Beijing cuts tax rebates on exports

PUBLISHED : Wednesday, 20 June, 2007, 12:00am
UPDATED : Wednesday, 20 June, 2007, 12:00am

Subsidies slashed in bid to curb trade surplus, conserve energy

The mainland will slash tax rebates on exports of 2,831 types of products on July 1, in a two-pronged effort to reduce trade friction with other countries and to improve energy efficiency in a range of industries.

The latest cuts, which involve about 37 per cent of items listed in customs tax regulations, is the second such move since May 21, when the tax bureau announced export taxes would be increased on 142 products and import tariffs cut on 209 types of goods, from June 1, to help curb the growing trade surplus.

'The rebate cuts will be of some help in reining in the surging export and trade surplus,' JP Morgan chief China economist Frank Gong said. Even so, the impact would be small compared with the effect on trade of a low-valued yuan, and the fact that the mainland's labour costs were still comparatively very low, he said.

'What's fundamental is to speed up the appreciation of the yuan and increase imports,' Mr Gong said.

The Finance Ministry announced yesterday that rebates would be removed on 553 types of goods, such as cement, chemical products, fertilisers, salt and leather, which use large amounts of energy and resources, and cause high levels of pollution, in the production process.

Rebates will be cut, by varying amounts, for 2,268 types of low value-added exports, including toys, steel products, textile and paper. Such exports have been the source of friction with importing countries, as they seek to protect their own manufacturing industries.

A further 10 types of exports, including stamps, peanuts and oil paintings, will be exempted from export tax.

Last month, the mainland's trade surplus widened to a larger-than- expected US$22.45 billion, up 73 per cent from a year earlier.

In the first five months this year, the trade surplus surged 83 per cent from a year earlier to US$85.7 billion.

The size of the surplus prompted the United States to impose tariffs on mainland paper exports in March. Accusations against mainland steelmakers of dumping and subsidising exports have grown from other countries as their steel imports surge.

Mr Gong said the impact of the cuts would be felt by products with the least added value, such as textiles, or highest energy consumption, such as cement. But overall, the mainland's export competitiveness would not be affected, he added.

The rebate cut was smaller than expected, said Wang Cubo, of clothing maker Shenzhou International, whose customers include Nike, Adidas and Puma.

'There were rumours that the rebates on textile exports might cut to 4 per cent from 13 per cent, but it was cut only to 11 per cent,' he said.

The Ningbo firm, which derives more than 90 per cent of its revenue from exports, will pass on part of the cost increase by raising prices. But the impact on the company would not be great, Mr Wang said.

Chia Hsin Cement, which exported 56 per cent of its products last year, also plans to pass on the increased cost to customers after its 11 per cent export tax rebate was abolished, said one of its managers, Eric Wu Qiang.

Fu Jihui, executive director of Angang Steel, which exports 20 per cent of its total production, said the rebate cut would squeeze the company's profit margin, but not force a reduction in its exports. Rebates on most types of steel products will be cut from 13 per cent to 5 per cent.

'Overseas demand is strong and international prices are still higher than domestic prices,' he said.