The Ministry of Commerce is overhauling the country's export promotion strategy, against a backdrop of falling export prices delivering lower profits and more trade disputes with foreign countries.

"The current export promotion strategy is apparently flawed. The supporting measures are simple, too obvious for foreign criticism and cause unhealthy price competition," said Shen Danyang, vice-president of the ministry's think tank, the Chinese Academy of International Trade and Economic Cooperation.

A report, which is being compiled by Shen and a team of researchers, is expected to be completed this year, helping to form a strategy leading to a new and comprehensive export promotion system.

"The new strategy will help us use the financial support more effectively and give the right signals to exporters," Shen said.

China's incentives to exporters are currently very straightforward, offering subsidies or tax rebates, Shen said.

Subsidies were scrapped after China joined the World Trade Organization (WTO). The tax rebate rate was also cut by an average of 3 percentage points at the beginning of this year because the central treasury is hard to burden.

"The incentives should be diversified and granted to earlier stages of the manufacturing chain, for example, the development of intellectual property rights and overseas marketing activities," Shen said.

The current strategy, which just gives money back after the goods are sold, means exporters focus far too much on quantity and price competition, Shen said.

Although the strategy increased the nation's exports, Shen maintains that it has actually led to a worsening trade situation.

The report says that the revamped strategy should favor specific sectors, company types and export destinations, rather than simply offer uniform support to all industries, Shen said.

"Through the direction of the strategy, the government can guide the local companies to produce more of what it wants, such as products with a high added value," Shen said.

Domestic industries have long been urged by the government to start manufacturing high-end products, but this has won little response.

Shen's ideas actually form part of a plan being drawn up by the ministry to help establish more Chinese exports.

An official from the ministry's department of foreign trade said it was looking at setting up a fund to help forge more branded Chinese exports.

Local exporters with their own brands can compete to enter an annual list and secure the funding, he said.

The funds can be used to finance research and development, and the advertising and marketing of the brands overseas, the official said.

But the fund has yet to be approved by the Ministry of Finance, he said.

The new strategy will also mean that industrial associations will play a greater role in export promotion, Shen said.

After being transformed from their previous role as government affiliates, domestic industrial associations have begun to act more effectively as spokesman for their industries, according to Cao Xinyu, deputy director of the China Chamber of Commerce of Import and Export for Textiles.

(China Daily March 4, 2004)