China Daily ran an interesting article with the headlines “Export tax rebates will be increased this year in response to an export decline triggered by the European debt crisis”. Below are highlights from the article with my clarifications on how these items affect buyers and how we can take advantage of this opportunity.
In order to prop up sagging exports the Chinese Commerce Ministry stated that China will:
“at the appropriate time, increase tax rebates on specific categories of goods, including labor-intensive products”.
This is not the first time China has adjusted the rebate system.
“From 2008 to 2009 when the financial crisis hit, China raised export tax rebates seven times on a wide range of goods. Tax rebate rates in general were increased to 13.5 percent in 2009 from 9.8 percent before the crisis.”
The rebate referred to above is the VAT rebate. You may be interested in checking out What is VAT and why should I worry about it? to understand how VAT rebate in China works.
“Higher export tax rebate rates would help us get through the difficult patch and prevent the hardest-hit from going bankrupt…”
explains a China factory. This “bonus rebate” is essentially the central government subsidizing production costs. This is great for us buyers of Chinese exports IF the rebate is passed on to us. But from my experience, unless the buyer knows about the rebate and twists the arm of the seller, the suppliers are likely not to pass on the savings to the customer.
At the time of writing it has not been made public which industries will receive the extra tax rebate. But it is very positive that the government is hinting the list will include labor-intensive products which make up the bulk of Chinese exports. As soon as the list is made public, I will post the information to my blog and suggest readers who are buying these products from China use this “inside information” to negotiate better pricing with their suppliers. Get ready to twist some arms!
The article also went on to explain:
“Relocation has proven to be an effective tool in slashing costs for exporters. Wenzhou-based shoe maker China Juyi Group has moved some of its manufacturing lines from Zhejiang (on the coast) to Anhui province (in the interior) , where labor and land costs are lower. Many enterprises in Wenzhou are doing the same while costs in the eastern coastal areas surge,” said Luo Li, Juyi’s deputy general manager.”
Unfortunately, factories can’t pick up and move overnight. Yes, in the long run (2-5 years) more and more factories will move inland to help keep costs down. But the short term rebate increase from Beijing is a move that helps right now. So, on behalf of us buyers who are able to get concessions out of the sellers for this rebate, we should say “XieXie Beijing!”
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