Asia - mainly China - have meant producer prices fell on average by 30.6 per cent throughout the 'old 15 European Union states'. But what should have meant a cut-price bonanza for bargain-hunters in the shops has failed to materialise as these discounts were not passed on to consumers. In fact, retail prices fell by an average of only 16 per cent. In Britain and Ireland, retail prices over the past two years have dropped by 50 per cent, but in Spain and Italy, they hardly changed. In Greece, they went up. 'It is astonishing that in the United Kingdom and Ireland, where the impact of imports on production prices was lower, consumers there have most benefited,' the report said. Following this month's study, Euratex, the European textile industry association, has written to the EC demanding urgent action on the price disparity. In Spain, along with other European countries, where price cuts have not trickled down to consumers in the same way, bigger chains such as Zara, H&M, Gap and Mango stand accused of taking advantage of cheap imports to fatten their margins. Meanwhile, small operators are struggling. 'We have not been able to compete with the larger stores and we have to keep our prices and margins as low as possible or we worry customers will stay away,' Mr Yin said. In Spain, an estimated 1,100 smaller producers and stores have gone out of business in the past four years, with the loss of 50,000 jobs, according to figures from the Spanish Inter-Textile Council. Council chairman Josep Casa said: 'This is not normal. Something is going on here.' He is not the only critic. Joan Canals, chairman of the Spanish knitwear producers association, AEGP, said: 'The big chains are the only ones making money hand over fist: you only have to look at their share price.' In their defence, ANGED, which represents larger distributors and main stores such as H&M, Carrefour and El Corte Ingles, Spain's biggest department chain, says clothing and footwear prices have fallen 9.2 per cent this year, according to the Spanish consumer price index, compiled by the country's National Statistics Institute. In Italy, the South China Morning Post approached a number of clothes shops in Milan's Chinatown area but most owners were reluctant to talk about their profit margins and growing competition from the big operators. Federica Zanini, a Milan-based journalist who lives in the Chinatown area, said: 'The Chinese here are reluctant to talk because very often their work is thought to be linked to the mafia or they are scared the caribinieri [police] will be looking at their businesses. 'At first, their prices were very low. But now some have raised them and some are trying to present a better image to the Italians with more sophisticated shop window dressing. They think this will appeal to us because we are used to being the home of high fashion and demand high quality.' In Greece, Spyros Xanthis, vice-president of the Hellenic-Chinese Chamber of Commerce, said clothing businesses in Greece had a reputation for not passing discounts on to customers. 'From anecdotal evidence, Greek businesses reserve discounts to try to make higher profits for themselves,' he said. 'But as for whether Chinese shops have done the same or have missed out on profits, it is difficult to say as getting data is hard. Most of these businesses are very small-scale and do not like to disclose their figures because some of them do not want to let the tax man know too much.' The global textile trade was liberalised in 2005 after the EC and US signed deals with China to end a major trade blockade over cheap imports from mainland China. With the end of an earlier deal, which had established strict quotas on imports to foreign markets, Europe and the US feared domestic producers would be hit hard by competition from China. Initially, the EC blocked 75 million tonnes of cheap Chinese clothing, which was left piling up in ports around Europe. Under the new deal, half the blocked goods were released unconditionally and the rest could be sold in fixed quotas set until 2008. But many European countries, including France, Spain, Portugal and Italy, which have large textile industries, opposed Chinese competition, fearing it would hit their own domestic producers. In contrast, northern European countries, such as Germany and Sweden, backed a liberalisation of trade rules, to allow more Chinese goods in and give consumers the choice of cheaper clothes. Chinese textile exports are expected to reach US$161 billion this year. Last year, textiles alone accounted for 72 per cent of the country's surplus in manufacturing. But for many Chinese businesses, despite the relaxation of tough shackles on imports to Europe, it is still hard work to make sure imports - not just textiles - can be accepted for export, according to some experts. Dr Zhu Xhongye, chairman of the UK China Business Association, said: 'Despite the freer business atmosphere, it still seems hard for some Chinese businesses to get their produce accepted as part of those quotas which are allowed into Europe.'