Big textile firms confident about impact of tariff levy
By Li Wenfang (Business Weekly)
Updated: 2005-01-06 11:33

"Big companies have been cautiously optimistic but small firms, especially those that rely on exporting firms for export business, have felt the pressure," said an official from the local textile association. Accounting for 31 per cent of China's foreign trade, Guangdong contributed 26.7 per cent of textile and apparel exports in 2003.

Big companies have engaged in vicious price competition for years and the new levy imposed by the central government is expected to prompt a reshuffle of the sector, the official said.

"Personally speaking, I am in support of this," he said, adding the move should help push the sector up the value chain. Original equipment manufacturing (OEM), which features contracted manufacturing without own brands, is estimated to account for about half of Guangdong's textile production, he said.

Expecting similar stable growth in the province's textile exports in 2005, he said the consequent tax costs would be borne by manufacturers, exporters and importers. Guangdong's textile exports rose 9.44 per cent to US$8.186 billion in the first half of 2004 and 15.7 per cent to US$16.51 billion in 2003.

The government's move is a step in the right direction, since the domination of middle and low-end textile products has not improved in any significant way, said Zhao Changgang, an official from the State-controlled Guangdong Textile Import & Export Co, which is one of the province's top three textile exporters.

The initial impact of the new levy on the company will be on the shipment of about US$6 million apparel orders clinched during the autumn session of the China Export Commodities Fair held in provincial capital of Guangzhou in October, he said.

The additional cost of the shipment resulting from the new policy was estimated to be about 1.3 million yuan (US$156,630). The company exported about US$400 million worth of textile products, including US$240 million worth of apparel in 2003 and is expecting 3 per cent to 5 per cent growth in 2004. Exports in 2005 are expected to be on a par with last year's.

In the long run, Zhao said the new tariff should not have a major impact on the company, since it is engaged in relatively high-end business and has its own production facilities. The company will continue to strive to restructure its export mix.

But the manager of a jeans manufacturing firm in suburban Guangzhou is more worried by the consequent higher costs.

Since the new levy is estimated to increase costs by between 3 and 6 per cent, the profit margin will become thinner amid the already heated competition, he said.

His company produces about 300,000 trousers a month and exports more than 90 per cent of its products.

The manager said he was confused about the outcome and real impact of factors such as the global elimination of quotas on textile export and the new tariff levy, adding his company would continue to cut costs in response to the new tax.

Small as it is, the company has found brand-building to be a difficult goal, which requires talents and capital, he said.

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