As you must know, China will change its Export Tax Policy as of July 1st 2007.

Up to now, exporters were allowed to a refund of 5 to 17% of the export value. This refund is usually presented as a type of "Tax" refund. This export tax refund allowed products to be much more competitive in the world markets. These tax refunds have now been lowered depending on classification of the items, and, in fact, for most of our products it has been reduced from 13% to 5%. Vitamins and some intermediates for antibiotics have escaped this time.

This new policy means that prices for Chinese raw materials should mechanically increase by 8% when being shipped from China after July 1st. In fact, some factories might take part of the burden on their shoulders, depending on the market situation.

On top of this, it's important to mention that the RMB Yuan is regularly re-evaluating against the US$, and this move which is for the long term, will be also responsible for an approximate 5% yearly increase on all prices.

Another very important factor is the efforts made by the environment bureau to inspect and close all factories which aren't respecting the rules for air, water and waste contamination. This has lead to restricted offer on a large number of products, and subsequently to a speculation both from Chinese suppliers (in most cases listed at the stock exchange and willing to value their shares) and customers worldwide, speculation which has sometimes, pushed prices upward by up to 400%! Not forgetting the recent petfood scare in the USA which now means factory inspections before goods go to the port and further port inspections, making goods much slower to move.

If we add local inflation fed by a booming economy, mainly based on speculation on real estate and on the stock exchange, increasing costs for energy, and most probably many other factors, we should be concerned for the future prices from China.

However, this is part of an economic cycle and logically, remunerative prices will attract new investors to regulate the prices on the market.

We would like to make all our partners conscious that trend for prices for the next months, if not years, is definitely upwards.

We have been trading with China for many years and would be happy to discuss this issue with you. Trading in China is certainly more difficult than recent years, so please be aware.

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