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TETRAD - Chinese imports hamper Number 1 Stores by fdh56iuoui


									TETRAD - Chinese imports hamper Number 1 Stores
Friday, 14 July 2006 02:00

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.

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

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.

TETRAD - Chinese imports hamper Number 1 Stores
Friday, 14 July 2006 02:00

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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