Imports of parts and materials used to make advanced equipment will be given tax rebates a move expected to cut the trade surplus and optimize the industrial structure.

The policy applies to imports by 16 industries, such as large power-generating plants and transmission equipment, the State Administration of Taxation announced on Wednesday, adding that it would help upgrade the manufacturing sector.

"The new rule shoots two birds with one stone," said Peng Longyun, senior economist with the Asian Development Bank.

"The impact on boosting imports is obvious," as investment in such products is usually large, he added.

The policy is expected to help increase imports in the 16 sectors to balance the country's trade with key partners, such as the United States and the European Union, which are major providers of such parts and equipment.

Peng also expects the policy to boost the equipment manufacturing sector, which is highly dependent on imports.

"It may help clear the bottleneck in the manufacture of key equipment, thus speeding up the development of the whole industry," he said.

The new rule requires companies to convert the savings from tax rebates into State equity and use the funds on R&D and innovation.

An enterprise wholly owned by the State or with State shareholding should use the rebates to increase State equity stake.

Non-State-owned firms including public companies will have to bring in the State as a shareholder if they choose to avail the import tax rebate.

The policy will mainly benefit the power-generation, petrochemical and coal liquefaction sectors.

Sheet steel plants, coal mining equipment, large ships and offshore drilling rigs, high-speed trains, electronics and aircraft manufacturing will also be covered.

China's trade surplus increased more than 74 percent year-on-year to $177.5 billion in 2006, leading to friction with trade partners such as the United States and the European Union.

Commerce Minister Bo Xilai told a recent conference that reducing the huge trade surplus was the main item on his agenda for this year

Source: China Daily