Taxes Cut in Effort to Lift Exports

China will reduce or eliminate export taxes on nearly 100 categories of goods including some agricultural products and fertilizers starting next month in its latest move to help the country's flagging trade sector.

The cuts are the first outright tax reductions since December 2008 and follow seven increases in export tax rebates since August.

While the policies give at least some relief to the nation's struggling exporters, they contribute little to fixing the main problem: restoring external demand, industry analysts said.

The Ministry of Finance said yesterday that 31 types of goods such as wheat, rice and soya beans will be exempted from export taxes starting July 1.

Large tax reductions will apply to another 60 categories of products, including fertilizer and chemicals. The tax on phosphate fertilizer, for instance, will be cut from 75 percent to 10 percent.

"The move, similar to the previous increases in export tax rebates, is an obvious bid to counter the falling trade," said Xue Jun, an analyst at Changjiang Securities Co. "A tax cut is more direct and effective than rebates and enhances cash flow."

A tax cut is immediate, while exporters have to wait to receive a tax rebate.

"The frequency of these moves illustrates that the Chinese government still attaches great importance to exports, though domestic demand is considered key to the country's economic recovery," Xue said.

China's May exports fell 26.4 percent from a year earlier to US$88.8 billion, the worst drop in at least 14 years. Last month, China announced it would raise tax rebates on more than 600 types of exports, including machinery, toys, plastic products and steel. Total rebates amounted to 102.9 billion yuan (US$15.1 billion) in the first quarter, up 18.4 percent from a year earlier.

Vice Commerce Minister Zhong Shan said China will spare no effort to protect the country's share of the global market.

"China's trade will suffer a retreat this year and experience slow growth in the coming years," Zhong said in an article published in the Economic Daily yesterday. "We should go all out to stabilize trade. The focal point should be to avoid losing share in the global market. It is of great importance to keep companies alive and make jobs available, which lays the foundation for the expansion of domestic demand."

Despite falling volume, Zhong said it may be possible for China to raise its share of global trade.

He said Chinese exports last year accounted for 8.86 percent of the world's total exports in terms of value, still below the level of export giants Germany and the United States, which each hold around 12 percent of global market share.

At a time when people are slashing spending, China should be able to benefit because the country sells more necessities than luxuries.