Luxury and Lace, Now Made in China

HONG KONG -- "Made in China" has a way to go as a designer label, but Top Form International is determined to reach the woman who wants to be proud of her underwear.

The world No. 1 brassiere maker and its peer group of Chinese-based manufacturers have already shifted bargain-basement garment production abroad and into Hong Kong to escape the effects of a textile trade war.

For its mainland China operations, Top Form now sees dumping cheap and cheerful for racy and lacy as a route out of the mire.

"They tend to be more elaborate, they tend to be sexier ... with little stars and things," said Michael Austin, Top Form's chief financial officer, on a southern China factory floor where bra designers pored over high-quality lace swatches.

"The bra is becoming more and more of a fashion item. ... It doesn't make sense economically that China would want to do very low-value, labor-intensive work when they can get more for doing high-value work. ... China is moving up the value chain."

Top Form's sheer size has helped it survive torrid times since around 88 million T-shirts, bras and other items from China were impounded by EU customs last June. Global textile export quotas ended at the start of 2005, but an ensuing surge in Chinese shipments spread alarm, prompting Brussels and Washington to negotiate new limits with Beijing.

New quotas were agreed last year, but months later, textile makers are still struggling to cope with the fallout.

The trade war forced Hong Kong firms with factories in China, such as Luen Thai Holdings and Top Form, to move production elsewhere in Asia.

The functional end of Top Form's bra range is now made in Thailand. Other producers have shifted output across the border from the Chinese mainland back into Hong Kong, where clothing exports are not affected by western restrictions on Chinese goods.

Some smaller producers have closed because western retailers went elsewhere while the politicians wrangled. They lacked the capital to invest in cutting-edge equipment and were penalized by the way quotas are doled out.

"There's a lot of business out there, but if you haven't got the right [capability] levels in the right places, then you can't take it on," Austin said from one of Top Form's factories, in Shenzhen, just over the border from Hong Kong.

The yuan's appreciation adds to pressure on exporters, which have thrived on low wages and high-tech machinery but operate on razor-thin margins.

Adapting to life under quotas, the emphasis on quality is just one response.

Fountain Set, an upstream fabric maker at the receiving end of erratic lead times from retailers, is looking to cash in on China's booming domestic market.

Demand from large U.S. retailers like Gap and Wal-Mart will probably stay steady now that they can plan with certainty until 2009, analysts say. Still, U.S. Department of Commerce data out earlier in March showed imports of some garments plummeted in the first two months of 2006. Cotton knit blouses, for example, were down 78 percent.

Industry executives also say some European retailers seem to be getting cold feet about buying from China after the trauma of having mountains of imports impounded for weeks.

"What has happened, especially in Europe, is that a lot of brands or importers switched their buying to other countries," said Wing Hin Chung, director of garment maker Hansa Trading.