Incentives aimed at helping exporters and boosting economy The mainland has unveiled a detailed plan to restore rebates of value-added tax to labour-intensive industries in an attempt to throw a lifeline to tens of thousands of beleaguered exporters. The Ministry of Finance announced yesterday that VAT rebates on 3,486 export products, including textiles, garments, toys, certain plastic products and furniture, would be restored on November 1. The move, flagged by Beijing leaders last weekend, was designed to strengthen the country's export-driven but slowing economy, but it risked reigniting trade frictions with key trading partners such as the United States, market watchers said. Exporters battling headwinds ranging from soaring raw-material and production costs to a stronger yuan applauded the move, which will instantly help cut costs. 'Good, good, very good,' Yeung Chi-kong, an executive vice-president of the 290-member Toys Manufacturers' Association of Hong Kong, said of the new tax incentives. 'It gives a helping hand to the industry.' VAT rebates on toys will be restored to 14 per cent from the existing level of 11 per cent, which was set in July last year. Toys were among about 3,000 exports that had VAT rebates slashed or scrapped on July 1 last year as the mainland sought to reduce its politically sensitive trade surplus and close industries that were energy or resource-intensive or polluting. VAT rebates on textiles and garments were restored for the second time in the past two months and will be raised to 14 per cent next month from 13 per cent, which has been their level since August 1. Rebates for furniture exports will revert to 11 per cent and 13 per cent next month, depending on the category, from 9 per cent and 11 per cent. Guangzhou-based KMPG tax partner Bolivia Cheung said the higher the rebates, the more costs exporters would save. However, Ms Cheung said the impact of the new rebate rates was expected to be erased by the yuan's 9 per cent appreciation against the US dollar over the past year and by price inflation in raw materials and fuels. 'It is a good move. The question is how much it can help exporters, particularly when demand from key export markets, that is, the US and Europe, is shrinking,' she said. Amid a wave of factory closures in production hubs in the Pearl River Delta, the tax incentive would help to feed millions of migrant workers, she said. The Federation of Hong Kong Industries estimated that 2.5 million workers would be made redundant in the next three months as exporters were forced out of business by the credit crunch and by crumbling consumer demand. Hong Kong Small and Medium Enterprises Association chairman Danny Lau Tat-pong, who suspected that 20,000 of the 65,000 Hong Kong-owned factories in Guangdong would close by the end of this year, said higher VAT refunds would also help other parts of the supply chain to survive. 'The livelihood of raw-materials suppliers, logistics companies and lenders, and so on, depends very much on exporters,' Mr Lau said. The mainland felt the impact of sluggish trade worldwide, with slowing exports dragging down the nation's economic growth to 9 per cent in the third quarter of this year, the first slide into single digits since 2005. In the first nine months of this year, exports rose 22.3 per cent from a year ago to US$1.07 trillion, while imports jumped 29 per cent to US$893.1 billion. This left the trade surplus 2.6 per cent lower at US$180.9 billion.