Mei Xinyu, an assistant researcher with the International Trade and Economic Cooperation Research Institute under the Ministry of Commerce, argues that the frequent tax rebate policy changes since last year have exerted certain negative influences on the production arrangements of many exporting companies. “Those [policy changes] have disturbed the production procedures of the companies,” Mei said, “I hope that the country can stabilize the tax rebate policy for a longer period of time before another substantial readjustment.” Though he also believed the rebate adjustment will sure help curb exports and cut the trade surplus.

But Gao Peiyong, a senior researcher with the Chinese Academy of Social Sciences, contends that the new tax rebate system “is an opportunity [for affected businesses] to readjust and optimize their structure,” said Gao.

Gao said it was certain that the tax rebate abolition and reduction would add cost to production, and would exert serious pressure on low-profit industries like the textile industry.

“However, the recent tax rebate reductions have also, objectively, forced the companies to cut the exports of low value-added products, put more effort into researching and developing high value-added products and find out new growth momentum,” Gao contended.

China’s A-share market listed companies were also seriously affected. By late June, 26 listed companies had published warnings about the risks from the policy changes, stating that the rebate adjustment will have great impact on their profits. Yunnan Tin Co. Ltd. said the profit of the company would be reduced by 23 million yuan due to the rebate adjustment; Hubei Sanonda Co. Ltd. said 23.5 million in profits would be lost; CSG Holdings Co. Ltd. said the sales cost of the company will increase significantly, reducing profits by 30 million yuan.

China shouldn’t go it alone

The most important reason for this round of large-scale tax rebate reductions is to curb China’s trade surplus with its major trading partners, especially with the United States and the European Union.

However, China shouldn’t be the only country taking the blame for the international trade imbalance. “To secure the trade balance, developed countries, especially the United States, must readjust their own economic and trade structures,” Mei argued.

The United States has complained about China’s trade policies and has been pressuring China to appreciate its currency so that Chinese products can be sold at a higher price in the American marketplace.

China responded to the U.S. complaints quickly and has been taken a series of measures to discourage exports, increase imports and encourage Chinese companies to invest abroad.

“But shouldn’t the United States and the European Union also do something to solve their own problems?” Mei contended.

Quite the opposite of China’s efforts to cut trade surplus have been the actions of the United States. The U.S. side has ignored Beijing’s efforts, instead moving to tighten controls over hi-tech exports to China and further hurt the trade balance, alleging that China might have “dual uses” of such hi-tech products, according to a U.S. Department of Commerce ruling issued on June 15.

Items subject to the rule include aircraft, avionic and inertial navigation systems, lasers, depleted uranium and certain telecommunications equipment for space communications or air defense.

China has been working to narrow the trade surplus with the United States through importing more hi-tech products from America, which have a huge competitive edge in the Chinese market.

“The new rule increases the costs for the Chinese companies involved in hi-tech trade and hurts their confidence in conducting trade with the United States,” said Yao Shenhong, Spokesman for the Ministry of Commerce, responding to the U.S. latest rule on hi-tech products, adding it imposes irrational barriers to bilateral trade.

Mei also called upon the United States to honor commitments stated in the Joint Fact Sheet of the Second U.S.-China Strategic Economic Dialogue, such as this: “The United States will implement measures to increase long term fiscal responsibility and introduce new ways to encourage private saving.” Whether China’s actions to ease the trade surplus will lead to complimentary actions on the other side is difficult to foresee.