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Gov't May Cut Rebates for Exporters
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China may cut tax rebates for exporters to rein in overseas sales, Commerce Minister Bo Xilai said.

"China is taking many steps to lower the trade surplus and we're studying the issue from different aspects," Bo said in an interview on Monday during a meeting of Asian and European leaders in Helsinki. A reduction in export tax rebates is a "definite possibility," he said.

China's trade surplus grew to US$18.8 billion in August, a fourth straight monthly record, as exports reached an all-time high, the General Administration of Customs said on Monday. The surplus is flooding the economy with cash, hampering government efforts to curtail lending and ratcheting up pressure on the renminibi appreciations.

Huang Yiping and Minggao Shen, economists for Citigroup Inc, wrote in a September 4 report that "without serious policy efforts," China's trade surplus may reach US$150 billion this year. Bo declined to comment on that estimate, saying the rate at which the trade gap is growing will "come down" this year.

European Union members' trade deficit with China, which overtook the United Kingdom as the world's fourth-largest economy last year, reached a record 100 billion euros (US$127 billion) in 2005. China's sales of 72 billion euros (US$91 billion) in the first five months of 2006 made the Asian nation the No 2 exporter to Europe, just under the United States' 74 billion euros (US$94 billion).

"They've started by targeting export rebates on energy- and raw material-intensive goods, but this policy still hasn't hit the vast majority of white goods and other products," said Stephen Green, senior economist at Standard Chartered Bank in Shanghai.

Last year, China cut tax rebates on some processed steel exports to 11 percent from 13 percent and scrapped a tax break on exports of pig iron and semi-finished products. The government may cut a tax rebate on exports of some low value-added steel products to between 8 percent and 9 percent from 11 percent, the Economic Information Daily reported on July 10, citing sources it didn't identify.

The trade deficit has strained ties with European countries including Italy. On August 30, European Union Trade Commissioner Peter Mandelson proposed five-year duties on leather footwear from China and Viet Nam as shoemakers, mainly smaller businesses in southern Europe, are clamouring for protection amid claims the imports are being sold below cost in EU countries.

Bo called the proposal "inappropriate" and said China is working to scale back its trade gap with the European Union.

(China Daily September 13, 2006)

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