China raised export tax rebates on toys, textiles and more than 3,000 other products yesterday as it attempts to mitigate the impact of the global slowdown.
The ministry of finance said the rebate for toys would be raised from 11% to 14% as of November 1. That on clothing and textiles would rise from 13 to 14%. In all, 3,486 types of products - about one quarter of exports - will be covered.
Stephen Green, head of China research at Standard Chartered, told Bloomberg that export growth could tumble from 22% in the first nine months of this year to "zero or even negative growth" in 2009.
China's announcement on Monday that GDP growth had fallen to 9% - highly enviable to most countries, but the slowest rate in five years - sent a shiver through observers who hoped the country's rapid expansion would compensate for falling demand elsewhere.
The head of China's economic planning agency pledged that it could maintain its growth rate yesterday.
"Of course, due to the upturn of economic turbulence outside China there is some slowdown to our growth rate, but I think the growth of China's economy will still be at a 9% rate," Zhang Ping, chairman of the National Development and Reform Commission, told reporters in Australia.
He cited strong domestic demand, adding that only 1.2% of China's growth last year came from exports. But other economists predict that GDP growth could fall to 7% or 8% next year.
The tax changes will be welcome relief for exporters who have felt increasingly hard pressed by soaring production costs and the rapidly appreciating yuan as well as the bleak global economic outlook.
Speaking before the changes were announced, Wang Zhiguang, vice-chairman of the Dongguan Toy Industry Association, told Guangzhou Daily: "Of the 3,800-odd toy firms in Dongguan, no more than 2,000 are likely to survive the next couple of years."
Industry in Dongguan, a manufacturing city in south China's Pearl River Delta, includes 7,000 garment plants and 3,000 footwear factories. Mass manufacturers have been particularly badly hit because local authorities have been attempting to shift the region's economy towards higher-value goods and services.
The toy association says that since 2006, production costs have risen 60% while contract prices have increased by only 10%. The local customs bureau says toy exports actually fell in the first half of this year - down 1.5% to $550m (£320m).
Xiao Yong, whose firm sells Christmas trees and gifts, told China Daily that orders were at half last year's level.
"Many toy makers in Dongguan rely too much on orders from the US and Europe," he said. "The financial crises there have led directly to a reduction in orders. Also, after the EU and the US changed the market thresholds for China-made toys, and because of the recall incidents of 2007, our testing fees have gone up by about 25%."
The government's focus has shifted from curbing consumer price inflation - now at a 15-month low of 4.6% - to maintaining steady growth. Analysts had expected GDP growth to fall from 10.4% in the first half to 9.7%.
State media reports have outlined the government's plans to spend its way out of the problem - a strategy it employed after the Asian financial crisis in 1997, although the export-to-GDP ratio was then far lower. It will boost the construction of basic infrastructure and rebuild the large area of Sichuan devastated by May's earthquake. Longstanding plans for healthcare reform should also help.
The NDRC said yesterday it would raise the minimum purchasing price for wheat by as much as 15.3% from next year to lift rural incomes as well as increase grain output. The threshold for personal income tax, now 4,800 yuan (about £414), may also be raised. China's rapid economic growth has disguised growing income inequality between urban and rural areas.
Shen Minggao, chief economist of the respected business magazine Caijing, said encouraging domestic consumption through fiscal stimulus could increase GDP growth by over 1.5 percentage points.
