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

- Chinese authorities use two major export fiscal tools with the aim of achieving their industrial policy.
- We use data covering the period 2002-2012.
- Our results confirm that these fiscal tools have been used to promote high technology products or environment protection.

This paper investigates the motives behind China's fiscal policy targeting exports. It relies on detailed data at the product level over the period 2002-2012. We analyze two major export fiscal instruments: export tax and export VAT rebate. Our results suggest that while pursuing many objectives simultaneously, Chinese policy used the two instruments in a complementary way with the aim of achieving their industrial policy and strategic objectives. Some are officially stated objectives such as promoting technology or environmental protection, while others do not appear in official documents, such as subsidizing downstream sectors. We also observed that China managed these instruments dynamically to address temporary shocks, for example to temper rising food price or to support strategic sectors sensitive to price competitiveness in the middle of the financial crisis.