China may expand exporters’ tax rebates to help them cope with a slump in trade growth, according to three people with direct knowledge of the plan, deploying a stimulus tool used during the global credit crunch.
The government may give a full rebate of the 17 percent value-added tax on products including furniture, shoes and toys, up from the current range of 13 percent to 15 percent, said the people, who asked not to be identified because the discussions are private. The policy may be rolled out as soon as this month, depending on whether trade remains weak, they said.
Premier Wen Jiabao has pledged policy “fine tuning” to cope with a deepening slowdown in the world’s second-largest economy that saw export gains slump to an annual 1 percent pace in July from 11 percent in June. The deterioration in trade escalated the risk that Wen will miss his full-year economic expansion target for the first time since he took office in 2003.
“The tax rebates cover mainly labor-intensive products, and it reflects the government’s concern about rising unemployment pressures,” said Joy Yang, chief Greater China economist for Mirae Asset Securities (HK) Ltd. in Hong Kong.
The policy change is unlikely to increase exports, said Yang, who formerly worked for the International Monetary Fund. “The biggest problem for Chinese exports now is the weak demand from overseas markets, and tax rebates won’t help much in boosting demand.”
Dai Bohua, a spokesman for the Ministry of Finance, which oversees tax policy, didn’t answer the phone when Bloomberg News attempted to reach him three times today. The ministry didn’t immediately respond to faxed questions from Bloomberg News.
China used the tool in 2008 and 2009 to help the economy when exports plunged during the global financial crisis, at one point raising tax rebates on 553 products including motorcycles and sewing machines. The nation’s exports fell 16 percent in 2009 from 2008.
Shipments abroad of products covered by the tax change totaled at least $130 billion in 2011, or about 6.8 percent of China’s overseas sales, based on data compiled by Bloomberg News. China’s customs administration is scheduled to publish August trade data on Sept. 10, and the September figures on Oct. 13.
The nation’s gross domestic product expanded 7.6 percent in the second quarter from a year earlier, the slowest pace in three years. Wen set a 2012 goal of 7.5 percent in March.
“Further policy loosening is needed to prevent a further slowdown in production growth,” Sun Mingchun and Sun Chi, Hong Kong-based economists at Daiwa Securities Group Inc., wrote in a note today. “Export growth should remain weak.”
China needs targeted measures to promote steady growth in overseas sales, including speedier payment of tax rebates, Wen said during a visit last month to Guangdong, the biggest exporter among China’s provinces.
The government provided 531.6 billion yuan ($84 billion) in export-tax rebates in the first half of 2012, an increase of 16.4 percent from a year earlier, according to the Finance Ministry.