China May Slash Export Tax Rebate on Textiles

There were market rumors that the related authorities will reduce the export tax rebate for textiles from 16 percent to 11 percent, effective June or July, reports nbd.com, without citing a source.

According to the secretary general of the China Chemical Fiber Association, the association has not received notification of the export tax rebate reduction from the authorities.

The secretary general, with the surname of Zheng, said if the export tax rebate is cut, it will have a negative impact on small and medium-sized textile companies.

It was reported that exports accounted for more than 30 percent of the revenues of Zhejiang Mizuda Printing and Dyeing Group (002034), Shandong Jining Ruyi Woolen Textile (002193), Zhejiang Golden Eagle (600232) and China Garments (000902).

Wang Qianjin, chief editor of Webtextiles.com, said the adjustment could be made in July, though probably not by five percentage points.

Many of the small and medium-sized textile producers have gross profit margins of between one and two percent. Should the export tax rebate be reduced to 11 percent, many of these companies will suffer losses and have to shut down, said Wang.

Large enterprises with exports accounting for more than 40 percent of revenues may also be affected by the rumored policy change, added Wang.

Both Luthai Textile (000726) and Sumvim Group (002083) said the reduction in the export tax rebate could negatively impact their operating performances.

Luthai Textile earned 23.12 percent of its revenue from the domestic market in 2010, with the European, American, Japanese and Korean markets accounting for 51 percent of total revenue.

Exports accounted for 62 percent of Sumvim Group's total revenue, about one-fold more than the revenue recorded from the domestic market.

According to the report, China once lowered the export tax rebate from 13 percent to 11 percent in July 2007, before raising it to 16 percent within a six-month period from August 2008.