Reduced export quotas, a historic revaluation of the yuan and an
increase in raw material costs have all contributed to a stunted
growth for the textile industry this year.
Zhejiang, one of China's major textile
manufacturing bases, has witnessed a remarkable slowdown in export
growth rates since February.
According to statistics from Ningbo customs, exports to 67 of
Zhejiang's 143 textiles export destination countries, dropped
significantly. The decline was most marked for exports to the EU
and the US.
The export quota dilemma
According to agreements signed last year between China and the
EU, and China and the US, annual growth rates for the export of
certain textile products are restricted to between 8 to 12.5
percent and 10 to 17 percent respectively until 2008.
Based on these restrictions, China's Ministry of Commerce
assigns 70 percent of available quotas directly to enterprises in
accordance with export volumes, and the remaining 30 percent are
allocated through a bidding process.
According to ministry figures released on April 12, the lowest
bids for the 31 categories of clothing and textiles which have been
placed under export restrictions were generally higher than last
year's. The lowest bid price for knit fabric, which is exported to
the US under the No.1 category, was almost six times more than last
year's.
However, the current market price for quotas is already 10
percent lower than the bid price, according to insiders.
Moreover, customs statistics show that by mid-April, the customs
clearance rate for most categories of textile products placed under
export restrictions by the EU and the US was less than 20
percent.
Ironically, there is now a surplus of quotas.
The problem reportedly starts with the quota allocation system.
The key complaint is that there just aren't enough quotas being
given out or auctioned off. Moreover, the bulk of quotas are given
to big companies, which affects the market circulation of these
quotas. Further, the quotas that are allocated are in turn
insufficient to satisfy customer demand, which then forces
customers to find new suppliers in Vietnam, Myanmar and North
Korea, for example.
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Consequently, the quotas are under-utilized, causing a drop in
their market price.
Despite the obvious inconveniences, the ministry has said it
will not change the quota allocation system.
Further, many listed textile companies in Zhejiang acknowledge
that the quota system can help regulate the textile export market
and stabilize the production and profits of textile companies.
Time to spin a new yarn
In order to improve their current situation, textile enterprises
in Zhejiang are turning to product structure adjustments, product
innovation and value-added mechanisms to generate more profit. They
are also lobbying the government for more reasonable policies to
regulate the textile market.
Companies like Zhejiang Zhongda Group Co., Youngor Group Co.,
and Ningbo Veken Elite are increasing exports of products not
limited by quotas to offset the reduction in exports of
quota-restricted products. This should help to even out their
foreign trade businesses this year, although growth rates will be
lower. They are also seeking to penetrate overseas markets other
than the EU and the US.
China's exports are mainly characterized by low added-value, a
lack of domestically owned brand names, and low gross profit
margins. These are the main reasons for the sluggish development of
the textile industry, according to Zhu Xiehe, a senior official
with Zhongda.
Analysts explained that increasing products' added-value is a
way for textile companies to pass on to clients increases as a
result of a yuan appreciation and higher raw material costs.
In Brief:
--June 11, 2005
China and the EU reach an agreement on the annual growth of exports
to the European market for the ten lines of Chinese textile
products from June 11, 2005 to the end of 2007. With an agreed base
quantity, annual growth limits are set between 8 and 12.5 percent
during this period.
--November 8, 2005
After seven rounds of talks, the US and China sign a three-year
agreement. A total of 21 types of clothing and textiles are placed
under import restrictions, and the agreement provides for
progressive annual increases in imports of major textile and
apparel products from China -- by 10 to 15 percent in 2006, 12.5 to
16 percent in 2007, and 15 to 17 percent in 2008.
(China.org.cn by Yuan Fang, May 26, 2006)
