Trade policy and industrial policy in China: What motivates public authorities to apply restrictions on exports?

Stéphanie Monjon

Julien Gourdon

Sandra Poncet

Highlights :

• During the period 2002-2012, Chinese authorities used two major export taxation instruments targeting exports -export tax and export VAT rebate- in a complementary way with the aim of achieving their industrial policy.
• Some are officially stated such as promoting high-technology productions or environment protection but others do not appear in official documents, such as subsidizing downstream sectors.
• We also observed that China used those instruments in a dynamic way to address temporary shocks, for example to temper food price rises or to support strategic sectors sensitive to price competitiveness in the middle of the financial crisis.
  

Abstract :
This work investigates the motivations behind the Chinese fiscal policy on exports. It relies on very detailed product level (HS 6 digit) data over the period 2002-12 covering both export tax and export VAT rebate. It aims to uncover the respective importance of the various policy motivations and how they evolved over time. Our empirical analysis relates the tax rates to proxies of official objectives pursued by the Chinese public authorities such as those related to the promotion of technology or protection of the environment but also other unstated motives pertaining to subsidization of downstream sectors and terms of trade. Our results suggest that the Chinese fiscal policy targeting exports follows a variety of objectives whose relative importance changed over the period 2002-2012.