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China Gives Back to Manufacturers

Published December 3, 2008

CHANGHUA, Taiwan (BRAIN)—As its own economy slows, mainland China is increasing tax incentives for a slew of exported products, including bicycles.

The government announced that it would increase the export tax rebate on Chinese-made bicycles to as much as 14 percent from 9 percent.

Bicycles are just one of more than 3,700 products that will receive the additional financial support. The increased rebates will apply to more than a fourth of China’s exports such as textiles, toys, machinery and electrical products.

The move is an about-face for China, which had been cutting export rebates as it attempted to de-emphasize industrial manufacturing.

Chinese manufacturers typically pay a 17 percent value-added tax on products they buy within China, but until recently got it back when they exported the goods. About two years ago, the Chinese government began keeping 4 percent and rebating 13.

Earlier this year, it cut the rebate for bicycles and parts to 9 percent.

One important bicycle manufacturer said Wednesday that the increase in the rebate, while appreciated, would not amount to a significant reduction in costs.

William Jeng, senior vice present for marketing at Merida, said the rebate applies to locally produced components, not to the value of the entire exported bike.

If a bicycle contains only 30 percent local content, he said, a rebate of an additional two percentage points, to 100 from 9 percent, would equal only 0.6 percent of the total cost.

“It’s not for all of the components that we use,” Jeng said. “This helps, but not much.”

“We have to let China government know we appreciate their effort in helping on this,” said Michael Tseng, general manager of Merida. But he said Merida’s customers should not expect the move to lead to lower prices.

Merida operates two factories in China, and Tseng also heads the prestigious A-Team of leading Taiwan bicycle manufacturers.

China had been cutting subsidies under pressure from the European Union and the United States over claims that the subsidies give an unfair advantage to its products.

But with export growth slowing, the central government is signaling that it now is willing to spend big to prop up its economy. China recently announced a $586 billion stimulus package that will be spent on infrastructure and other projects.

—Doug McClellan

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