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" We hope that the government's macro-control will be stable and orderly, allowing the industry to develop healthily and sustainably. " This statement was made by Guo Yongxin, Director of the Industry Research Division at the China Light Industry Council, in response to the current challenges faced by some light industrial companies.
Since the second half of 2007, a series of regulatory policies—such as changes in export tax rebates and restrictions on processing trade—were introduced, leading to increased pressure on export-oriented enterprises. Tens of thousands of companies in the Pearl River Delta are now facing tough decisions: withdrawal, closure, or relocation.
Guo pointed out that the authorities have been applying heavy-handed measures to suppress overcapacity, which he described as "obviously disruptive." Recently, Guo completed a research project titled "Light Industry Policy and Regulatory Strategy," proposing the establishment of ten market-based regulatory mechanisms. He emphasized that the state should use a diversified approach rather than relying solely on individual actions. The report has already been submitted to the National Development and Reform Commission and the Ministry of Finance, and is awaiting further feedback.
The current difficulties faced by PRD processing trade companies stem from multiple pressures: strict government regulations, rising labor and raw material costs, and intense international competition with higher quality standards. After the new export tax rebate policy took effect in July 2007, the toy industry saw its tax rebate rate drop from 13% to 11%. Though the change seems small, it has significantly impacted companies with already thin profit margins.
"Each industry requires different regulatory strategies," Guo said. For example, the toy industry is highly export-dependent and supports 3 million jobs, so any regulation must take this into account. Similarly, the plastics industry suffered a major blow, with tax rebates dropping from 11% to 5%, resulting in an estimated loss of $1.217 billion—about 35% of annual profits. The paper products industry also experienced a 30% decline in expected profits.
According to Li Guojun, executive vice president of the China Plastics Processing Industry Association, plastic exports rose by 15.15% from January to September 2007, but the growth rate slowed by nearly 10 percentage points compared to the same period in 2006.
Many industry leaders are concerned about potential further adjustments to export tax rebates. Guo suggested that before implementing new policies, the government should expand consultations with industry stakeholders. If a policy affects more than 20% of an industry’s profits, it should involve enterprise input.
Despite these challenges, Li remains optimistic. He believes that energy-saving and environmental protection initiatives will continue to drive demand for plastic products, replacing high-energy industries like steel and wood. Additionally, with the Olympics approaching, he expects no major policy changes before September.
Guo’s research into light industry policy and regulatory strategy comes amid growing signs that the sector may face increased government oversight. He noted that while light industry has historically been less affected by national policies, recent regulatory actions suggest a shift in focus. With the proportion of light industry in the national economy relatively low, the government is beginning to pay more attention to it.
Whether it's managing overcapacity, promoting employment, stimulating domestic demand, or achieving energy efficiency, macro-control of the light industry is becoming more necessary. "After the Seventeenth National Congress, light industry has seen unprecedented development opportunities," Guo said. One key reason is that light industry generates less pollution per unit of GDP and employs three times as many workers as heavy industries.
Under the pressure of energy conservation and emission reduction, local governments are likely to place greater emphasis on light industry in the coming years. Guo’s research aims to address whether highly marketized industries like light industry still need regulation. He emphasizes that competitive industries do not necessarily have to avoid control.
In his report, Guo proposed ten regulatory mechanisms tailored for market-based competition, including joint planning between central and local governments, sustainable development focused on energy efficiency, IT support for economic forecasting, structural improvements in foreign trade, administrative controls on market access, and fiscal and tax policy frameworks.
All of these recommendations aim to prevent unnecessary disruptions caused by regulation. "We hope that regulatory policies will be more comprehensive, orderly, and appropriate, using diverse means to avoid major fluctuations and ensure sustainable development," Guo concluded.