China announced wide-ranging revisions to its tax rebates regime for exports on Thursday, a long-awaited move aimed to cut its foreign trade surplus and improve its industrial structuring.

The changes, which took effect on Friday, include tax rebates on glass, cement, textiles and cigarette lighters decreased to 11 percent from 13 percent.

Rebates for steel products would be cut to 8 percent from 11 percent and those for some non-ferrous metals would fall to 5, 8 or 11 percent from 13 percent, the Ministry of Finance said in a statement on Thursday without specifying the metals involved.

The widely expected move "is one of the measures taken this year in line with the State Council's macro-economic controls," the statement said.

"It will help optimize the industrial and export structure and maintain balanced export growth."

Rebates on non-metal minerals such as coal and natural gas would be scrapped, a move apparently aimed to meet surging domestic demands by discouraging their export.

"As domestic demand for natural resources and energy has soared in recent years in order to power the strong economy, the removal of tax rebates on those commodities makes great sense," said Han Meng, an economist with the Beijing-based Chinese Academy of Social Sciences.

Tax rebates on heavy machinery, bio-pharmaceutical products, some IT products and other items would instead increase to 17 percent from the current 13 percent, an arrangement aimed to encourage exports in those sectors and help improve the industry's structuring.

Enterprises, according to the policy amendment, would be given a three-month transitional period to adapt to the tax changes.

The country has long used tax rebates as a policy incentive to encourage exports. However, the mounting trade surplus in recent years has led some economists and government ministries to call for a re-evaluation of the policy.

In August, China's trade surplus hit US$18.8 billion for a fourth straight monthly record.

Fuelled by the surging foreign trade surplus, the mounting foreign exchange reserve, which stood at US$954 billion by the end of July and is set to exceed 1 trillion soon, is putting great pressure on the government as trade frictions are on the rise.

Tax rebates on exports and the foreign exchange rate are widely viewed as two policy measures readily available for the government to tackle the ballooning trade surplus, experts said.

"However, adjusting the tax rebate is relatively more effective and easy considering that any move on the foreign exchange rate is more sensitive and more complex," said Zhong Wei, director of the centre for finance studies at Beijing Normal University.

(China Daily September 16, 2006)