REFORMS A PLUS FACTOR FOR BUYERS OF SILK

REFORMS A PLUS FACTOR FOR BUYERS OF SILK

Silk, one of the most traditional of China's export industries, jumped on the economic reform bandwagon this year, prompting changes that created bargains for foreign buyers.

China's silk industry takes advantage of centuries of experience to account for 65 percent of the world's production and 85 percent of sales, according to China National Silk Import & Export Corp. China exported US$1.95 billion worth of silk products last year.Exports included 9,000 tons of silk yarn, 15,000 tons of fabric and 25,000 tons of silk garments.

International market forces have helped push prices down in recent years.

"Raw silk yarn is cheaper now," said Eric Lai, a trader at Hong Kong- based Bridge Hill Trading Ltd. "In 1989 and 1990 the demand from Europe and the United States was large, so prices were high. But, since then, the economies in those markets became bad and demand fell."

Prices for silk fabric are stronger this year because some fabric-making factories in Southeast Asia have closed, he said.

A trader for Jiangsu Silk at this spring's session of the Guangzhou trade fair, China's largest export outlet, said the market for silk garments is plagued by price competition and difficulty in expanding sales to major markets.

"Demand for silk garments is very good, but prices are getting lower and lower," he lamented. "Markets are not easy to expand, especially in the United States. In Europe, Italy is the biggest market, but now its economy is not very good.

"Japan's economy also is not very good. The market there for silk garments is especially bad. They are wearing the traditional silk kimono less and Western-style clothes more."

Another reason for lower prices this year is the introduction of market- style reforms.

One of the biggest showcases for reforms was the Guangzhou fair, where silk traders followed a radically new organization designed to break the grip of central trading corporations and open the fair to market forces.

In the previous 72 sessions, China National Silk Import & Export Corp. had gathered silk traders in one delegation in one hall. Exporters at last spring's session were scattered among 41 provincial and municipal delegations.

"There's more competition in price this year," said the Jiangsu Silk man at the company's spacious showroom in the Jiangsu provincial delegation.

"When we were in the same hall, customers could compare products easily, but the headquarters could make prices unified. There were very small price differences. This year many customers came to our booth and asked for our price. We gave our price, and they said: 'The other company offered a lower price, here I'll show you.' "

Jiangsu Silk originated as a branch of the national silk entity. As a company specializing in raw material and garment exporting, it is still tied to the provincial foreign trade organization.

One result is that Jiangsu Silk cannot use swap centers to convert foreign exchange profits. It must use the official - and highly inflated - rate of 5.7 yuan to the U.S. dollar.

Many silk traders at the fair originated outside the national and provincial organizations that had silk exporting. To encourage exports, local governments allow them to exchange hard cash at the "gray market" rate at swap centers.

That rate has fluctuated this year between 8 and 11 yuan to the dollar.

"That's a very big difference and puts us in a very difficult position," said the Jiangsu representative, who asked not to be identified.

Price competition is not Jiangsu Silk's only problem. The company wants to skip the Guangzhou fair and concentrate on specialized silk export fairs where it can meet more customers. So why not just do it?

"The provincial government wants us to attend," said the trader, indicating that political issues are still important. "Many things are difficult to explain in China. We actually still don't face the market fully."

In the past, introduction of market forces has caused problems.

In the late 1980s, China National Silk loosened its control on the industry just as increased global demand sent prices soaring. One result was "cocoon wars," as upstart producers undercut established producers to supply poor- quality cocoons to factories.

China aims to end the chaotic condition by establishing its first national silk trading center early next year in Jiaxing in Zhejiang province. It will be based on commodities markets in the West and Japan.

By replacing local markets with one central market for spot and forward trading in cocoons, raw and finished silk, garments, spun silk fabrics and textile fibers, China hopes to set standards in quality and price.