Export Tax Rebate Rate Rises Hard To Change Industry Decline

The Ministry of Finance and the State Administration of Taxation jointly issued a notice on November 1, 2008 that the export rebate rate of textile and clothing products will be adjusted again from November 1, 2008, and the export tax rebate rate of some textiles, clothing and toys will be increased to 14%.

The export rebate rate has entered a period of increase. Since 1999, the export growth of domestic textile and garment industry has slowed down slightly, except for the 2001 and 2002 two years, which was caused by the breakdown of the Internet bubble and the "911" event. The export growth of China's textile and clothing has remained above 20% in the rest of the year.

From 2001 to 2003, China has maintained a high export tax rebate rate of 17%, but after entering 2004, along with the excessive prosperity of China's textile and garment industry, the low-end homogeneous competition and international trade friction began to highlight the problem. China's textile and clothing tax rebate rate began to enter a downward cycle, hoping to promote industrial upgrading through tighter industrial policies and other supporting policies. However, as the international financial crisis intensified, China's real economy began to be more impacted, especially in the export oriented industry. The fact that the 6.7 thousand small and medium-sized enterprises failed in the first half of the year led the country to shift its policy direction from inflation control to growth.

From the second half of 2008, China began to enter the cycle of tax rebate increase. The 1% increase in export tax rebate rate was made on the basis of 2% increase in August 1st.

We expect that with the further deterioration of the industrial environment, the state will continue to raise the export tax rebate rate in a relatively short period of time, and finally maintain a level of 17%.

To raise the export tax rebate rate to the actual effect of export enterprises is limited. According to the actual effect, this action can alleviate the pressure of export textile and garment enterprises to a certain extent. In the medium and long term, the fundamental reason for the recession of the textile and garment industry is the decline in the consumption capacity brought by the financial crisis, especially the deleveraging process in the consumption areas of the developed countries. Therefore, the decline and duration of its consumption capacity may exceed everybody's expectations. Under such circumstances, the textile and garment market becomes a buyer dominated market, and the profit margin of the export enterprises will soon be taken up by the importers.

The adjustment of export rebate rate is only a subsidy from the supply side, which can not change the contradiction between supply and demand imbalance of the whole industry.

2008 in the first half of the year, after the news of the collapse of 1 million small and medium-sized textile enterprises, the state raised the export tax rebate rate of some textile and garment products in August 1st, but the large export clothing and toy enterprises such as Hejun group and Wei Wei International went bankrupt, which reflected that the policy did not prevent further deterioration of the industry environment.

There is a lack of continuous policy expectations. In the face of the shrinking external demand and the sluggish domestic demand, the operation of the textile and garment industry has deteriorated greatly.

Raising the export tax rebate rate has become the easiest and practicable measure. As the export tax rebate rate raised by less than three months ago, and the export tax rebate rate was limited (the highest historical value was 17%), its policy expectation was limited, so it was difficult to improve investors' expectations of the industry.

To give the industry a "neutral" investment rating. Because clothing is a durable consumer goods, its market size increase is highly related to the growth of the macro-economy. The uncertainty of the development prospects of the major economies (including our country) caused by the current financial crisis makes the external demand and domestic demand of our garment industry face greater uncertainty. It is also difficult for us to predict that the textile and garment industry can get out of the independent market independent of the macro economy.

Therefore, we give the textile and garment industry "neutral" investment rating.