Li Jianhua, CEO of the Wensli Group, returned from a trip to the US during Chinese New Year. He worked non-stopped and had no time for the winter scenery as he travelled from city to city exchanging information with clients. The findings were anything but optimistic: market demand shrank substantially and there were "buy American" calls.
Under the new national plan unveiled by the State Council for revitalising the textile industry, the VAT rebate rate on textile exports is to be raised from 14% to 15%.
This should reduce the burden on enterprises which have a solid foundation but are having temporary operational and financial difficulties, said Li.
"Generally speaking, a one percentage point increase in the rebate rate could increase the profits of foreign trade enterprises by as much as a one percentage point," said Li Jianhua.
This is the third VAT rebate raise for textile exports since last year. Wensli mainly produces export garments to the United States and Europe and its export volume last year amounted to US$60 million. The series of adjustments last year brought the company savings of at least Rmb3 million in VAT rebates.
Zhejiang textile enterprises' "keep fit" strategy
According to figures published by the China National Textile and Apparel Council, the total profits of textile enterprises above a designated scale in the whole country amounted to Rmb104.2 billion between January and November last year, representing a negative growth of 1.77%.
Losses suffered by the sector increased from 16.9% to 20.4%. The economic situation remains grim in 2009 and many enterprises are working hard to brace themselves for the onslaught of the financial crisis, striving to "move up against the current".
Yaxing Fibre is a chemical fibre manufacturer in Pujiang, Zhejiang. Finding its sales growth plummeting under the dual impact of falling oil price and decline in garment exports, it lost no time in taking measures to improve performance.
Among these, Yaxing installed electric meters on all drawing machines for a more rational production. It reduced production when orders were low and tried to boost sales by offering lower prices and better controlling the quality of goods.
Yaxing managed to cut operating costs by Rmb1,500 per day by switching off its central air conditioning in winter. Senior and middle management worked in cold offices wearing heavy winter clothing. The company also insisted on not cutting workers' salaries in spite of the production cut and made use of idle hours to provide job training to improve workers' skill sets.
"Difficult times are the best times to recruit good staff," said an executive of Red Sun Wool Textile Co Ltd. The company didn't cancel the staff's regular wage adjustment levels despite falling profits and raised the pay scale of all staff and workers as planned last September.
Among them, first-line workers at Red Sun received a pay rise of 15% on average, the highest in years. This move not only kept existing workers but also attracted senior technicians from other companies.
Zhejiang First Dress MFG Co Ltd has a large number of sales agents in the UK. Its senior management visited the UK with Premier Wen Jiabao recently. "We hope to find and buy British brands that are in trouble and will seek co-operation with them at a deeper level under the current economic crisis. Now is the best time to act," said a company executive.
Zhejiang seeks new ways to achieve breakthrough
Many companies feel that the textile enterprises revitalisation plan has given them a sense of direction. They are now actively taking measures to co-ordinate international and domestic market operations.
One of the directions is to expand domestic consumption. Ningbo Yongnan Knit Co Ltd used to export 95% of its products, but now its products are beginning to appear on the shelves of supermarkets like Trust-Mart under the company brand. "Domestic sales are more stable," said Lin Ying, the company's boss. His next step is to open up the rural market.
Wensli began to turn its attention to the domestic market two years ago. These sales now account for between 30% and 40% of its total sales. The move not only helped the company steer clear of the dwindling export market but also enabled it to find new growth. Domestic sales jumped 150%, while exports increased just 10% last year.
Another direction companies are taking is to diversify the export market and stabilise market share.
The Shindai Group actually decided to divert its investment to Southeast Asia long ago.
The Yuemei Group and six other upstream and downstream textile enterprises established a textile development zone in Nigeria. There, they have a complete industrial chain extending from spinning and weaving to knitting and garment-making, with different links supporting one another.
