Most are likely to bear the added cost as China tries to curb runaway exports Apparel manufacturers and traders are preparing for a squeeze next week when Beijing's self-imposed tariff increases on textile exports take effect. Although unlikely to steer buyers away from the mainland, the move is a firm tap on the brakes to the runaway export growth that has followed since the expiration of the global textile quota system on January 1. China-based clothing manufacturers with little or no exposure to the domestic market are likely to be forced to shoulder most of the tariff increase. 'Certainly, it's a cost factor to us. Everybody in China is being affected,' said Lewis Leung Yat-wah, general manager at Hong Kong-listed apparel manufacturer Luen Thai's Dongguan factory, where about 8,000 people make clothes for customers in the United States such as Polo Ralph Lauren, Liz Claiborne and the Dillard's chain of stores. Mr Leung, whose company also has factories in the Philippines and Saipan, says although they probably will not be able to pass on the tariff rises, there are no plans to move production away from the mainland and output continues to grow moderately. On a busy day, the Dongguan plant ships more than 20 containers via Shenzhen's Yantian port, and for current orders, that could mean a cost increase of 'a few hundred thousand yuan' after June 1, Mr Leung said. 'It will be wise if you have garment orders to send them out now, or at least to complete the customs declarations.' Trading firms, especially those that supply mainland manufacturers, will feel the pinch. The world's largest supply-chain management firm, Li & Fung, expects the impact to be small. 'The bureaucratic hassle has been somewhat sorted out, so the tariff rise won't disrupt shipments much,' head of global trading Bruce Rockowitz said. However, smaller players who are unable to leverage multinational networks are less optimistic. 'Chinese factories cannot pass on the export tax to their US and EU customers,' said Neeraj Sawhney, director of Topnet International, a small Hong Kong trading firm. 'This will put more pressure on us. We have to sell them textiles and raw materials and they will ask us to lower prices.' Beijing's decision, announced last Friday, will impose tariff increases of up to 400 per cent on 74 categories of textile exports. The move came two days after the US Department of Commerce said it would widen the scope of safeguard quotas, limiting growth of certain mainland textile imports to 7.5 per cent a year by including five more types of clothing and yarn. China first acted to self-impose tariffs in January by charging the equivalent of a 1.3 per cent tax to exporters of 148 textile categories, but the move was viewed in the west as a token gesture. This latest tariff increase still falls short of offsetting the drop in prices that has followed the end of global quotas. The increase equals a 4.3 per cent rise in the average wholesale price of a shirt or a 2.1 per cent increase for trousers, according to JP Morgan analyst Ben Simpfendorfer, who wrote yesterday in a research note: 'A pair of Chinese-made trousers is still cheaper today than it was this time last year.' Still, in a cut-throat industry such as apparel manufacturing, price rises on this scale can potentially cancel out profit margins. In response, some mainland manufacturers will get help in the form 'tariff rebates', according to one Hong Kong trader. While the Ministry of Finance pockets the export tariffs, local officials desperate to retain investment and avoid layoffs or factory closures will be happy to help out homegrown enterprises. Direct subsidies, too, are made available by local governments. 'Some of our clients, Chinese garment exporters, get subsidies,' said Alex To Man-yau, head of China business at Growth Enterprise Market-listed Tradeeasy. 'The impact on Hong Kong companies will be worse than on the mainland companies that are lucky enough to get subsidies.'