China will remove or reduce tax rebates on nearly 3,000 export categories, including some metals products, textiles, shoes and other manufactured goods, to help reduce its trade surplus, the Finance Ministry said.
The changes could temporarily stem a flood of exports, particularly of steel and aluminium products, that has helped widen China’s trade surplus to $216.7 billion in the 12 months through May, and raised hackles in the United States and Europe.
“The export tax rebate policy adjustment is an important part of a series of measures to curb export growth and to mitigate the excessive trade surplus problem,” the ministry said in an announcement.
The rebate changes “will not have a significant negative impact,” it said without further elaborating.
The changes will take effect from July 1.
There will be no grace period for most products, except ship sections and some construction equipment, since previous grace periods on export policy changes resulted in many cases of fraudulent export contracts, the announcement said.
The announcement came after stock markets closed, possibly to soften the impact on stocks of export-dependent industries.
Traders had expected China to make sweeping changes in the rebates after top officials said the changes would discourage over-investment in polluting and energy-intensive industries.
“It’s rare to see so many items changed at once,” said a European diplomat in Beijing. He noted that China usually balanced lower rebates on low-end products with higher rebates to encourage exports from higher value-added industries.
This time, Beijing issued a modest list of exports that would enjoy tax-free status, including uncooked peanuts, some artwork and stamps.
China’s Commerce Minister Bo Xilai last week told EU Trade Commissioner Peter Mandelson he understood European concerns over China’s soaring trade surplus, and an EU official said Brussels would study Tuesday’s changes closely.
“Action is needed to avoid overcapacity in key sectors and to remove mechanisms that can distort export markets,” he said.
Separately, French Prime Minister Francois Fillon said on his government would push for an extension of quotas on Chinese textile imports due to expire at the end of the year.
Some of the changes address specific complaints by China’s trading partners. US welded pipe producers this month asked Washington to impose duties on competing imports from China, arguing they were sold at unfairly low and subsidised prices.
Others were long expected. Aluminium product exports nearly doubled in the first five months with April at a record high and May exports a close second as fabricators rushed products out.
But there is still comparatively more advantage in exporting aluminium products than primary aluminium which has a 15% export tax. After an initial slump in downstream demand, domestic aluminium prices will likely fall enough to restore margins for exports, according to a Macquarie Bank report.
China has maintained export rebates of 11% on aluminium sheet and strip exports, and 13% rebates on aluminium tube and foil exports, it noted.
“Clearly it’s going to have an impact on aluminium semi-fabricator margins on export sales since they will probably have to absorb some of the increased cost themselves,” said Gayle Berry of Barclay’s Capital in London.
“They will probably try and pass on some of the cost burden to customers, but that might prove difficult since selling at a discount in export markets is their competitive advantage.” (Reuters)