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China To Prices. "Get Real."

By Dan Harris and Steve Dickinson

For years, whenever someone in the United States would complain about how China was "taking our jobs," I would mention China was also subsidizing our products. That is changing rapidly. In, "Paying the China Price, The Full Price," All Roads Lead to China writes on how the real, non-subsidized, price of Chinese goods is starting to reveal itself. All Roads sees the removal of the following subsidies increasing China product prices:

-- Corporate Tax law - gone are the days of 3 years 100% tax holiday, 2 years 50%. -- VAT rebate reduction - Reducing the VAT rebate from 17% to, in many cases, 0, removing a large export subsidy -- Labor Law - increased the protections of labor with respect to wages, contracts, and welfare -reduced the intangible subsidy that had been a lack of labor protection -- Environmental laws - reduced the subsidy whereby GDP came first, and now firms are being forced into compliance -- Energy Pricing - as we just saw today, energy subsidies are being reduced and manufacturers/ consumers will be forced to absorb -- Banking regulations - the removal of wholesale policy loans has resulted in firms being forced to shutter rather than run at a loss, and has prevented many new entrances that did little else than keep prices low through cut throat pricing -- Real Estate regulations - aim was to give land holders more power in resisting development -which has led to a reduction of supply and thus prices have increased -- Industry specific subsidy removals

I agree with all of these, but will raise Rich one, at least when it comes to foreign businesses in China. In addition to a severe reduction in tax holidays, China is also in the process of dismantling its lower corporate tax rate for foreign companies by raising the rate for foreign businesses. In particular, I agree with Rich that we are seeing a rapid diminishing of China subsidies. As a capitalist, I applaud this, but as a consumer, I rue having to pay more.

Full post as published by China Law Blog on June 23, 2008 (boomark / email).