Chinese Government raises export rebates again to stimulate exports

By Martin Vedris in Guangzhou

GUANGZHOU: News of the global financial crisis, which US Federal Reserve chairman Ben Bernanke refuses to call a recession, is front page news in the Chinese press as talk of the country’s lowest GDP in years sparks affirmative action from the Government to stimulate flagging exports.

The Chinese Government last year decided to lower the tax rebates it offered Chinese companies who were manufacturing for export. The companies were using the rebates as a subsidy by including part or all of the rebate in their pricing, thereby lowering the cost of goods to international buyers.

When the Government announced it would heavily reduce the rebates, prices of Chinese goods increased by up to 11 per cent.

Now, with news of China’s lowest GDP result since the 1970s on the way, worry is setting in.

Because the Chinese economy is so heavily reliant on exports, the falling demand from international buyers is putting pressures on local factories. Some toy factories, for example, have closed down with more closures to come, according to comments from Government officials in the China Daily newspaper.

The concerns forced the Chinese Government to intervene, and just like Harvey Norman and Bing Lee can stimulate retail sales in Australia by offering extended interest free credit terms, the Chinese Government is pulling the tax rebate lever to lower prices and stimulate demand.

“It is necessary to adjust the fiscal policy and prevent a drastic slump in the export sector,” the Ministry of Finance said in a statement posted on its website last night.

“If we don’t take measures, exports will continue to shrink and the plight faced by exporters will only worsen.”

All the talk of falling GDP results and slumping exports need to be taken in context, however.

GDP is growing in China, albeit at just a forecasted nine per cent. And while export growth is tipped to drop by around four per cent, export growth was still running at 22.3 per cent year on year in the first three quarters this year. The Chinese economy is still growing, but at a slower rate.

If international demand does not pick up, however, some analysts are predicting negative export growth for China in 2009. The effect on the Australian economy will be noticed in the resources sector as Chinese demand for raw materials drops.

The solution? Consumers need to continue buying goods. Maybe we need some more interest free credit terms and opening up Sunday trading in WA could help. Looks like we all need to do our bit for global economic growth.

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