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Taxes cut in effort to lift exports

June 23, 2009

CHINA will reduce or eliminate export taxes on nearly 100 categories of goods including some agricultural products and fertilizers starting next month in its latest move to help the country’s flagging trade sector.
The cuts are the first outright tax reductions since December 2008 and follow seven increases in export tax rebates since August.
While the policies give at least some relief to the nation’s struggling exporters, they contribute little to fixing the main problem: restoring external demand, industry analysts said.
The Ministry of Finance said yesterday that 31 types of goods such as wheat, rice and soya beans will be exempted from export taxes starting July 1.
Direct, effective
Large tax reductions will apply to another 60 categories of products, including fertilizer and chemicals. The tax on phosphate fertilizer, for instance, will be cut from 75 percent to 10 percent.
“The move, similar to the previous increases in export tax rebates, is an obvious bid to counter the falling trade,” said Xue Jun, an analyst at Changjiang Securities Co. “A tax cut is more direct and effective than rebates and enhances cash flow.”
A tax cut is immediate, while exporters have to wait to receive a tax rebate.
“The frequency of these moves illustrates that the Chinese government still attaches great importance to exports, though domestic demand is considered key to the country’s economic recovery,” Xue said.
China’s May exports fell 26.4 percent from a year earlier to US$88.8 billion, the worst drop in at least 14 years. Last month, China announced it would raise tax rebates on more than 600 types of exports, including machinery, toys, plastic products and steel. Total rebates amounted to 102.9 billion yuan (US$15.1 billion) in the first quarter, up 18.4 percent from a year earlier.
Vice Commerce Minister Zhong Shan said China will spare no effort to protect the country’s share of the global market.
“China’s trade will suffer a retreat this year and experience slow growth in the coming years,” Zhong said in an article published in the Economic Daily yesterday. “We should go all out to stabilize trade. The focal point should be to avoid losing share in the global market. It is of great importance to keep companies alive and make jobs available, which lays the foundation for the expansion of domestic demand.”
Despite falling volume, Zhong said it may be possible for China to raise its share of global trade.
He said Chinese exports last year accounted for 8.86 percent of the world’s total exports in terms of value, still below the level of export giants Germany and the United States, which each hold around 12 percent of global market share.
At a time when people are slashing spending, China should be able to benefit because the country sells more necessities than luxuries.
CHINA will reduce or eliminate export taxes on nearly 100 categories of goods including some agricultural products and fertilizers starting next month in its latest move to help the country’s flagging trade sector.
The cuts are the first outright tax reductions since December 2008 and follow seven increases in export tax rebates since August.
While the policies give at least some relief to the nation’s struggling exporters, they contribute little to fixing the main problem: restoring external demand, industry analysts said.
The Ministry of Finance said yesterday that 31 types of goods such as wheat, rice and soya beans will be exempted from export taxes starting July 1.
Direct, effective
Large tax reductions will apply to another 60 categories of products, including fertilizer and chemicals. The tax on phosphate fertilizer, for instance, will be cut from 75 percent to 10 percent.
“The move, similar to the previous increases in export tax rebates, is an obvious bid to counter the falling trade,” said Xue Jun, an analyst at Changjiang Securities Co. “A tax cut is more direct and effective than rebates and enhances cash flow.”
A tax cut is immediate, while exporters have to wait to receive a tax rebate.
“The frequency of these moves illustrates that the Chinese government still attaches great importance to exports, though domestic demand is considered key to the country’s economic recovery,” Xue said.
China’s May exports fell 26.4 percent from a year earlier to US$88.8 billion, the worst drop in at least 14 years. Last month, China announced it would raise tax rebates on more than 600 types of exports, including machinery, toys, plastic products and steel. Total rebates amounted to 102.9 billion yuan (US$15.1 billion) in the first quarter, up 18.4 percent from a year earlier.
Vice Commerce Minister Zhong Shan said China will spare no effort to protect the country’s share of the global market.
“China’s trade will suffer a retreat this year and experience slow growth in the coming years,” Zhong said in an article published in the Economic Daily yesterday. “We should go all out to stabilize trade. The focal point should be to avoid losing share in the global market. It is of great importance to keep companies alive and make jobs available, which lays the foundation for the expansion of domestic demand.”
Despite falling volume, Zhong said it may be possible for China to raise its share of global trade.
He said Chinese exports last year accounted for 8.86 percent of the world’s total exports in terms of value, still below the level of export giants Germany and the United States, which each hold around 12 percent of global market share.
At a time when people are slashing spending, China should be able to benefit because the country sells more necessities than luxuries.
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The Pilot RMB Trade Settlement Scheme and RMB Internationalisation

