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China urged to reform export tax rebate system

By Jiang Yong (People's Daily)

16:49, August 16, 2011

Edited and Translated by People's Daily Online

China must adjust its pattern of economic development by shifting the structure of its economy from one driven by exports to one driven by domestic demand and change the irrational performance evaluation system for public servants to enable domestic consumers to access more and better goods and services. China's current first priority is to reform its export tax rebate system.

The U.S. sovereign credit rating downgrade by Standard & Poor's is just a nominal confirmation of the actual market value of U.S. national debt. In other words, the U.S. credit rating deserves the downgrade. The financial tsunami triggered by the downgrade will last long.

The foreign exchange reserves accumulated by China through low-cost resources, a large labor force, environment and sovereignty (super-national treatment) have long been used by Americans for extravagant consumption. Meanwhile, the lack of funds at home has restricted the development of domestic private enterprises, particularly small and medium-sized enterprises, kept central and western regions from accelerating their development and caused low and middle-income people to lack social security.

It is indeed irrational for the poor to lend money to the rich to support the latter's consumption. To reduce the enormous losses in China's foreign exchange reserves, China should reduce both the existing and incremental amount of foreign exchange reserves.

To reduce the existing foreign exchange reserves, China should use a greater part of its foreign exchange reserves to buy strategic resource reserves and support enterprises — particularly private enterprises — to "go abroad." China can adopt the approach of considerably increasing foreign mergers and acquisitions in order to turn its debt holdings into equity holdings even if high-premium acquisitions are worthwhile.

In the aspect of reducing the increment, China must change the export-orientated development mode as soon as possible and change the situation of surplus in both the current account and capital account.

"Pursuing trade surplus" was proposed during the period when China's foreign reserve was not sufficient. Currently, China's foreign reserves are already plentiful, and this kind of strategy should have been changed a long time ago. However, in order to realize rapid GDP growth, some local governments are still putting all of their energy into developing export-orientated enterprises because the GDP can grow more rapidly and local leaders can get political achievements more easily in this way. In order to reduce the trade surplus, the development mode must be changed from being export orientated to being driven by domestic demand in the future, and meanwhile, the improper assessment methods and wrong outlook on political achievement must be changed too so that residents of China will be able to consume a greater amount of products.

To change the current development mode, the first thing to do is to reform the export rebate policy and control exports of energy-intensive and high-pollution enterprises. Some experts believe that developed countries, including the Untied States are all implementing the full export rebate policy, and therefore, China should continue to implement it too.

Actually, this kind of opinion is absolutely dogmatic and bookish. Most products exported by the United States are high-tech products with high added value, and it is necessary that its government implements the full export rebate policy and avoid the double taxation to encourage and support the export of such products. But a lot of products China is exporting are produced by cheap labor forces and come from energy-intensive and high-pollution enterprises. Therefore, China certainly should stop this kind of incentive policy.

The author is Jiang Yong, Director of the Research Center for Economic Security under the China Institute of Contemporary International Relations.


Leave your comment5 comments

  1. Name

OdFqMuHfz at 2011-12-28193.105.210.*
nBzpsj Good post! Found a lot of new and interesting! Will share the link with others:DD
ching chong ho at 2011-12-09124.124.211.*
No comments
GvRzbmyfLeYAULjC at 2011-10-15109.230.216.*
Kick the tires and light the fires, problem officially svoeld!
GjedEMTXOYiYZSFAkSZ at 2011-08-2367.192.109.*
IMHO you've got the right asenwr!
uYGSgeKNptZJyl at 2011-08-22195.232.198.*
Cheers pal. I do appreciate the writing.

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