The government is considering cutting export tax rebates in a bid to protect natural resources and help upgrade domestic industries.

The reduction is aimed at controlling the export of products that consume a lot of resources and energy, and lead to high levels of pollution.

The suggestion came from an official with the State Administration of Taxation, who was quoted by the Shanghai Morning Post.

He declined to disclose details, but the average cut is estimated to be about 2 percentage points.

The industries covered are expected to include textiles, steel and light industrial products.

The State Administration of Taxation, the Finance Ministry, the National Development and Reform Commission and the Ministry of Commerce are involved in on-going discussions over this issue.

After the adjustment, export tax rebate rates for other products, such as high-tech goods, are expected to increase.

Although details have not yet been clarified, some insiders say the process could start as early as this month.

Government agencies have considered reducing rebates for some time, said Li Yushi, a trade researcher with Chinese Academy of International Trade and Economic Cooperation, a think-tank under the Ministry of Commerce.

"Lower tax rebates would spur domestic exporters to increase the value of their products and upgrading technologies to remain competitive," he said.

He added that, theoretically, the cuts would also reduce the total volume of China's exports or slow down their growth rate.

The increasing growth in exports is considered the root of China's trade imbalances with major trade partners.

"Its impact will vary from industry to industry," Li said.

Some textile exporters have begun to complain that the possible cuts would further squeeze their profits.

Experts predict the move will hurt certain textile exporters, in particular those that focus on low value-added products.

"The average gross profit rate in the sector is a mere 3 to 4 per cent.

"The new move might force some factories to shut down, but it will also force most of them to improve," said an insider in the textile industry who declined to give his name.

China has long granted rebates on value-added tax for some exports.

For copper, zinc and tin, exporters can claim 5 percent of the export price as a rebate, down from 13 percent two years ago.

Export tax rebates for other items, such as salt, silicon and molybdenum ore, have been scrapped.

(China Daily June 8, 2006)