“Textile export tax rebate rate may be raised again” rumors reflect the industry’s dilemma

After the Ministry of Finance raised the export tax rebate rate for textile and apparel from 11% to 13% on August 1, 2008, according to overseas media reports, relevant officials from the National Development and Reform Commission revealed that relevant ministries and commissions are considering raising the export tax rebate rate for such products again. .
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The report stated that Ma Zhanping, deputy director of the Economic and Trade Department of the National Development and Reform Commission, said that the government is considering taking more measures to help the textile industry tide over the difficulties, and possible measures include increasing the export tax rebate rate. But no specific explanation was given.
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The domestic textile and apparel industry is facing unprecedented difficulties, which may cause massive unemployment, reduce demand for upstream cotton, and affect farmers’ income. This may be the main reason why the relevant departments are considering raising the export tax rebate rate again after just a few months.
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The industry has previously faced difficulties such as RMB appreciation, rising labor costs, and financing difficulties, which have not yet been alleviated. Since 2008, the RMB exchange rate has risen by more than 7%, which is equivalent to the full-year appreciation in 2007. At the same time, the uncertainty of exchange risks also prevents companies from accepting long-term and large orders. According to a survey by the China Textile and Apparel Industry Association, more than half of the companies in the industry have fewer orders than in 2007.
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Due to the tightening of money, many banks have classified textiles as a “sunset industry” and refuse to lend to it, especially to small and medium-sized enterprises. Companies have to turn to private financing, whose interest rates are about 1-4 times higher than bank interest rates.
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                                                                  More importantly, external demand is declining. The U.S. financial crisis is being transmitted to major Western developed countries, and the shrinking consumption in the international market has directly led to a reduction in orders and a decline in exports. Many foreign buyers have difficulty with capital turnover, and more and more companies are going bankrupt, leading to a sharp increase in bad and bad debts of Chinese textile companies.
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It seems that the 2 percentage point increase in the export tax rebate rate in August 2008 is still not enough to offset the impact of various adverse factors and rescue the textile industry from its predicament.
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A manager of a textile enterprise who did not want to be named said that in 2008, the financial costs of textile enterprises generally increased by 10-15%, the cost of raw materials increased by 10-20%, and the labor cost increased by about 30%. Therefore, if we want to fundamentally eliminate the dilemma of the textile industry, the export tax rebate rate needs to be raised to 17%.
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The latest data shows that the policy adjustment in August 2008 did not change the downward trend of the textile industry. Data recently released by the General Administration of Customs shows that from January to September 2008, my country’s textile and clothing exports totaled US$136.94 billion, a year-on-year increase of 8.12%, and the growth rate continued to slow down; in September 2008, textile and clothing exports were US$18 billion, a decrease from the previous month Nearly US$600 million, a month-on-month increase of -3.18%, and a year-on-year increase of only US$310 million, 1.75%.
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An analyst said that what is more important is that under the current macro-control tone of “guaranteing development and controlling prices”, sitting back and watching the labor-intensive textile industry fall into trouble is contrary to the policy goal of ensuring employment.
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​​​​​​China’s textile industry accommodates 20 million jobs. At a previous meeting of the China Textile and Apparel Industry Association, the person in charge of a large domestic textile company told Vice Minister of Industry and Information Technology Ou Xinqian face to face that 1/3 of textile and garment companies have been unable to survive.