Grain exports taxed in bid to curb inflation

THE Ministry of Finance said yesterday it would levy export taxes on wheat, corn, rice, soybeans and various processed grains in 2008.

The move is apparently aimed at reining in surging domestic prices, which have driven up the inflation rate, and it comes just a week after China scrapped tax rebates for grain exports.

The export tax rates will range from five to 25 percent and affect 57 types of grain and grain products.

The rates for wheat and wheat products are 20 percent and 25 percent, respectively. The rate for corn, rice and soybean is five percent, while that for processed corn, rice and soybean products is 10 percent.

The move "will contribute to preventing the country from importing high international grain prices and will lower price expectations in the domestic market," said Cheng Guoqiang, a senior researcher with the Institute of Market Economy, Development Research Center of China's cabinet.

A week ago, the ministry said it would scrap a 13-percent export tax rebate on 84 categories of grain and grain products from December 20. Those rebates, together with high international grain prices, have boosted Chinese grain exports this year.

The nation exported 4.87 million tons of corn and 400,000 tons of soybeans in the first 11 months of 2007, up 85.3 percent and 23.8 percent, respectively, from the previous year. Exports of rice rose 5.8 percent to 1.13 million tons and exports of wheat soared 206.51 percent to 1.85 million tons.

Analysts said discouraging grain exports would be a new option to limit domestic grain prices since the lengthy grain production cycle could not be changed.

Soaring food prices drove the consumer price index (CPI) to an 11-year high of 6.9 percent in November. The price of food, which has a 33-percent weighting in the CPI, soared 18.2 percent last month.

The high inflation rate, well above the target of three percent set by the government for 2007, has become a major issue for the government, which is concerned about its impact on the poor.

The grain tax move is the latest government effort to ease the impact of higher consumer prices, including quintupling the tax on arable land used for non-farm purposes and lifting the individual income tax threshold.