Lowered Export Subsidies Hits Chinese Industry

BEIJING, China – The July 1, 2007 announcement of the lowering of the tax refund on Chinese export has not missed its effects on the Chinese bicycle industry. The tax rebate percentage was lowered with 4% on complete bikes as well as on parts, and for many Chinese exporter this makes the difference between profit and loss.

It is clear that the cheapest bikes with the tightest contracts are first to turn unprofitable, and, claim industry insiders in China, many manufacturers are reluctant to close new contracts or prolong existing contracts, because they don’t know what their cost price will be towards the time the new contract will run out.

They rather let a possibly unprofitable contract slip than risk a loss. All the more, it is clear that the export price for Chinese bicycles will rise. Due to that Chinese companies who have moved part of their production or assembly to eastern Europe or to countries close to Europe that benefit from the Generalized Tariff Preferences (GSP) scheme, seem to have had a good foresight.

For the Chinese central government the goal of the measure is to reduce its excessive trade surplus and restore the balance for foreign trade. For the Chinese manufacturers, it means lower foreign income, unless they can coerce their export customers to pay more for the same specification.

Simultaneously with the tax rebate measure, China is faced with a very ‘hard’ Renminbi currency – the exchange rate with the dollar and the euro has in fact been permanently and very steadily on the rise since China joined the WTA. World market prices for raw materials are rising, and in various Chinese industrial regions the labour cost is exploding: the average factory workers’ wages doubled in some regions over a two-year period.

The overall effect of these cost factors brings some bike manufacturers - even those with an excellent reputation- in trouble. The Guangzhou industrial region is hit hardest because it is more dependent on exports than the Tianjin region in the North.

Brian Montgomery, chairman of the European Bicycle Manufacturers’ Association (EBMA), welcomes the long-awaited decision: “We worked hard against this tax rebate. For complete bicycles it was lowered several years ago from 17 to 13%. Now it’s lowered again to 9%. The one on bicycle parts went from 13 to 9%.” Asked if he is satisfied with the new 9% rate Montgomery says that he will be happier when: “They get the rate of rebate down to zero”.