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Central Bank Considers New Policies to Aid Textile Industry

After raising the rate of VAT rebate on the export of textiles and garments recently, the Chinese government is considering taking credit, fiscal and taxation policies and measures to aid small and medium-sized enterprises (SMEs) and encourage proprietary innovation. This was disclosed by Zhu Hongren, director of the Operations Monitoring and Coordination Bureau of the Ministry of Industry and Information Technology.

The textile industry is currently facing pressure in three respects, namely, currency appreciation, rising labour cost and shortage of funds at a time of economic downturn and rising cost. The first two factors are hard to change because they are the general trend, but the shortage of funds may be eased with support from the government.

China's central bank has recently decided to conditionally increase the annual loan quota to Rmb230 billion to support SMEs with funding difficulties. Specifically, the increase is 5% for the four major state-owned commercial banks and joint-stock banks, to be used for special loans such as SME loans, and 10% for urban commercial banks and other local financial institutions, mainly for SME loans. However, the industry is not optimistic.

Zhao Meiling is a textile industry analyst with Essence Securities. In her view, although the majority of businesses in the textile sector are SMEs and the loan quota raise has conditions attached, funds that truly end up in the hands of cash-short SMEs will probably be quite small. After all, banks have the final say on such matters because they are the ones who bear credit risks.