BEIJING - In an
effort to curb its ever growing trade surplus to
help ease increasing pressure to revalue the yuan,
China will cut tax rebates on exports of
low-value-added, high-energy-consuming,
resource-intensive and environmentally harmful
products, Chinese officials say.
The
as-yet-unreleased policy is scheduled to take
effect around September or October despite strong
protests from domestic companies and traders,
according to Caijing, a leading business magazine
based in Beijing.
The move reflects the
Chinese government's efforts to shift emphasis
away from low-value-added exports. "The Chinese
government wants to see a trade balance. We don't deliberately
seek a
rising surplus," said Chong Quan, spokesman of the
Ministry of Commerce (MOC).
Introduced in
1985, the tax rebates for exporters have made
Chinese products more competitive on the
international market.
It is now expected
that China will cut tax rebates by an average of
2% for sectors such as textiles, metallurgy, iron
and steel. Only high-tech industries avoid the
knife while their rebates are being increased.
"Export rebates for high-energy-consuming,
high-polluting and resource-intensive products
should be stopped," said Fu Ziying, assistant to
the minister of commerce.
Booming exports
have contributed significantly to the Chinese
economic miracle. In recent years, the cart of the
Chinese economy has been hauled by the two "strong
horses" of investment and foreign trade, with the
"weak donkey" of consumption tottering in the
middle.
To sustain steady development of
the national economy, China's policymakers aim to
spur domestic consumption by increasing consumer
purchasing power. Such a strategy can help rein in
over-investment, ease pressures on the yuan, and
dissuade foreign anti-dumping lawsuits resulting
from the mammoth trade surplus, industry officials
say.
Over the five years since China's
accession to the World Trade Organization, the
country's foreign trade has grown at an average
annual rate of more than 30%.
In the first
half of this year, China's foreign trade reached
US$795.7 billion in total, up 23.4% year on year.
China chalked up a trade surplus of $61.5 billion
in the first six months, up 54.9% year-on-year,
according to statistics from the General
Administration of Customs. On this basis, China's
trade surplus is set to exceed $100 billion for
this year, industry officials say.
"China's foreign-trade imbalance is driven
by brisk global demand for China-made products and
the ongoing migration of industries from developed
to developing nations," said Mei Xinyu of the
MOC's Trade Research Institute.
In the
1980s and 1990s, attracted by low labor costs,
multinational companies began shifting their
manufacturing to China, opening factories in the
east of the country to process materials and
export the processed products.
"The fact
is most exports by these multinationals have been
included in China's trade figures, and China's
trade surplus mainly comes from processing trade.
A high proportion of export profits in fact stay
in the pockets of multinationals," said Mei Xinyu.
In the first half of this year,
foreign-invested, export-oriented processing firms
generated total foreign trade of $465.3 billion,
up 25.8% from a year ago, accounting for 58.5% of
China's total.
In comparison, state-owned
enterprises posted $195.3 billion in foreign
trade, up 11.7%, while private firms' imports and
exports rose 34.9% to $135.1 billion.
To
fend off the ill effects of the 1997-98 Asian
financial crisis, China in 1999 raised its average
export rebate from 6% to 15%. The export growth
rate promptly doubled, and China became the
third-largest commodity trader in the world, in
terms of gross value, after the United States and
Germany.
However, annual export rebates
have now become a burden on central finances.
Between 2001 and 2005, aggregate export tax
rebates reached 1.19 trillion yuan, nearly 3.8
times as much as for the period from 1996 to 2000,
according to official statistics.
In
addition to this financial burden, the rebate
system conflicts with China's new determination to
attack pollution and conserve energy.
The
structural problem of an oversupply of low-end
products and undersupply of high-end products
haunts many Chinese industrial sectors at present.
Lower export rebates will deal a blow to low-end
products.
"Reducing export rebates for
energy-consuming and resource-intensive products
shows the government's resolve to discourage
exports of such products," said Professor Liu
Xiaochuan of Shanghai University of Finance and
Economics.
Moreover, reducing export
rebates may help ease pressures to revalue the
yuan.
Experts calculate that comprehensive
rebates for the export of $1 worth of commodities
amounted to 0.4429 yuan in 2005. Abolishing export
rebates would be equivalent to a revaluation of
the yuan by 0.4420 yuan against the greenback. On
this basis, the exchange rate would have been 7.7
yuan for $1 at the end of 2005. In theory,
abolishing export rebates will help ease pressures
to revalue the yuan.
