Threats of Chinese Products to Domestic Textile Industry

Penulis: Sorta Tobing

Editor: Sorta Tobing

21/8/2019, 20.04 WIB

The trade war makes the domestic textile market flooded with Chinese products. Solo-based company Duniatex is also affected.

Suasana di Pabrik Duniatex
Dok. Duniatex
Several workers oversee fabric production in one of the factories belonging to Duniatex Group. Default risk overshadows the company due to the US-China trade war has an impact on margin reduction.

Alip ensured that the Delta Merlin’s first bond coupon would be paid this September. “A US$ 12.9 million fund is already available in the interest reserve account, and payment will take place according to the specified date,” he said.

To overcome its internal problems, Delta Dunia has taken several efficiency measures, such as reducing production capacity and overtime for workers. Alip believed Delta Dunia conditions do not correlate with Delta Merlin’s bond.

However, Fitch stated that Delta Dunia’s default status would complicate Delta Merlin's efforts to find new loans to cover its debts. If the company has other liabilities outside its dollar bond worth more than US$ 10 million, then that could trigger a default clause on its debt securities.

tekstil
The domestic textile industry flooded with Chinese products due to the trade war. (Katadata | Arief Kamaludin)

Textile Exports to the US

The government saw potential amid the trade war escalation. Trade Minister Enggartiasto Lukita targets textile exports to the US to increase by 20 percent this year. “So, we see a chance by taking market share from China,” he said last week at the Parliament Building in Jakarta.

Based on the Statistics Indonesia (BPS) data, the garment is one of the leading products of Indonesia's non-oil and gas exports. In the following Databoks chart, the US is the largest destination country for convection exports, followed by Japan and Germany.

PT Sri Rejeki Isman Tbk (Sritex) also saw the potential. “The trade war is an opportunity for Indonesia, especially in the garment,” Sritex Deputy Director Iwan Kurniawan Lukminto told Katadata.co.id.

The company, which started its business in Klewer Market in Solo, Central Java, noted a 3.2 fold increase in sales to the US and Latin America in the first half of 2019. The value reached 13.6 percent of total exports, which reached US$ 51.35 million from US$ 15.98 million in the previous year.

Textile and garment products grew the highest in the second quarter of this year. The company, which supplies clothes for well-known brands such as Uniqlo and Zara, also noted that yarn sales were the most dominant with a contribution of 40.1 percent to total sales in the last semester.

Iwan said Indonesia has immense potential in terms of its manufacturing capacity. To compete with other countries, however, it is necessary for the state to play a role in increasing export competitiveness. “Policy-wise, there are some that can be integrated among ministries so that it can pave the way for entrepreneurs in the field of textiles and textile products [TPT],” he said.

The Indonesian Textile Association (API) Chairman Ade Sudrajat has seen signs of the trade war impact on Indonesia’s textile industry since last year. “Once the war broke out, Chinese products flooded immediately,” he said.

In this era of protectionism, he said the government must protect the domestic market from the invasion of foreign products. Moreover, the Chinese currency is also weakening, which will make its products cheaper and easily accessible to the market.

The protection can be in the form of tariff imposition. Ade proposed a 2.5 percent tariff coupled up with import duty for the upstream industry. Meanwhile, the downstream sector can be subject to a tariff of up to 18 percent.

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