China's export tax rebate and the duration of firm export spells

• DOI: http://doi.org/10.1111/rode.12546
• Date: 01 February 2019
• Author: Yuying Jin,Beibei Hu,Sajid Anwar,Kai Wang
• Published date: 01 February 2019

REGULAR ARTICLE

China's export tax rebate and the duration of firm

export spells

Sajid Anwar

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Beibei Hu

2

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Yuying Jin

2

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Kai Wang

3

1

University of the Sunshine Coast,

Maroochydore DC, Australia and

Shanghai Lixin University of Accounting

and Finance, Shanghai, China

2

Shanghai University of Finance and

Economics, Shanghai, China

3

Nankai University, Tianjin, China

Correspondence

Kai Wang, Collaborative Innovation

Center for China Economy, Nankai

University, Tianjin, China.

Email: kirkwang@nankai.edu.cn

Funding information

Postgraduate Innovation Project funded

by Shanghai University of Finance and

Economics (CXJJ-2016-351, CXJJ-2015-

349).

Abstract

Using a survival analysis technique, this paper investi-

gates the impact of the export tax rebate (ETR) on dura-

tion of the firm, country/destination, and product (F–C–

P)‐level export spells in China. Empirical analysis of a

large dataset that covers the 2001 to 2013 period shows

that the effect of ETR on duration of export spells of

Chinese firms is large and statistically significant. A 1

percentage point increase in ETR rate increases the dura-

tion rate of F–C–P relationships by 23.2%. Furthermore,

compared with the high‐tech firms, low‐tech and middle‐

tech firms experience a larger increase in the duration of

export spells in response to increase in China's ETR.

Firm ownership‐based analysis shows that an increase in

ETR leads to a larger increase in export spells of pri-

vately owned firms than the export spells of state‐and

foreign‐owned firms. These findings have important pol-

icy implications for the design and implementation of

China's ETR policy.

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INTRODUCTION

From 2000 to 2013, there has been a significant increase in China's exports. China's export perfor-

mance can be, among other things, attributed to its export tax rebate (ETR) policy. This policy

entails reimbursement of some or all of the value‐added and consumption taxes paid by the expor-

ters on actual exports.

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Since China joined the World Trade Organization (WTO) in 2001, the

ETR rate has been adjusted several times. For example, during the 2001 to 2013 period, the rebate

rate for over 80% of the products at the HS6 level was adjusted (either upwards or downwards) at

least once (see An, Hu, & Tan, 2017).

ETR policy is mainly used in China to stabilize exports and to adjust the industrial structure.

From 2002 to 2007, rapid growth in exports not only led to overuse of domestic resources but also

DOI: 10.1111/rode.12546

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© 2018 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2019;23:376–394.

contributed to trade disputes with some countries (e.g., the United States). In 2005, to optimize the

industry structure and to reduce trade frictions, Chinese government reduced the rebate rates for

some energy intensive and pollution causing products (e.g., chemical products, crude oil, nonfer-

rous metal processing products and textiles). However, in 2008, to mitigate the negative impact of

the global financial crisis on its exports, the Chinese government increased the ETR rates for tex-

tiles, machinery and electronics industries.

2

The existing studies mainly focus on the impact of ETR on export volume. For example, Chao,

Eden, and Yu (2006) use a computable general equilibrium mode to analyze the effect of China's

ETR policy. They find that ETR has a positive effect on China's export volume.

3

Using the export

industry data, over the 1985 to 2005 period, Xie and Chen (2008) find significant variation in that

the effect of ETR on export volume across Chinese industries. More recently, using firm‐level data

from China over the 2004 to 2006 period, Chandra and Long (2013) find a positive relationship

between average export rebate rates and export volume. Using firm‐level data from China, over

the 2002 to 2006 period, An et al. (2017) find that an increase in industry‐level ETR leads to an

increase in firm exports. Gourdon, Monjon, and Poncet (2014) find that a 1 percentage point

increase in China's value‐added tax leads to 7% increase in exports.

Chen, Mau and Yu (2006) and An et al. (2017) argue that ETR reduces the input cost of firms

thereby increasing the profit. Depending on the profit, firms decide whether to stay in the industry

or exit (Bernard & Jensen, 2004; Roberts & Tybout, 1997). These literatures on international trade

suggest that firms that export in one period are more likely to export in the next period. However,

export destination changes significantly over time (e.g., see Esteve‐Pérez, Requena‐Silvente & Pal-

lardo‐Lopez, 2013). This raises the question of whether ETR affects the duration of the firm–ex-

port destination relationships. To our knowledge, this issue has not received much attention in the

existing literature. Using firm‐level data from China, we focus on the impact of ETR on the dura-

tion of firms’export destinations.

A number of firm‐level studies on trade relationships (export and import) find that duration of

exports to (and imports from) a specific market is relatively short. For example, using the U.S.

import data over the 1972 to 1988 period, Besedešand Prusa (2006a) find that the duration of

import relationships for most firms is approximately 2 to 4 years, of which approximately 30%

involved multi‐spell import relationships. Nitsch (2009) finds that most import relationships involv-

ing German firms last only for 1 to 3 years. In the case of the E.U. firms, Hess and Persson

(2012) find that the length of the import relationships is short (the import relationships of most

E.U. firms last for about a year). These empirical findings are not limited to developed countries.

Besedešand Blyde (2010) find that export relationships in Latin America are also generally short‐

lived and the relationship survival rates are lower than the corresponding rates in the United States,

European Union and East Asia.

Some of the existing studies have attempted to identify the determinants of the duration of

firms’export destinations. For example, using a dynamic model, Roberts and Tibout (2007) find

that export behaviour is affects by, among other things, entry cost and producer heterogeneity.

Besedeš(2008) concludes that the initial size, reliability and search costs play an important role in

the duration of firm trade relationships. Some studies use survival analysis to examine the factors

that influence the export duration of a firm. For example, Besedešand Blyde (2010) consider the

case of Latin America. Chen, Li, and Zhou (2012), Esteve‐Pérez et al. (2013) and Hiller, Philipp,

and Sørensen (2017), respectively, consider the case of China, Spain and Denmark. They find that

duration of firm's export destination is significantly affected by the firm size, establishment time,

productivity, GDP of the export destination, trade cost and country risk.

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