"I think you're going to see China use this as a tool to recalibrate the economy," said Alfred Shum, executive partner with Ernst and Young China. "China wants to push to the higher end of the export chain."

Trade statistics would seem to confirm that China can afford to think in qualitative rather than quantitative terms just now.

Its export boom this year has helped send its trade surplus into record territory, with the total for August hitting a new high of 18.8 billion dollars.

But the rush to export cheap manufacturing products offshore has created its own set of problems.

They include rising protectionist sentiment among China's trading partners, hefty rates of fixed-asset investment to boost production, supply bottlenecks, rising input prices, and a legacy of pollution.

The timing of the rebate announcement, as China faces critics of its trade and currency policies at meetings of the International Monetary Fund and World Bank in Singapore, only underlines its role as a conciliatory gesture.

"This is a very positive development," the American Chamber of Commerce in Beijing said in a response. "It removes a government subsidy which is trade distorting. (We) appreciate China's efforts to create a level playing field."

Over 1,500 exports will be affected by the changes to the tax regime, announced at the end of last week.

More than two thirds, including steel and cement, will see their rebates cut, while others, such as selected coal and natural gas, will have their rebates cancelled completely.

But at the same time, the government will increase incentives to exporters of computer parts, biological, medical and other high-tech products, as it tries to promote higher-value exports.

Macquarie Securities head of China strategy Peter So said that exports should "slow down, rather than drop off" as the decision takes effect.

"It's not great news for the low-end producers, including in textiles, steel, aluminum and other products, because eventually they will see their margins squeezed and limitations on their expansion," he said.

Many exporters will still choose to absorb the loss of tax incentives, rather than redirect their product to the fiercely competitive domestic market.

"There definitely will be some loss but we won't reduce our exports," said a supply and marketing director with the metal wire exporter Tianjin Huayuan Industry Co, who gave his surname as Fan.

Fan, said that the policy shift may affect the company, which exports over 90 percent of its products.

"We belong to a labor-intensive industry. Compared with our European rivals we still have a price margin. Since competition in the domestic market will intensify, we are not going to turn to the domestic market."

Following the late-1990s Asian financial crisis, China raised its average export rebate from six to 15 percent.

The export growth rate promptly doubled and China became the third-largest commodity trader in the world, in terms of gross value, after the United States and Germany.

However, annual export rebates have now become a burden on central finances. Between 2001 and 2005, aggregate export tax rebates reached 1.19 trillion yuan (148.7 billion dollars).

This was nearly 3.8 times as much as for the period from 1996 to 2000, according to official statistics.

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