Export Tax Rebate Cut Profits Squeezing Profits, Garment Industry Begins To Shuffle

Since July 1st, the Ministry of Finance and the State Administration of Taxation jointly cancelled or reduced export tax rebates for over 2000 commodities.

A new export tax rebate policy was introduced in July to alleviate China's long-run trade surplus and reduce trade frictions.

According to statistics, from January to June this year, China's trade surplus reached a record high of US $112 billion 530 million, of which the textile and garment surplus almost occupied half of China's trade surplus.

The export tax rebate adjustment, clothing, shoes and hats, viscose fiber are in the adjustment, the export tax rebate rate from the previous 13% to 11%.

"It's like fighting."

This is a summary of Ceng Zhongkang's work in June by the head of a clothing company in Chengdu.

In order to win more export tax rebates before July, Sichuan garment enterprises worked hard in June to reduce the impact of policy adjustment.

According to the latest statistics of Sichuan Provincial Department of Commerce, Sichuan's exports in June exceeded US $800 million for the first time, reaching US $827 million.

Except for the development of Sichuan's foreign trade export, the enterprises' surprise exports in June were also one of the reasons.

In June, to reduce losses, Sichuan enterprises to seize exports, in order to catch up with exports before the implementation of the new deal in July, get more than two percentage points of export tax rebates. In June, the production of clothing factories in Chengdu is still brightly lit even at night.

At the Shanghai ferry terminal, Chengdu foreign trade company occupied the ship's position, and the cargo could not enter the hatch after it was late.

For three days in a row, Shanghai docks were crowded, and container trucks were blocked.

"Almost every company is rushing to advance the delivery date."

Xu Xiaochuan, deputy general manager of Sichuan Xinlixin import and export limited liability company, said that last month, we did not dare to slack off to ensure that we shipped as much as possible before the end of the month.

Yang Chunxuan, director of the foreign trade division of the Sichuan Provincial Department of Commerce, analyzed that because the textile and garment export tax rebate dropped by two percentage points in July, it is estimated that the profits of garment export enterprises will drop by about 20%.

Although the clothing export enterprises can avoid a lot of losses through a month of Raiders, Ceng Zhongkang, chief executive of Sichuan nine star garments limited liability company, said that in a short month, they had seized tens of thousands of dollars in goods and recovered twenty thousand or thirty thousand yuan of losses.

In addition to the impact of export tax rebates, labor intensive industries have been affected to varying degrees by the adjustment of export tax rebates.

Xiong Daiyu, President of Chengdu beauty point footwear industry, said that because of the export tax rebate reduction, the company's revenue this year will be reduced by 2 million yuan, which is equivalent to half a year's profit.

In June, when the company rushed to export, it could only save a small portion of the total loss.

The test of Sichuan enterprises in July will really start with "how much we can calculate and how much we can make up for losses."

Ningbo Yong, chief executive of Sichuan garment and garment industry, analyzed that the export profits of textile and clothing were generally only about 7%, while most of the profits of garment export enterprises came from export tax rebates.

Since July, when the export tax has been reduced, the test of Sichuan enterprises has really begun.

Ning Yong understands that since the implementation of the new export tax rebate policy in July, more than 10 textile and garment enterprises have closed down in Guangdong.

One of his friends in Shenzhen, who was unable to resist the impact of a profit reduction, was also preparing to turn off his clothing factory with 600 workers by the end of August.

Before that, the friend was also investing in garment factories in Sichuan to expand production capacity.

Now the plan has come to nothing.

Ning Yong predicts that with the reduction of export tax rebate, the profits of garment export enterprises will be reduced. Before the Spring Festival, Guangdong may reduce 20% to 30% of garment export enterprises.

At the same time, some experts predict that the exchange rate of RMB against the US dollar will rise by 7.4 at the end of this year.

Ning Yong is worried that when the export tax rebate is reduced, coupled with the acceleration of the appreciation of the renminbi, this will undoubtedly add to the burden on garment exporters.

"The only hope can only be placed on the quota cancellation for export to the EU next year, but there will be more barriers to trade after the quota is abolished."

Ning Yong said that in the future, some garment exporters with low production capacity and relying only on low price competition will face the fate of elimination.

It is foreseeable for enterprises to lay off workers or reduce production. If a batch of garment enterprises shut down because of the adjustment of export tax rebate and exchange rate, many workers will lose their jobs.

"No way, the profits of enterprises are less and less."

Ning Yong's company with 1300 employees has cut 5% of its staff so far.

In addition to the downsizing, the means of controlling the cost of the plant and saving the cost of water and electricity to improve the efficiency of management.

Ning Yong said that after the export tax rebate was adjusted, the company's cost increased by 10%, but its profit fell by 40%.

The average unit price of garments exported from China in 2006 was US $2.85, which was lower than that from the global export clothing price of about 10%, much lower than that of the export price from Mexico and India.

According to common sense, after the cost of export enterprises rises, they can raise their export prices by reducing their pressure.

"But you won't have the price advantage, and now the competition is becoming more and more intense. You must not have a global view."

Ning Yong said that importing countries can not only buy cheap clothing from China, but if China's price rises, buyers can also import from Bangladesh, India, Vietnam, Kampuchea and other countries.

And Ning Yong's original company made three brands of export clothing, because of the increasing cost, he had to give up one of the brand's production.

The way to build brands, avoid low-cost competition, and raise the cost of Chinese clothing exports, including Sichuan.

Ceng Zhongkang, chief executive of nine star clothing, analyzed that because Chinese clothing enterprises had not made big overseas brands, most of the enterprises mainly depended on OEM production and took the production drawings of their customers.

And the brand that the nine stars have posted will be produced at least by three or four enterprises in Chengdu at the same time.

Therefore, initiative is always in the hands of importers.

After bargaining, manufacturers can only receive export list with low price. As competition becomes more and more intense, profits are getting lower and lower.

In late June, when Ceng Zhongkang was informed that the export tax rebate would be adjusted, a brand promotion office was set up inside the enterprise.

In October this year, they will use the Canton Fair to promote their brand.

Zeng Zhong Kang is looking forward to this brand and has invested 200 thousand yuan for its promotion plan.

"With the brand recognized by the market, enterprises can control the right to speak."

Because of lack of experience, we can not understand the consumption culture abroad, and brand promotion still needs some time to run in.

But he is worried that the company's brand is just beginning. Now it faces tens of thousands of exporters squeezed by low price competition. During this special period of pition, can the company be able to make a smooth pition under unprecedented pressure?

Links are facing increasing risks in the export market. Some domestic exporters have begun to fight in the domestic market, and the beautiful shoe industry in Chengdu ranks among them.

Xiong Daiyu, chief executive of the company, said that only 20% of the original products had been sold domestically, which has been raised to 40% this year and plans to exceed 50% next year.

In the past, we all looked at overseas markets. According to his inspection, for the footwear industry, there is at least 30%-40% market space in China, especially in the women's shoes market, because women have stronger acceptance of fashion, and the industry's products are upgrading rapidly.

"There is no lack of R & D capability in Chengdu enterprises."

Because 60% of the shoes in the Chengdu market were developed by local enterprises, they were eventually labeled with others' brands.

Therefore, Xiong Dai Yu believes that as long as local enterprises establish their brands in the domestic market, they will be able to seize the domestic market share.