China Textile Exporters Call for Slower Yuan Gains, Tax Rebates

By Judy Chen

July 17 (Bloomberg) -- China's textile companies said the government should slow yuan gains and raise tax rebates to assist exporters in weathering a decline in global demand.

The currency has risen 7 percent against the dollar this year, more than double the pace of appreciation in the same period of 2007, and that coupled with higher costs is hurting earnings, Du Yuzhou, President of China Chamber of Commerce for Import and Export of Textiles, said at an industry conference in Shanghai. Most textile companies were unprofitable in the first five months of the year, he added.

``We'll all be dead if the government doesn't increase tax rebates and slow the appreciation,'' said Tang Zhenya, a salesman at Changshu Shengtian Knitting & Clothing Co. Ltd. He estimates up to 30 percent of the more than 10,000 textile manufacturers in the eastern Chinese city of Changshu have shut down this year.

The yuan today dropped the most in seven weeks on speculation China's leaders will slow its advance to protect exporters after the government reported the weakest economic growth since 2005. The Ministry of Commerce has urged China's cabinet to rein in currency gains and boost the amount of tax returned to companies selling abroad, a ministry official said July 14, speaking on condition of anonymity.

The currency retreated 0.2 percent from yesterday's record close to 6.8271 per dollar at 1:40 p.m. in Shanghai.

Higher Rebates

``Not every company is able to overcome the difficulties,'' Du said July 15 at the China Textile Industry's Top 500 conference in Shanghai. ``Two-thirds of companies have improved labor efficiency, but are still unable to offset the negative impact of higher costs and a stronger currency.''

There are signs the government will help companies such as Changshu Shengtian, which has about 1,000 employees and is typical of the Chinese manufacturers that U.S. and European lawmakers have said relied on an undervalued currency to compete. Changshu Shengtian sells T-shirts to retailers including Wal- Mart Stores Inc. for typically $1 to $2 apiece, of which about 5 percent is profit, Tang said.

Rebates for textile shipments will be increased to 13 percent from 11 percent this month, and those for clothing to 15 percent from 11 percent, the official China Securities Journal reported last week. The payments were cut in July last year to help ease trade frictions with the U.S. and Europe.

`Chilly Winter'

China's export growth cooled to 18 percent in June, from 28 percent the previous month, amid faltering global demand. The trade surplus shrank 21 percent from a year earlier to $21.4 billion, narrowing for a third straight month.

In addition to cooling demand, manufacturers are having to contend with higher costs. Wages have jumped 30 percent and raw- material prices risen 10 percent this year, according to Zhao Qi, a manager at Risetimes Trading GmbH, who has more than 20 years experience in the clothing trade in Asia and Europe.

``It's a chilly winter for the whole industry, and next year will be even worse,'' said Zhao.

To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net.