According to Japanese media reports, the Japanese Ministry of Finance plans to remove China, Mexico, Brazil, Thailand, Malaysia and other five countries from the tariff reduction and exemption list of developing countries in 2019, that is, from 2019, goods exported to Japan from China will not be able to Certificates of origin under the Generalized System of Preferences enjoy the preferential treatment of tariff reduction and exemption from the other country’s customs. It is reported that Japan’s Ministry of Finance has a two-year transition period before system adjustment.
In other words, if Japan cancels the GSP treatment, it will not only have a certain impact on China’s export profits to Japan, but will also have an impact on Japanese textile companies that organize production and processing in China. In fact, China’s export of textiles and clothing to Japan To a large extent, Japanese companies in China still hold a favorable position in the supply chain for products.
Japan is one of China’s important GSP granting countries and has granted China GSP treatment since April 1980. According to Japanese customs statistics, labor-intensive Chinese products such as textiles and clothing currently account for more than 60% of Japan’s import market. However, in recent years, Japanese companies have increased investment and cooperation in Southeast Asian countries due to the rising production costs in China.
At the same time, with the changes in Chinese consumers’ shopping concepts and shopping habits, China’s retail products have currently shifted from offline cash and credit card transactions to online transactions after consumers experience them in physical stores. Therefore, according to “Nikkei Chinese Network”, some Japanese textile and apparel companies currently stationed in China have decided to gradually close or withdraw their stores in China because their sales have not reached expected targets.
Is this really the case? Will Japan’s suspension of the Generalized System of Preferences make matters worse for Japanese textile companies in China? According to analysis by industry insiders, there will definitely be an impact, but it will not cause much fluctuation to the Chinese economy.
Japanese companies have a favorable export position in China
Preferential tariffs are one of the systems under the WTO framework. They refer to the importing country giving low taxes or tax exemptions to goods imported from specific countries or regions. The Generalized System of Preferences is a preferential tariff system with greater influence.
Vietnam, Indonesia, Bangladesh, and Cambodia are my country’s main competitors in Japan’s textile and raw material market. While Japan has canceled my country’s GSP treatment, it has retained its GSP treatment for the above-mentioned countries.
Many Japanese companies have established production bases in China and are building a global production and distribution system based on current tariffs. Many Japanese companies import raw materials from China or use China as a production base to process and manufacture products before selling them back to Japan.
According to analysis, after Japan cancels the Generalized System of Preferences for China, the import tariff rate of my country’s original textiles and raw materials in Japan will be 1.06-14.2 percentage points higher than that of Vietnam, Indonesia, Bangladesh, and Cambodia. At the same time, due to the rising labor and other production costs in my country in recent years, labor costs in textile and garment industries are on average 1-3 times higher than those in Southeast Asian countries.
It is also worth noting that in 2016, the Japanese economy continued to operate at a low level and actively transferred production and processing industries to Southeast Asia. This resulted in the decline of my country’s textile and apparel exports to Japan for the fourth consecutive year, and its market share in Japan further shrank, but the decline was larger than before. Slightly slower in 2 years. In 2016, textile and apparel exports to Japan were US$20.33 billion, a decrease of 6.1%. The total export volume of knitted clothing and woven clothing decreased by 1.8%, and the export unit price decreased by 5%; the export value of home textiles decreased by 3.7%.
Japan’s suspension of the GSP will inevitably lead to products processed and manufactured in China facing a more unfavorable competitive situation in Japan.
It needs to be emphasized that when most Japanese companies entered China many years ago, their layout was based on the level of China’s industrial economy at that time. However, as China’s industrial environment develops and changes, Chinese companies gradually eliminate backward production capacity and make progress in mid-to-high-end technological transformation. Japanese companies investing in China have to face pressure from China’s industrial transformation and upgrading.
The impact on Japanese companies is inevitable
The imposition of goods tariffs will directly lead to an increase in the cost of Japan’s imported products from China. In order to save procurement costs, Japanese importers will transfer more textile and clothing imports to countries that still enjoy tariff reductions, especially Southeast Asian countries.
The Japanese government has also formulated a series of preferential policies to encourage Japanese companies to relocate back to the country. It is reported that in order to promote the revitalization of Japan’s local economy, the Abe government has formulated an economic “growth strategy” to encourage companies to move their headquarters and factories to small and medium-sized cities in Japan, and to introduce corresponding incentives and tax preferential policies.
