Policy Changes Are Expected     

A crisis like the subprime lending crisis in the United States is possibly arising in China, particularly in Shenzhen, the city opened earliest in China and near to Hong Kong, according to some media. According to some reports in Shenzhen, home prices recently fell fast, say 30%-50%, causing some buyers to discontinue making the monthly loan payment and turning over their depreciated property to the bank. However, the banks denied the crisis at once, responding that only a few buyers discontinued paying the loan, which cannot have impact on the performance of banks, and the house builders refused to agree to the price drop.  
   When most manufacturing firms reported falling performance indicators in the first half and people feel hopeless about the rapid inflation, many economists are giving suggestions to the government. Wang Jian, secretary of China Society of Microeconomics, called for new ideas of controlling economy. He suggests China pay more attention to guaranteeing economic growth when it is difficult to constrain the cost-driven inflation. He expects that the credit may soon be eased.
    In July, oil prices fell sharply from US$146 per barrel, it seems that nervous people may breathe more freely. A senior expert at Bank of China told us the oil price will surge further because the US dollar continues to weaken.
    Economists also suggest that the government change the levying mode of value added tax, i.e. to reduce the tax rate, so that the manufacturing firms can reduce the pressure to pass costs onto downstream consumers, further reducing inflation.  
    Since July 1st, 2007 the Chinese government eliminated or lowered export rebates for 2 831 export items. Today, there are many voices to claim for lifting the export rebates back, especially from the textile and chemical fiber firms that more rely on exports. They hope to get higher rebates to offset the loss caused by the RMB appreciating against USD. Economists or officials who oppose raising the export rebates again say that the rebates in fact benefit the oversea buyers rather than Chinese exporters. Once the exports rebate of a chemical is lifted, oversea buyers will ask for a lower price and domestic firms may lower the exports price to beat out other exporters.
   In fact the reduced export rebates can not reduce the export of chemicals that consume dilute resources and discharge more pollutants, for instance, phosphoric acid whose export rebates was reduced from 13% to zero since July 2007. China exported 184.88 thousand tons of phosphoric acid at an average price of US$500/t in the first half of 2007, but the exports was still 181.33 thousand tons at an average price of US$529 in the second half. Even though China levied a 100% tariff on exported phosphoric acid from June 2008 owing to the earthquake disaster, China still exported 31 543 tons at price of US$1 234 in June. Only the balance between supply and demand can decide the performance of a sector, not policy.
   
Zhong Weike
July 30th, 2008