By RACHEL DONADIO

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 1980’s. They transformed the textile hub into a lowend garment manufacturing capital - enriching many, stoking resentment and prompting crackdowns that have brought cries of bigotry and hypocrisy.

The city is 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.

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 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. 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.

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.” Many Chinese are offended at the idea that they have ruined the city, saying they have helped rescue Prato from economic irrelevance. “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. (Pronto moda means fast fashion.) “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 an accord with China to identify and deport them. Italian officials say Prato is expected to be on the agenda when Prime Minister Wen Jiabao of China visits Rome in October. Many illegal Chinese immigrants arrive by bus from Russia or the Balkans, and either destroy their passports or give them away to the organized crime groups that help bring them. Many others overstay their tourist visas.

According to the Prato chamber of commerce, the number of Italianowned 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. 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 before leaving the job in June. According to the Prato mayor’s office, there are 11,500 legal Chinese immigrants, out of a population of 187,000.

But the office estimates the city has an additional 25,000 illegal immigrants, a majority of them Chinese. A common technique the Chinese use to open a business, often with the aid of knowledgeable Italian tax consultants and lawyers, is to close it before the tax police catch up, then reopen the same workspace with a new tax number. Li Zhang, a clothing store owner who immigrated to Italy in 1991, and hundreds of other Chinese are at the center of Prato’s so-called gray economy.

Their businesses are partly above board in that they pay taxes, and partly underground, in that they rely on subcontractors who often use illegal labor. Since founding his store in 1998, Mr. Zhang said, he has exported clothes to 30 countries, including China, Mexico, Venezuela, Jordan and Lebanon. The raids, he said, are hindering business, unsettling the Chinese community to the point that many workers had gone into hiding.

"People are afraid,” Mr. Zhang said. Much of the tightening comes from Prato’s new mayor. In 2009, the traditionally left-wing city elected its first right-wing mayor in the postwar era, whose campaign tapped into powerful local fears of a “Chinese invasion,” and who seeks a broader European Union response to Chinese immigration. “How can China leave a mark like this in the E.U.?” the mayor, Roberto Cenni, asked. “Noise, bad habits, prostitution. People can’t live anymore. They’re sick of it.’ ” But the crackdowns can only do so much.

In the first half of this year, the authorities raided 154 Chinese-owned businesses ? out of more than 3,000. And earlier this year, several officers were arrested on charges that they took bribes in exchange for granting residence permits. The problems in Prato will not be resolved easily, said Xu Qiu Lin, an entrepreneur and the only Chinese member of Confindustria in Prato. “There’s no plan,” he said. “ That’s the problem.


Of 3,200 Chinese textile
businesses,only 154 were raided by police. A supervisor in a Chinese garment shop unplugs outlets after a raid.