Comments on China's Textile Industry Stimulus Plan

China released further details on the textile industry's stimulus plan. I have included the highlights with comments:

1. Hit both the domestic and export market. For the former, the country must expand consumption in countryside--new stimulus plan is pushing this ahead with economic incentives to rural residents. For the latter, must diversify products and move up the value chain;

2. Textile mills must upgrade their technology and strengthen home grown brands. Again, new stimulus has earmarked funds for upgrading
spinning, weaving, dyeing–printing & finishing equipment;

3. Reduce the burgeoning textile mill capacity in the country. This means new standards will be put in place to eliminate the additional capacity. This is very similar to reducing gin capacity by eliminating the small bale and focusing only on 270 kg bales. Now, railways can not transport small bale and small bale ginners are fading away;

4. Emphasize geography by taking low cost production westward and into inland provinces. This helps keep labor costs down. Encouragement to textile industry via economic incentives to shift basic operations inland is well underway;

5. Strengthen financial and tax support. Govt has done this with increasing VAT rebate to 15%. There is talk it will go higher. I have my doubts on this point b/c savvy retailers/buyers will take that VAT increase and use it to lower prices for themselves.