Is It Worth The Fact That Kampuchea'S Exports Are "Spinning" Into Southeast Asia To Run Textile Mills?

At present, the trend of building the textile industry is not only to gather in the central and western parts of the country, but also many textile people choose to set up textile factories abroad, and Southeast Asian countries have low cost labor force and cheap factories and land.

In addition to the familiar Vietnam and Kampuchea, the construction of the hot plant is very popular.

In the near future, such a news has pushed Kampuchea to a hot topic: in February 12th, the European Commission announced that it was officially starting to withdraw Kampuchea's "all tax exemption" (EBA) except for weapons as a result of "no improvement in democracy, human rights and rule of law in Kampuchea".

So how far is the prospect of building a textile mill in Southeast Asia?

Undeniable industry advantages

First of all, over the past decade, Kampuchea has been taking the road of "Asian factory", which mainly manufactures garments and footwear. So let us first look at the undeniable advantages of going to Kampuchea to run factories.

01

Advantages of textile industry

Clothing and shoemaking industry is a pillar industry of Kampuchea's economy. About 80% of its total exports and about 800 thousand workers are related products.

At present, many brands such as UNIQLO, Adidas, Gap, H&M and so on are all set up in Kampuchea.

In 2015, the added value of clothing and footwear accounted for 11% of Kampuchea's economy and contributed nearly 2% to GDP growth.

In terms of clothing exports, Kampuchea ranks ninth in the world's major apparel suppliers.

In 2015, Kampuchea's exports amounted to US $6 billion, which was less than that of Vietnam's 22 billion US dollars in the same period, but we should take into account that its exports were only 1/6 of Vietnam's.

In 2018, clothing and footwear exports in Kampuchea amounted to US $10 billion, an increase of 24% over the 2017 US $8 billion.

02

Low labor cost

Kampuchea has a population of 16 million 170 thousand, of which 9 million 450 thousand are working people, 52.5% of whom are male and 47.5% of women.

Kampuchea has a large number of the most powerful and cheap labor resources.

What is the wage level of Kampuchea workers now?

In October 2018, the Kampuchea Labour Advisory Council adopted the minimum wage standard for Cambodian clothing and footwear workers at the meeting, which increased to $182 a month from January 1, 2019, and the figure was $170 in 2018.

Plus the workers' statutory allowances and benefits, including full time bonus, pportation and accommodation allowance, age allowance, and workers' subsidies for a full year, the total monthly income is more than $200.

This is much less than that of our domestic workers.

03

Trade access is convenient

At present, Kampuchea enjoys preferential treatment of Special and Differential Treatment under FTA and WTO. It also enjoys GSP treatment from 28 countries such as the United States, Europe and Japan. For example, 4800 products exported to Kampuchea can enjoy low tariff or zero tariff treatment.

The export of finished products from the Kampuchea factory to the European Union can be exempt from customs duties, and the tariff of our exports to the European Union is 12%.

In addition, Kampuchea is located in the most central position of ten ASEAN countries. Trade in products is convenient and convenient, and ASEAN countries enjoy mutual exemption from customs duties.

04

Kampuchea government encourages

Foreign businessmen come to invest in factories.

The government of Kampuchea has adopted a large number of incentives to attract foreign direct investment or introduce new technologies to increase productivity.

Kampuchea allows foreign investors to set up wholly owned enterprises without any restrictions on profits or capital remittance.

At present, the tax rate of for-profit income tax in Kampuchea is 20%, and foreign investment has at least 3 years' tax exemption period. According to different industries, for example, agriculture and industry enjoy 5 years' tax exemption, tourism enjoys 4 years' tax exemption, infrastructure and large agricultural investment will enjoy 6 years' tax exemption period.

The tax exemption period will be calculated only after the first profit or operation of the enterprise for 3 years, so in fact, the corporate income tax exemption period is 6 to 9 years.

Over the past 20 years, China has been the largest foreign investor in Kampuchea, and 80% of Kampuchea's large public facilities are built by China. About 70% of the large enterprises are Chinese funded, so Kampuchea people generally have a favorable impression on Chinese people.

Unignorable unknown challenges

Apart from the above advantages, there are also many challenges that can not be ignored in Kampuchea.

01

Trade export advantage is in crisis.

In February 12th, the European Commission announced that it was officially starting to withdraw the "all tax exemption" (EBA) process in addition to weapons (Kampuchea), with the "democracy, human rights and the rule of law in Kampuchea without obvious improvement".

