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China favors jobs at home over freer trade

Beijing restores tax breaks and other perks for Chinese exporters. It's worried that declining exports mean more social unrest.

By JONATHAN ADAMSCorrespondent of The Christian Science Monitor / January 2, 2009

BETTER DAYS: In early December, workers gathered at a newly opened section of a port in Shanghai, China. But exports are now falling – down 2.2 percent in November.




In recent years, China scrapped many of its export-friendly policies – a turn welcomed by foreign competitors as a step toward freer, fairer trade.

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In typical style, Beijing did so incrementally, "crossing the river by feeling the stones," as Deng Xiaoping is quoted as saying.

But now, with the economic downturn in full effect, China is scrambling back toward the riverbank. The government has reversed itself on tax rebates and other export-friendly policies, restoring perks it had only recently scrapped.

The latest tax rebate hikes, which take effect Jan. 1, will be doled out to exporters of motorcycles, sewing machines, industrial robots, and other goods, according to the China Daily.

Beijing's about-face risks raising tensions with the US and other trade partners. Washington and others have long complained about China's "unfair" trade policies and a flood of cheap Chinese imports. The US welcomed the 2007 elimination of some tax rebates as a sign of progress, only to see many of them now restored.

But analysts here say China isn't trying to undercut foreign competitors. Rather, it's giving life support to flailing exporters – and trying to stave off the social unrest it fears will result from massive factory layoffs.

"The leadership here is under enormous pressure from manufacturers and local officials to do whatever it takes to save jobs and maintain stability," said Russell Leigh Moses, a China-watcher at The Beijing Center for Chinese Studies. "There are some voices within the bureaucracy who are concerned about this 'China first' strategy, but they are being overwhelmed by these domestic cries for help."

In fact, in the current gloomy climate, most nations are pursuing a "me first" strategy, and China's no exception. Trade barriers that were only recently taken down are going up again. Russia recently slapped tariffs on imported cars, and Vietnam has done the same for steel. The World Bank predicts such policies, and slack demand will cause global trade to fall 2.1 percent next year, the first contraction since 1982.

All of which has raised worries of a return to the "beggar-thy-neighbor" protectionist policies of the 1930s, which helped create the conditions for World War II.

But Andy Xie, a Shanghai-based independent economist, says such fears are overblown. "There will be some protectionist measures, but I don't think we're going back to the 1930s," says Mr. Xie. "This round of globalization is much more resilient."