Even before Adam Smiths The Wealth of Nations it was clear the impact that human capital has had on economics. It is arguable that the political impact of the distribution and management of human capital is source of great social debate.

In part six of “China Shakes the World” James Kynge takes a sample look (a) the trafficking of human capital and (b) its impact on local and global economics.

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Yiwu and markets like it are just specks on the map of China. But they represent the sources of a global economic phenomenon. Nobody could look at the prices there, and the range of goods on sale, and fail to wonder what would happen to manufacturers in the rest of the world when the full force of China’s industrial revolution hit their factories and shopping mores. Or, maybe, this was merely alarmism. Perhaps Europe and the United States would weather the oncoming Chinese typhoon with no more discomfort than they had betrayed when the Japanese economic miracle went global in the 1970s and 1980s. I decided to take my own soundings on the contours of things to come by visiting to one of the oldest manufacturing towns in Europe, a place called Prato in Italy not far form the historical city of Florence.

Prato had every appearance of a typical Tuscan market town. In the stillness of early evening, shadows swept across the russet roofs of the old town and onto the rough-hewn stones of the central piazza. Church bells chimed with a measured, funeral rhythm, drawing a stream of mourners for Pope John Paul II, who had died a day earlier in Rome, towards the Cathedral Santo Stefano.

Everything, in fact, was how it should have been in a well-to-do, self-respecting town in northern Italy. Except for one feature. Walking in the opposite direction to the Catholic faithful – towards the western suburbs – were people marked apart by the bearing and appearance. They strode purposefully through the crowds singly or in two, keeping their gaze downcast in the manner of locals who have no need to navigate through familiar surroundings. It was clear they were not tourists; they had no cameras or bags and they wore simple clothes. There were, it turned out, members of a large immigrant population of Chinese. Since they started to arrive in Prato some fifteen years earlier, they had transformed the destiny of one of Italy’s oldest industrial towns and changed the lives of its indigenous population.

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Many of these people had arrive here illegally. I asked one of the men by the wall to tell me what his journey was like. He demurred. Members of the snake body are sworn to secrecy by the snakeheads who arrange their trips. I had to persuade him by agreeing to use a false name and to camouflage other aspects of his journey. After a series of meetings and interviews, for which I paid him some money, the story of how Huang came to be in Prato slowly emerged.

In the mid 1990s, Japanese demand for soft-shell turtles was surging and farmers in Fuqing county, in the southeastern province of Jujian, were well placed to benefit from the new fashion. Huang’s father duly invested, and everything was going fine until late 1997 when the Asian financial crisis struck. Turtles are a luxury, the type of thing businessmen eat when they are trying to impress someone. So the price plummeted as the whole of southeast Asia tightened its belt and Japanese demand eased. Huang’s father’s business began to unravel. By late 1999, he was bankrupt and his creditors in the underground banks that service a thriving grey economy in southern China were getting restless. These banks, though illegal, were actuall run by the local government and so when Huang’s father could not pay up, the officials threw him into him into the basement of a local government building that doubled as a jail.

There he had to stay until someone could pay his debts. There was no change of legal redress because his loans had been illegal in the first place so Huang began to consider his last option. Going abroad would mean having to leave behind a wife and a ten-year-old son. But there were plenty of precedents in Fuqing that suggested the perilous journey to a foreign shore would pay off handsomely. You could tell at a glance which households had a son or daughter earning good money in Europe of America; their houses were the tallest in the neighborhood and the construction of extra stories sped up or slowed down in tandem with the ebb and flow or remittances from overseas. So Huang went again to the money lender to whom his father was in hock and agreed a further loan on the understanding that if his trip overseas failed to yield the necessary funds, the lender would seize all the property of Huang’s extended family. Then, after some discussions between the money lender and a local snakehead, it was agreed that Huang would leave a few months later for England.

As he told me these things, we sat in the corner of a café looking out onto the tiled roofs of old Prato. Lie in Fuqing with its unofficial prisons and soft-shell farms seemed so far away as to be barely imaginable. But every time Huang mentioned the moneylenders, his face tightened. ‘They are not like the sate banks. They know everything about you. You can never escape from them,’ he said. ‘They know how many beers you have in your fridge and how many of those bottles are just half full.’

In June 2000, he had been ready to leave. But news of tragedy spread through the community. Fifty-eight Chinese had been found suffocated to death in the back of a tomato van as it tried to cross into the UK through Dover. The Dutch driver had closed the air vents to prevent the noise of the human cargo from escaping.

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Huang’s sea crossing was uneventful and at last his ship docked. In the back of the van that drove them to Milan, he had been too tired for emotion and still too scared to relax. Form there he had spent the next four years in Bologna, Rome and, recently, Prato always doing menial jobs such as sweeping, stacking, washing and lifting. When the authorities in Fuqing saw he had begun settling his father’s debts in regular installments, they let his father out of the makeshift prison. His father an he then set about paying off the debt to the father’s elder brother. By the time I met Huang in April 2005, he was almost debt-free but he could not go back home. His son was 15 years old and his school fees were too expensive. He had not seen him since he left China and when he spoke of him, his voice cracked. ‘Everything is for my son,’ he said.