May 30, 2009


  • The Chinese mainland announced the pilot RMB Trade Settlement Scheme in April 2009, which is a small but one of the important steps of “internationalising” the RMB. Under the scheme, eligible enterprises in selected mainland cities and regions will be allowed to settle in RMB in trade with their corresponding enterprises in Hong Kong and other selected locations outside the Chinese mainland.
  • With China’s fast-expanding economy and growing external trade, the RMB will ultimately acquire an international status truly reflective of its economic weight and trade scale, even though it at present remains largely a non-convertible currency. The RMB’s internationalisation will likely follow a three-stage process (i.e. when it is used in pricing and settlement of trade and financial transactions; use as an international investment vehicle; and use as an international reserve currency), especially after the demand for RMB has hit certain critical mass in external trade and financial transactions.
  • Under the pilot RMB settlement scheme, eligible Hong Kong enterprises will benefit from having an option to quote and settle in RMB their Hong Kong-mainland trade, allowing them to better manage currency risks and reduce trade settlement costs. Hong Kong banks will have a new growth area aside from personal RMB services, where new products and services can be developed.
  • As for Hong Kong, the pilot RMB settlement scheme will further strengthen it as an international financial centre, by far the largest RMB centre outside the mainland with an increasing offer of RMB products and services, including the issue of RMB bonds. It is expected that Hong Kong will have a continual role to play in the RMB’s internationalisation process, and considerable opportunities for developing additional RMB businesses over the medium-to-long term.

Pilot Renminbi Trade Settlement Plan

The Chinese government announced in April 2009 the scheme of allowing settlement in Renminbi (RMB) in the trade of Shanghai, Shenzhen, Guangzhou, Zhuhai and Dongguan with Hong Kong and Macau, and in the trade of Yunnan and Guangxi with ASEAN1 on a pilot basis.

Although the Chinese government has not yet announced the details of the regulatory and operational framework of the pilot scheme, eligible mainland enterprises in the selected regions are expected to be able to settle trade in RMB shortly with their corresponding enterprises outside the Chinese mainland under this Pilot RMB Trade Settlement Scheme (PRTSS), while the RMB presently remains a currency that is not fully convertible and is circulating predominantly on the Chinese mainland.

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In principle, PRTSS will provide eligible enterprises2 engaged in trade between Hong Kong and the Chinese mainland with a new option to quote as well as to settle their trade in RMB based on their needs, which otherwise has been settled mostly in US dollar. Measures that will likely be implemented to facilitate the pilot scheme would include:

First, eligible enterprises in Hong Kong will be allowed to open “corporate RMB accounts” with selected Hong Kong banks for settling trade with eligible enterprises on the Chinese mainland. They will be allowed to deposit RMB into their own corporate banking accounts.

Second, eligible enterprises will be allowed to transfer RMB to other selected companies’ accounts on the Chinese mainland for trade-related transactions.

