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Support targets textiles, machinery

CHINA'S Cabinet yesterday approved tax incentives and other measures deigned to spur the country's textile and machinery industries.

It also urged companies in those sectors to speed up the pace of their technological upgrades and advance their capability for innovation.

The plan, ratified in a State Council meeting chaired by Premier Wen Jiabao, is part of a series of measures aimed at boosting China's pillar industries in the face of a slowing economy.

Among yesterday's actions, the State Council, or Cabinet, increased the export tax rebate for textiles and garments to 15 percent from 14 percent, following two increases last year, and pledged to improve loan support for companies facing operational difficulties.

The textile sector, one of China's most important and competitive industries, plays a key role in creating jobs, boosting farmers' incomes, expanding exports and advancing urbanization, a government statement said.

About 20 percent of the country's hundreds of thousands of small and medium-sized textile firms have closed as a result of declining exports and weak domestic demand, according to earlier estimates. The industry employs about 20 million people in the country.

The government urged textile makers to strengthen brand building and technology upgrades, while accelerating the phaseout of pollution-prone production facilities.

A special fund will be set up to support the commercialization of targeted technologies, the State Council said.

Textile companies were also told to work to maintain their share of the international market while exploring the huge domestic rural market.

The 15 percent rebate still falls short of the 17 percent value-added tax charged on clothing and textile. But experts said the key issue in aiding an industry that expanded too rapidly is to improve its structure rather than simply implementing tax incentives.

"The support plan is a continuation of a state effort that has long been aimed at boosting the industry's internal structure - as only that approach can forestall massive factory closures and layoffs," said Song Hong, a senior research fellow at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.

China began improving the structure of its textile industry even before the global financial crisis began eroding the country's exports.

"The crisis only speeded up the pace of that effort," Song said.

For the machinery industry, the government said it will set up a special fund for technology improvements to boost innovation. Machinery makers can also increase their know-how in equipment making by participating more in key domestic infrastructure projects, the State Council said.

The government will increase export finance credits to help machinery companies ship more products abroad, while offering them tax breaks for imports of certain parts and raw materials.

It will also establish a compensation system to encourage companies to use domestically made machinery. In addition, the Cabinet called for a speedup in mergers and acquisitions in the sector.

China unveiled support plans for the auto and steel industries last month, with additional packages expected to be announced soon for shipbuilding and petrochemicals.


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