China has announced yesterday that they will cut the export tax rebates for more than 2,800 products starting 1 July 2007. The purpose is to reduce trade surplus and cut waste.

Export tax rebates means exporters in China get a refund on the domestic taxes they pay. This means they are able to charge lower prices than competitors from other countries. The whole scheme was started in the 1980s to encourage foreign investment.

But the booming Chinese economy and a burgeoning trade surplus meant that it’s a matter of time before this export tax rebate system is scrapped. Already, the rebates levels have been gradually reduced for many categories of products. This latest round of cuts is hardly surprising.

In all, 553 product categories deemed to be resource-intensive and polluting will have their rebates eliminated. Another 2,268 will have their rebate levels lowered.

So where does bamboo flooring fit into this?

Well, the details aren’t out yet. But our product is not polluting so I expect us to fall into the latter category of rebate reduction.

Unfortunately the USA is one of the biggest markets for bamboo flooring, and also the economy with the greatest trade deficit with China. This probably means bamboo flooring will have one of the lower rebate levels.

It’s a significant factor in an industry with paper-thin margins, and I expect prices to be adjusted upwards by 5-8% across the board. For the time being, we are holding our prices.

I’ll post updates on this as more details emerge.