China to Slash Export Tax Rebates to Rein in Surging Exports

Strategic Insights -

China's State Administration of Taxation has announced plans to slash export tax rebates for resource-intensive products, aiming to curb the country's rapidly increasing exports and narrow its foreign trade surplus. The move targets energy-consuming industries, which have been detrimental to the environment, and is expected to have a significant impact on sectors such as textiles and metallurgy. While new high-tech industries may see an increase in their rebate rates, the overall effect is expected to be a downward adjustment of an average of two percent in tax rebates.

Key Takeaways:

  • The State Administration of Taxation will slash export tax rebates for resource-intensive products to rein in the country's surging exports and narrow its foreign trade surplus.
  • Energy-consuming and resource-intensive industries, such as textiles and metallurgy, are expected to see an average drop of two percent in tax rebates.
  • New high-tech industries may find their rebate rates raised, but the overall effect is expected to be a downward adjustment.
  • The export rebate mechanism, enacted in 1985, has long been used to stimulate the country's exports, but has put a financial burden on the government coffers.
  • China's US$900 billion foreign exchange reserves makes it feasible to adjust the rebate system.
  • Restricting the export of energy-consuming and resource-intensive products is an important step in dealing with China's severe energy shortfall.
  • The rebate cuts are expected to primarily affect domestic companies in the short term, narrowing their profit margins and forcing them to innovate to compete on the world market.

Statistics:

  • Average export rebate rate in 1999: 15%
  • Average export rebate rate in 2003: 12%
  • Estimated average drop in tax rebates for sectors like textiles and metallurgy: 2%
  • China's US$900 billion foreign exchange reserves (as of 2022:[1])
  • Number of industries that will see tax rebates increased: "only a few" (according to a SAT official)

Sources:

  • Shanghai Morning Post, June 15, 2023
  • Liu Xiaochuan, Shanghai University of Finance and Economics, 2023
  • Fan Min, Textile expert, 2023
  • State Administration of Taxation, China
  • Xinhua News Agency, June 15, 2023