With an export market in steady decline and global demand giving no signs of recovering quickly, China is pulling out all the stops to try to stimulate exports.
In February, the central government reinstated and in some cases increased tax rebates aimed at export-oriented companies, hoping to give manufacturers a break.
While some plastics manufacturers are hopeful the rebates will ease financial stresses weighing on the industry, experts said a rebate is no replacement for global demand.
It's not magic, said Pansy Yau, deputy chief economist of the Hong Kong Trade Development Council. The activities depend on the demand, and only if demand is there for exports will [rebates] have an impact.
According to statistics from China's General Administration of Customs, China generated $141.8 billion in foreign trade in January, a 29 percent decrease from the same period in 2008.
In response to the declining economy, China started increasing value-added tax rebates in November, focusing on products bound for export including furniture, bamboo, textile and plastic goods. In December, China increased rebates for around 3,770 products bound for export, and another 1,730 were added to the list Feb. 1. More increases are likely.
The rebates are a familiar strategy for China, which employed them in the past to help grow China's economy by encouraging manufacturing and export-focused industries. In 2007, China started to withdraw some of the rebates in an attempt to focus foreign investment in certain industries.
There were a lot of changes, Yau said. They wanted an industry upgrade.
The targets for decreased rebates included the processing trade, which included many plastics manufacturers that imported incomplete parts, assembled them in China, and exported the end product to be sold around the world. China also used the rebates to help limit polluting industries and encourage high-tech companies that would bring research and development to China.
Of course, all these policies meant higher costs, Yau said. Reduce the tax rebate and you have to pay the full amount on the tariffs that you are supposed to pay. In the past, many companies just paid a nominal fee as the deposit.
This added to increasing labor costs and an appreciation of the currency, Yau said.
The bottom line is cost. Now the export environment is not so good and China needs these exporting companies.
Basically everything is back to square one, Yau said of the rebates, adding that China also is trying to promote domestic consumption.
Anything will help now at this moment, Yau said. Whether it will significantly stimulate more manufacturing now that depends on demand.