VAT rebates for exports: so much for Chinese demand

On June 1, the value added tax (VAT) rebate was raised for exports of 2600 labor-intensive, high-tech, and "deep processed" commodities. Included were corn starch and ethanol products, for which the rebate was raised from 0 to 5%, and apple juice and canned food, which now get a 15% rebate, up from 13%. Yogurt and butter get a full 17% rebate to support the limping post-melamine dairy industry.

The Guangzhou Daily pointed out that this was the seventh round of VAT rebate increases since August 2008. A representative from the Guangdong Province trade bureau said this round of VAT increases was mostly in light industry and food processing, as the central government hopes these will create jobs and improve peoples' livelihoods. It is rumored in industry circles in Guangdong that the VAT rebate will be raised to its maximum of 17%.

This is a reminder that the Chinese economy's main objective is to keep people producing things even if it means dumping the products on the foreign market. So much for relying on domestic demand in China to pull the world out of recession. Grind up some more surplus corn and apples to sell cheap starch and apple juice to the Americans and Europeans.

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