In the latest update to the restricted product catalog for processing trade, over 150 types of plastic raw materials and products have been added. The new regulations came into effect on August 23, placing significant financial strain on export-oriented enterprises. This follows a major policy change in the export tax rebate system that took effect on July 1st, which increased the cost of exporting chemical products and widened the gap between general trade and processing trade.
The government’s dual approach—adjusting tax rebates and restricting processing trade—signals a strong effort to curb high trade surpluses and promote higher-value production. Processing trade has long been a key component of China’s chemical exports, accounting for over 35% of total chemical exports in the first half of 2007. However, with the new restrictions, companies previously looking to shift from general trade to processing trade now face a blocked path.
Under the revised rules, any goods listed in the restricted processing trade catalog must be subject to “actual transfer†requirements. This means companies must pay full deposits upfront when importing raw materials, significantly increasing their capital burden. Previously, many firms could avoid actual cash outflows by using bank guarantees. Now, they must deposit funds into customs-designated accounts, which are only refunded after successful export verification.
This adjustment affects a wide range of plastic products, including polyethylene, polyvinyl chloride, polystyrene, and various types of films, pipes, and synthetic leather. As one of the world’s largest plastic producers, China relies heavily on its low-cost manufacturing advantage. However, many small and medium-sized enterprises lack advanced technology and produce low-grade goods, relying mainly on price competition.
Industry experts warn that the combination of rising input costs, currency appreciation, and reduced tax rebates is pushing many companies to the brink. While short-term strategies like raising prices or cutting costs may help, long-term survival depends on upgrading product quality and increasing value-added content. The government’s focus on curbing low-tech exports suggests that the industry must adapt quickly or risk being left behind.
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