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China tariff cuts to

hurt textile industry

SHANGHAI: Large tariff cuts implemented by China will hurt the local textile industry, increasing imports and cutting exports of textile materials and speeding up the restructuring of the industry, analysts said on Wednesday.

Under the cuts, implemented from Monday, the average import tariff on textile products fell from 59.3 percent to 32 percent.

"With these sharp cuts, China's textile industry will face more difficulties, especially firms that produce raw materials and primary products," said an official of Shanghai Textile Industry Holding (Group) Inc, which controls all state-owned textile factories in China's biggest city.

About 20 textile companies listed on China's two stock markets in Shanghai and Shenzhen will be hard hit by the reductions, especially those that are already performing poorly, the Shanghai Securities News said on Tuesday.

Industry analysts said the biggest losers would be producers of cotton yarn, which would face increasing imports.

Raw cotton prices in China were 30 percent higher than those in the international market in 1995 and $0.3 per pound higher than the price in Pakistan at the end of 1995, the Economic Daily reported last week.

As a result, in January 1996, the cost of the same item of cotton yarn in China was $525, against $510 in Pakistan, it said.

"Cotton yarn is our main textile export, accounting for nearly one sixth of the total value of China's textile exports," said Yu Sheng, vice director of a Shanghai trade research centre.

"Producers in the cotton textile industry will be severely hurt (by the tariff cuts) and export of cotton yarn will fall in the next few months," he said.

China's textile industry has faced serious difficulties since foreign companies entered the market, particularly in the last two years, Yu said.

"The tariff cuts will make the situation worse. The cuts, especially on textile raw materials, will force more companies to focus on export of processed textile products instead of cotton yarn, which will speed up the restructuring of the industry," Yu added.

Already this year does not look good for the industry.

In the first two months, China's imports of textile materials and products reached $2.09 billion, up 15.6 percent compared with the same period last year, and the import volume is likely to increase from April, especially of raw materials, the Shanghai-based Business News said on Wednesday.

In the same period, China's textile exports were $4.02 billion, down 11.5 percent year-on-year, and its share of total exports fell to 22.5 percent from 25.1 percent, the paper said.

China's textile industry is facing a crisis, with local companies burdened by surplus labour and old machinery.

More state textile mills are likely to merge or shut down in 1996 and some will move to west and central regions of China which produce raw materials, industry officials have said.

"Some textile factories will have to go into other businesses, such as services," said a second official from the Shanghai Textile Holding Co. "We have begun to manage real estate, restaurants and other businesses."-Reuter