China's paper and board product exports may drop dramatically in the second half of this year because of the new export tax rebate adjustment, starting from July 1.

A number of paper makers are expected to shift to other businesses or even face bankruptcy since the average profitability of the industry will drop drastically, according to a report from the National Development and Reform Commission.

The report predicts the export profitability of the sector is likely to drop by 5 to 7 percentage points.

The Ministry of Finance and the State Administration of Taxation have announced a cut in the export value-added tax rebate on paper products from 13 to 5 percent starting from July.

To reduce the impact of the rebate changes, enterprises, based on the market buzz on the coming adjustment, have all tried to export as much as possible in the first half.

According to statistics from the General Administration of Customs, in the first four months of the year, exports of paper and board products grew by 36.2 percent year-on-year. In February, the export volume was up 54.2 percent over the same period last year.

The adjustment will have a wide influence on the paper industry. Exports of China's paper and board industry stood at $4.58 billion last year, $1.70 billion of which would be affected by the new rebate policy, or about 37 percent of the total.

Indonesian firm APP said the adjustment will directly result in a 24 per cent reduction in export profit. "Our paper converting business, including paper bags and notebooks, will be impacted," an APP official, who did not want to be named, told China Daily.

He pointed out that export value-added tax rebate is a standard practice worldwide in the paper industry and that some international rivals even enjoy 100 percent rebate.