Apparel Sourcing Intelligence - Worldwide

How permanent are China’s export rebates?

It took China an extraordinarily long time to agree to increase tax rebates on clothing and textile exports.

The reason seems to be a serious argument from China’s Ministry of Commerce that the slowdown in the country’s apparel exports to the US really isn’t such a bad thing. The boom in China’s economy over the past few years means there just aren’t those hundreds of millions of unemployed Chinese keen to work for nothing we used to hear about, and – from the high-minded perspective of the strategy mandarins – textiles are a business China ought to be getting more or less out of sooner or later. And – as hoity-toity State planners always love to say – the textile and apparel industry really needs to consolidate into fewer, bigger businesses. The fact that Communist state planners have been pushing for bigger textile companies for decades and half the world – from most of Africa, through Egypt to Russia – is covered in big Communist-planned textile factories put out of business by China’s nimbler entrepreneurs is irrelevant. Planners always know best, whatever the evidence says

That’s not quite how the country’s Ministry of Industry sees it: Industry is a lot closer to the reality of complaining businesses, export-oriented companies teetering towards bankruptcy and processions of factory owners complaining they just can’t get price increases from their customers that come anywhere near their cost increases. So Industry has won a battle, and export rebates have gone up

But Commerce is better at speechifying, and knows it’ll win the war sooner or later. “It could
be a temporary measure, as the government will continue to push forward
the upgrade of its industries.”
Mei Xinyu, one of its men.

This raises two interesting points. First, China has just the same squabbles between businesses, government and different interest groups as Europe or America. One of the reasons its economy works now and didn’t under Mao is that governments listen to those arguments before making decisions – which is also why decisions in China can take so long. It’s no easier to forecast Chinese government behaviour than any other accountable government’s.

Second is the crucial importance of China’s one-child policy. Forecasters disagree about the details of all this, but if you’ve got an economy growing at 8% a year while your population is close to declining you really are going to run out of workers sooner or later. And some workers – like nimble young women near the coast – are probably going to be hard to find a lot sooner rather than later.

Now the last thing China wants to see is a real decline right now in the number of people earning a reasonable living (and therefore not tempted to go rioting) in clothes factories. Those export rebates are unlikely to disappear in the next few months. But Commerce is going to gain the upper hand: it’s unlikely we’ll see any more state subsidies to exporters – and don’t expect the rebates to be with us forever.

As we’re forever saying, China is going to up its productivity. It really will get more competitive – but we still argue that buyers should keep a pretty good repertoire of non-Chinese suppliers in their system