Export tax rebate subsidises foreign consumers

September 04, 2009 - Hong Kong

A professor of economics Mr. Zhang Shuguang has pointed out that policy effects of adjustment in export tax rebate will be very poor, under the background of declining demand in foreign countries and shrinking domestic market.

Many foreign countries have imposed protective measures on import of goods from China and most of the benefit of the tax rebates has been lost, due to pressure from overseas buyers to reduce rates.

From April 1, 2009 onwards, export tax rebate rate on part of China's textiles and clothing has been raised to 16 percent, close to zero export rate.

The retailers to combat the slowdown in trade have introduced huge promotional discounts to attract the customers, and these purchases in effect are subsidized by the tax rebates given to Chinese textile and clothing manufacturers by the state.

Relevant studies have estimated that, domestic textile enterprises are able to get only 50-60 percent of real benefits from tax rebate, taking into account the price squeeze by foreign importers on grounds of increased export tax rebate rates.

An official from the Ministry of Commerce said, “We have always stressed that our ultimate goal is to protect market and safeguard employment, but not profits.”