By and  on August 28, 2007

BEIJING — China's recent decision to curb exports of laborintensive, low-cost products including garments, plastics and certain types of yarns by requiring export deposits could dampen the country's burgeoning and politically sensitive trade surplus with the U.S., officials say.
The Chinese Ministry of Commerce had developed a list of more than 1,800 product categories subject to costly new export hurdles, which took effect last week. The categories include certain types of garments, furniture, plastics and textiles. When the regulations go into effect, importers will be required to front a refundable deposit of
50 percent of the value of their trade taxes on the products bound for export.

"The policy is not just an attempt to regularize the management of the process trade, but a step to promote the sector's healthy and sustainable development in the long run," He Li, an offi cial with the China General Administration of Customs, was quoted as telling the State-run Xinhua news service.

It is still uncertain what the full impact of the policy change will be, said Nate Herman, director of international trade at the Washington-based American Apparel & Footwear Association.

"It will have some impact because it's a cash flow issue and you have to tie up this money for who knows how long," said Herman.

The new regulations, which exclude northern and central China, will make it harder to produce apparel or footwear in the southern and eastern portions of the country, he said.

The policy is intended "to optimize our exporting structure, put strong curbs on the export of high-polluting, high energy-consuming and resource dependent products...and reduce trade conflicts," according to a statement from the Ministry of Commerce.

In addition to some garments, yarns and cloth, the plan applies to zinc, copper and lead. The largest financial hit is expected to be on Hong Kong traders, analysts said, since a large share of imports and exports go through that territory's ports.

Wang Qinghua, director of industry for the ministry, said the move will undoubtedly add a financial burden to industries affected. However, she said, the government believes the change is necessary to upgrade its economy from strictly manufacturing and to more high-tech industries to start production in China."This adjustment is aimed at optimizing the structure of exported goods, preventing an accelerated increase of exported goods with low added-value, reducing trade friction and promoting the upgrading of our manufacturing industry," Wang said in a news conference.

Wang defended the policy, saying companies will get the deposit returned eventually, hence lessening the total financial burden.

"We hope the [affected] companies will take advantage of this new opportunity to adjust their product structure toward designing their own products and having their own brands aimed toward the high-end of the industry chain," she added.

The new measure was unveiled as Chinese government leaders expressed concern the ever-growing economy may finally be overheating. While government leaders are less
concerned with growth in the gross domestic product, inflation has become worrisome in recent months.

Inflation has risen above the 3 percent upper limit the Communist Party leadership considers acceptable to maintain social stability. In June, the Consumer Price Index, the main indicator of infl ation, rose by 4.4 percent — mostly on higher food prices. Many economists agree that slowing the country's breakneck economic growth needs more than the piecemeal measures the government has thus far adopted.

"China is overheating and has been for three years. The government pours some cold water on it from time to time," said Shanghai-based economic analyst Andy Xie. "But the
measures are mild in comparison with the momentum in the economy."

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