From Aug.1^st, 2008, VAT refund rate for textile products (e.g. Fabrics, Garment, Textile Articles etc.) was changed back to 13% from 11%, due to the difficult situation for a lot of manufacturers (as labour-intensive industry, they may have the lowest profit level, usually with a profit of only 1% or 2%, so the change in refund rate will be profound for most factories).

Also to encourage those who using eco-friendly materials for productions, the refund rate for some bamboo products (such as bamboo floorings etc.) has been increase sharply to 13%, which was once set in 2007 at only 5%.

For the industry of Home Furnishing & Décor, this adjustment means differently for different manufacturers in China. For example, for furniture suppliers, the refund rate was reduced from 13% to 11%in 2006 and then another reduction to 9% in 2007, this raised the cost about 4%, and considering the continual increase in labor cost and the appreciation of RMB (3-5%), many small- to medium-scale exporter have to face much difficulty in exporting their products. Many closed their factory, or moved to other places where labor cost is lower, or focused on domestic market. Anyway, for those suppliers with their own brand and designs, this adjustment seems to have just a little influence. Actually, according to some surveys to suppliers, the effect is quite limited to the manufacturers in Home Furnishing & Décor.

The cancellation and reduction in VAT refund will bring far-reaching effects to the manufacturers in China. In short term, the new policy will cut much profit for a lot of suppliers. They are forced to improve on their core-competitiveness instead of cutthroat competition, to improve on production and efficiency. So in the long run, only those suppliers with products of high added value can survive and win in the global market.

The VAT paid for the purchase of export goods in the Chinese market, or for purchases used in the manufacture of export goods, can be refunded in whole or in part. The refund rate (Export VAT Refund Rate) is used to determine the rate of VAT refund upon exportation of goods, and range from 0 (non-refundable) to 17% (fully refunded). The rate is significant for manufacturers exporting goods in China, and has been changed for many times. However, after great change in 2004 and 2006, recent major adjustment was made in 2007.

On June 19, 2007, the Chinese government announced the adjustment of Refund Rates for 2831 commodities. The adjustments included:

1, Cancel export tax refund for 553 commodities, mainly for those with "highly polluting and consuming heavy amounts of energy and resources", such as Chemical Products, Minerals or Mineral-based products, Leather, Certain Wood Board and  Disposable wood products etc.

2, Reduce export VAT refund on 2,268 commodities, such as: Textile Product (from 13% to 11%), Footwear (from 13%to 11%), Toys (from 13% to 11%), Plastics, rubber and related products (from 11% to 5%), Furniture (from 11% to 9%), Ceramic Products (from 8% to 5%), etc.

3, 10 items can be fully exempted from the VAT, such as Peanuts, Oil Paintings, Engraved Plagues and Stamps etc.

The adjustments took affect on July 1, 2007. On the one hand, the goal of this adjustment was to reduce China's trade surplus and ease trade friction between China and America / EU. And on the other hand, as the reduction in VAT refund will add to the cost for the exporters, the Chinese government believed that this adjustment will incite capital investment in higher technology and help the country develop economically.