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China Cuts Exporters' Tax Incentives Including Steel

On the eve of an economic gathering in Singapore where it is likely to see renewed pressure over its allegedly undervalued currency, China cut tax incentives for many of its exporters on Sept. 15.

The exports tax rebate, in effect a government subsidy to select industries, was lowered to 8% from 11% for steel products, and to 11% from 13% for textiles, the finance ministry said.

China made the announcement shortly after releasing data showing a record $18.8 billion trade surplus for August.

The announcement also came as finance ministers from Britain, Canada, France, Germany, Italy, Japan and the U.S. were to meet in Singapore ahead of gatherings of the International Monetary Fund and the World Bank. The seven finance chiefs are seen likely to renew calls on China to free up its currency so as to help ease global economic imbalances.

Introduced in 1985, tax rebates for exporters have made Chinese products more competitive on the international market. Following the late-1990s Asian financial crisis, China raised its average export rebate from 6% to 15%.

The export growth rate promptly doubled and China became the third-largest commodity trader in the world.

However, annual export rebates have now become a burden on central finances. Between 2001 and 2005, aggregate export tax rebates reached 1.19 trillion yuan (US$148.7 billion). This was nearly 3.8 times as much as for the period from 1996 to 2000, according to official statistics.

Copyright Agence France-Presse, 2006

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