China Increases Export Tax Rebates

Posted by Reading Time: 2 minutes

Jan. 5 – China’s Ministry of Finance announced that it will further increase tax rebates for exports including 533 hi-tech and machinery products beginning this year as its way of aiding the export market that has been hard hit by the global economic slowdown.

Businesses exporting industrial robots and airplane navigation systems can now avail of a 17 percent tax rebate from the previous rates of 14 and 13 percent. The tax rebates for motorcycle and sewing machine exports have also been upped to 14 percent from 11 and 13 percent.

China’s major export hub, Guangdong Province, has been severely affected by the global credit crisis as factories have shut-down and thousands of migrant workers were laid-off. The industry has been struggling with declining demand and increasing production costs that has made Chinese exports more expensive.

To its credit, the government has been aggressive implementing policies to help the export industry cope with slowing demand from its top export markets. China’s economy will need to keep its growth no lower than 8 percent to be able to provide employment and manage civil unrest. Last November, the government announced a RMB4 trillion economic stimulus plan to fund more spending on infrastructure and social services as well as implement favorable policies to boost domestic spending.

It has also increased subsidies for farmers to purchase household appliances from RMB8 billion to RMB15 billion for 2009. On average, Chinese exports have been growing at rates above 20 percent annually. China Daily reports that the country’s exports dropped 2.2 percent in November compared to the same period last year, the first time in seven years.

Bloomberg also reported that China’s manufacturing declined for a third month as exports fell and companies cut inventory. In a purchasing managers’ index report released on Jan. 2 by CLSA Asia-Pacific Markets it said that Chinese manufacturing slowed for a fifth month.

“The December index shows China’s economy continues to decline, but there are some signs of bottoming out,” said Zhang Liqun, an economist at the State Council Development and Research Center told Bloomberg. “As macroeconomic policies start to take effect, the pace of the slowdown will stabilize.”

China is the world’s fourth largest economy and its top export markets are the United States, Hong Kong, Japan, South Korea, and Germany. IMF head, Dominique Strauss-Kahn, forecasted that China’s GDP growth could possibly drop to as low as 5 to 6 percent this year. On the other hand, the World Bank says China could grow by 7.5 percent, the lowest rate in close to two decades.