HomeBusiness DigestTETRAD - Chinese imports hamper Number 1 Stores

TETRAD – Chinese imports hamper Number 1 Stores

By Admire Mavolwane

THE growing dominance of Chinese exports has become an issue of major concern to investment analysts and economists all over the world.

, Helvetica, sans-serif”>China last year recorded a GDP growth rate of an average 9%, quarterly year on year, making it the fastest growing economy. Although it has slowed down to an average growth of 6%, this is still high when compared to the rest of the world. China is one of the few countries with a positive balance of payments and enjoys a trade surplus with a number of countries including the United States.

The comparative advantage the country has is a large pool of hard-working cheap labour, no World Trade Organisation restrictions because the country is not yet a member, and an undervalued currency that has been kept “deliberately” so in order to enhance export competitiveness.

One positive impact that rapid Chinese economic growth has had is the surge in industrial metals prices.

On the debit side, however, has been the number of job losses that have been incurred in countries like South Africa and the US although the Congress denies it, as a result of Chinese imports that have flooded these countries. The undervaluation of the yuan is a double-edged sword as it both encourages exports and makes imports into China uncompetitive. Unofficial estimates from South Africa indicate that cheap Chinese imported clothing now accounts for over 56% of the domestic market sales.

According to the South African Clothing and Textile Workers Union, textile imports in 2003 alone rose by 73% and 20 000 jobs were lost!

Zimbabwe has in the past couple of months also been inundated by these cheaper Chinese imports which are selling at give-away prices when compared with locally manufactured apparel. Calls for the government to intervene and protect the industry by way of charging restrictive import duties, have in the past gone largely unheeded.

The influx of imports into South Africa started in 2001 and only now are the authorities considering the imposition of tariffs, which may be a little too late. We hope our government has learnt a lesson from our neighbour as to the effect of procrastinating on such matters.

Whilst accurate and current statistics are not available (a real weakness in this country as a whole) regarding the number of jobs lost in this sector, there is no doubt that some sort of downsizing has been implemented in the industry. Conclusions on the impact of the cheap imported merchandise can however be drawn from the year-end results to June of Truworths, which we shall review this week.

Net turnover for Truworths increased by 643% to $82 billion, as Truworths Ladies and Topics traded strongly throughout the year, whilst Truworths Man was hampered by the inability to restock due to unavailability of foreign currency to fund imports.

Number 1, the cash chain targeted at the lower end of the market, was the one directly affected by cheaper imports and as such had a difficult second half as volumes declined by approximately 30% year on year and turnover grew by only 385%. At group level, however, unit sales dropped by about 4% compared with the 2002/2003 financial year.

Operating profit growth of a commendable 729%, to $33,7 billion, was achieved on the back of an improvement in margins from 37% to 41%, courtesy of a changed mix in favour of higher margin sales from Topics and Truworths.

Net finance income of $498 million was recorded, up 211% on the 2003 figure of $161 million. The group charges interest only on arrear debtors, and thus the inflow could be attributed not so much to the deterioration of the debtors book, as on average over 75% of debtors are in current as to the fact that the group was cash positive and not geared during the year.

Attributable earnings growth at 703% to $23,5 billion was well ahead of the year on year inflation figure for June of 395%, ensuring yet another real return for shareholders.

Going forward, the two clothing retailers expect the government to move in and protect their industry ahead of the festive season.

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