Hello Challo Jeregy, again. My Beijing office sends the following e-mail that I believe satisfactorily addresses the mysterious 4% number [EDIT: CMEC is one of the larger Chinese trading companies] that has the same effect as a 4% revaluation of the RMB without revaluing RMB
From CMEC key person I have learnt:
1) They are not aware of any plan to raise the tariffs on any imports, including imported raw materials.
2) However, a new regulation is being implemented to reduce the VAT tax rebates to export enterprises; the average of the overall reduction of VAT tax rebate is about 4%.
-- As example, an export enterprise when exporting had to pay a 17% VAT tax on the goods exported, and later, in many cases after 6 months, or 12 months, or even 18 months later, the enterprise will get a rebate of varying %s for different categories. Let us assume an enterprise would late get the original 14% VAT tax back as rebate. The above means, after implementation of the new regulation, the exporting enterprise will only get 10% rebate back.
-- This means that the exporting enterprise either further reduces their price to maintain competitiveness, or if they are unable to reduce their price, then the export price will be increased by 4%.
-- To the USA, if the export price is increased by 4%, the effect of such a regulation is equal to increasing the value of the RMB by 4%. However, in comparison to before, it is the Chinese State that gains this 4%.
-- On the other hand, if the Chinese enterprise must further reduce their prices to maintain their export price the same as before for competitiveness reasons, their profit margin will be reduced.
-- In many if not most cases, the VAT rebate or part of it becomes the main profit for the trading companies, in the above cases; I believe they will share the new 4% burden with the enterprise and thus share the reduction of overall profit margins.
Chugs, Jay |
