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China hikes export tax rebates

By Zheng Lifei (China Daily)
Updated: 2009-03-28 09:37

China on Friday unveiled a slew of tax and foreign exchange policy changes to boost its exports, which saw its worst monthly decline in more than a decade in February.

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The government will raise export rebates for textiles, steel, petrochemicals and electronics starting April 1, the Ministry of Finance said in a notice posted on its website on Friday.

Rebates will also be increased for non-ferrous metals, light industrial products and information-technology products, the notice said.

Export tax rebate will be increased to 15 percent from 14 percent for textile and garment exports, the fourth rebate hike for the sector since last August.

In a separate move, the country's foreign exchange regulator decided to raise the amount of short-term foreign debt that banks may incur by 12 percent to boost trade financing.

The State Administration of Foreign Exchange (SAFE) set a quota for the year beginning April 1 of $32.9 billion, or 12 percent more from a year earlier, the regulator said in a statement on its website.

The newly added amount should all be used to help Chinese exporters and importers, SAFE said. The short-term foreign debt should go first to big financial institutions that have huge trading transactions to maintain the steady growth of the foreign trade, SAFE said.

"The move is aimed to facilitate growth in the real economy and boost trade financing," the foreign exchange regulator said. China cut the banks' short-term foreign debt quota by 10 percent in 2008, after lowering it even more sharply in 2007.

The tax rebate hike and the easing of the short-term foreign debt are the latest in a series of moves to prop up the country's exports, one of the three pillars of the economy.

Experts are of the opinion that while these measures would certainly help exporters, it does not address the fundamental problems.

The country's foreign trade increased 17.8 percent in 2008, or 8.5 percentage points lower than in 2007. Exports plunged 25.7 percent in February from a year earlier.

"The latest tax rebate hikes will partly alleviate the woes caused by the declining demand in international market," said Ma Li, analyst, China Galaxy Securities.

"But it cannot fundamentally solve their problems as the main cause of their woes is the slumping overseas demand," the analyst said.

Export tax rebate for non- ferrous metals and furniture will be raised to 13 percent, according to the notice.

Tax rebate for CRT model color television sets will be raised to 17 percent, it said.