China has confirmed it will not change the way it distributes EU and US quotas despite concerns that 20 per cent will be unused in 2006. Many companies have complained that their quotas are too small to meet client demand while many smaller producers are priced out of bidding. The latest round of auctions have seen prices increase as interest from the EU and US grows.
The Chinese Ministry of Commerce (Mofcom) has confirmed it will not change the way it distributes EU and US quotas despite concerns that 20 per cent will be unused in 2006.
This issue was recently discussed in a forum with representatives of 20 major clothing and textile export companies.
The current system sees Beijing distribute 70 per cent of the total annual EU and US quotas to those enterprises with a sound export history.
The remaining 30 per cent has been divided up into two rounds of bidding - in December last year and April.
Unused quotas
The main concern expressed by both the government and businesses is the amount of quotas that are being wasted.
Beijing has predicted that around 20 per cent of the quotas for 2006 will go unused and there have been rumours that the system may be revised as a result.
Mofcom confirmed to press in China that there will not be a change to the current quota allocation/auction system.
One of the problems with the current system is that it provides some companies with inadequate amounts of quota while smaller firms cannot afford to compete in the bidding process.
65 per cent of the 5,718 companies with successful bids only received small amounts of quota which are not enough to satisfy orders from Europe or the USA.
Such cases have become common and quotas have simply gone unused as potential clients place their orders elsewhere.
For example, a company with quotas for 1,000 units will not be able to satisfy an American importer who needs 3,000 units.
Another concern for the Chinese government is the apparent increase in prices by those companies that receive automatic quota allocation.
Such companies have been raising their unit prices by incorporating the cost of the quota although these are distributed free for these companies.
Quota prices and client interest increase
Intense competition has been caused by the quota distribution system although only a quarter of the 34,000 export-orientated companies have participated.
Of these, around 8,000 businesses took part in the first round in December and 7,000 in April.
5,107 companies were eventually selected for quota allocation with many smaller companies being eliminated.
There has reportedly been a doubling of quota bid prices, for example socks (US categories 332/432/632) have nearly doubled from 4.95 yuan per dozen in December to 8.6 yuan in April's auction.
While quota use remains low in China, there has been an increase in interest from potential EU and US clients at the 99th Guangzhou Export Commodities Fair.
With unit values increasing, companies are now focusing on improving the quality of their products to compete as they can no longer rely on having a price advantage over rivals.
