Xinjiang’s Textile Park: A new challenge?

By 2023, Chinese province Xinjiang is about to become not only China’s largest cotton textile and apparel market but also that of Central Asia and Europe, just over four years from now. The Chinese government is investing heavily and providing vast subsidies to industries in the province of Xinjiang located right next to Pakistan. According to the ten-year plan designed to industrialize poverty struck Xinjiang, by 2023, China will build its largest cotton textile production and garment export processing base there.

In order to achieve the above-mentioned objectives, China’s Xinjiang Uygur Autonomous Region has announced the following incentives for Industry especially textiles:

• Rent-free factories in industrial parks and Xinjiang’s less-developed southern area of Hotan, Aksu, Kashgar and Kizilsu Kirgiz prefectures.

• Interest-free loan deals to boost the local textile industry

• Creation of 110,000 jobs.

• Fund for textile and garment companies to help them increase exports.

• Cheap electricity at US 6 cents per Kwh.

• Transportation subsidies.

• Maximum tax rate of 15%.

The main driver of these initiatives is to build a complete cotton supply chain which is heavily subsidized. Some estimates indicate when all subsidies are added in total, the cost of cotton production is reduced to almost zero.

As a result of these incentives and subsidies provided by the Chinese government, by the end of current year 2018, it is estimated that there will be more than 15 million spindles dedicated to cotton in Xinjiang producing 9 million bales which is greater than production of Vietnam or Bangladesh. As of 2017, the number of textile companies registered in Xinjiang was more than 2,700. These companies have provided jobs to more than 350,000 local residents just in a short span of 4 years. The world’s largest textile mill for spinning colored yarn was launched 3 months back in northwest China’s Xinjiang Uygur Autonomous Region.

Further, China has decided to improve its export tax rebate policy to reduce the business burden and bolster foreign trade. They have reduced seven tax brackets to five and have increased rebate rates. On top of that, tax refund procedures will also be simplified, with the year-end goal of shortening the average time needed from 13 workdays to 10.

Pakistan’s struggling textile industry is facing new threats of losing its market share to China, which is heavily investing in textile manufacturing facilities in its province bordering Pakistan. The anticipated glut of textile and garment from the Xinjiang textile park in the export as well as domestic markets of Pakistan poses a serious threat to Pakistan’s textile sector already struggling to remain afloat. Setting up of the textile park at Xinjiang will deal a heavy blow to Pakistani textile exports.

According to a study by Jerigan Global, even today China is the second largest supplier of home textiles with 25.22% market share, 1 out of every 4 cotton towels is from China. The matter of concern that requires our attention is that China’s penetration of the US home textiles market is at the expense of India and Pakistan. Imports of cotton towels into the US from the top suppliers in India are down by 14.19% through July and down 8.47% from Pakistan, the third largest supplier.

China’s Xinjiang Uygur Autonomous Regions multiple incentives for industry especially textiles are in order to take full advantage of China-Pakistan Economic Corridor projects. This takes away the comparative advantage of Pakistan in textiles exports. The role of a well-coordinated Textile Policy cannot be under-estimated under this scenario. Refund and rebate claims of Pakistani exporters remain pending for years with FBR and State Bank squeezing liquidity of textile sector of Pakistan. Furthermore, the dumping of Chinese textile products in Pakistan through CPEC in near future along with fully advanced and modernized textile hub next to Pakistan’s border requires immediate policy steps and incentives similar to that of Chinese for local industry to invest in their production setups.

Pakistan’s home textiles and spinning sector has remained the backbone of our exports but now with huge production setups and investment like these just across the border in the aftermath of more connectivity through CPEC routes necessitates progressive policies and similar production capacity enhancement incentives to our own local spinning sector and textile value chain on the whole.

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