In October 2003,
China lowered the export rebate rate by an average
3% and required local governments to pay 25% of
all rebates. In 2004, China cut export rebate
rates for certain products -
high-energy-consuming, low-value-added products or
products from sectors with low technical content,
and abolished rebates for crude oil, refined oil
and unsawn timber. Export taxes were also raised
on phosphor, ferrosilicon and copper products.
In January 2005, China officially removed
the 8% export rebates on 17 categories of
energy-consuming and resource-intensive products
including non-forged or non-rolled aluminum,
ferromanganese and ferrosilicon. China nullified a
13% export-tax rebate on steel billets on April 1,
2005. In April 2006, China further raised export
taxes on refined copper and copper alloy from 5%
to 10%, and interim export taxes for copper
materials from zero to 10%. China also put a stop
to rebates on electrolytic aluminum exports and
banned the processing of alumina for export.
"All these new deals have helped alleviate
pressure on the central government's finances and
ensure steady and sustained growth in Chinese
foreign trade," said Liu Xiaochuan.
Semi-manufactured goods By
increasing export tariffs and lowering export
rebates in 2005, the Chinese government enjoyed
some success in curbing exports of
high-energy-consuming, high-polluting and
resource-intensive products: coal exports dropped
12.7%, coke exports dropped 10.7%, billet exports
dropped 35.6%, and exports of non-forged aluminum
dropped 20% year on year in the first six months
of this year, according to the National Bureau of
Statistics.
However, to get around such
restrictions, many Chinese businesses found a new
strategy; they began processing materials slightly
- not completely - for export. Thus the bulk of
Chinese exports moved from resource-intensive
products to preliminary processed products and
semi-finished products.
China's exports of
semi-finished aluminum products, for instance,
surged 57% year-on-year to more than 400,000 tons
in the first five months of this year, according
to Chinese Customs statistics. The new adjustment
reported in Caijing therefore targets
semi-finished resource-intensive products with low
added value, and for good reason.
"We must
not go on selling resource-intensive materials to
the overseas market," said Zhang Ping, former
deputy director of the National Development and
Reform Commission.
The rebate cuts do not
please domestic firms. Chinese mills and
exporters, with their narrowing profit margins,
argue the reduction of export rebates will hurt
key Chinese industrial sectors.
"We
disagree with cutting the tax rebates because the
country's steel industry is still troubled with
oversupply," said Qi Xiangdong, deputy general
secretary of China Iron and Steel Association. The
association has more than 60 domestic steel-mill
members. In May 2005 China cut tax rebates on
steel product exports from 13% to 11%.
It
is reported that high-value-added steel products,
namely galvanized plate and silicon steel, will
remain at the same 11% rate, but low-value-added
products such as rods, reinforced bars, round
steel and hot-rolled medium plate will be cut to
8%.
Driven by high steel-product prices in
the international market, China's steel-product
exports have shown robust growth since the
beginning of the year. In the first five months,
China's steel-product exports hit a new high of
12.7 million tons, up 35.2%, while imports
decreased 27.6% to 7.8 million tons.
"China's steel-product exports continued
to increase, and steel-product prices recovered
significantly this year, although China was still
seriously hampered by overcapacity," said Jia
Liangqun, a vice general manager with Mysteel, a
leading steel consulting firm. But Jia asserted
that steel prices would drop in the second half of
the year: because of the new tax-rebate policy and
a cool-off in China's fixed-asset investments.
Baosteel Group, the largest of its kind in
China, will see its export costs rise by 150 yuan
($18.79) per ton after the tax rebate for
steel-plate exports is reduced, said Wang Xishun,
an official with the export department of the
group.
Steel plate is Baosteel's main
export, with 10% of its product exported to
foreign markets each year. Baosteel will try to
counter the new policy, Wang said.
A
similar situation exists with the textile and
machine-building industries, and lowering export
rebates for them may help these industries upgrade
industrial structure, industry officials say. Many
Chinese corporations have also considered shifting
their business strategy from commodity exports to
overseas investment.
Industry officials
propose a transition period. "According to
international practice, enterprises need a proper
preparation period, lasting from three months to
six months," said Long Guoqiang, deputy director
general of the Foreign Economic Relations,
Development Research Center of the State Council.
