China announces rebates on exports to ease slump

24 November 2008
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24 November 2008

Buyers could be in line for lower prices on Chinese goods after the country announced an increase in tax rebates on exports.

But experts believe cheaper deals will depend on the willingness of Chinese suppliers to pass on reductions to buyers while they deal with economic effects.

This month the Chinese government announced a 4 trillion yuan (£389 billion) package of reforms and investment to help stimulate the economy. It included the decision to raise rebates on exported goods on more than 3,770 products, mostly labour-intensive mechanical and electrical merchandise that are particularly vulnerable to weakening consumer demand. These products make up around 27.9 per cent of the country's total exports.

The refunds will come into force on 1 December. The repayment on tyres will be increased from 5 to 9 per cent, while rebates on glassware will rise from 5 to 11 per cent.

Richard Laub, CEO of Dragon Sourcing, told SM that although Chinese suppliers were facing wage inflation, rising raw material prices and a fall in demand because of the global economy, he believes suppliers will pass the discount on. "Many export oriented suppliers are finding it difficult to win orders from the west and would be willing to pass on the rebate if they believe it will win them the business."

But Bradley Feuling, chief executive of supply chain consultancy Kong and Allan, believes refunds may not be big enough. "In many cases, the percentage change will be less than 3 per cent, which doesn't offset the local material price inflation, wage increases, or effects of lost business."

Karl Alomar, CEO of China Export Finance, agreed that manufacturers were likely to keep hold of the rebates to improve their own performance and added it could take suppliers six to nine months to reclaim money from the government. He advised using more established vendors with healthier margins that do not rely on rebates because they are more likely to survive and provide more opportunity for price negotiation.

SMnov2008

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