In a major policy shift, China has introduced a new batch of restricted products for processing trade, impacting over 150 types of plastic raw materials and finished goods. The updated list came into effect on August 23, significantly increasing financial pressure on export-oriented companies. This move follows an earlier adjustment in the export tax rebate policy, which was announced on July 1st and further complicated the landscape for chemical and plastic exporters.
Processing trade has long been a vital component of China’s chemical industry, accounting for over 35% of total chemical exports in the first half of 2007. However, the recent changes have widened the gap between general trade and processing trade, making it more costly for businesses to operate under the former model. As a result, some companies had begun exploring ways to shift production from general trade to processing trade to mitigate costs. But this strategy was quickly undermined when the government released the new restricted product catalog on July 23, effectively blocking the path for such transitions.
The most immediate impact of the new policy is the requirement for “real transfer†of funds for restricted goods. Previously, companies could benefit from a bank guarantee system that allowed them to avoid actual deposits. Now, they must make full margin payments, significantly increasing their working capital requirements. For example, a company importing $1 million in raw materials would now need to deposit an additional $220,000, which cannot be refunded until the final export is verified. This change has made processing trade less attractive and more financially risky for many firms.
The restricted list includes a wide range of plastic materials and products, such as polyethylene, polyvinyl chloride, polystyrene, and various types of plastic films, pipes, and synthetic leather. These items are now subject to stricter controls, signaling the government’s intent to curb low-value exports and promote higher value-added production.
China remains one of the world's largest producers of plastic products, with over 90,000 processing companies. While the sector has grown rapidly due to cost advantages, many small firms lack advanced technology and produce low-grade products. This reliance on price competition rather than innovation has become a barrier to sustainable growth. Industry experts warn that the new policies will force companies to either upgrade or face closure, especially those with poor management and outdated technologies.
According to Li Guojun, vice president of the China Plastics Processing Industry Association, the current challenges—rising raw material costs, currency appreciation, reduced export rebates, and international trade barriers—are pushing the sector toward transformation. While short-term strategies like raising prices and cutting costs may help, the long-term solution lies in enhancing product quality and technological content.
The government’s push for higher-value exports is clear, and companies must adapt quickly to remain competitive. For many, this means investing in R&D, improving efficiency, and moving up the value chain. The future of China’s plastics industry depends on its ability to transition from low-end manufacturing to high-tech, high-value production.
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