Companies taking part in a trial that will allow the Chinese yuan to be used to settle cross-border trade transactions will remain eligible for export tax rebates, the Chinese authorities have announced.
In order to encourage growth in China’s export industries, companies are allowed to claim back value-added tax paid on materials used in the production of goods which are ultimately exported. However, until now, the rebates have only been available to firms invoicing in foreign currencies.
The rebates apply across several industrial sectors and on several thousand categories of exported goods. After the government increased export tax rebates on almost 3,500 products last month, the rebate rates currently range from 5% to 17%.
The pilot scheme, which was jointly announced by six Chinese government agencies on July 2, is being rolled out in five cities, including Shanghai, Guangzhou, Shenzhen, Dongguan and Zhuhai. The settlement of yuan transactions outside of China will take place in Hong Kong, Macua, and in member states of the Association of South East Asian Nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam).
The announcement follows the signature of a Memorandum of Co-operation to prepare for the implementation of the pilot scheme between Zhou Xiaochuan, Governor of the People's Bank of China, and Joseph Yam, Chief Executive of the Hong Kong Monetary Authority (HKMA) on June 29.
Welcoming the new arrangement, Hong Kong Financial Secretary, John Tsang, said: "Allowing trade transactions between the mainland and Hong Kong to be settled in renminbi (yuan) will not only strengthen the role of Hong Kong as a testing ground for the use of renminbi outside the mainland, but is also conducive to trade activities and economic development in the two places. This will also provide Hong Kong enterprises with more flexibility in their operations, and is complementary to the policy initiatives of the government to assist them in withstanding the impact of the international financial crisis."
Yam added that the pilot scheme would further boost Hong Kong’s profile as Asia’s premier financial centre.
“This will help enhance the capability of Hong Kong's financial system in handling financial transactions that are denominated in renminbi,” he said. “I hope that renminbi business in Hong Kong will continue to develop, consistent with the policy direction of further developing a mutually-assisting, complementary and interactive relationship between the financial systems of the mainland and Hong Kong."
"This is of strategic importance to both the mainland and Hong Kong," he noted.
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