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Wed, Oct 15, 2003 - Page 12 News List

China to reduce rebates on export tax on Jan. 1

INTERNATIONAL TRADE The cut is expected to help Beijing fend off criticism that an undervalued yuan is making the goods it sells abroad unfairly cheap


China will trim tax rebates on exports by an average of three percentage points, a move that is expected to ease upward pressure on the yuan and assuage concerns by trading partners over China's surging exports.

The lower rebates could mean higher prices for some Chinese exports, helping Beijing fend off strident critics such as US manufacturers that complain an undervalued yuan is making the country's goods artificially cheap.

The cuts, to take effect on Jan. 1, follow calls last week by Premier Wen Jiabao (溫家寶) to reform the rebate system, which he said had put pressure on swelling government spending and spawned economic imbalances.

"The cuts will push up costs of exports and weaken their competitiveness on international markets," said Zheng Weigang, a senior capital market analyst at Shanghai Securities. "As a result, it will help relieve pressure for a revaluation of the yuan, a direct result of strong trade surpluses."

The State Council, China's Cabinet, also decided tax rebates would be divided into five categories to better manage shipments of different commodities, officials and state media said yesterday.

"It is a milestone in China's trade reform," said an official with the Ministry of Finance, which along with the State Administration of Taxation is responsible for working out export-tax rebate policies.

China's exported nearly US$266 billion of goods in the first eight months, a jump of nearly 33 percent over the same period a year earlier.

That has brought a flood of dollars into the country, putting pressure on the yuan, which is fixed at about 8.28 to the dollar, to rise in value.

Analysts said the cuts would not push China's trade balance into serious deficit.

"China's exports are competitive due to the country's cheap labor," said economist Wang Chuanglian at China Southern Securities. "The cuts are unlikely to drive China's exports into deficit, or at most the deficit would be tiny."

Some state media put current export-tax rebates at 15 percent while others have reported a 17 percent figure. The official said calculating averages was complex but that those reported figures were "about right." He declined to give further details.

State media said the cuts were in line with state policies to support exports of certain goods and restrict others.

"Rebates for export commodities the state supports will not be cut or will see just a small reduction," the official Shanghai Securities News quoted a State Council decision as saying.

"For export commodities currently restricted or related to restricted resources, there will be more reductions," it said.

For other classes of goods, rebates were actually hiked.

For instance, exporters of wheat and corn powder would have tax rebates raised to 13 percent from 5 percent, the official Xinhua News Agency said.

Goods subject to cuts include gasoline, zinc, iron alloys and coke, the agency added.

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