China slashes tax rebates to trim huge trade surplus

BEIJING : China will remove or slash tax rebates for more than 2,800 export items next month, the finance ministry said, in its latest move to try and reduce its fast-growing trade surplus.

The tax changes will affect 37 percent of all Chinese exports, ranging from cement to toys, the ministry announced in a statement on their website Tuesday.

The ministry said the move, to take effect from July 1, was to curb the excessive growth in exports, ease frictions with its trading partners and slow down high-energy consuming products.

Analysts believe China's trade surplus could pass 320 billion dollars by the end of the year if current growth is continued, 10 times the level of 2004, adding to tensions with the United States and the European Union.

The total trade surplus in the first five months jumped 83.2 percent from a year earlier to 85.72 billion dollars, according to the government data released earlier this month.

The cutting of tax rebates, which push down the price of exports, was described by the China Daily as "the boldest move yet to rein in exports since China joined the World Trade Organisation in 2001".

One tranche of 553 products classified as "highly energy-consuming and resource-intensive" will have their tax rebate removed.

They include cement, fertiliser, and non-ferrous metals.

A further 2,268 products which China thinks can easily trigger trade frictions - such as toys, clothes, steel products and motorcycles - have also had their rebates lowered.

Both the United States and the EU have introduced tariffs and other measures to try and reduce their trading imbalance with China.

The United States and others also accuse China of keeping the yuan artificially low to make Chinese exports unfairly cheap.

The latest move follows the imposition or raising of export tariffs on 142 types of goods - including some steel products - which was introduced on June 1.

Qi Xiangdong, from the China Iron and Steel Association, said the move would damage exports.

"Our steel companies are at threat (of losing foreign markets). But we can understand the overall significance of the policy," Qi was quoted as saying by the China Daily. - AFP/ch