China will raise the tax rebate on a range of textiles and garments to 13 percent from 11 percent, a shot in the arm for exporters that are struggling with a stronger yuan, weakening demand and rising costs.

The move will take effect from today, the Ministry of Finance said on its website yesterday.

The government also decided to scrap the tax rebate on a slew of energy-intensive, highly polluting products or resource products such as pesticides, zinc and silver.

"The tax rebate hike will give a break to the ailing clothing exporters and help ease the concern over an unemployment spurt," said Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce. "But it could be a temporary measure, as the government will continue to push forward the upgrade of its industries."

The government reduced the rebate rates of the value-added tax for more than 2,800 items of products last year, including hundreds of textiles and garments. The move then helped to slow the nation's ballooning export growth.

But industry insiders have been asking for a rebate hike over recent months, as shrinking profit margins and weakening overseas demand are pushing some exporters to the verge of bankruptcy.

Exports in the textile and garment sectors in June declined by 4.2 percent year-on-year to $15.5 billion, representing the slowest increase in five years. Meanwhile, it is reported that the average profit margin of textile and garment industries have fallen to 3 percent, after the yuan gained more than 6 percent compared with the US dollar in the first half of the year.

"The range of the products benefited from the rebate increase is much smaller than those suffered from the rebate cuts a year ago," said Mei. "It's a clear signal that the government has no intention of encouraging an industry that keeps causing trade tensions in the long run."

The government has voiced its intention to push forward industry upgrades and curb the development of energy-intensive sectors. The latest development came yesterday as the government decided to remove a 5 percent tax rebate on zinc as experts said the world's largest producer of the metal could suffer as a result of the sector's overcapacity.

Meanwhile, the tax rebates on several types of silver have also been reduced.

(China Daily August 1, 2008)