Affected by the international financial crisis, exports of motorcycle engines have decreased since 2008. During previous peak periods, the company used to manufacture 13,000 engines a day. However, for most of 2008 daily output was around 8,000, and steadily declined until the fourth quarter. In Li's opinion, the company's profits in 2009 will be enhanced by the raising of export tax rebate rates.

    "The most direct benefit of increased tax rebates will be the lowering of costs. The advantages for household electric appliance manufacturers include the release of production capacity, increased employment opportunities and an increased share in the international market," said Wang Shoubo from the Machinery Sub-Council of the China Council for the Promotion of International Trade. "Furthermore, it also encourages enterprises to go global."

Reversing the Decline a Tough Task

    The impact of policies encouraging exports have become apparent. The latest statistics from the General Administration of Customs show that after China raised the export tax rebate rates for some commodities on August 1, November 1 and December 1 2008, the export volume of relevant products was US $54.45 billion in December, an increase of 4.8 percent over the same period in 2007. The proportion of these products in China's total export value rose from 45.8 percent in the previous 11 months to 49.0 percent in December.

    "Raising export tax rebate rates is a good thing and inspires us greatly, however, the market still looks gloomy," said Zeng Tianren, CEO of Dongguan Yingqi Co., Ltd., a company that exports woolen clothing. "Our orders have dropped badly due to the shrinking market. Although the rise in tax rebate rates has widened the enterprise's profit margin, declining orders are still a hard nut to crack."

    "Although the policy can stimulate China's export market, the source of the decline lies in international market circumstances," claims Wang Shoubo. "In 2008, about 60 percent of China's exports of household electric appliances was sold on the European and American markets." According to statistics from the U.S. Department of Commerce, in the third quarter of 2008, U.S. consumer spending dropped 3.7 percent, the first decline in 17 years.

    Minister of Commerce Chen Deming also said candidly that although policies have greatly reduced export costs, they have not attracted more orders, alleviated management dilemmas or enhanced confidence. The international financial crisis is still deepening, and overseas demand may shrink further. China's exports suffered negative growth during the last two months of 2008, the first drop in seven years.

    Besides weak overseas demand, Chinese enterprises are also confronted with the stress of price competition. "The depreciation of foreign currencies has had a major impact on the export of household electric appliances. For example, the South Korean won depreciated by more than 40 percent, making our main manufacturing rival much more competitive on the international market. Moreover, the Brazilian and Australian currencies have also lost about 30 percent of their value," said Yu Yaochang, executive vice-president of the Galanz Group.

Solutions from Foreign Trade Corporations

    The rise in export tax rebate rates has given more support and confidence to Chinese enterprises encountering weak international demand. Wang Shoubo says the policy cannot immediately settle all problems Chinese enterprises are faced with in the international market, and enterprises, in the light of the present situation, need to adopt appropriate strategies to resist the influence of the international financial crisis.

    "We need to work hard to exploit export markets in emerging economies and developing countries in South Asia, Central Asia, the Middle East, South America and Eastern Europe," said Chen Deming during a national commercial conference. He further advised enterprises to become fully aware of burgeoning markets, while solidifying traditional markets in the US, Europe and Japan, and quicken implementation of strategies of market diversification.

    At present, China's exports to the US have declined most dramatically, with the European Union and Japan coming second. However, there has been little impact on developing regions such as Latin America and Africa. "We ought to develop emerging markets consciously, remedy the fall in developed markets via new growth, and minimize the impact of the financial crisis by diversifying markets."

    On the other hand, under conditions of increasingly competitive industries and stagnant exports, some export companies have shifted their focus to the domestic market. "Our company is considering the domestic market. Once we succeed, it will alleviate the deadlock in price competition on the export market," said Tang Mo, manager of the Planning Department of the Dongguan Huakang Computer Tech Company.

    "China's economic structure is undergoing major structural adjustments. Expanding domestic demand has become a higher priority than developing exports and investment, so it is natural for export enterprises to increase input to the domestic arena. But this transformation is no piece of cake, requiring high capital investment, correct planning and strong executive ability," said Wang Jian, secretary-general of the China Society of Macroeconomics.