On Wednesday, the State Council, China's Cabinet, approved a stimulus plan for the textile business, one of the country's pillar industries most seriously affected by the global financial crisis. Experts say that, while the plan may accelerate the modernization of the industry in the long term, in terms of an immediate boost it is much less than the industry hoped for. As for the overall effectiveness of the package, experts are taking a wait and see attitude.

The government has raised the tax refund rate for exported textiles and clothing to 15 percent, 2 percent below the expected 17 percent. The move will be welcomed as boost to manufacturers' confidence and will lift some businesses out of immediate difficulties. But industry insiders say the move will not turn the troubled industry around because it does not address the key problem of the fall in demand.

The stimulus plan includes measures to encourage exports, foster domestic brands and provide technical support for textile enterprises. Guosen Securities says these three aspects are the centerpiece of the plan, but warns they will not meet industry expectations. Guosen says the measures are aimed at sharpening the textile industry's international competitive edge over the long term.

The government has said it will offer loans to medium and small textile ventures with sound credit ratings. But Kong Jun of China Jianyin Investment Securities pointed out that companies most urgently in need of financial help are precisely those with poor credit ratings so the measure is unlikely to rescue them.

Industry experts say the plan, though ostensibly aimed at assisting the industry as a whole, will actually strengthen larger companies who will be given access to finance to fund modernization and acquisitions. Kong Jun said large companies, with advanced technology, boosted by the tax refund, should weather the storm.

China's textile industry remains dominated by small, low value-added manufacturers. The stimulus plan will mainly benefit large companies, Kong Jun said, adding that it remains unclear whether the current plan for the industry will prove more effective than its predecessors.

(China.org.cn by Pang Li, February 13, 2009)