Rebate cuts bite into textiles and paper exports growth
Sales rise to slow to 16pc as stronger yuan also erodes gains
The sharp growth in mainland exports of textiles and paper is to slow down in the second half of this year due to the combined effect of steep cuts in tax rebates and a more expensive yuan, the state's economic planning agency has warned.
Growth in textile exports will slow to 16 per cent, reaching US$165 billion this year, from a 25 per cent increase last year, as currency appreciation erodes exporters' price advantage, according to the National Development and Reform Commission. The two percentage point cut in tax rebates to 11 per cent on July 1 will also shave second-half profit margins by 0.26 of a percentage point, it said.
The woes of textile makers are being exacerbated by trade barriers such as anti-dumping and anti-subsidy measures in the United States and Europe, the commission said yesterday.
The future of paper and pulp exports looked even grimmer, the commission warned, with an eight percentage point cut in the tax rebate to 5 per cent, eating into profitability and threatening to force some manufacturers out of business or to change hands.
Some economists said the future of mainland exporters would hinge on whether they would be able to lift prices and by how much.
Shen Minggao, chief economist of Citibank Global Markets Asia, saw exporters' clout in passing on some extra costs to customers.
'Prices of Chinese exports are rising, given improved quality of products and an appreciating yuan,' Mr Shen said. 'Overall, many Chinese exporters are raising prices, but the labour-intensive and competitive textiles industry will have limited room to do so and textiles makers will have to lower costs.'
Mr Shen believed mainland export prices of 15 core products such as coal, corn, cotton, yarns and electronic products jumped an average 21 per cent in the first five months of this year, based on data from the Ministry of Commerce.
Richard Tsang, the manager of a Shanghai fabric maker, said the operating environment was increasingly hostile as a result of higher labour, electricity and sewage treatment costs and intensifying competition from countries such as Vietnam and India.
'The profit margins are on the downside,' he said. 'We can only pass on some costs to customers to avoid scaring them off.'
Chinese exporters' increased pricing power cushioned most of the impact of a 4.6 per cent gain in the yuan between June last year and May this year, Deutsche Bank's chief economist Jun Ma said in a research note.
'This is a key reason why Chinese exporters are so resilient to the currency appreciation pressure,' Mr Ma said.
He said the mainland has begun exporting inflation to its second-largest trade partner, the United States, and continued to export modest deflation to its biggest partner, the European Union, as the yuan weakened against the euro.