Chinese remake 'Made in Italy'

http://www.nytimes.com/2010/09/13/world/europe/13prato.html

PRATO, Italy — Over the years, Italy learned the difficult lesson that it could no longer compete with China on price. And so, its business class dreamed, Italy would sell quality, not quantity. For centuries, this walled medieval city just outside of Florence has produced some of the world’s finest fabrics, becoming a powerhouse for “Made in Italy” chic.

And then, China came here.

Chinese laborers, first a few immigrants, then tens of thousands, began settling in Prato in the late 1980s. They transformed the textile hub into a low-end garment manufacturing capital — enriching many, stoking resentment and prompting recent crackdowns that in turn have brought cries of bigotry and hypocrisy.

The city is now home to the largest concentration of Chinese in Europe — some legal, many more not. Here in the heart of Tuscany, Chinese laborers work round the clock in some 3,200 businesses making low-end clothes, shoes and accessories, often with materials imported from China, for sale at midprice and low-end retailers worldwide.

It is a “Made in Italy” problem: Enabled by Italy’s weak institutions and high tolerance for rule-bending, the Chinese have blurred the line between “Made in China” and “Made in Italy,” undermining Italy’s cachet and ability to market its goods exclusively as high end.

Part of the resentment is cultural: The city’s classic Italian feel is giving way to that of a Chinatown, with signs in Italian and Chinese, and groceries that sell food imported from China.

But what seems to gall some Italians most is that the Chinese are beating them at their own game — tax evasion and brilliant ways of navigating Italy’s notoriously complex bureaucracy — and have created a thriving, if largely underground, new sector while many Prato businesses have gone under. The result is a toxic combination of residual fears about immigration and the economy.

“This could be the future of Italy,” said Edoardo Nesi, the culture commissioner of Prato Province. “Italy should pay attention to the risks.”

The situation has steadily grown beyond the control of state tax and immigration authorities. According to the Bank of Italy, Chinese individuals in Prato channel an estimated $1.5 million a day to China, mainly earnings from the garment and textile trade. Profits of that magnitude are not showing up in tax records, and some local officials say the Chinese prefer to repatriate their profits rather than invest locally.

The authorities also say that Chinese and probably Italian organized crime is on the rise, involving not only illegal fabric imports, but also human trafficking, prostitution, gambling and money laundering.

The rest of Italy is watching closely. “Lots of businesses from Emilia Romagna, Puglia and the Veneto say, ‘We don’t want to wind up like Prato,’ ” said Silvia Pieraccini, the author of “The Chinese Siege,” a book about the rise of the “pronto moda” or “fast fashion” economy.

Tensions have been running high since the Italian authorities stepped up raids this spring on workshops that use illegal labor, and grew even more when Italian prosecutors arrested 24 people and investigated 100 businesses in the Prato area in late June. The charges included money laundering, prostitution, counterfeiting and classifying foreign-made products as “Made in Italy.”

Yet many Chinese in Prato are offended at the idea that they have ruined the city. Instead, some argue, they have helped rescue Prato from total economic irrelevance, another way of saying that if the Italian state fails to innovate and modernize the economy, somebody else just might.

“If the Chinese hadn’t gone to Prato, would there be pronto moda?” asked Matteo Wong, 30, who was born in China and raised in Prato and runs a consulting office for Chinese immigrants. “Did the Chinese take jobs away from Italians? If anything, they brought lots of jobs to Italians.”

In recent months, Prato has become a diplomatic point of contention. Italian officials say the Chinese government has not done enough so far to address the issue of illegal immigrants, and they are seeking a bilateral accord with China to identify and deport them. Some Prato residents suspect that the flood of immigrants is part of a strategy by Beijing to exploit the Italian market, though the Chinese government does not generally use illegal migrants to carry out its overseas development plans.

Italian officials say Prato is expected to be on the agenda when Prime Minister Wen Jiabao of China visits Rome in October.

