CNTEX Report: The Impact of Export Rebate on Chinese Companies
Source: CNTEXTILE Date: 2007-04-29
CNTEX: Since it has become the development trend that the country decreases the rate of export rebate in industries with high energy consumption, severe pollution, high use of resources as well as industries with comparatively low added value，Li Yushi, the vice director of Chinese Academy of International Trade and Economic Cooperation of Ministry of Commerce expressed that though export rebate just belonged to the structural adjustment and the effect was not seen instantly, however, as the nation has enhanced the adjustment, the companies with low added value and low competitiveness will be kept out of the market.
1. Decline in profit
Previously, Zhou Xiaonan the vice manager of Ningbo Dunhuang Import & Export Co., Ltd. came from Ningbo to Guangdong for the China Import and Export Fair hold twice a year by airplane, however this year, he together with other staff members came to attend the 101st China Import and Export Fair by train. Affected by the elements like the appreciation of RMB, the adjustment of tax export rebate and etc. last year, the profit of Ningbo Dunhuang Import & Export Co., Ltd., which is with annual yarn exports of 50 million to 60 million US dollars has been reduced by 5 million yuan and this makes the low-profit company feel more tough for development. “Though it looks some ungraceful to take train to the Fair, however, we have no choice, company has to save cost like this” introduced by Zhou Xiaonan.
Recently, there is a rumor that there will be a further adjustment of export rebate of textile and apparel, the export rebate rate of apparel is said to be decreased from 13% to 11% or 9%, and also the export rebate rate of textile is said to be decreased from 11% to 9%, which makes Zhou Xiaonan feel anxious and cannot help worrying about the living of the company in the future.
Zhou Xiaonan admitted that they were trying their best to comply with the present trend by keeping investing funds for the improvement of production techniques and etc. “I have to emphasize that the textile and apparel industry has helped much of the employment; the hasty adjustment of macropolicy control is easy to lead the unordered competition and mass unemployment in the industry.” Zhou Xiaonan expected that government would show some patience and take a stable action while adjusting the export rebate.
2. Giving up export rebate
Xinhuimeida with the annual output value of over 3 billion yuan is the first manufacturer introducing nylon 6 equipments and techniques in China and at present it is the biggest company exporting nylon 6 series in China. While recalling the last reduction of export rebate, the rate of some textile products is decreased from 13% to 11%, Liang Zhanchao introduced that, “ It means the increase of over 400 RMB to the cost per ton for us.” Liang Zhanchao also heard that the rate of export rebate was predicted to be reduced further to 9%. “That means the increase of over 800 yuan to the cost and it will be so much affected in this way.” said Liang Zhanchao.
The industry Liang ZhanChao is engaged in is with another specialty, which is called “invert customs”. Based on the specialty of customs, the rate of customs will be higher if the products are deeper processed. However, the rate of customs of caprolactam, the main raw material Xinhuimeida, has to import is as high as 9% and the average customs is about 4% in other countries. The rate of customs of nylon 6 is lower than that of raw material. In recent years, the factors such as price soaring of raw material, high customs rate, reduction of export rebate and etc. make Liang Zhanchao suffer much.
“ Do you know the current profit margin of us? Less than 2.5%!” said Liang Zhanchao.
Under the pressure from the multitudinous policies, though Xinhuimeida kept exports of over 60 million US dollars last year, it is mainly engaged in raw materials processing exportation on behalf of the three kinds of foreign-invested enterprises under it for avoiding the high customs and invert customs and gives up export rebate.
3. Striving for survival during the adjustment
“I heard that there will be a further adjustment of r export rebate of textile a few days ago and I feel very anxious about it.” expressed by Kong Chunmei, the financial manager of Beijing Topnew Import & Export Co., Ltd. As a member of textile industry with intense competition, she thought it would be better if there were no adjustment of expor rebate t.
Topnew Import & Export Co., Ltd. is a foreign trade and distribution company formally approved by the nation as well as the subsidiary company of Topnew Group the biggest company being engaged in the manufacture and sales of textiles and apparels in northern regions. Last year, the export of the company is about 68 million US dollars.
Kong Chunmei admitted that the export rebate has much impact to the price of products and for example, the export rebate rate was predicted to be reduced by 2 percent while making quotation in the beginning of the year, however, if it would be reduced further by 9% instead, “it will be much affected by this than by exchange rate, because exchange rate is decreased gradually, but now, two to four percent will be lost all at once, which is definitely a big loss.” said Kong Chunmei.
For survival, Topnew Group established a factory with 2000 staff members in Miyun for making the supply chain shorter to reduce the cost. This year, they brought up another idea of establishing company integrating technology, industry and trade. “I think the adjustment of production structure should be a long term aim and it should be adjusted continuously to comply with the external turn of market.” said Kong Chunmei very frankly, and only in this way can the company survive in the intense competition and complex trade environment.
4. Getting “immunity” for export rebate
“ Every time while adjusting export rebate, actually, the upper stream and the lower stream of industry will act accordingly to keep the profit roughly the same as before, generally someone gives and someone takes.” said a financial director of a company in Shanxi Province.
She thought if the foreign customers were really in need of your products, they would also accept it even there was some price increase; if there was very intense competition in the domestic market, the suppliers would also accept it if you wanted them to reduce the price. The initiative is still with the company.
However, the company also has to have the synoptic and strategic consciousness so it can be less affected by the adjustment of policies and get more “immunity”. Regarding to the adjustment of t export rebate in industries with high energy consumption, severe pollution, high use of resources by the nation, the above mentioned persons said that “We have already seen the trend since a few years ago and began to withdraw or transform the mode gradually, open new products and new channels and increase the technical added value.” All these make up one of the reasons of company’s getting “immunity” to the policies of export rebate today.
