SHANGHAI - The record monthly US$18.8
billion trade surplus in August has prompted the
Chinese government to implement long-awaited
readjustments of the country's export-tax rebates.
While the new rebate scheme may not slow down
exports, it is likely to help boost flexibility of
the yuan's exchange rate.
The new
export-tax rebate scheme, jointly formulated by
the Ministry of Finance and four other departments
of the central government, took effect from last
Friday. In addition to helping
curb
China's ever-growing trade surplus and hence help
ease increasing pressure to revalue the yuan, the
new scheme is also seen as part of Beijing's
macroeconomic control policy to cool the
overheating economy.
But analysts cast
doubts that things will work this way, saying the
new scheme is unlikely to have any significant
affect on slowing down China's white-hot exports,
which are the major source of the trade surplus
and of the overheating of the economy. However,
the new scheme may enable Beijing to consider more
flexibility for the yuan's exchange rate, they
say.
The new scheme is designed to
discourage exports of commodity goods and
low-value-added, high-energy-consuming,
resource-intensive and environmentally harmful
products, such as steel products, some non-ferrous
metals, plastic products, furniture, cigarette
lighters, textiles, ceramics, cement and
glassware. In general, the rate of tax rebates for
such goods has been lowered to 11% from the
previous 13%.
On the other hand, the new
scheme is aimed at encouraging exports of
high-value-added information-technology (IT)
products, pharmaceuticals, biotech goods and heavy
equipment by raising rebate rates from 13% to 17%
on average.
China charges a 17%
value-added tax (VAT) on nearly all goods produced
in the country, even those destined for export
(most countries and regions in the world don't
charge any VAT on export-oriented products). The
government then rebates a part of VAT at rates
that vary by products and industries. Lower rebate
rates mean more VAT charged on exporters, higher
rates less VAT. The rebate rates serve as a policy
tool for the government to adjust the pace of
exporting.
According to the five
ministries that jointly unveiled the new scheme,
the structural adjustment of export tax rebates
"is one of the comprehensive measures adopted by
the State Council to control and regulate the
macroeconomy". Discouraging exports of
low-value-added products is in line with one of
the purposes of the government's macroeconomic
controls: to restrict production of
high-energy-consuming, resource-intensive and
environmentally harmful products.
The new
scheme also shows the Chinese government's
intention to pacify the growing protectionist
sentiments in the United States, the European
Union and elsewhere. For example, textile and
furniture that are readily targeted by such
protectionism will have lower rebates and
therefore, theoretically, will be less
competitive.
But the adjustment of rebates
is unlikely to curb China's robust exports
significantly. For many products, such as
textiles, furniture and cigarette lighters, myriad
plants and factories in the Pearl River and
Yangtze River deltas are already in a commanding
position that is not easily overtaken by the more
labor-cost-effective competitors, either in
Southeast Asia or in Central America.
While the government is confident that
China is able to keep its share in the world
market of low-end products, its intention in the
long run is to "transform the pattern of export
growth and push for a balanced trade". In short,
Beijing's policy can be interpreted as a long
march toward the a higher level on the value chain
in the international labor-division system.
China is well on the way toward exporting
more sophisticated manufactured goods and IT
products. They now account for nearly half of its
total exports by value. Such a structure of
exports is pretty much similar to that in
industrialized countries, which have much higher
production costs than China.
Thus analysts
do not expect that the latest adjustment of
export-tax rebates will have any impact on China's
burgeoning surplus in the short run. For many
export-oriented companies in Guangdong province,
the engine of China's exports, the new adjustment
has been rumored since June, when some companies
started to negotiate with foreign importers for
price rises. Generally the rebate rates are
lowered by 2 percentage points, so the impact on
exporters is very limited.
On the other
hand, it seems that one consideration of Beijing's
policymakers is linked to greater flexibility of
the yuan's exchange rate. The negative impact of
the currency's appreciation on China's exports of
agricultural products has long been one of the
major concerns contributing to a slow yuan
appreciation. Under the new scheme, export rebate
rates for some farm products have increased
dramatically to 13% from as low as 5%.
"Higher export-tax rebate rates for some
processed farm products may pave the way for
further appreciation of the yuan," said Ha Jiming,
the chief economist of China International Capital
Corp Ltd (CICC).
A new round of haggling
over the yuan's exchange rate is beginning. Two US
senators, Charles Schumer and Lindsey Graham, are
scheduled to reactivate the retaliatory bill that
could impose a 27.5% punitive tariff on Chinese
goods unless Beijing puts a "down payment" on the
yuan's revaluation. Also, Henry Paulson, the newly
appointed US treasury secretary, is pursuing China
on the issue.
At the just-ended
International Monetary Fund and World Bank annual
convention in Singapore, China was given slightly
more voting shares in the IMF, which is regarded
as a carrot that could persuade Beijing to agree
to a more responsible exchange-rate regime.
Paulson, who arrived in Beijing on Tuesday for a
four-day visit, has been widely expected to
advocate a more flexible exchange regime and more
open financial markets.
Attending the
convention, Zhou Xiaochuan, governor of the
People's Bank of China, the country's central
bank, said on Sunday that whether the yuan's float
band would be widened depended on whether there
was a demand for it in the financial markets. If
there is such a need, the central bank will
consider further expanding the yuan's float range,
Zhou said.
"This will entirely depend on
the foreign-exchange market. It has has nothing to
do with whether the Chinese government is seeking
any interest" from it, Zhou said. But he refused
to disclose when the move would be taken. "It is
not convenient right now to disclose whether there
is a timetable,'' Zhou said.
Zhou's
remarks immediately boosted the Chinese currency's
exchange rate. On Monday, the yuan hit a record
high of 7.9200 to the US dollar.
Scott Zhou is a freelance
journalist based in Shanghai.
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