China in Italy’s Backyard

According to the Prato chamber of commerce, the number of Italian-owned textile businesses registered in Prato has dropped in half since 2001 to just below 3,000, 200 fewer than those now owned by Chinese, almost all in the garment sector. Once a major fabric producer and exporter, Prato now accounts for 27 percent of Italy’s fabric imports from China.

Clothes like those on a rack in the parking lot of a “pronto moda” or “fast fashion” company are sold worldwide.

Resentment runs high. “You take someone from Prato with two unemployed kids and when a Chinese person drives by in a Porsche Cayenne or a Mercedes bought with money earned from illegally exploiting immigrant workers, and this climate is risky,” said Domenico Savi, Prato’s chief of police until June.

According to the Prato mayor’s office, there are 11,500 legal Chinese immigrants, out of Prato’s total population of 187,000. But the office estimates the city has an additional 25,000 illegal immigrants, a majority of them Chinese.

With its bureaucracy, protectionist policies and organized crime, Italy is arguably Western Europe’s least business-friendly country. Yet in Prato, the Chinese have managed to create an entirely new economy from scratch in a matter of years.

A common technique used, often with the aid of knowledgeable Italian tax consultants and lawyers, is to open a business, close it before the tax police can catch up, then reopen the same workspace with a new tax code number.

“The Chinese are very clever. They’re not like other immigrants, who can be pretty thick,” said Riccardo Marini, a textile manufacturer and the head of the Prato branch of Confindustria, the Italian industrialists’ organization.

“The difficulty,” he added ruefully, “is in finding a shared understanding of the rules of the game.”

Prato’s streets have slowly become more and more Chinese, as the Chinese have bought out Italian-owned shops and apartments, often paying in cash. Public schools are increasingly filled with Chinese pupils.

Hypocrisy abounds. “The people in Prato are ostriches,” said Patrizia Bardazzi, who with her husband has run a high-end clothing shop in downtown Prato for 40 years. “I know people who rent space to the Chinese and then say, ‘I don’t come into the center because there are too many Chinese.’ They rent out the space and take the money and go to Forte dei Marmi,” she added, referring to the Tuscan resort town.

A short walk past the city’s medieval walls, past the cathedral with Filippo Lippi’s Renaissance frescoes, lies Via Pistoiese, the heart of Prato’s Chinatown. Here, shop signs in Chinese and Italian advertise wedding photography, hardware, electronics and gambling parlors.

Outside a supermarket selling foodstuffs imported from China, an electronic job board flashes a running ticker of garment-industry jobs.

The work — long hours at sewing machines — takes place in back-room workshops with makeshift sleeping quarters. The heart of the “fast fashion” sector is an industrial area on the outskirts of town, Macrolotto, filled with Chinese fashion wholesalers.

Here, vans from across Europe line the parking lots as retailers buy “Made in Italy” clothing to resell back home at a huge markup. By buying in relatively small quantities and taking advantage of the fluid borders of the European Union, most manage to avoid paying import tariffs.

On a recent afternoon, a couple from Montenegro loaded racks of cotton summer dresses into boxes in the back of their van. The wife wielded a label gun, tagging each dress “Made in Italy.”

Just blocks away, Li Zhang, who immigrated to Italy in 1991 from Wenzhou, a city in southeastern China known for its global network of entrepreneurs, explained how his clothing company, Luma, produced on-demand fashion.

He showed off bolts of fabric, which he said he bought locally or in India or China. He often buys white fabric and has it dyed and cut by other Chinese companies in Prato before giving the pieces to subcontractors to produce the requested items — 1,000 green skirts, in a typical example — in a matter of weeks, if not days.

Mr. Zhang and hundreds of other Chinese like him are at the center of Prato’s so-called gray economy, whose businesses are partly above board in that they pay taxes, and partly underground, in that they rely on subcontractors who often use illegal labor. (Asked if his subcontractors used illegal labor, Mr. Zhang laughed and said, “You’d have to ask the subcontractors.”)