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Local Share of Export Rebates Cut
2005-8-7 13:51:05      Xinhua
China announced this week a decision to drastically lessen the financial burden on local governments in paying export rebates as of this year to boost its foreign trade.

According to a circular issued by the State Council, China's cabinet earlier this week and posted on the website of the Ministry of Commerce over the weekend, the local governments, beginning Jan. 1 this year, only need to pay 7.5 percent of the tax rebates on local exports, as against 25 percent previously.

The remaining share of the rebates will be paid by the central government, a jump to 92.5 percent from the previous 75 percent, according to the circular.

Experts say the move will help ease the financial pressure on the local governments, a mounting problem between the local and central governments in terms of the export policy.

Professor Song Guoqing from the prestigious Peking University here described the readjustment as "a big one", as well as a move that gives full consideration to the interests of regional governments.

The Chinese central government began to share the export rebates with the local governments since early 2004.

Before that, the export rebates were paid exclusively in full by the central government. But the fast-growing volume of China's exports has made the export rebates a heavy financial burden on the central government in the past several years.

By the end of 2003, delayed payment of the export rebates totaled 277 billion yuan (34 billion US dollars), prompting the central government in late 2003 to share the rebates with the regional governments.

Finance Minister Jin Renqing said the reform of the export rebate-sharing system had progressed smoothly, as China paid all its overdue export rebates last year.

But the minister conceded that the sharing system is not without problems as the export rebate policy brings uneven financial burden on the regional governments.

Local governments in the export-oriented coastal areas have found that growing exports mean a heavier financial burden on them, and they began to complain as such a burden was becoming apparently unbearable. Some regions, as a result, had to curb exports to reduce their burden.

That became a much-debated issue earlier this year at the annual full session of the national legislature, which was followed by a broad investigation conducted by the Ministry of Finance in cooperation with the Ministry of Commerce with a view to finding a solution to the problem.

The regional governments are ordered by the central government to stop such practice as letting their subordinate governments, such as the township-level governments, share their burden of paying export rebates, according to the circular.

It is also not allowed to ask the local trading firms or producers to share the government's burden, the circular adds.

The central government also ordered the regional governments to stop any forms of restrictions on local exports with the aim of paying less export rebates.

Mei Xinyu, a research fellow with the Institute of International Trade and Economic Cooperation under the Ministry of Commerce, said the readjusted shares of the export rebates seem tobe more reasonable.

But much work still needs to be done to build a more stable and reasonable export rebate system for China, he said. 

(Photo source: Agencies)

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