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I was not surprised to find Chinese in Prato. In fact, they were part of the reason I had come. It struck me that their presence offered a potentially telling insight into the competitiveness of European manufacturing in general. Prato had been the center of the European manufacturing in general. Prato had been the center of the European textiles for more than 700 years and its brand was enriched by a history that no advertising could buy. Centuries of Florentine courtiers, including Machiavelli – the most sharply dressed of them all – had swathed themselves in its cloth. Prato also had designers that were second to none in the industry, and a gtlamorous list of clients: Armani, Prada, Ferre, Gucci, Max Mara, Patrizia, Pepe, Banana Republic, Valentino and Versace had all done their shopping here. Now, with the presence of the Chinese, it had another enviable advantage – access to probably the cheapest and more determined labor force in the world. Men, suchas those outside the Xiaolin supermarket, for example, were willing to work nearly double the hours of their Italian counterparts for about half the compensation. A Chinese cloth and garment cutter, for instance, would expect to take home about 1,000 euros for a month of six day weeks at fifteen hours a day, without any pension or welfare payments.

So, my thesis, was this: if, blessed by this confluence of good fortune and hard-earned expertise, Prato could not compete with textile towns in China, then what hope, ultimately, was there for the rest of the European industry which employed around 2.7 million people in twenty-five countries and had a turnover of 225 billion euro a year. And, by extension, what would be the outlook for the rest of European manufacturing?

Prato’s early experiences, I learned, had been positive. The first illegal immigrants began to arrive in the mid to late 1980s and, according to an artist who was among the first to arrive, children on the streets would look at them as if they were extraterrestrials. The numbers then were relatively small and they were absorbed naturally by the town’s textile factories. But by the early 1990s, they had become a potent economic force of some 10,000 cheap and often skilled workers. The combination of Italian flair and Chinese labor fostered a mini-boom and the number of textile companies rose to around 6,000 in the mid 1990s from some 4,000 at that start of the decade. But the local Italian bosses had no way of knowing at the outset quite what they had let themselves in for. If would not have seemed worthy of note to them then that most of the people they employed to sweep the floors, cut the cloth and sew on the labels came from Wenzhou, probably the most entrepreneurial place in all China.

This is what happened in Prato. After a few years working on the factory floor, one after another of the Wenzhou workers decided to set up businesses on their own. The numbers of Chinese-run firms registered at the House of Commerce in Prato rose from 212 in 1992 to 1,753 in 2003.

For a while, everyone seemed to benefit from Prato’s growing associations with China. The cheap thread and cloth that was coming out of Wenzhou, Natong, Hangzhou, Suzhou and other textile towns was available not only to start-ups like Great Fashion but also to the long-established companies of the Pratese. As costs went down, business flourished and it seemed as if this mid-sized town in Tuscany had found an elusive formula, a way of harnessing the energy of a rising China to serve its ends. The local government embraced its unexpected good fortune. It set up an immigrant service center to help those who arrived – illegally or otherwise – with their first few steps in Italy. It recognized the Wenzhou chamber of commerce in Prato as a local organization and cemented a sister-city pact with Wenzhou in China. As a demonstration of sincerity, Prato even funed the restoration of a Ming dynasty temple in Wenzhou by craftsmen sent over from Italy.

But the bonhomie was not sustainable. The illegal immigrants-turned-entrepreneurs began to put their former Italian bosses out of business. Of the 6,000 or so textile companies that existed in 2000, less than 3,000 remained in mid 2005. Several Italian companies with more than a hundred years of history are hanging on by a thread. The main reason for this is that whereas in the past only one part of the process of making a garment was outsourced to China, now almost every step in the production process is being moved offshore. As spinning, weaving, cutting and sewing moves to Wenzhou, the Chinese factory bosses in Prato are better suited to transition than their Italian counterparts.

Prato’s predicament is common throughout the European textile trade and in all of Italy’s artisan industries. In Biella, a wool town near Piedmont, Chinese competition is forcing closures of factories that have lined the river there since the thirteenth century. Other companies, such as the cashmere garment firm Fratelli Piacenza, have moved production to lower-cost countries.

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In one sense, there is a historical symmetry to the rise of Shengzhou and the concurrent decline of Como; it is as if the moth of the bombyx has decided after a 1,500-year sojourn in Europe finally to fly back home. But for Moritz Mantero, whose company makes silk ties sold by brands such as Ralph Lauren and Brooks Brothers, such observations are abhorrent. He has been to Shengzhou and found the smokestakes, concret-block buildings and pollution of the place ‘horrible.’ At home, he has watched as some 20,000 silk industry jobs have disappeared since 2001 and dozens of long-established firms gone under.