New VAT rebates offer breather to struggling Hong Kong companies in processing trade The State Council has unleashed a fresh package of measures to increase exports and domestic consumption to help the mainland ride out the global economic crisis. At a meeting yesterday, Premier Wen Jiabao revealed several additions to the stimulus plan: value-added tax rebates will be increased on high-value, high-technology electronics and machinery exports; export credit and insurance will be strengthened; and a yuan settlement scheme on trade will be implemented in Guangdong, Yunnan and Guangxi. Domestically, distribution networks will be expanded to boost the flow of agricultural products to urban areas and white goods into rural areas as a key strategy to spur demand. The expanded measures, which follow the 4 trillion yuan (HK$4.53 trillion) stimulus package announced last month, are intended to ensure the mainland economy grows at about 8 per cent next year as the global economic crisis eats further into the nation's foreign trade. Some economists said the State Council's latest moves showed top policymakers were worried about the growing adverse impact of the crisis on the nation's economy, which is heavily reliant on exports. As a key feature of the export-friendly measures, the new VAT rebate on certain electronics and machinery exports marked the fourth round of increases since August. This will be a hearty Christmas gift to about 55,200 Hong Kong processing trade exporters, many of whom are struggling to ride out the recession in their top three markets - the United States, Europe and Japan. However, Mr Wen has yet to specify the details of the latest VAT change, such as the new rebate rates on the exports in question and the effective date. While Toys Manufacturers' Association of Hong Kong executive vice-president Yeung Chi-kong welcomed the move, he called on policymakers to offer more tax incentives and revise the controversial new labour contract legislation. 'The VAT rebate on toys can be raised further as the rebate on garments is now at 17 per cent, which means VAT-free,' Mr Yeung said. The last rebate increase took place on December 1, when 3,770 types of exports, or 27.9 per cent of all export goods, were affected. This saw the rebates on certain toys raised to 14 per cent from 11 per cent. Some exports, such as certain types of steel products, petrochemicals and foodstuff, are no longer subject to export taxes. Mr Yeung said a lower VAT would help support the toy industry, which is facing uncertain Christmas sales in the US and Europe. 'The snowstorm in the US is forcing shoppers to stay home despite heavy discounts by retailers,' he said. In addition, a number of Hong Kong manufacturers have been affected by the demise of KB Toys, the fifth-largest toy retailer in the US. Exporters were not only facing rising business risks, but also currency risks, Minister of Commerce Chen Deming warned yesterday. 'Trade risks are ballooning as recession hurts the financial health of importers and retailers, leaving some countries and regions with worsening credit,' he said. 'This will raise exporters' foreign exchange risks.' However, he again ruled out adjusting the yuan to bolster exporters' competitiveness, which would do little to actually boost exports. Maintaining the yuan at a stable and reasonable level was the nation's priority, he said. Mr Chen encouraged exporters to lower their reliance on US and European markets by prying open the mainland market and those in emerging economies such as Brazil and India. Total trade was likely to grow 18 per cent to US$2.5 trillion this year, the ministry forecast. However, mainland exports declined for the first time in seven years last month by 2.2 per cent as the global financial crisis affected consumer demand.