Beijing, June 9 - China has raised tax rebates on exports of raw sugar to 15 percent from 13 percent to encourage sugar exports despite an apparent shortfall following a steep drop in production.
But the refund on the 17 percent value-added tax, effective from June 1, will not spur exports, analysts said.
"The increase in refund does not make any sense. Domestic supply is tight and there will be a deficit at home," said Tao Qiujun, an analyst with the Guangxi Sugar Exchange, the country's leading physical sugar exchange.
China's sugar output fell 16 percent in the year ending September to 12.43 million tonnes from a year earlier, the exchange said, citing information from the China Sugar Association. Freezing weather early in the year had damaged canes in the country's largest growing region of Guangxi.
The government is holding large amounts of sugar reserves, and Tao expects it may support sugar prices and farmers by not releasing its reserves before August.
China has said it would spend an extra $10 billion to bulk up its commodity reserves and lift farm support spending by 20 percent this year, measures that should aid local grain prices and may boost global metals and oil markets.
Dealers believed that the country had built up reserves of 2-3 million tonnes, while the merchants in the country should keep a combined stockpile of one million tonnes on hand.
"The consumption should stand around 13.5 million tonnes this year, and the industry association forecasts a good demand. In this case, supply should remain a relatively tight condition through the year," said a Beijing-based trader.
China has been a net sugar importer so far this year. The country imported 498,000 tonnes in the first four months and exported 16,400 tonnes in the same period.