China 'set to cut export rebates'

Rebates for textiles have sparked clashes with the US and Europe

China is considering cutting tax rebates on some of its exports in order to tackle its record trade surplus, state media have reported.

Rebates for energy and resource intensive sectors such as textiles and metals could be cut by 2% on average.

The move would help China to reduce its reliance on trade and investment as well as help to curb pollution and conserve energy.

But, the plan is likely to be attacked by domestic traders and firms.

The proposals are expected to come into force in September or October.

"The Chinese government wants to see a trade balance. We don't deliberately seek a rising surplus," Xinhua state news agency quoted trade ministry spokesman Chong Quan as saying.

Record surplus

China's trade surplus for the first six months of the year already stands 50% up on the same time last year at $61.45bn, and trebled during the whole of 2005.

The surplus is also a sore point in relations with the US and Europe, who claim that rebates enable China to dump cheaper goods on their markets - pressuring domestic companies and triggering job losses.

The rebates were introduced in 1988 during the Asian financial crisis at a level of 6% but are now at 15% and becoming an increasing burden on the coffers of China's central bank.

Between 2001 and 2005 export rebates reached 1.19 trillion yuan ($148.7bn; £80bn).

The news comes days after the US rejected calls for the government to investigate claims of unfair working practices in China.

US worries

Unions had petitioned the Bush administration to launch an inquiry into allegations that the Asian country was violating international labour standards.

The unions also claimed that these practices had led to 1.29 million job losses in the US as a result of companies outsourcing to China.

The government turned down the request saying that conditions in the country were improving - with wages rising and improved safety inspections being carried out.

Meanwhile, commentators said the petition was a bid by unions to up the pressure on the Bush administration ahead of the US elections.

Unions are unhappy about America's record $202bn trade deficit with China which they say is hurting US companies and workers.