Following on from the recent discussion we have had here on SEZs, I couldn’t help noticing this piece in Bloomberg today about China’s move to restructure its export rebates policy. Note: they are not removing export incentives, but simply trying to redirect them as part of a policy to move up the value chain. As such this move may well be ‘neutral’ on China’s trade surplus situation. As I have a go at explaining on my own blog here, China’s problem is not so much that it has too much cash coming in, as that this cash is leading to distortions in the investment process. Basically I have less sympathy with those who simply criticise China for having the surplus per se, since it is hard to see China importing consumer products from the developed world on any substantial scale at present. As a consequence most of the purchases they make are bound to be as a contribution to the investment budget, so the new policy could be seen as simply a way of redirecting surplus investment into higher value activities. As such is a good move on China’s part. Now we will see whether those who were worried about China producing too many T-shirts and sandals are any happier with being on the receiving end of their IT products.
China cut export incentives for steel and textiles and increased them for high-technology and biomedical goods, seeking to curb a record trade surplus and encourage production of higher-value goods.
Export rebates on steel and textiles were cut by as much as 3 percentage points while incentives for technology and processed agricultural products were raised by up to 8 percentage points, the government said. The rebates reduce the amount of sales tax paid on exports.
The changes may help China fend off criticism that the world’s fastest-growing major economy uses an undervalued currency to boost exports of cheap goods. Group of Seven finance officials gathering in Singapore this weekend are expected to renew pressure on China to let the yuan gain more rapidly.
While I am here, Steven Roach had an interesting post on Monday which was entitled Global Speed Trap. In particular he draws attention to the importance of the sheer size of the process which is taking place (in this case in China, but by implication also in India):
“positions in the competitive sweepstakes have changed glacially over time….. China has re-written the script of competitive leapfrogging. This can be seen in an excellent analysis by Catherine Mann of the Institute for International Economics that illustrates the rapidly shifting market shares in global exports of two of the world’s newest and most rapidly growing product lines — information technology hardware and communications equipment (see Mann’s, Accelerating the Globalization of America, IIE, 2006). In both cases, China has come from virtually nowhere as recently as 1990 to attain positions of global dominance in 2004. The gains in market share have been especially dramatic since 2000, when China still ranked #13 in global market share in IT and #5 in communications equipment. A scant four years later and China was #1 in the world in export shares of both of these key product lines.
“Of course, the flip side of China’s rapid ascendancy has been the equally swift decline in global leadership of the former titans — especially Japan and the United States. For IT products, Japan went from a #1 position of 20.4% of all global exports in 1990 to #5 with just a 7.9% share in 2004. Meanwhile, US market shares in IT exports went from 19.3% in 1990 to 11.0% in 2004. A similar decline is evident in communications equipment. Japan US market share in global communications exports was essentially cut in half over the same period — from 13.9% and a #2 position in 1990 to a 7.0% share and a #4 position in 2004. Interestingly enough, Germany has held its own in both of these two leading-edge export businesses; its 6.9% share in global IT exports in 2004 is only fractionally below that prevailing in 1990, whereas its share of global communications equipment actually inched up from 7.4% in 1990 to 8.9% in 2004. went from an overwhelmingly dominant position with 26.7% market share in 1990 to #5 with just a 6.9% share of global exports in 2004.“