SHANGHAI - Chinese shares fell Wednesday on worries that the removal of tax rebates might hurt exporters.

The benchmark Shanghai Composite Index shed 18.83 points, or 0.7 per cent, to close at 2,569.87. The Shenzhen Composite Index for smaller second exchange in China slipped 0.2 per cent to 1,045.16.

China announcement Wednesday that it will scrap export tax rebates for hundreds of products in July for the first time since it imposed them in late 2008. That follows the weekend statement that Beijing will allow more flexibility of its currency exchange rate. Analysts said the surprising move would erode corporate earnings.

"It is a double crush for Chinese exporters," said Zhang Fan, an analyst for Debon Securities in Shanghai.

Steel and petrochemical shares, industries that used to enjoy big rebate rates, were dampened by the news.

Baoshan Iron & Steel Co., biggest steel producer in China, fell 2.7 per cent to 6.08 yuan, while Beijing Shougang Co. slipped 1.4 per cent to 3.54 yuan.

Fertilizer manufacturer Shandong Liaherd Chemical Industry Co. dropped 2.1 per cent to 9.49 yuan, while Shaanxi Xinghua Chemistry Co., declined by 1.8 per cent to 8.81 yuan.

Airlines retreated after a brief-lived rally on hopes for a rising yuan that would reduce their debts that are denominated in foreign currencies. China Southern Airlines Co. lost 3.1 per cent to 6.69 yuan, while Air China Co. gave up 2.3 per cent to 11.3 yuan.

In currency markets, the yuan weakened to 6.8105 to the U.S. dollar, down from close of 6.8102 on June 23.