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Govt gives exporters shot in arm

By Wang Xu (China Daily)
Updated: 2008-10-22 09:38

An employee works in a textile exporting company in Hai'an, Jiangsu province. China is raising tax rebates for 3,486 items of exports to help producers cope with smaller profit margins as a result of slacking market demand. [China Daily]

China will raise tax rebates for a quarter of its export portfolio and jumpstart an array of infrastructure projects, trying to buffer the impact of weaker overseas demand.

The move came as the government announced an array of stimulus measures after the nation's GDP growth declined to 9 percent year-on-year in the third quarter, the slowest pace over the past five years.

"It's necessary to adjust the fiscal policy and prevent a drastic slump in the export sector," the Ministry of Finance said in a statement posted on its website last night. "If we don't take measures, exports will continue to shrink and the plight faced by exporters will only worsen."

The export sector, a major driver of the Chinese economy, has fallen victim to the global credit crisis and weaker foreign demand. In the first three quarters, exports grew 22.3 percent year-on-year, 4.8 percentage points lower than the same period last year. And the annual growth rate of exports was below year-earlier rates in eight of the first nine months of 2008.

Some economists say exports may continue to shrink in the rest of the year, with the most pessimistic forecast being negative growth in 2009.

"As the global economy enters a recession, we expect China's export growth to slow significantly in the coming quarters, bringing investment in export-related sectors down with it," said Wang Tao, an economist with UBS Securities.

The government will raise export tax rebates from Nov 1 for 3,486 products such as textiles, clothing, furniture and toys, according to the Ministry of Finance. For textiles and clothing, the refund rate will be increased from 13 to 14 percent.

"The move may help some companies," said Tang Jianwei, an analyst with Bank of Communications. "But how much it benefits exporters remains questionable as the trend of shrinking foreign demand is unlikely to reverse."

The government raised export tax rebates in late July from 11 to 13 percent in response to an export slump over the past months, with a stronger renminbi and rising labor and raw materials costs eating into local exporters' profit margins.

"The government might use more credit measures such as loan incentives to help exporters," said Tang.

The government also said yesterday it has approved an array of infrastructure projects, including roads, airports and nuclear power plants.