The move is an effort to adjust structure of the textile industry and help textiles and garment producers shift their focus to value-added exports from low-priced and low value-added goods, said Chen Ping, a vice director at Beijing Customs.

For quite a long time, China's textiles and garments exports have been successful due to large quantities and low prices. Low value-added products with similar designs and poor quality have intensified competition in recent years. With the appreciation of the yuan, and rising labor and material costs, the textile industry saw a slower growth, Chen said.

Small garments enterprises, which make low value-added and single products, face the risks of being squeezed out of the export market, as they mainly rely on tax rebates, Chen said.

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A small clothing enterprise with an annual export value of about US$2 million in Hangzhou, East China's Zhejiang Province, will basically be unprofitable after the tax rebate change, the firm's owner said.

The fundamental way out is to transform the business model, optimize the export product mix, build brands, increase added value, diversify varieties and designs and improve packaging and marketing, said Wang Shenyang, chairman of the China Chamber of Commerce for Import and Export of Textiles.

Liu Hongyu, deputy general manager of Beijing-based Smart Garments Company, echoed Wang's view saying that higher technology and quality guarantee a higher profit.

Liu takes Smart's experience as an example. The company earns 50 cents from each piece made for Wal-Mart and Carrefour, the world's largest retail chain groups, and more than US$5 from an OEM (original equipment manufacturing) piece, while the profit might top US$100 when it is produced with Smart's own brand and design.

Smart, with 70 percent of its products exported to the Japanese, European and American markets, is shifting its business from doing OEM to products with its own brand, he said.

"China's textile industry had entered a crucial phase of upgrading instead of simple expansion in quantity," said an industry expert. It is necessary to go through the course of selling cheap products to fine ones at reasonable or higher prices that they are worth.

The tax rebate cut may not affect those enterprises which export high value-added products, said an official at a foreign economic and trade bureau in Zhejiang.

An official at Ningbo Shenzhou Textile Co Ltd, which has an annual export value of about US$345 million, said the tax rebate cut is acceptable for Shenzhou. Meanwhile, the adjustment reminds Shenzhou of strengthening its risk resistance by improving its technology and added value, added the official.

Setting its sights on mid-range and high-end markets, Shenzhou has become a major producer in China for the world's top sporting goods makers like Nike and Adidas.

Shenzhou has exported 45 million pieces of garments worth US$180 million in the first half of this year and the export value this year is expected to reach US$400 million.

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