Producers left in limbo by disputes
By Bao Daozu (China Daily)
Updated: 2005-06-01 08:37

SHANGHAI: Textile producers expressed cautious optimism at the government's elimination of export tariffs but are still anxious over the effects of trade restrictions.

Although pleased with the governments actions, Barry Zheng, manager at Ningbo Veken Elite Zhedong Knitting, felt clothes exporters were in limbo.

"I think China's government made the right ruling this time. I am happy but not ecstatic because, at the moment, I still cannot get any orders from the US."

Zheng said that while exporters could incorporate tariffs into their business, there was no way around quotas imposed by the United States and Europe.

"Our business growth will be very much restricted over the next three months because of the quotas," he added.

The United States and Europe Union imposed a 7.5 per cent growth cap on Chinese textile exports ranging from trousers, shirts, underwear, T-shirts and yarns before consultation between the sides had reached any formal conclusion.

The US Commerce Secretary Carlos Gutierrez will arrive in Beijing on Thursday for talks on the matter.

The Chinese Government, responding to pressure from international markets, had planned to impose higher export tariffs on 74 different textile products from June 1. The country began enforcing export tariffs on 148 classes of textiles from January this year, the day global textile quotas were removed.

On Monday, however, China decided to scrap export tariffs on 81 categories of textile products from June 1, at the same time revoking its May 20 decision to increase tariffs on 74 categories of textiles .

The reason for the U-turn is the lack of response from the US and EU camps.

"The tax elimination is good and will ease companies' financial burden but we should not celebrate too soon ," said Xu Xinghua, general manager of the Shaoxing Tiansheng Textile Group. "The situation is really unpredictable, there have been two dramatic changes in export tax in just 10 days."

Confused about the future of trade restrictions, Xu said big and medium-sized companies have decided to move up the value chain to safeguard their businesses.

"We all want to say goodbye to low-end, quantity-based production," said Xu. "I believe the industry will go through a period of transition until 2008 when the special safeguard article in China's WTO agreement expires."

The company is working to increase domestic sales to offset damage to its export business. The textile group's exports decreased from US$76 million in 2003 to US$50 million last year.

"Canceling the (tariff) is only one part of it. Europe and America still have quotas," said William Huang, Foreign Trade Manager at Hangzhou Zhenya Textiles.

While the cancellation of the tariff is good news, overseas markets "can set up other quotas to control our exports," he said.

Ultimately, he said, the quick rise and fall of the tariffs is unlikely to have any long term effect. "These details do not control our business," he said.

Textile shares sin companies such as Lutai Textile Co Ltd, China Garments Co Ltd and Youngor Group Co Ltd stopped rebounding yesterday after the government announced the elimination of tariffs.

"The rebound is just a short-term sentiment. It is unavoidable China's textile industry will suffer as trade disputes intensify, we are not optimistic about their profits," said Huang Minhong, an analyst from JML Investment Consulting Co.

The State-owned Assets Supervision and Administration Commission (SASAC) said yesterday that the combined profits of China's 37 major state-owned textile companies dropped 37.4 per cent to 370 million yuan (US$44.7 million) in the first four months of the year due to rising production costs.

Falls in profit came despite 11.8 per cent year-on-year growth in exports to 3.39 billion yuan (US$410 million)in the first four months of the year. Growth is slower than the 20.5 per cent increase recorded in the first quarter.