With the rise in labor costs in China and the depreciation of the yen, some products sold from China to Japan have exceeded the cost of processing and manufacturing in Japan, which has led some Japanese textile and apparel companies to consider relocating factories back to Japan.
There are reports that Yidujin once had hundreds of stores in China at its peak. However, as China’s production costs gradually increased, its operating profits did not meet the expected results, so it intended to withdraw from the production and sales business in China. Haolizi also plans to gradually reduce the number of sales stores in China. Asahi, a famous Japanese shoe company, plans to move all production back to China within a few years. The relevant person in charge of the company stated that the production base will be re-selected while taking into account the risk of exchange rate changes.
“From the perspective of total trade volume, although individual products use the GSP quota to increase profits, due to the gradual increase in export products��With the improvement of mid-to-high-end grades, China’s total exports to Japan will not be greatly affected. Therefore, strengthening product quality and R&D capabilities will help increase exports to Japan and offset the impact of reducing the GSP limit. “Some professionals think so.
For example, the Japanese textile company Komatsu Refining Co., Ltd., while paying attention to changes in domestic and foreign markets, continues to develop original high-end product processing business in China. Asahi plans to invest 1 billion yen to improve production efficiency and introduce automatic leather cutting equipment. As a result, the price of its products will increase by 20-30%, and the production speed can also be shortened by 2-3 months, thus increasing the ability to ship best-selling products.
Some experts have also analyzed that the vast majority of Japanese companies have not given up on the Chinese market. What they have withdrawn from China is not a real withdrawal but an adjustment. They have only withdrawn some departments with weak competitiveness and poor profitability.
New trends in Japanese textile companies investing in China
Asano Yasushi, president of Asahi Kasei Trading Company, told a reporter from China Textile News: “In its financial report as of March 2017, Asahi Kasei Trading Company proposed a sales target of 122 billion yen and an operating profit of 1.8 billion yen. This target figure includes the group’s sales business at the Chinese company Asahi Kasei International Trading (Shanghai) Co., Ltd., and there is no change from the target at the beginning of this fiscal year.” Asano Yasushi said, “Although the environment is very severe, we are full of confidence in the Chinese market and are determined to achieve our goals.” .
As China’s economy maintains a steady growth momentum and market consumption is increasingly expanding towards mid-to-high-end products, Japanese businesses are actively expanding their market share in China. Akatsuki Matsuzaki, president of Muji’s parent company “Ryopin Project”, said: “In the current fiscal year as of the end of February 2018, Muji plans to add 30 new stores in China and conduct comprehensive renovations of 20 stores. A comprehensive renovation is equivalent to Opening new stores means that we will have 50 new Chinese stores.”
Toyoshima President Toyoshima Hanchi also still attaches great importance to the production and processing business in China. He told the reporter of China Textile News: “Due to the unstable quality of production and processing in Southeast Asia, the orders of Toyoshima Company’s Textile Division in Southeast Asia have not been stable. There is no growth. If there is color deviation during additional production, although it is gradually reducing, it has not been completely eliminated. Therefore, we continue to retain the processing and production business in China and transfer the production base in China from Shanghai to Shandong and the three northeastern provinces.”
Masahiko Ichikawa, president of Japanese textile company Tamurakoma, also said that although the company’s production proportion in China has been declining year by year, currently about 75%, the production transfer to Southeast Asia has now come to an end. The processing part currently transferred by the company to Southeast Asian countries such as Vietnam, Myanmar, Cambodia, and Bangladesh has returned to China. “Especially for fashion, due to the short delivery time, labor proficiency is very important. In this regard, Chinese workers have a prominent advantage. It is also an advantage that almost all materials can be purchased in China. When processing in Southeast Asia, except Vietnam , many of which require shipping raw materials from China to organize production.”
It should also be noted that investment in and out is a normal market behavior. As operating costs increase and the industry is undergoing transformation and upgrading, we hope that overseas funds will gradually invest in mid-to-high-end manufacturing. At present, our country is actively promoting negotiations on the Regional Comprehensive Economic Partnership Agreement (RECP) and the China-Japan-Korea Free Trade Area with Japan and other countries. It is also necessary to study opportunities in advance for Japanese export companies and related industry organizations and actively provide relevant suggestions for negotiations. Create better opportunities and environment for export products through rules of origin that are more favorable to China. Japan will cancel China’s GSP benefits. Why are Japanese textile companies unhappy?
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