Foreign buyers like to source from China, but the reduction in export rebate is driving Chinese textile manufacturers to play up domestic business.

The ground of China’s textile export business is further shaken as the Chinese authority confirmed on September 14 that export rebate rates on more than 600 textile items would be reduced from 13% to 11%.

The affected items include most types of yarn and fabric products, along with such textile end products as hand-knitted sheeting, cotton-knit curtain, cotton printed sheeting, electric blanket, lifejacket, safe belts and second-hand clothing. Only the rates for clothing and clothing accessories (chapters 61 and 62) remain unchanged.

Profit margin to shrink further

Following the announcement, a textile manufacturer from Zhejiang, the largest textile producing province of China, expressed that the textile industry would be inevitably hit by the new measure, as the industry was sustaining on a narrow profit margin of about 3% to 5%. The manufacturer said the company would focus more on garment production in future to offset the shrunken rebate.

In view of a further reduction of profit, some experts said that more manufacturers would turn their eyes on the domestic market, adding that increasingly keen competition in both domestic and international markets will trigger another round of business mergers and acquisitions.

Goodwill may come to naught

While analyzing the purposes behind the readjusting export rebate, there have been opinions saying that, China has hoped, for instance, to promote value added content of export goods, slow down trade surplus, relieve tension arisen from international trade disputes and mounting pressure on Renminbi (RMB) appreciation.

However, these intentions may not be served by China voluntarily dampening its export business, as most analysis pointed out.

Instead of slowing down export growth, it is opined that the new rebate policy will boost export volume in the short term as exporters may hasten the process of custom declaration for their goods in the coming few months with the old rates still applicable to contracts signed prior to September 14 provided that the goods are declared by December 14.

Meanwhile, it is projected that international pressure on RMB appreciation will still linger as China’s trade surplus will not come down even in medium term.

Such projection is based on two factors. One is China’s continuation to enjoy low production costs for a while. Another is that the macro economic control has lowered the demand for imported goods, in turn widening the trade gap.

After all, it is understood that to optimize the export structure is always a medium- to long-term process instead of a short term one, and China will need to take some time to consolidate its strengths and create new markets for the higher end textile goods.