The treatment is the treatment given by the EU to the less developed countries including Kampuchea.

In accordance with the relevant EU rules, the EU will initiate close observation and communication with Kampuchea for 6 months after the cancellation procedure is officially launched, and then use the 6 months to form relevant reports and make a final decision.

If the final decision is to be revoked, there will be a buffer period of 6 months.

Kampuchea is the sixth largest source of textile and clothing exports in the European Union.

According to the Kampuchea textile and Apparel Association, if the EU cancels the EBA treatment for Kampuchea, the tax rate of Kampuchea's textile and clothing exports to the EU will increase by 12%, and the tariff of the footwear industry will increase by 8% to 17%.

02

Workers strike frequently.

The news of Kampuchea workers' strike is quite common.

In December 2018, more than 1000 workers went on strike at a factory in langang District, Phnom Penh, in order to seek subsidies from Chinese employers or not to work.

In January 2019, more than 2000 workers in a garment factory in Phnom Penh district were on strike.

It is reported that the boss of the factory was originally an American, and later the factory was taken over by a Chinese. But before leaving, the American boss did not settle the workers' allowance according to the requirements of the Ministry of labour.

So they went on strike together, asking the new boss to settle the allowance.

Speaking of workers' demonstrations, it can not help reminiscent of the bloody demonstrations on the Yongsheng road in Phnom Penh in early 2014. Before the incident, demonstrations continued for some time, and factories in all parts of the country went on strike. Only a Canadian Industrial Park basically lost $15000 a day.

Not only that, the factory is unable to deliver the goods to the subscribers within the expected period, but also has to compensate the subscribers for the loss.

03

Invisible costs of enterprises

According to the analysis of the industry, the productivity of Kampuchea garment factories is only about 60% of that of Chinese factories, so the production of the same quantity of products will inevitably cost more time and labor costs.

And similar to Vietnam's problems, Kampuchea also has no good supporting facilities. The surface accessories are basically imported, and the country can only do incoming processing. In addition, Kampuchea's legal system is not sound enough, and the rule of man is very strong. These factors will bring a lot of invisible costs to enterprises.

The advantages and disadvantages of investing in factories in Kampuchea are mostly similar to those in other Southeast Asian countries. Compared with the rising labor costs in the Southeast Asian countries, the cost of labor in Southeast Asian countries is even lower. Apart from the labor cost advantage, the production cost of Southeast Asia is low. Taking Vietnam as an example, the water fee in China is 3.5 yuan / ton, while in Vietnam it is 2.4 yuan / ton, and the cost is reduced by 31%.

The electricity charge in China is 0.65 yuan / degree, while in Vietnam it is 0.39 yuan / degree, and the cost is reduced by 40%.

And the business environment of Southeast Asian countries is also improving. Many Southeast Asian governments are actively opening up to the outside world, attracting foreign investment vigorously, and giving preferential tax incentives.

But as mentioned above, in Southeast Asian countries, it is also hard to avoid such disadvantages as low productivity and incomplete industrial chain, which makes it impossible for textile owners to accept that the frequency of workers striking in Southeast Asia and Kampuchea and other Southeast Asian countries is quite high. Compared to domestic textile workers, the textile workers in Southeast Asia are not only inefficient, but also have a "personality". They are not satisfied with the strike and fainting, which brings a lot of trouble to the textile boss in the factory.

At present, the development of China's textile industry is facing greater uncertainty, with the rise of textile industry in the central and western regions, the blowout of capacity and the competition for the "cake" with the coastal textile industry, resulting in the saturation of the domestic market and the increasingly inflexible market competition. At the same time, the problem of the future development of textile enterprises will be bramble with the problems of increasing labor costs and recruitment difficulties.

There is also the impact of unknown challenges from foreign investment factories, as well as the uncertainties of Sino US trade friction and the impact of rising international raw materials.

In particular, the coastal textile enterprises are facing both internal and external pressures. When they come to change their own development, it is imperative to focus on intelligent products, product innovation and R & D differentiation.

To sum up, the future development of domestic textile enterprises will face greater challenges. If we want to grow and expand in the market environment, we must put our requirements on the top.

In addition, it is worth mentioning that investing in factories in Southeast Asian countries has both advantages and disadvantages. The textile bosses who want to build factories in Southeast Asia need to further investigate their own specific situations and consider the pros and cons of each side, so as to make a sound judgement.