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Lower Rebates Force Suppliers to Raise Prices

Published October 16, 2007

BEIJING, China (BRAIN)--No one quite knows what the final impact will be, but the price of 2008 model bicycles sold in the U.S. market will be going up thanks to the Chinese government. Driving the surge in pricing, perhaps more than 4 percent overall, was a reduction of the rebate on China’s value-added tax (VAT).

Chinese manufacturers typically pay a value-added tax on exported products, but the Chinese government had been rebating 17 percent of the VAT tax back to manufacturers. About two years ago, the Chinese government began keeping 4 percent, and rebating only 13 percent back to the manufacturers. As of July 1, the government will now keep 8 percent and rebate only 9 percent back on many products, including bicycles, components and accessories.

“I think the VAT export tax rebate reduction will have a big impact over the whole bicycle industry, and price increases from suppliers are inevitable,” said Michael Tseng, executive vice president of Merida in Taiwan. “It will inevitably result in the increase of retail prices in all the markets,” Tseng added.

China supplies more than 90 percent of the U.S. bike market, and brands here are already feeling the effects or will shortly. Some factories may negotiate something other than the 4 percent, but hardly anyone will escape, said Joe Vadeboncouer, director of product development for Trek.

“The bike makers are first to react to these things, and we’ll see that 4 percent VAT change passed along to us in some form or another,” he said.

See the Aug. 1 issue of Bicycle Retailer and Industry News for a more detailed look at the VAT rebate issue and its impact on suppliers and retailers. –John Crenshaw

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