In the narrow streets of Palermo, in smaller hill towns of Sicily and numerous cities of mainland Italy, the papier mâché red lanterns are multiplying.
Years ago, they signalled a Chinese restaurant. Today, the lanterns advertise Chinese-owned clothes stores - retail and wholesale - that are ever more popular with economically squeezed Italians.
One shopper on her way out of a red-lanterned Palermo shop joked: "The Chinese can't beat us at stuffed zucchini, but at inexpensive clothing . . . ."
Italy's clothing industry has long prided itself for its ability to produce both high-end and low-end products that could compete well against French luxury goods and cheap clothes from Bangladesh and India.
As the Chinese stores foreshadow, however, these strengths may be ebbing, even if many Italian executives still believe most of their textile and clothing manufacturers will remain at the forefront of the industry.
Until recently, their track record outshone rivals in other developed countries, notably in the UK, France and Germany. Through 2001, revenues for Italy's textile-clothing sector rose steadily to €47.8bn ($57bn, £32bn). Exports grew to €28.9bn and the sector trade surplus of €14.8bn accounted for one-third of the country's overall manufacturing trade surplus.
In 2002 and again in 2003, however, revenues slipped, exports fell slightly more rapidly but imports remained steady. As a result, the sector surplus narrowed by €1.4bn each year.
Giuseppe Schirone, chief economist for Sistema Moda Italia (SMI), the industry association, says: "Obviously the weak economy is a big factor, but it's the first time ever there's a two-year dichotomy between imports and exports. There are clearly new market factors involved."
Still, the lifting of quotas on Asian textiles and garments is not expected to worsen the trend, if trend there is, industry executives say.
The fragmented retail market - half of all sales are generated in small shops - means there is relatively little bulk-buying of cheap imports. A majority of Italian consumers continue to aim for quality and the "Made in Italy" label.
Nor are consumers clamouring for Asian-made goods, because retailers and distributors do not pass on savings they make at the wholesale level. SMI's study of Chinese goods whose quotas were lifted at the end of 2001 found that wholesale prices of China-made items such as lingerie, swimwear and children's clothes fell between 23 and 58 per cent. In the stores, however, prices barely budged.
Still, the pressure is growing. Asian, and particularly Chinese manufacturers, began to buy Italian textile and clothing machinery more than 20 years ago and during the past 10 years have increasingly bought the latest equipment. As a result, Italian industrial districts that specialise in low-end merchandise, often in central and southern Italy where labour is particularly cheap, are beginning to suffer. The sector's employment fell to an estimated 570,000 last year from 609,000 two years earlier.
At the medium and higher end of the market, Italy's larger clothing manufacturers began outsourcing production more than 10 years ago. Benetton plans to produce 80 per cent of its clothing items outside Italy, mostly in Hungary, Croatia and Tunisia, by 2007. That compares with 60 per cent currently and around half that five years ago.
However, the company plans to produce in China, where it opened small stores 15 years ago, only for the Chinese market. "China for China," says an executive. "It's important that production be kept close to the market in order to ensure fast turnround, quality control and a feel for fashion needs."
Other manufacturers that went far afield have decided to return for the same reasons. Based on a sampling of members, SMI found that 17.2 per cent of items were produced outside Italy last year, compared with 18.9 per cent in 2002.
Luxury goods makers, such as Gucci, Prada or Armani, continue to produce every item in Italy, even if some parts are first prepared elsewhere.
Executives say consumers, particularly Asians, would not buy if they were not made in Italy.
Nevertheless, Patrizio Bertelli, Prada's chief executive, believes a brand that develops enough of a reputation for top quality could overcome such geographical prejudice, as have German luxury carmakers.
Italy's famed textile makers, notably for wool and silk, have also succeeded at fending off Chinese competitors until recently, but here, too, the trend is not favourable.
In 2001, Italy imported 67,000 tonnes of top-grade Australian wool, twice as much as China. Last year, the Italian figure fell to 46,000 tonnes, while China's imports rose to 42,600 tonnes.
Add imports via Hong Kong and China imported more than Italy, says SMI's Mr Schirone.
