Tax rebates will be given out to imports of component materials used to make advanced equipment, a move aimed at minimizing the trade surplus and optimizing the industrial structure.
The policy applies to imports ranging across 16 industries, such as large power-generating plants and transmission equipment, the State Administration of Taxation announced on Wednesday, adding these rebates would help upgrade the manufacturing sector.
"The new rule shoots two birds with one stone," said Peng Longyun, senior economist with the Asian Development Bank.
"The impact on boosting imports is obvious" as investment in such products is usually large, he added.
The policy will help boost imports in the 16 sectors to balance the country's trade with key partners, such as the US and the EU, both of which are major providers of such equipment.
The policy, Peng continued, should also bolster the equipment manufacturing sector, which heavily relies on imports.
"It may help clear the bottleneck in the manufacture of key equipment, thus speeding up industry-wide development," he said.
However, these rebates do not hand their companies a fatter profit margin. Relevant companies are required to convert the savings from tax rebates into state equity and use these said funds on R&D and innovation.
An enterprise wholly or partly owned by the state should use the rebates to increase its state equity stakes.
Non-state-owned firms including public companies will be required to allow the state to become a shareholder, should they avail themselves of the rebates.
The policy will mainly benefit the power-generation, petrochemical and coal liquefaction sectors. However, it will encapsulate a range of industries including sheet steel plants, coal mining equipment, large ships and offshore drilling rigs, high-speed trains, electronics and aircraft manufacturing.
China's trade surplus increased more than 74 percent year-on-year to US$177.5 billion in 2006, leading to friction with global trade partners such as the US and the EU.
These correcting moves come after Commerce Minister Bo Xilai told a recent conference that reducing the huge trade surplus was the main item on his agenda for 2007.
(China Daily February 9, 2007)