China's paper and board product exports may drop dramatically in the second half of this year because of the new export tax rebate adjustment, starting from July 1.

 

A number of paper makers are expected to shift to other businesses or even face bankruptcy since the average profitability of the industry will drop drastically, according to a report from the National Development and Reform Commission.

 

The report predicts the export profitability of the sector is likely to drop by 5 to 7 percentage points.

 

The Ministry of Finance and the State Administration of Taxation have announced a cut in the export value-added tax rebate on paper products from 13 to 5 percent starting from July.

 

To reduce the impact of the rebate changes, enterprises, based on the market buzz on the coming adjustment, have all tried to export as much as possible in the first half.

 

According to statistics from the General Administration of Customs, in the first four months of the year, exports of paper and board products grew by 36.2 percent year-on-year. In February, the export volume was up 54.2 percent over the same period last year.

 

The adjustment will have a wide influence on the paper industry. Exports of China's paper and board industry stood at $4.58 billion last year, $1.70 billion of which would be affected by the new rebate policy, or about 37 percent of the total.

 

Indonesian firm APP said the adjustment will directly result in a 24 per cent reduction in export profit. "Our paper converting business, including paper bags and notebooks, will be impacted," an APP official, who did not want to be named, told China Daily.

 

He pointed out that export value-added tax rebate is a standard practice worldwide in the paper industry and that some international rivals even enjoy 100 percent rebate.

 

APP's production and converting capacity stands at 6 million tons a year, making it the leader in the domestic industry.

 

Dongguan-based Hang Luck Paper Products Factory says its costs have gone up by 25 percent as a result of the new policy, along with the rise in costs of imported raw material.

 

Fu Zhenguang, managing director of the factory, said the firm had to terminate its plans to expand the existing factory, according to a report from www.paper.com.cn, a leading paper industry portal.

 

East China's Zhejiang Province is the main paper production base. An official with Jiaxing Seagull Paper Products Co Ltd said the new policy will result in a reduction of $800,000 in profit for the firm annually.

 

"We can't change quotations to our long-term clients. The company will have to bear the loss," an official surnamed Shen was quoted by Zhejiang-based Qianjiang Evening News as saying.

 

But rather than complaining about the new policy, enterprises should enhance their competitive edge by improving the quality and cut production costs, says Zhao Wei, secretary-general of China Paper Association.

 

He said the paper industry has a long production chain, such as raw material providers, chemical industry, logistics sector and clients. For individual enterprises, the only thing they can do is to increase their competitiveness.

 

Zhao pointed out that paper exporters will have a good market potential as long as they focus on adjusting product portfolio and improving the operational method and the logistics system.

 

"Competing on price does not work in the industry any more," he said.

 

Zhao said paper-making is closely linked to the country's overall economic performance.

 

The US paper industry leads the world, with that of China taking the second position.

 

(China Daily August 7, 2007)