China on Tuesday announced an average cut of 3 percentage points in export tax rebates next year, aiming to ease mounting US pressure for a revaluation of the yuan.
But analysts said the new policy may negatively impact some Taiwanese businesses operating in China.
"Profit margins of many China-based Taiwanese businesses may be narrowed by an average 3 percent," Jason Fong (馮志良), deputy secretary general of the Chinese National Federation of Industries (工總), told the Taipei Times yesterday.
Currently, about one-third of Taiwanese businesses operating in China are located in unaffected tax-free bonded areas, Fong said.
Businesses located in China's economically developed areas such as Shanghai, Guangzhou and Shenzhen will be hit the hardest, since local governments in these areas usually adopt an iron-fisted approach to new policy execution, Fong added.
Yet Taiwanese businessmen can expect the policy to be applied more loosely by some inner Chinese local governments.
Governments in Chengdu city, Wuhan city and Jiangxi Province, for instance, may come up with other supporting measures or other preferable treatments that offset the impact of cuts in tax rebates in order to retain business, Fong explained.
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But he also said that China-based exporters may then reduce other expenditures by importing tax-free raw material to take advantage of the tax-free treatment while making exports with higher production costs.
Kao, nevertheless, gave credit to the new policy.
He said Chinese governments' domestic fiscal problems, as well as international pressures on its currency, may be addressed and alleviated by the policy.
But Fong expressed concern about Beijing's lack of efficiency in rebating business taxes, which he said has contributed to a squeeze in China-based businesses' working capital.
Another analyst said the tax rebates reform will create no negative impact on the majority of Taiwan's high-tech and electronics industries with operations in China.
"Most Taiwanese high-tech and electronics industries will be unaffected by the new policy since they are still subject to the 17 percent tax rebate-rate category," said James Yeh (葉雲龍), a senior fund manager of HSBC Asset Management (Taiwan) Ltd's research department.
According to a statement by the Chinese State Council, export goods will be classified into five rate-categories with aircraft, automobiles and related components continuing to enjoy their 17 percent rebate-rates.
Products granted a new 13 percent rate include steel, chemicals, plastic and rubber, clothing, textiles, toys, shoes and leather products.
Yeh added that the new rebate policy is expected to help China restructure its industrial focus from a low-end and labor-intensive economy to a high-end, capital-intensive economy.
"Environmentally-unfriendly industries such as raw material and mineral industries will no longer enjoy high rebate rates and, therefore, be gradually phased out," Yeh said.
The Hongkong and Shanghai Banking Corp (HSBC) expressed its official views of the rebate policy, saying China is sending a message to the world that it's willing to make compromises to address concerns about its trade surplus while determining to maintain a stable Chinese yuan policy.
"Since a 3 percentage point reduction on value-added tax (VAT) rebates will force some Chinese exporters to increase prices to protect their margins, it can be seen as an effective 3 percent revaluation of the currency," the HSBC said in a written statement, adding that most Chinese exporters should succeed in passing on the extra charges to customers.
The policy will save China an annual fiscal cost by 50 billion yuan to 60 billion yuan while expecting the VAT tax cut to further lower China's export growth by 3 percent to 5 percent next year to an estimated 16 percent, HSBC said.
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