While governments in the West scramble to nationalize financial institutions and inject money into the ailing economy, Beijing has finally decided to make its own move to protect its export sector, the engine of China's growth for the past decade.
Effective November 1, 2008, China will raise export tax rebates for 3,486 items. The rate for "processed plastic products" will go up four percentage points to 9 percent, and the struggling toy industry will enjoy a 14 percent tax rebate. Click here for the official announcement on the Web site of the Ministry of Finance.The export tax rebate for plastic products was cut from 11 percent to 6 percent July 1, 2007. Since that time, the global economic slowdown, as well as domestic labor and environmental regulations, has put Chinese exporters under tremendous pressure.Will the tax policy be able to rescue China's export business? I doubt it, as the decline of global demand poses a more grave challenge to China than cost structures.Take the toy industry for example. China makes 90 percent of the world's toys. I don't have the hard numbers, but I wouldn't be surprised if the 2009 global demand ends up to be less than what China made and sold in 2007. It is hardly possible for China to keep its toy factories -- many of which have added capacity in the past few years -- running in a smaller global market. Therefore, there simply won't be enough orders to sustain all of the players. For those that can still secure orders, then yes, the tax rebate increase will certainly help with their bottom line. But the overall industry will not be able to escape the brutal restructuring.SEARCH
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China raises export tax rebate
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COMMENTS (2)
jerry brady:
China has preyed on the American economy by utilizing its cheap labor for years.
When Americans no longer have jobs, most of which in this case are non-skilled manufacturing jobs, they have less money to spent. I think that it has finally caught up with itself.
Americans have other issues to deal with such as feeding and providing for their families, high energy and gasoline prices and health care for their families.
There is no more money left for them to go to Wal Mart and load up on Chinese toys and other low quality throw away recreational items.
Chinese manufacturers grew to high numbers with plants growing to large scale facilities over a decade or so. All mainly for exporting goods to America.
Maybe a tax rebate can help some of the Chinese manufacturing plants but I think that a large number or percentage of them will cease to exist.
I don't think that it is anything against the Chinese people just simply they grew to fast and relied on the American exports to heavily.
Nina:
Thank you very much for weighing in, Jerry.
Yes, government-subsidized exports are not going to be sustainable. Many Chinese individuals and groups have criticized the government for raising the tax rebate, because the move is expected to hurt the Chinese economy in the longer term.
I�ve been curious about the issue on Wal-mart, China (standing for all lower-cost regions) and U.S. jobs. It looks like a chicken and egg causality dilemma to me. Did American consumers start to buy cheap goods from Wal-mart first, contribute to import increases, suffer job losses, and then buy more cheap imports from Wal-mart? Or did Americans suffer job losses [out of nowhere?] first, go buy cheap imports, and then lead to more job losses? Somehow, scenario one makes more sense.
It�s consumers� nature to seek better prices. It�s businesses� nature to seek better margins. Hence the influx of Japanese cars, Korean cell phones, Chinese consumer products and Indian customer service.
If China had never opened up its economy in 1978, would the world have been much different today? I doubt it. Other low-cost countries that have been shadowed by China -- India, Vietnam, Malaysia, Brazil, Indonesia, and Mexico -- would have done exactly what China has done to the U.S., no?
Now the U.S. consumers and businesses are contracting their spending, production capacity built all over the world to serve the U.S. will be a pain.
Jerry you are absolutely correct: China have been growing too fast and this growth has been overly dependent on the U.S. consumption.