China raises tax rebates for the seventh time to boost exports

China has raised export tax rebates for the seventh time since August 2008, taking the total number of rebated items to more than 2,600.

The latest round of rebates, as of 1 June 2009,  cover processed farm products, machines, shoes, hats and toys, Chinese ministry of finance announced on its websites yesterday.

The latest round of rebates are a continuation of the country's efforts to promote market confidence and assist businesses to survive the current downturn.

China implemented a number of measures to boost exports since the global economic downturn began and this is the seventh round of export tax rebates. The overall average export tax rebate rate now stands at 12.4 per cent from 9.8 per cent last year.

The 17 per cent value-added tax (VAT) paid by companies for the manufacture of export goods will now be paid back in part or full by the government.

A ministry official, told Xinhua, "China's exports still face difficulties in the short term. The tax rebate increase would help exporters reduce costs and shore up exports."

In a statement on its website, the ministry said the state administration of taxation has raised tax rebates on TV transmitters, sewing machines to 17 per cent, and on canned food, juice, shoes, hats and toys up to 15 per cent.

Tax rebates on plastic, porcelain, glass and aquatic products were raised to 13 per cent, steel products, including scissors, to 9 per cent and cornstarch, alcohol to 5 per cent, according to the website.

However, the ministry has not provided previous tax rebate rates.

A researcher with the ministry of commerce, Wang Zixian, was quoted as telling Xinhua that stable exports would play a fundamental role in maintaining economic growth, improving resistance against risks and ensuring employment.

"In short term, exports may play a less important role in driving up the economy. However, its position as a core for economic growth will not change," he said.

Immediately after the onset of the financial crisis in October 2008, the ministry of finance and state administration of taxation had announced increase in export tax rebate rate for 3,486 commodities starting from 1 November comprising 25.8 per cent of all taxable commodities of Chinese customs.

Besides, the state council launched 10 measures for stimulating domestic demand from 1 January 2009, value-added tax (VAT) transformation reform for industrial sectors.
Besides tax rebates, MOF had also extended more than 6 trillion yuan ($878 billion) in loans this year to help small business enter international markets as well as emerging markets. (See: China sees an 8 trillion yen loan surge in 2009 )

Falling exports hurt China
In the first four months this year exports fell 24.3 per cent. However, the April data showed a sixth straight monthly decline of 1.9 percentage points compared to the first quarter. But the month-on-month figure in April showed a growth rate was 1.9 percentage points higher than in January-March.(See:China's exports plunge, investment surges amid mixed cues )

China has been raising export rebates on some products after exports collapsed on failing overseas demand since the October 2008. For example, the government increased the tax rebate rate for textiles in April from 15 per cent to 16 per cent, for the fifth times since August. This time it increased the rebate on sewing machines to 17 per cent.

The textile industry benefited from the earlier rebate especially for textile machinery manufacturers on purchase of equipment.

Similar to other countries such as Australia, the growth of export in the past two month indicate that probably the decline in exports may have bottomed out.

Last month to help exporters, China's state council had announced additional support policies, including expanded export credit insurance, tax breaks and more financial access.

It also promised to keep the yuan stable at a "reasonable and balanced" level to help exporters avoid exchange risks.

China's exports, a main driver for its economic growth had recorded 2.2 per cent drop in November on a year-on-year, for the first time in seven years because of the global financial crisis.

Since then China is making all out efforts to promote exports and hence rebate have been provided to the export sector for the seventh time in a row to boost demand for its products by also providing loans to small enterprises to enter the international markets as well to make inroads into emerging markets.