The central government has scrapped incentives for exporters to earn foreign currency in its latest step to ease capital inflows and slow export growth. The State Administration of Foreign Exchange and the Ministry of Commerce yesterday announced that the state on July 1 had rescinded a carrot-and-stick policy that offered compliant exporters preferential customs procedures and lending rates while penalising violators with license revocation. Introduced in 1999 in a series of post-Asian financial crisis measures, the policy played a significant role in fuelling the inflow of foreign exchange and improving management of foreign capital. Its cancellation would be in keeping with the country's present stage of economic development, authorities said. Since 1999, exports have soared by at least 25 per cent annually and the accumulated foreign exchange reserve has grown to US$1.07 trillion. Reversing the trend will ease the pressure on the yuan to appreciate as a result of huge forex inflows. Some economists said removing the incentives was a relatively mild action compared with recent measures to narrow the trade gap with countries that import mainland products and to encourage capital outflows. The moves include expanding the Qualified Domestic Institutional Investor scheme and scrapping export tax rebates. 'It is not surprising to see the cancellation of incentives given the fact that the country has a problem of too much forex inflow,' HSBC chief China economist Qu Hongbin said. 'I can see clearly the intention but am not sure about the impact on the capital inflow.' Bank of East Asia chief economist Paul Tang Sai-on saw the latest measure directed at tightening regulations for exporters to report forex earnings. Under the old policy, exporters were examined on their forex earnings and allowed preferential treatment in customs procedures and favourable lending rates for good track records in forex remittances. Offenders were penalised as severely as having their export licences revoked. Xinhua recently reported that China's trade surplus might have widened by more than 60 per cent to US$110 billion in the first six months of this year, adding pressure to the call for the yuan's faster appreciation.