By staff reporter Yan Jiangning, Li Zengxin and intern reporter Wu Jinxin

On July 30 China announced that it will be increasing the tax rebate on a range of textiles and garments from 11 percent to 13 percent beginning August 1 in an effort to assist the country's textile exporters.

According to the State Administration of Taxation, the rising tax rebate will cover items including silk, wool yarn, chemical fabric and cotton products. Wu Di, deputy director of China Textile International Exchange Center, said that the tax adjustment has covered most textile and garment products.

Sun Weibing, spokesperson of China National Textile and Apparel Council, told Caijing that the tax rebate hike is set to curb the textile export slump and relieve ailing clothing exporters. It is expected to mitigate the pressures on China's textile industry.

Cao Xuejun, an official from the National Development and Reform Commission, earlier said that the country's textile industry has been hit by the rising value of the yuan, shrinking market demand, growing production costs and macro control policies, including the adjustment on tax rebates. China cut the export tax rebate in 2005 and 2006 as part of an effort to reduce a rapidly increasing trade surplus.

According to China Chamber of Commerce for Import & Export of Textiles, in the first six months this year, China exported US＄49.96 billion garments and accessories, a 3.4 percent year on year growth, compared with a 20.9 percent year on year increase in 2007. At the same time, exports of fabric and yarn totaled US＄31.72 billion, increasing 26.8 percent on the same period last year.

Analyst of Guotai Junan Securities, Li Zhixian, said that if both the yuan's appreciation and inflation are taken into consideration, the growth rate of textile exports will further shrink.   

However, some industry insiders predict that the adjustment will have a limited impact on the industry.

Yu Chunqiang, president of Zhejiang Mixishi Clothes Co., Ltd, told Caijing that hiking the tax rebate by only 2 percentage points will only have a slight impact on companies' profit. It may also lead to another round of "price war" among exporters as most Chinese textile exporters are still relying on cheap prices to win orders in an oversupplied market.

According to Zhang Bin, analyst from Guosen Securities, the major difficulties facing China's textile exports are the yuan's appreciation and demand decline in international markets. The adjustment of tax rebates will only have a slight influence on the industry.

Moreover, Zhang said, raising tax rebates, which will benefit smaller textile companies more, may actually slow down the pace of industry restructuring.