China's Export Tax Rebate Rise
2008-08-05

      China officially has restored the export tax rebate for textiles and clothing to 13 pct from the current 11 pct, in order to limit the current slowdown in shipments to foreign countries. It was carrying out on August 1£¬2008.
     It means China’s central government has adopted a tight monetary policy to avoid overheating the economy.
     1.Mainly reason
        Why does the government make this decision? The most important reason is to against the falling of the USD.
The RMB exchange rate saw its biggest fall since the beginning of exchange rate reform in July, 2005. And the slump continued on Monday.
       The rate of RMB against the USD opened at 6.8163 last week, and closed at 6.8420, slumping by 257 basis points.
       In 2005 and 2006, the government has cut the export tax rebate twice, as part of an effort to reduce a rapidly increasing trade surplus.
       But in 2008, as we all know, the value of dollar has fallen seriously£¬currency RMB is strengthening against the U.S. dollar while costs are also rising gradually. The increasing value of the RMB is placing great pressure on domestic companies
     Furthermore, operating and labor costs are still rising, along with prices for food, gasoline and electricity. Higher inflation, a weakened equity market and the devastating earthquake in Sichuan province negatively affected domestic market demand for fabric in the first half of 2008.
     With this decision, Beijing expects to ease its trade controls to help the country's exporters, especially the textile industry whose profit margins are being squeezed by a rising RMB and higher production costs.

   2. Possible outcomes
   “The adjustment in the policies towards processing trade in the last two years is completely correct. However, these policies were released at an improper time point, without taking the change in the domestic and international economy, especially the influence of the economic downturn in the US and European countries, into account,” says the Financial and Economic Affairs Committee.
     Really, this year is a difficult one for Chinese producers, especially smaller manufacturers.
     The measure came into effect , will give a break to the ailing clothing exporters and help ease the concern over an unemployment spurt¡£The move then helped to slow the nation's ballooning export growth. It means now China will gain more competing power in international markets.
     But it may be a temporary measure, as the government will continue to push forward the upgrade of its industries. The government aims to support enterprises that still have strong competitiveness, but has not canceled limits on industries with high energy consumption and heavy pollution.
    In addition, the rise in export rebates could now trigger new negotiations between Chinese suppliers and their clients in the United States and Europe.
     In summary, we all expect a steady economic growth. Every country should make great efforts and help each other.