In my post yesterday, I noted that there was noise out of China that the government might ease the tax burden of Chinese exporters who have been crushed by rising wage costs, raw materials, RMB, etc... Based on another set of reports, it looks like that will happen as speculated. I learned some new facts in my research.
What did I already know? That 2,331, or 49% of the footwear factories in the Dongguan province closed over the past year. What I did not know is that there were another 7,500 in other industries that closed as well, making the tally about 16% of total plant count. My estimate is that about 4,000 were apparel. In addition, what spurred the government's action is its estimate that there will be another 10,000 factories close down over the next six months - even with their stimulus.
As noted yesterday, the magnitude of tax relief equates to about $0.45 on a $100 (retail) garment. When I account for the fact that just shy of 40% of our apparel is sourced in China, then we're talking about $0.18 in total benefit - or less than 0.2%. There's no way in my opinion that this comes close to offsetting pricing pressure we're going to see in '09 after another 3-4000 apparel plants close shop. This balance of power pendulum still has plenty room to swing. And it ain't in our favor. 2009 margins are going down.