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China adds to export tax rebates

CHINA has raised export tax rebates on more than 600 types of goods, including machinery, furniture, toys, plastic products and steel - another step in its campaign to stimulate an export sector hard hit by the global recession.

But experts said the effort, though welcomed by exporters, may not provide a significant boost because it doesn't address the fundamental problem: the lack of external demand.

The Ministry of Finance said yesterday that export rebates for machinery were raised from 14 percent to 17 percent, furniture from 13 percent to 15 percent, toys from 14 percent to 15 percent and plastic products from 11 percent to 13 percent.

Other items included porcelain, glass, aquatic products, suitcases, shoes, caps and some processed agricultural products, the ministry said. Among the changes, yesterday's move will give steel companies a 9 percent tax refund on sales of hot-rolled steel. All the rebate increases are retroactive to June 1.

Export tax rebates enable Chinese companies to get back part or all of the money they have paid in value-added tax, which stands at up to 17 percent, for items that have gone into the production of export goods.

China has raised the rebates seven times since August to help its struggling exporters. In the first quarter of this year, tax rebates amounted to 102.9 billion yuan (US$15.1 billion), up 18.4 percent from a year earlier.

The State Council last month also unveiled policies including expanded credit insurance and improved financing to help exporters.

"The government obviously intends to save the export sector," said Xue Jun, an analyst at Changjiang Securities Co. "Tax breaks may help domestic exporters reduce business costs, but they can't deal with the root of the problem - contraction in external demand."

China's exports fell 22.6 percent in April from a year earlier, compared with drops of 17.1 percent in March and 25.7 percent in February. April's drop dampened optimism that China's exports had entered a recovery track.

But the May Purchasing Managers Index, which gauges manufacturing activities, posted an above-50 reading in its sub-index for new export orders. It was the first time since June last year for that category to broach expansionary territory.

Sun Lijian, a professor of finance at Fudan University, said China needs to aid exporters, but the government also must continue to focus on shifting from an economy driven primarily by overseas sales to one powered by domestic consumption.

"We have very limited influence over demand in other countries. But stimulating spending at home is within our control," Sun said.


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