Gao echoed Wang's opinion, saying that the tax rebate increase could hardly defy the overwhelming factors that are dragging down the textile sector. Zhao Meiling, an analyst at Essence Securities Co. Ltd. told Beijing Review that while the annual profits of the country's textile sector could increase by 6.165 billion yuan ($902 million), they would have to be shared by more than 80,000 manufacturers.

Cost conundrum

Wang Yu, Vice Director of the China Chamber of Commerce for Imports and Exports of Textiles, said rising labor and material costs resulting from the strong yuan were the biggest factors hurting the textile sector.

Because it usually takes a quarter year for orders to be shipped after they are placed, Chinese exporters usually suffer considerably as the yuan further appreciates and affects payment settlements, Wang said. The exporters also may see their profit margins, which usually average at 3 percent, turn negative when they receive payments, he said. This is why many of them have declined to accept any orders since the latter half of last year, he added.

Wang cited the China Import and Export Fair (Canton Fair), held annually in Guangzhou in south China, as an example. The fair used to register the most textile export contracts of the country. But in the last two years its contract volume has been shrinking and many exporters have not participated, Wang said.

Financing cost is another sore plaguing the textile sector, Wang said. The central bank's interest rate hikes have made it harder for textile enterprises to get financing. The gloomy stock market and constraints on initial public offerings and refinancing also have turned them off from the securities market, he said. There are currently only 12 listed textile enterprises on the country's stock exchanges, nine of which have reported wilting gross profit margins, he added.

Besides this, wage increases and the rising prices of transportation, electricity and water also have been putting pressure on the industry, Wang said.

Self-rescue

The favorable tax rebate policy could temporarily help textile exports, but a downward trend in the whole sector would be irreversible, Sun Huaibin, Director of the Press Center at CNTAC, said in an interview with Beijing Review.

On the one hand, the higher costs of labor and materials and currency factors that are choking the textile industry remain to be reckoned with. On the other hand, emerging markets, such as Pakistan, Viet Nam and Bangladesh, have been intensifying their competition with China.

According to data issued by the U.S. Department of Commerce, American textile imports from China in the first four months of the year fell 69.38 percent in value year on year while those from Pakistan soared 552.45 percent year on year. A survey conducted by the American Chamber of Commerce in Shanghai in May also found that 17 percent of its more than 1,400 member companies said they were considering relocating from China to neighboring countries where labor was cheaper.

While the export tax rebate hike is just a makeshift measure, a more sustainable solution would be to upgrade the whole industry, Sun said. Since it is unlikely that the strong yuan would weaken any time soon, the country's textile manufacturers should fire on all cylinders to pursue self-improvement, which could lead to a real way out of their current dilemma, he said.

Weakness in innovation has always restricted the country's textile sector, which has an excess of low value-added products. Analysts said the policy adjustment implies that the government supports industry innovation, because it made some highly polluting products such as chemical fiber cloth and viscose staple fiber ineligible for the higher export tax rebates.

Zhao Meiling of Essence Securities said the export tax rebate hike would not be a remedy for textile manufacturers in the long run. Only product innovation could give them access to the high-end market, she said.

Analysts say the 2-percent rebate hike could give suffering textile manufacturers a break, but at the same time pile pressure on them to increase their production efficiency and push ahead with product innovations. The innovative players will be able to realize greater development while the rest could be muscled out of the market in cutthroat competition, Zhao said. But the game of survival of the fittest would be good for the health of the whole sector, she added.