China Law Blog

I was going to ask whether I am the only person with an IQ over 80 who still hears Richard Dawson (from Family Feud) every time I discuss survey results, but a quick search revealed others apparently suffer from this same affliction. But I digress.

Exactly one month ago, I did a post on a survey being conducted by Technomic Asia on the expected impact of China's changes to its VAT rebate system and the results of that survey are now in. Technomic Asia's one sentence conclusion on the expected results of the VAT changes is that "most Western companies that import materials and products from China expect negative effects, including price increases, from China’s new VAT refund rate policy."

Technomic Asia describes the VAT changes as follows:

The new VAT refund rate policy, announced by the Chinese government on June 19th, will reduce the amount of VAT refund Chinese exporters will receive. The scope of the new policy’s impact will depend on the exporter’s corporate structure and the type of product it exports, but this survey shows that this policy change will have a direct impact on the competitiveness of Chinese exports. Foreign and Chinese companies exporting from China, as well as Western companies using China as an export source for foreign market consumption, will be affected.

-- Virtually all respondents expect their current suppliers to raise prices. More than 60 percent of respondents expect prices to go up by 3 percent to 5 percent or more.

-- 60 percent of respondents believe the VAT change will have greater consequences than the appreciation of the RMB, China’s currency, this year.

--Only 10 percent intend to shift supply sources to other countries, though roughly 40 percent are still uncertain and few who intend to establish manufacturing in China will alter their strategy as a result of the VAT refund change.

-- A number of different countermeasures will be used to offset the impact of the VAT policy. More than half intend to “share the burden” with existing suppliers. Some respondents even see potential advantage over competition as a result of policy change, notably over low-end Chinese exporters.

To view the full survey, click here [pdf].