CHINA'S exporters are being told that cuts to value-added tax (VAT) rebates will do them and the country good. A senior official was quoted by the China Daily as saying that the cuts would spur exporters into improving the quality of their goods and explore exporting more high value-added products. Li Hua, a deputy division chief with the State Economic and Trade Commission, said a lack of resources had also forced China to make cuts to the rebates. China stopped giving the full VAT rebates on July 1, cutting them by three per cent. Ms Li said Chinese enterprises should avoid relying on tax rebates subsidising lower prices for their goods to compete on the world market. She said some enterprises had found loopholes in the new system to evade tax payments. Ms Li said the problem had hit state finances hard. Therefore the national taxation bureau had to delay payments of tax rebates on some exported goods. Sources with the Beijing Municipal Economic and Trade Commission said VAT refunds in arrears amounted to 830 million yuan (about HK$773 million) at the end of June. Of that amount, 210 million yuan should have been paid last year. Some Hong Kong accountants warned that the lower VAT rebates would force manufacturers to import raw materials because they would not be subject to the tax. This would be contrary to China's long-standing policy of encouraging the use of domestic raw materials. Le Hanbo, an official with the China Chamber of Commerce of Metal, Mineral and Chemical Imports and Exports, said the fact that some business people evaded tax did not justify cutting rebates. 'The cut will increase prices of Chinese goods on the world market and lower their ability to compete,' he said. China's exports soared almost 40 per cent to US$82.1 billion in the first seven months of this year. The rise has tapered off compared with the 80 per cent growth at the start of the year. Exporters were then rushing their goods out of the country to exploit the full VAT rebate before the July deadline.