Is Export Tax Rebate Policy Good Or Bad For Clothing Industry?

The Ministry of Finance and the State Administration of Taxation issued a notice in December 31, 2014 to adjust some products.

It includes some textile and clothing (the 50-63 chapter, mainly yarn category, including some high-grade yarn, wool yarn, etc.), and the export rebate rate has been raised to 17% since January 1, 2015.

Comment: the export tax rebate policy has been adjusted more frequently since its implementation in 1985. This part of the textile and garment export tax rebate rate has increased to 17%, which is good for the international competitiveness of the textile and garment industry.

In March 1985, the State Council formally promulgated the export tax rebate policy and implemented it in April 1, 1985. After frequent adjustment, the export tax rebate rate of textile and clothing remained largely within the range of 5%-17%.

The adjustment of the export tax rebate rate serves the needs of the adjustment of the export structure of the country. Taking textile and clothing as an example, in order to get rid of the financial crisis in 1998, the export rebate rate of textiles and clothing was raised from 6% to 11% in January 1998. In 2005, the peak of the export of textiles and clothing was the peak of China's export. In order to reduce the trade surplus, the export tax rebate rate of textiles dropped from 13% to 11% in 2006, and then reduced to 5% (viscose fiber) in 2007.

The export tax rebate rate rose from 16% in 2009 to 17%, mainly for the past 3 years, the textile and clothing exports continued to slump, the middle and low order accelerated to Southeast Asian countries and other unfavorable environment.

In the first 11 months of 2008, -2014

The year-on-year growth rate of exports was 8%, -10%, 24%, 21%, 2%, 11% and 5.6% respectively, while the export volume of textiles and clothing in Vietnam over the same period increased by more than 40% since 2009. The continuous rise of domestic costs (labor, environmental protection, raw materials, etc.) has led to the weakening of the international competitiveness of China's textile industry.

The export tax rebate rate increased from 16% to 17% (some textiles and garments). From the perspective of the whole industry, it is favorable to enhance international competitiveness.

The benefit of enterprises in the industry is different due to the different product structure and business structure. The enterprises which are mainly yarn oriented, export oriented and relatively strong bargaining power will benefit significantly.

The improvement of export tax rebate rate is good for the competitiveness of China's textile industry in the world. However, due to the different structure of products (the increase of export tax rebate rate is mainly aimed at yarn) and the business structure (the ratio of products exported to different enterprises) is different, the degree of benefit is different.

The export oriented enterprises based on yarn will fully benefit logically. However, from the historical experience of the business level, the bargaining power of the textile enterprises as raw material suppliers is very limited. Under the condition that the downstream customers fully understand the cost structure and policy changes of the suppliers, the downstream customers will strive for more policy dividends, considering that the overall environment of the downstream customers' orders is relatively cautious (cotton prices are still downward and not yet stabilized), and the leading enterprises with relatively strong bargaining power are expected to benefit partly from the dividend policy that has increased the export tax rebate rate.

According to the above logic, it is expected that Huafu color spinning (top grade colored yarn is the main and direct export ratio is about 30%), and Baron East (the top color spinning yarn is the main and the direct export ratio is about 30%) will be directly benefited.

We are inclined to understand the improvement of the export tax rebate rate as a tool for the state to readjust its macroeconomic structure and export product structure. The core demand is still to stabilize foreign trade and ease the downward pressure on the economy.

In the three carriages of investment, foreign trade and consumption, the current investment lacks the conditions for large-scale stimulation (relatively tight finance, low enthusiasm for private investment), and continuous slump in mass consumption (the real estate market is sluggish, and it is difficult to play a significant role in the short term of emerging consumption). Boosting foreign trade is also conducive to boosting the domestic economy. From this perspective, the export tax rebate rate increase is expected to only boost part of the foreign trade. As a major export category, textile and clothing will certainly benefit.

Specific to the industry's investment logic, we maintain

From the medium term trend, the high cost predicament of cotton textile enterprises since 2010 is expected to begin to reverse in 2015. Since 2010, cotton textile enterprises are facing a rising high cost dilemma. With the beginning of natural growth of human cost, environmental costs and the decline of main raw material and cotton prices, cotton textile enterprises are expected to usher in a dilemma reversal in 2015 and enhance their international competitiveness.

And experienced early industry integration, small scale, relatively weak strength of enterprises to withdraw from market competition, industry concentration is expected to enhance overall, orders and other resources to the leading enterprises gathered, is expected to significantly improve the market share of leading textile enterprises.

The increase in the export tax rebate rate has little impact on the enterprises in the industry (the net interest rate of the export oriented yarn enterprises with bargaining power will be increased by 1%), but will strengthen our logic from the perspective of the industry.

We recommend Huafu color spinning, Bailong East and Lu Tai A.

The main uncertainties are: the demand for overseas markets is not as good as expected, and the downward trend of cotton prices is too slow.