Talk of tax rebate cuts on textile and garment exports has cast
a shadow on the ongoing 101st China Import and Export Fair (Canton
Fair).
The market has been abuzz with rumor that the government is set
to lower tax rebates on textile and garment exports by 2 to 4
percentage points, meaning the rebates will be reduced to about 9
percent.
Although the new tax policy has not yet been announced, domestic
textile and garment manufacturers have already increased their
prices by 5 to 10 percent in the ongoing expo that opened on
Sunday, in preparation for the rate cut.
International buyers go on a spending spree during the Canton
Fair, which provides Chinese exporters an opportunity to grab big
deals for the whole year.
Exporters have factored in 4 percentage points for the possible
reduction in export tax rebate, 2 percentage points for a renminbi
appreciation this year and a few more percentage points for
increases in labor costs, said Wang Yongli, deputy manager with
Guangdong-based Silique.
He predicted the new policy will be announced "sooner or later"
and said he expected the government to allow exporters a couple of
months to adjust to the cost increase.
"In the first several days of this session of the Canton Fair,
we have seen the number of potential buyers decline," said Zheng
Fengmei, an official with Mailyard I/E Trade Co. The company in
central China's Hubei Province achieved exports of US$360 million
last year.
"We have to explain the conditions to every buyer before asking
for higher prices, but not all of them accept the rationale," he
said. At times, the company has had to share the cost increase with
the buyers, he added.
The possible tax rebate cut, a move to rein in exports of
labor-intensive products, is expected to further squeeze the profit
margin of Chinese manufacturers, who have already suffered from the
5-percent rise of the renminbi in July 2005.
To cope with the rate cut, Zheng said, the company is trying to
find "high-quality" customers from North Europe and Japan who can
absorb the price rise.
It is also gradually giving up low-value-added garments and
moving to products with higher profits, focusing on development of
self-owned brands in the international market.
Some industry insiders argue the proposed rate cut is too steep
for small textile manufacturers and may force some of them out of
the market.
(China Daily April 19, 2007)