Clothing manufacturers in China are bracing for possible European trade limits that would threaten the surging export business they have enjoyed since the end of a quota system opened up their access to world markets.

Speculation is also rife that Beijing might avoid a row by imposing export tariffs, possibly as early as May, although any loss of trade is not expected to make much of a dent on China's powerful economy.

"Governments should have foreseen this months ago, not now," said Jun Yeh, chairman and president of Oxwil Apparel Production (Shanghai), Ltd. "We would prefer they give us warning, or time to find a solution."

Commerce Ministry officials and industry sources said they had received no official word of export tariff changes.

China's competitive wages, well-organized labor force, and savvy entrepreneurs have taken full advantage of the Jan. 1 end of a decades-old quota system that limited clothing originating from developing countries.

China will export more than $120 billion of textiles this year, 20 to 30% more than last year, state media said, quoting Cao Xinyu, vice chairman of the China Chamber of Commerce for Imports and Exports of Textiles.

From a European point of view, China has been too successful. The European Commission is reviewing trade in nine categories of Chinese-made clothing, while imports in 11 more have risen almost far enough to justify an inquiry, the EU said.

Under China's trade agreements, other countries can restrict imports of its clothing and textiles if they suddenly surge and threaten to disrupt markets. Annual export growth in any category can be slowed to 7.5%.

GOODWILL GESTURE

That is unlikely to do much to hold back China's economy, which grew 9.5% in the year through the first quarter.

"I think the impact on China's overall economy and exports won't be very big," said Zhu Yujie, an assistant professor from School of Economics and Management of Beijing's Tsinghua University.

"Though textiles are an important part of China's exports, their share isn't that much. Also, I don't believe the limitations from the EU will really be very strong."

China has already moved once to hold down its clothing exports, with an export tax that has applied to each item of clothing, regardless of value, since Jan. 1.

Industry players think China might do something like that again to defuse the row. "Various ministries and companies have thought out loud about ways to take the edge off export surges," said Jeff Coey of the Cotton Council International, which markets US cotton to Chinese textile mills. "Tariff and rebate changes would be some of the ways."

China could raise export taxes - currently worth a few US cents on each item of clothing - or it could reduce tax rebates enjoyed by exporters, thus raising their costs, officials said.

Trading companies, wary of new rules limiting their ability to sell Chinese clothes, are avoiding long-term commitments.

"Because of these worries, we are mostly seeing short-term orders booked between the clothing makers and the exporters," said Sun Juan, information manager for Beijing Cotton Outlook Consulting Ltd.

Oxwil's Yeh said clothing manufacturers in China needed 60 days to book and fill orders, during which they would be vulnerable to any tariff changes.

Manufacturers would need 90 days lead time if they were to shift production to factories outside China, for instance in neighboring Cambodia, Yeh said. (Reuters)