Policy Watch

Scrapping tax rebates signals policy shift

(China Daily)
Updated: 2010-07-01 14:50

Scrapping tax rebates on some 406 categories of exports, announced recently by the Ministry of Finance, is a clear signal of a shift from the two-year stimulus push back to a balanced economic model that relies less on exports.  [China scraps export tax rebates on some steel, metal products]

The move will also help discourage over-investment in polluting and energy-intensive industries in keeping with the emission reduction target set for the end of the 11th Five-Year Plan period.

Export rebates will be out on some steel products, including hot rolled coil, as well cornstarch, glass and rubber goods, and pharmaceuticals, the Finance Ministry said on June 22.

Tax rebates had been re-introduced to counter the global financial crisis. The current adjustment means the nation is gradually trying to curb exports in order to cut down its excessive trade surplus. Exports witnessed a robust 48.5 percent year on year growth in May and imports, 48.3 percent. It also shows that the government is confident about domestic economy.

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Even so, the number of export categories that have been taken off the rebate list merely account for one-sixth of the items that were trimmed during a similar move in 2007.

A more aggressive pruning of the tax rebates list will have to wait, as the economic recovery has not yet been firmly established.

The economy is currently unbalanced, and is facing uncertainties, such as the expanding sovereign debt crisis in Europe, drastic exchange rate fluctuations in major currencies and persistent volatility in the international financial market.

Moreover, curbing the trade surplus is not enough to balance the export-dependent economy. To do that, China must adjust its cost of production, including the cost of labor and resources, and mitigate its environmental impact.