China May Enhance Export Tax Incentive Regime

by Mary Swire, Tax-News.com, Hong Kong

23 August 2001

While on a tour of China's south-western Guizhou province last weekend, Premier Zhu Rongji strongly emphasized the importance to China's economy of maintaining export levels during the current global slow-down, and is expected to improve administration of the tax rebate system for exporters, even if he doesn't extend the system itself.

"We should expand demand through investment and consumption and try by every means to boost exports," Mr Zhu said. He asked local leaders to create more market demand by increasing both investment and consumption, to encourage more exports, to further clean up the market and to ensure fair competition among market players.

"We should not overestimate our achievements and be blindly optimistic as China's exports are facing difficulties, and many enterprises are facing renewed pressures and challenges," said the premier.

Mr Zhu said that China needed "new strategies" to maintain economic momentum in the face of the slowing global economy, which is already cutting into exports. But it's not clear that this means there will be further incentives. Quoted in the Financial Times, Pu Yonghao of Nomura Securities in Hong Kong said that Mr Zhu's remarks were "pretty routine comments designed to ensure that the nation retains the confidence to meet the (minimum) 7 per cent target. The Ministry of Finance does not have enough money to launch an extra stimulus package."

Mr Zhu also said that the sale of state-owned enterprises for low prices to provide "incentives" to new owners should stop. "These deeds are wrong and not in accord with central government policy," he said.

During his stay in Guizhou, the premier reviewed works such as natural forest conservation, afforestation, a rural marsh gas project, a rain-water collection project, infrastructure, tourism resource exploitation and state-owned enterprise reform.

China's statistics bureau announced last week that fixed asset investment increased 18% to reach Rmb1,111bn ($140bn) in the year to July, although real estate spending increased 32% over the same period - not such a good sign necessarily.

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