China Should Offer Tax Breaks for Textile Exports, Planner Says
China may need to resume tax incentives for textiles exporters after the yuan’s appreciation crimped profits and curbed production, an official with the top economic planning agency said.
“Many of those companies are on the verge of shutting down,”Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission, said at a trade conference in Beijing today. “We should consider resuming some tax incentives to help them survive.”
Premier Wen Jiabao wants to narrow a record trade surplus that is flooding the economy with cash and adding to the world’s largest foreign-exchange reserves. The government last year reduced rebates on exports including textiles, toys and steel products as part of an effort to lower energy consumption and ease trade discord with the U.S. and Europe.
The strengthening yuan and weaker demand in the U.S., Europe and Japan, China’s largest trade partners, curbed export growth of toys, textiles, shoes and garments in the first quarter, Zhang said. China won’t further cut rebates in sectors that create a lot of employment, he said.
“Some exporters are idling half or even all of their production this year because they couldn’t sign contracts while they are uncertain about how fast the yuan will rise,” Zhang said. “We should continue to support labor-intensive manufacturing to help boost jobs and farmers’ income.”
The yuan, also called the renminbi, has strengthened four percent against the U.S. dollar so far this year, after gaining 7 percent in 2007, according to Bloomberg data.
Currency Losses
About 90 percent of Chinese exporters are paid in dollars, and a lack of hedging tools leave them vulnerable to currency losses, Fu Ziying, vice minister of commerce, said at the same conference today.
“As global demand shrinks further, the room is diminishing for exporters to raise prices in order to ease pressure from the yuan’s appreciation,”Fu said.
China aims to maintain 15 percent growth in the total value of exports and imports in 2008, Zhang said.
The government should take measures to “stabilize”investor expectations for the yuan’s appreciation, Zhang added, without elaborating.
Tags: economic, exports, imports, tax, Textile