China's Ministry of Finance has removed tax rebates on selected exports, in a bid to rein in overcapacity. Analysts say the government is taking measures to upgrade domestic industrial structure.
Tax rebates have been scrapped for over 400 kinds of exported products, including steel, medicine, chemicals and non ferrous raw material products. Most exports subject to the cancellation are high energy consumption commodities - high pollution primary products with low added value.
Professor Zhu Qing, School of Finance, Renmin University said "By canceling the tax rebate on these items, their production costs will be increased. So the production and export of those products will be hindered."
Experts say the move is intended to reduce excess capacity in the sector, by discouraging low added value products.
Zhu Qing said "The result of the over capacity will eventually become evident, if domestic demand remains unchanged. The overcapacity could limit or even shut down some enterprises."
China's foreign trade perked up in May, but the country has also been hit with an increasing number of anti-dumping and anti-subsidy cases. Experts believe the tax rebate removal will look to benefit China's international trade.
Zhu Qing said "Raising China's export costs and prices could also iron out tensions between China and its trade partners."
China reformed the tax rebate rate in June 2009 to fight against the sweeping financial crisis. Rebates up to 17 percent were granted on more than 2,600 kinds of products.