PRTSS: an expansion of RMB business scope for Hong Kong to benefit both enterprises and banks in Hong Kong

Following the first-phase introduction in 2004 of four types of pilot personal RMB business in Hong Kong, covering RMB deposits, remittances, exchanges and cards, there have been enhancements in the allowed business scope for Hong Kong banks, with RMB cheques for Hong Kong residents added, and limits for credit card transactions and transfers raised. Besides, designated merchants3 in selected business sectors in Hong Kong are allowed to open RMB cash deposit accounts and to exchange RMB deposits one-way into Hong Kong dollars.

Under the current RMB banking business in Hong Kong, personal RMB account holders are allowed to remit RMB 80,000 per day to the account under the same name on the mainland. Contrastingly, for trade to be effectively settled under PRTSS, the amount of RMB that would be allowed in a mainland-Hong Kong trade, or the RMB amount allowed for settlement by an eligible enterprise in a day, should be sufficiently large. Preferably, there would not be a cap for the amount allowed for daily trade settlement in RMB.

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RMB Trade Settlement Start in Five Cities

April 10, 2009

The State Council announced a pilot policy allowing cross-border trades in five cites to be settled in yuan, instead of foreign currencies as previously required, reported the Daily Sunshine The program will be implemented in Shanghai and four cities in Guangdong Province: Guangzhou, Shenzhen, Zhuhai and Dongguan.

Some observers have interpreted the government’s move as a response to a potential depreciation of the US dollar in the future. The Beijing News quoted Zhao Xijun, an economist from Renmin University, stating that with America increasing the monetary supply, its currency is facing downward pressure.

Also on the front page is the news about Larry Yung’s resignation from his position as chairman of the state-owned overseas investment company CITIC Pacific yesterday. The newspaper previously reported that Yung (荣智健) and other board members were investigated by Hong Kong’s Securities and Futures Commission in January.

Another widely-reported news item concerns a Ministry of Finance announcment that the government is planning to provide 850 billion yuan in three years to fund medical service reform package proposed by the State Council. 2/3 of the fund will be spent to cover the expenses of the patients and the rest would be used to improve the service quality of the the hospitals.

In non-financial news, seven suspects, including five former officials of the county government of Xishui, Guizhou Province, stood trial yesterday on charges of engaging in sex with minors. The news media previously reported the defendants paid the victims, who were under the age of consent, for sex. According to the article, a China Youth Daily reporter testified that sex trade involving underage girls is rampant in the province.

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Non-ferrous metal industry sees signs of rebound

March 20, 2009

China’s non-ferrous metal industry is showing some signs of recovery with major companies recording narrower losses, an industry association official said on Thursday.Sixty-nine of the country’s leading 73 non-ferrous companies recorded a combined loss of 3.8 billion yuan ($556 million) in the Jan-Feb period, according to Kang Yi, chairman of the China Non-Ferrous Metals Industry Association (CNIA).

The average monthly net loss, or 1.9 billion yuan, is much lower than the loss of 5.9 billion yuan major metal companies recorded in December 2008, Kang said, adding 53 metal companies saw their losses narrow during the first two months of this year.

For the 2008 full year, the industry earned a profit of about 80 billion yuan, down 45 percent compared with 2007, according to the association.

Source: China Daily

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Stable pledge for the yuan

February 9, 2009

THE yuan will remain stable against the United States dollar in the near future with the Chinese government pledging to stabilize the currency.

The yuan closed slightly higher against the dollar last week at 6.8371 on Friday, according to the China Foreign Exchange Trade System. The local currency ended at 6.8380 by the end of the previous week.

“The yuan will not gain or fall on a large scale. The financial turmoil has brought much uncertainty to the market, and we will keep it at a reasonable and stable level,” said Zhou Xiaochuan, governor of the central bank.

“China’s exports are heavily affected by falling demand from foreign countries, and a depreciation of the local currency will not be any good for domestic manufacturers,” said Lian Ping, chief economist with the Bank of Communications.

Liu Dongliang, an analyst with China Merchants Bank, said: “We have seen a fairly balanced trading of the yuan after the week-long Chinese New Year holiday.”

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