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Tax rebate offers short-term boost

By Diao Ying (China Daily)
Updated: 2008-08-13 10:39

Major Chinese textile companies have said that the recent adjustment in tax rebates will lead to increased profits in the short term, but the long-term impact would be limited.

Jiangsu Sainty Corp Ltd, a major exporter of garments based in Jiangsu province, said in an announcement: "The export tax rebate adjustment will increase the profitability of contracts signed before in the short term," but will have "no major influence" on the company's profits for the whole year.

While the company acknowledged the positive impact the tax rebate would bring, it said the competitive nature of the garments industry and other factors such as a group's ability to bargain and the development of the domestic and international markets, would also affect profits in the sector.

Jiangsu Kaiyuan, another major trader in the textile industry, said there would not be any obvious impact on the company's profits since foreign clients would try to cut down prices once they learn about the tax rebate.

Zhao Meiling, an analyst with Essence Securities, agreed that the tax adjustment was good news in the short term, but would not change the overall trend of the industry.

Zhao said the adjustment could help release the pressure of SMEs relying heavily on exports. But since China's textile industry overall lacks brands, and they mainly make low value-added products, they possess little bargaining power and the profits from the tax rebate would go to foreign importers rather than the domestic enterprises themselves.

He said technology innovation and industry upgrades were the only ways for the industry to develop in the long run.

The Ministry of Finance increased tax rebate rates on some textile and clothing exports from 11 percent to 13 percent in the first pullback since the country largely cut the enterprise export tax rebate rate in September 2006.

The policy was meant to give a breather to enterprises whose profits have declined since the beginning of this year amid global economic slowdown, yuan appreciation and rising labor and raw material costs.

Data shows that in the first half of the year, exports of textile and apparel totaled $83.851 billion, an increase of 11.11 percent over the previous year.