China to Fine-tune Export Policy Settings in the Second Half

According to statistics released by the General Administration of Customs, in July, China's export volume as well as its total volume of imports and exports reached their highest monthly total since July 2008.

However the real numbers are not so optimistic.

We conducted an investigation a couple of days ago. The export situation is not as good as expected. We are worried about the fourth quarter of this year and the first half of next year, an anonymous source with the customs agency said.

The Ministry of Commerce shares the same opinion that this year' export situation is not stable and thus foreign trade policy will be mainly remain the same in the second half of the year; policies concerning industries that are energy-intensive and have high pollution will be slightly adjusted.

The Market is Worse than Expected

The above source analyzed the growth rate of ordinary trade and processing trade in July.

He said, based on statistics, the growth rate of processing trade item exports was obviously lower than that of ordinary trade.

In the first seven months of this year, China' total import and export volume was 850.4 billion US Dollars, up 35.6 percent on the level of the same period last year; its common trade exports were 390.1 billion yuan, up 38.3 percent on that of the same period last year, a growth rate 2.7 percentage points higher than that of the export total. In the same period, the total import and export volume of processing trade was 629.5 billion US Dollars, up 36.1 percent, with 398.4 billion yuan of exports, up 32.4 percent which is lower than the total export growth rate.

The influence of foreign demand on the processing trade is relatively obvious; the statistics indicate that foreign demand is not growing as fast as expected, the above source said, We think most of the purchase orders are restocking.

The growth rate of processing trade imports is higher than that of its exports. This indicates that the production materials imported by Chinese companies are greater than the amount of goods they are exporting; foreign demand has not reached the level expected by optimistic entrepreneurs, though, this may also be due to the production cycle, the above customs agent stated.

This source went on to say that, as Europe, the US, and China' other important trading partners enter a period of stockpiling, their demand for Chinese goods might be further weakened.

Another aspect is that developing Asian markets, led by India, are introducing higher bank interest rates. This is not good news for China��s exports. Lian Ping, chief economist of the Communications Bank of China, said that the tightened currency policy in these countries will affect their domestic demand, thus causing China' exports to decline.

Judging from the domestic situation, the increasing pressure to increase workers'medium and long-term wages, the increasing fluctuation of the RMB exchange rate, the shrinking profit margins of export companies and many other elements may greatly affect the slowdown of the export growth rate.

Traditional sectors are more sensitive to these factors. In July, the export volume of the textile sector increased by 11.4 percent on the level of June, lower than the increase rate in June of 2009 and 2008 which were 17 percent and 19 percent, respectively, indicating that the growth rate is slowing compared with previous months.

According to Wang Qianjin, chief editor of the China Textile Network, by comparing the current export growth rate with that of previous years, the effects of weak foreign demand are becoming obvious; export orders from the textile industry have been continuously declining.

Wang said, beginning August, particularly in the fourth quarter, China' textile exports would experience a reduction of growth. He has predicted that the growth rate will fall to 15 percent in August and that the overall export growth rate for the first eight months will remain around 20 percent.

Fine Tuning Foreign Trade Policy

Generally speaking, the situation both at home and abroad is unstable, so foreign trade policies in the second half of the year will mainly remain unchanged, an anonymous source with the Ministry of Commerce said. ��There are only several months left to reach carbon-emission reduction targets set in the 11th Five-Year plan. All the ministries are trying every means possible to reach their targets. So the foreign trade policies regarding high pollution and energy-intensive industries will be fine-tuned.��

The fine-tune is referring to the slight adjustment of the export rebate and policies concerning the processing trade.

On June 22, the Ministry of Finance and the State Administration of Taxation co-released a notice to eliminate the export rebate for 406 export items as of July 15.

Additionally, during the next half of the year, the environmental protection related tax reimbursement for exports will possibly also be adjusted further.

Jiang Yaoping, Vice Minister of Commerce publicly stated on August 11 that in the second half of the year, the central government might adjust export rebate policies concerning high-pollution and energy-intensive industries according to the national strategy of saving energy and reducing carbon-emissions.

The Ministry of Commerce is currently discussing the Plan to Upgrade and Transform Processing Trade that is focused on saving energy and reducing carbon-emissions. It plans to do so by moving certain energy-intensive and high carbon-emission products from the Catalogue of Restricted and Prohibited Commodities in Processing Trade to the Catalogue of Prohibited Commodities .

Those prohibited commodities are selected based on the notice to reduce overcapacity in some sectors which was released last year by the State Council and formulated by the National Development and Reform Commission and other related departments.

We are mainly restricting products of industries that have a huge export volume but not a large influence on the Chinese economy,the above source with the Ministry of Commerce said. I expect the new policy to be issued in the second half of 2010.

This article was edited by Rose Scobie and Ruoji Tang