China's exports, export tax rebates and exchange rate policy

Abstract

This paper examines the relationship between China's exports, export tax rebates and exchange rate policy. It offers an explanation for why China's exports continued to rise under RMB real appreciations during the Asian financial crisis. Based on a traditional export demand model, we test our hypothesis that the counteracting effects of China's export tax rebate policy have diminished the effectiveness of real exchange rates in facilitating the resolution of trade imbalances under the current pegged exchange rate regime. We find evidence that RMB real appreciations during the crisis negatively affected China's exports, but the negative effects were mitigated by the positive effects of export tax rebates. We also find evidence of a long‐run relationship between China's exports and the other explanatory variables. The empirical evidence suggests that under the pegged exchange rate regime with limited adjustments, real exchange rate movements alone cannot resolve China's external imbalances. The policy implication of this study is that China needs to redirect its decades‐long export‐oriented development strategy to one that emphasises domestic demand‐oriented development and to replace the current pegged exchange rate regime with a market‐oriented more flexible exchange rate regime.

The impact of export tax rebate reform on industrial exporters’ soot emissions: Evidence from China

“…Many previous studies suggest that export tax rebate policy, which are important policy tools for governments, are often used to stimulate export (Chong'En et al, 2011;Lee et al, 2021) and firm productivity (Zhang, 2019), thereby promoting economic growth (Xu, 2018). Few studies have explored the impact of the export tax rebate policy adjustment that may lead to environmental improvements.…”

“…In 2005, in order to adjust the product structure of foreign trade and encourage the increase of the proportion of trade exports of environment-friendly enterprises, China reduced the export tax rebate rates of some highly polluting, energy-consuming and resource-based products. At the same time, the export tax rebate rates for IT products and pharmaceutical products were raised to stimulate the trade competitiveness of low energy-consuming and innovative enterprises (Xu, 2018;Braakmann et al, 2020). In 2007, the Chinese central government adjusted the export tax rebate policy again.…”

Empirical Analysis of Export Tax Rebate on Inwards Foreign Direct Investment in China

“…An et al (2017) explored regional effect of export tax rebate on exporting enterprise in China. Z. H. Xu (2018) found that the counteracting effects of China's export tax rebate policy affected the effectiveness of real exchange rates in facilitating the resolution of trade imbalances under background of the pegged exchange rate regime. D. Y.…”

Examining the determinants and efficiency of China’s agricultural exports using a stochastic frontier gravity model

“…Therefore, China needs to maintain or depreciate the exchange rate because a rise in "Yuan" is expected to drop the export revenue because of very low elasticity. China's exchange rate policy is such a highly argumentative and extensively discussed issue that it often generates heated debate around the globe [70][71][72]. The United States of America has criticized China's exchange rate policy for the two country's bilateral trade deficit [73][74][75].…”