Chinese VAT Rebates

[Sleuth]

For all you invenstment bankers and people in the import/export trades out there, do you think there is any truth to the rumor that Beijing will eliminate this subsidy come July?

[Boris]

The VAT rebate scheme on exporting is essential to the business model of the majority of manufacturers in China.

Goods can be seen ( by those who wish to see it that way ) to be sold at cost or less than cost. The rebate is used in most cases to make the profit margin which can be between 10 to 13%.

Your friendly neighbourhood Chinese factory loves to tell you in glowing terms how you are getting goods at cost ( or less ) because you are valued friend etc. Maybe you are but its very subject to interpretation on the word profit.

A rebate can be variable across the products range and Beijing are reducing and / or eliminating export VAT refunds on certain products after action at WTO. However ( I think ) in the case of steel, where the vat refund is ( or was ) eliminated. The get out for the big producer is they can still get a refund due on the imported ore when the finished item is exported.

This is not just true of steel but of all the commodities imported and then send outside as finished goods.

Therefore it pleases the US , cos they can claim a victory at WTO. The producer wouldn't complain because he is get a bigger profit. His price he charges is higher PLUS he gets a rebate. Not true in all cases but I know those that are very happy at this.

The EU are more circumspect than the US I think as there is VAT immunity across the Intra EU trade so they really can't cry foul too much.

IF Beijing cut Vat rebate across the board unilaterally it would of course be catastophic for many manufacturers that don't import the raw material for production . Thats probably a good enough reason to suppose its not going to happen.

China will do what is right for China just as the US has always done what is right for the US and now finds itself down 20pts in the 4th qtr . Kicking off against Hurricane Katrina.

If it all gets too dirty at WTO no doubt Beijing have a BIG dossier of foreign government subsidies, unfair practises etc to go against those that would threaten them. Until now however the trade winds are favourable and warm for them.

[Sleuth]

Thank you. I tend to agree that all countries do what is in their best interests, but might restate it to be "politicians do what is in their best political interests" (regardless of whether it is good for the country).
I also doubt Beijing will really do anything.

[Boris]

As from July 1st China export tax refunds will reduce by 4% .

For example the normal 13% tax back will now become 9%. This is a compromise that is typical of the way things are done.

With the rising RMB and this increase, some people ( if they have not got their head scewed on ) will suffer a loss of up to 7% on orders going out during the busy Xmas season.

7% i here you say === 4% tax + 3% increase RMB between March ( order given ) and August / Sept / Oct ( shipping ), based on Annual raise of 6%

Confirm production and double check the quality on your Xma specials - the saviings they need to make WITHOUT changing the price ( maybe allready agreed in contract ) can only come from lower quality materials or unskilled sub contracted factories.

[Swell]

As from July 1st China export tax refunds will reduce by 4% .

What's your source of info? if this is confirmed, then it's much better than I had expected.

[KnowItAll]

This seems to be the latest news article..

http://www.fxstreet.com/news/forex-n...e-9edfea1cbd27

[Sleuth]

This seems to be the latest news article..

http://www.fxstreet.com/news/forex-n...e-9edfea1cbd27

The media has been pretty silent on the entire issue. Most stories go back years. Even the factories I speak with aren't sure what is going to happen. But I have heard that 4% repeated a few times.

[Boris]

The information comes from my people in China who source and export goods for me. The government tax service has informed them of the new rates.

If you have contacts with companies inside China they will be able to give you the same confirmation.

[Boris]

Here is one source from my people in China. Afraid its in Chinese but you can understand some if you babalfish it and have knowledge of HS codes.

http://bbs.fobshanghai.com/thread-584069-1-2.html

[Swell]

Boris, that link only refers to the rumours that's going around at the moment, nothing official yet.

My SH office believes the reductions will happen and all exporters are right now desperately trying to ship out all they can before July 1st.