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Tax rebate cut as rebalancing act

(China Daily)
Updated: 2007-06-21 15:08

The massive cut or elimination of tax rebates for exports just announced by China marks a bold move to reengineer the Chinese economy away from its reliance on exports for growth.

Developed countries which have long complained about their trade deficits with China should now understand the seriousness of the Chinese government's commitment to seeking balanced trade growth.

And if global imbalances are to be reduced, the developed countries should join China in taking painful but necessary domestic measures to adjust their own industrial and trade policies.

The Chinese government announced on Tuesday that tax rebates for more than 2,800 export items will be eliminated or cut starting July 1.

The strongest move to rein in export growth since China's entry into the World Trade Organization in 2001 will affect more than one-third of the country's export products. It comes less than a month after the country imposed or increased exporttariffs on 142 categories of goods.

Related readings: Tax rebates cut to curb exports More cuts in farm tariff 'not feasible' US curbs on high-tech exports to hurt trade Adjusting export rebate policy under way China great regret over US controls on hi-tech exports High-tech products nearly 30% of China's foreign trade China becomes 2nd largest exporter of auto parts to US Move into high-value exports China may trim tax rebates for textiles, garments Tax rebate cut to slow steel sector Growth of China's textile industry slows

All these steps are obviously aimed at controlling the country's growing exports and rocketing trade surplus.

The huge trade surplus has added to the difficulty for Chinese monetary authorities to mop up excessive liquidity in the home market to cool the national economy.

At the same time, the rapid growth in exports of highly energy-consuming and resource-intensive products has considerably dented the country's efforts to shift its growth model toward an energy-saving, environmentally friendly and sustainable economy.

The latest elimination of export tax rebates on cement, fertilizer and non-ferrous metals sends a clear message to all Chinese enterprises that they can no longer make profits at huge energy and environmental cost.

It will be a long and painful course for most Chinese enterprises to go green. After all, as a developing country, China is still in need of the technology, expertise and institutional organization to make itsgross domestic productincreasingly greener.

Instead of complaining about China's comparative advantage in labor-intensive manufacturing, developed countries should focus on tapping into China's vast market for green technology and products.

The sweeping reduction of export tax rebates is also a clear sign of China's good will in the face of rising trade conflicts with other countries. As China takes major steps to expedite domestic industrial restructuring to reduce trade imbalances, other trading partners should also do their bit to reduce global imbalances.