The introduction of an environmental protection tax in China just over a year ago has pushed up the price of textiles produced in the country – thereby increasing costs for Chinese clothing manufacturers, experts have told just-style.
However, concerns that the new technological investments needed to reduce manufacturers’ liability under the law would cause widespread closures of units have not come to pass.
The new tax, introduced in January 2018, is based on the actual amount of discharge of pollutants into water, air, as solids, and as noise. The old system simply applied the same fee on all factories regardless their actual discharge. So, the new system provides an incentive to cut pollution.
A senior environmental researcher who requested anonymity said that factories must change their calculation processes for the new tax, as its charges are collated into the four recognised categories of pollutants, including those in air, water, soil and sound.
This, said the expert, has generated “some confusion and problems arising from the implementation of the new law.” The tax is collected and retained at the local level and replaced a pollutant discharge fee some whose proceeds went to the central government.
The textile and clothing sector is particularly exposed, since according to China’s ministry of environmental protection it is traditionally the third-largest source of industrial wastewater in the country.
“In the past year, smaller textile enterprises have found it challenging to find the capital required to upgrade their equipment to that demanded under the new requirements, and have either closed or are facing financial challenges,” said Kerstin Brolsma, a business analyst with China Market Research Group (CMR), in Shanghai.
Largely, however, increased costs associated with this investment have been the problem, as demand for Chinese textiles have remained strong.
“If demand remains at current levels, textile prices may rise for a period in response to reduced overall textile industry production quantities,” she added.
According to the textile industry source, the fact that China-based textile suppliers had to pay discharge fees under the previous system, the increase in costs and pressures has not been so large that many “will have to close down”.
Sofya Bakhta, a marketing strategy analyst with Daxue Consulting, also based in Shanghai, noted that one additional cost has been manufacturers creating and checking chemical inventories so they can demonstrate to buyers that they have been using substances that comply with a restricted substances list developed by the ZDHC Roadmap to Zero Programme.
Also, China-based finishers have been investing in more expensive digital printing to colour fabrics and sometimes packaging, which reduces the amount of water used compared to using traditional dyeing processes. But while this reducing their tax exposure, it also increasing financing costs, she added.
Dye suppliers have been helping, however. “Companies like Huntsman have been supplying lines of dyes that easily bond to cotton and thus reduce dyeing wastewater, which helps Chinese textile companies avoid being shut down,” Bakhta said.
The cost increases are unlikely to cause China’s government to ease its environmental taxation, as its top leadership has made pollution control one of the “three tough battles” that China must win to build a well-off and sustainable economy and society by 2020.
And this stance means that environmental law enforcement from central government inspectors will remain constant.
Stricter monitoring of textile factories is partly driven by a Water Pollution Prevention and Control Law, which was implemented concurrently with the Environmental Protection Tax and entails, among other measures, that officials will lose promotion opportunities if they are found to be lax in their enforcement of these controls.