Starting from July 1, China will cut or eliminate export tax rebates for more than 2,800 export items. This is the boldest move yet to rein in exports since China joined the World Trade Organization in 2001.

 

According to the Ministry of Finance, the targeted items account for 37 percent of all exported products. The textiles industry is one of the most affected areas.

 

The tax rebates of textile export goods will be deducted by 2 percent.

 

Currently the average profit margin in the textiles and clothing industry is no more than 5 percent. Such a disincentive will result in benefits of the textile industry shrinking by 10 to 20 percent.

 

Many clothes business traders say they've sensed the pressure brought along with the measure.

 

Huang Xinhua is deputy manager of a textile company in eastern China's Zhejiang Province.

 

"As we could not get the cargo delivered by the end of June, we will have to accept the reduced tax rebates. So basically for this round of deals our net profit is very small."

 

The textiles industry is described by the Ministry of Commerce as "easy to trigger trade frictions".

 

As the major creator of China's huge trade surplus, it comprised more than 70 per cent of China's total trade surplus last year.

 

Professor Xu Fu with the International Economy department of the Tianjin-based Nankai University, says China's exporters should use this opportunity to restructure the industry, and actively change their ways of making profits.

 

"Small textile clothes manufacturers should improve the quality of their products and their service, in order to offset the loss in tax rebates. They should also develop a series of brand name products to increase their competitiveness."

 

(CRI July 1, 2007)