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Upgrade or go down

(China Daily)
Updated: 2008-08-04 17:23

After a subtle shift in policy focus from inflation to growth, the government raised the tax rebate on a range of textiles and garments from 11 percent to 13 percent on August 1.

Such a move will give a break to ailing clothing exporters, but it does not justify a slower pace in industrial restructuring. Chinese textile enterprises should make good use of this temporary measure to speed up their climb along the industrial value chain.

In order to slow its ballooning trade surplus growth and discourage export of energy-intensive, highly-polluting products or resource products, the country had reduced the rebate rates of the value-added tax for more than 2,800 items of products last year, including hundreds of textiles and garments.

However, a stronger yuan, weakening overseas demand, rising costs and a series of severe natural disasters in the first half of this year have hit China's export growth harder than expected. Official figures showed that the growth of exports slowed to 21.9 percent for the first half, compared with a 27.6-percent increase over the same period last year.

As a sector that is heavily involved in low-end labor-intensive manufacturing export, China's textile industry is obviously among those most affected. Exports in the textile and garment sectors in June declined by 4.2 percent year-on-year to $15.5 billion, representing the slowest increase in five years. Meanwhile, it is reported that the average profit margin of textile and garment industries have fallen to 3 percent, after the yuan gained more than 6 percent compared with the US dollar in the first half of the year.

Under such circumstances, a 2-percent-point hike in tax rebate will undoubtedly give a much-needed shot in the arm for textile exporters, some of them now struggling on the verge of bankruptcy.

Given the potential risk of massive unemployment resulting from closures of many labor-intensive textile exporters, it is quite reasonable for the government to fine-tune tax rebate policies to give textile manufacturers more time to undergo necessary restructuring.

Nevertheless, exporters' hopes that policymakers will hence stop pushing ahead with a change of the growth pattern will only be wide off the mark. Textile manufacturers should not expect the government to backpedal on pursuing energy-saving and sustainable growth. The only way out for them is still to accelerate industry upgrade as fast as possible.