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China Cuts Export Taxes Prior To Crucial US Meeting

by Mike Godfrey, for, Washington

23 May 2007

In advance of the second round of the China-US Strategic Economic Dialogue, headed by Chinese Vice Premier Wu Yi, and Treasury Secretary Henry Paulson, China announced it would raise export taxes by 5% to 10% on a range of products, including steel, in a gesture aimed at reducing trade disparities with the US.

The government had already removed export rebates on many types of steel in April, a month in which the world's top steel producer notched up record exports of 7.16m tons.

Announcements from the National Development and Reform Commission, the Ministry of Commerce, and the State Administration of Taxation confirmed that import taxes on many raw materials would also be reduced or abolished.

Altogether, export taxes will be raised from 1st June on 142 products, including steel, pig iron, nickel, lead, zinc, chrome, tungsten, molybdenum and rare earth; and import tariffs cut to between zero and 3% on 209 types of goods, including home appliances, kitchenware, softwood, coal and fuel oil.

China is obviously hoping to influence top Congressional legislators attending the Washington meeting, who are expected to focus on ways of reducing the expanding US trade deficit with China - US$232.5 billion last year and growing. China's trade surplus for the first four months of 2007 was US$63.3 billion, up 88% on the previous year. The US also wants China to raise the value of its currency.

Last week, China's central bank raised interest rates and imposed much higher reserve requirements on banks. The yuan will be allowed to move as much as 0.5 percent on either side of its daily rate, up from 0.3% previously.

Mr Paulson, speaking last week at an economics forum, said he was looking for signs of short-term progress during this week's meetings. He said he thought that private discussions between Chinese officials and members of Congress will help both sides understand each other better.

"Now I happen to think it is a big positive that the Chinese would be here when Congress is in full session because they will have an opportunity - Wu Yi is a very persuasive woman and she is a force of nature - to go up and behind closed doors and talk with some of the key committees and leaders out there," Paulson told the forum.

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