A two percentage point increase in a value-added tax rebate for garment and textile exports – from 11% to 13% – was good news for exporters, but a sign of hard times for the export sector. Rebates had been cut or removed for many industries last year in an attempt to deflate China’s ballooning trade surplus, but struggling exporters prompted Beijing to reverse its earlier moves.
The slowdown was most evident in relatively low-tech sectors like textiles and apparel. In the first seven months of 2008, growth of garment and textile exports rose 7.67%, down from 24.4% growth over the same period last year. China also sold 3.6% fewer shoes overseas in the first five months of 2008 than in the same period of 2007.
The General Administration of Customs said an appreciating renminbi, weak US demand, trade barriers and the earlier rebate reductions all contributed to the slowdown.
While lower-end exports were more visibly affected, broader numbers were hit as well. In the January-July period, growth in overall exports was down 5.7 percentage points to 21.9% year-on-year, and the trade surplus fell 9.6%.
More targeted rebates and aid for industries like toys and shoes are expected.
The Ministry of Finance said that it will spend US$513 million this year to help small companies struggling amid economic restructuring, a 25% increase from last year.
Help is needed fast. China’s purchasing managers index, a measure of manufacturing activity, fell below 50 for the first time since it was introduced three years ago, indicating contraction.