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Updated: 2007-06-25 11:20

Chinese companies whose export tax rebates will drop or disappear after July 1 are rushing exports out the doors and worrying about future industrial strategy.

"There has been a lot of talk about tax rebate cuts since June, so most manufacturers are operating at full capacity, hoping to export as much as possible before the deadline," said Zhang Wei, assistant to the general manager of Zhejiang Grand Import and Export Co.

Shipment schedules are full right through to July 1, according to a freight agency in East China's Jiangsu Province, and "freight fees are rocketing," the 21st Century Business Herald quoted a staffer as saying.

Starting from July, China will cut or eliminate export tax rebates for 2,800-plus commodities -- more than a third of the total number of items listed on customs tax regulations -- amid efforts to "suppress overheated export growth and ease frictions between China and its trade partners", the Ministry of Finance announced last Tuesday.

The last export-tightening move -- which imposed extra export tariffs and cut import duties as of June 1 -- created an export boom, lifting May's trade surplus by 22.45 billion US dollars, up 73 percent from the corresponding period of last year.

However, this time the policy was announced just ten days before it goes into effect, and manufacturers with full order books have little possibility of further increasing production.

The textile industry, which contributed 71 percent of China's huge surplus last year, will suffer a nearly 10 percent drop in profits due to the tax rebate policy, according to the Oriental Morning Post.

Tax rebates on garments will be cut to 11 percent from 13 percent. Based on 2006 figures, industrial profits will decline 4.6 percent for each one percent fall in tax rebates, said Wang Yu, vice-chairman of the China Chamber of Commerce for Import and Export of Textiles.

"The effect on the steel market will not be so significant," Yangcheng Evening News quoted Xu Xiangchun, chief information officer of the Beijing LangeSteel Information Consultation Co. as saying.

"This tax rebate cut is just a supplement to previous tax cuts and only affects a fairly small range of steel products," Xu said.

"Faced with sagging profit margins, industries should think of ways to reduce costs and add more value to their products," said Xu Fu, professor of international economics and trade at Tianjin-based Nankai University.

"Enterprises can increase their domestic sales and some can set up factories overseas to avoid tax rebate adjustments and trade protectionism," he said.

In East China's Zhejiang Province, paper mills are using more and more waste paper instead of pure timber to cut costs, according to Qianjiang Evening News.

Imports of waste paper surged 40 percent year-on-year to 290 million US dollars from January to May in Hangzhou Port, the port that handles most waste paper, according to Hangzhou Customs statistics. Waste paper now accounts for half the raw material in the province's paper mills.

The new tax rebate system will not only help ease the mounting trade surplus, but also channel capital investment into 'high value-added and high tech' industries, said a Ministry of Finance spokesman.

In the long run, this will help the country develop in an economic and sustainable way, he said.

China reported a trade surplus of 86 billion US dollars in the first five months, up 83 percent on the corresponding period of last year, according to Customs statistics.