WSJA(6/29) China Rethinks A Tariff
(From THE WALL STREET JOURNAL ASIA) By Laurie Burkitt
BEIJING -- China's government is considering a plan to lower tariffs on some luxury goods, an official said, a move that could bolster imports -- if it overcomes political resistance in a society increasingly concerned about the gap between rich and poor.
On Tuesday, the state-owned China Daily newspaper quoted a spokesman for China's Ministry of Commerce, Yao Jian, as saying that his and other key ministries plan to propose cuts in tariffs on imported luxury goods to China's cabinet. The reductions are just "a matter of time," the paper quoted Mr. Yao as saying, without adding details. His comments echoed remarks he made at a news conference earlier this month.
Other agencies, including the powerful Ministry of Finance, have yet to publicly confirm the planned cuts. The Commerce Ministry and the Finance Ministry didn't reply to requests for comment Tuesday.
A cut in the tariffs could be a boon for luxury-goods companies, though it's unclear by how much tariffs would fall and exactly which products might be included if a measure is adopted. China is the world's fastest-growing luxury market and is poised to become the world's largest by 2020, according to investment research group CLSA Asia-Pacific Markets.
China's luxury tariffs tack on an extra 10% to 30% for imported products like handbags, wine, watches, and cosmetics. As a result, Chinese luxury consumers do much of their buying in Hong Kong and abroad. More than 50% of luxury purchases made by Chinese shoppers in 2010 were made overseas, according to consulting firm Bain & Co.
China's government has vowed to boost imports, in part by lowering tariffs, in response to heavy pressure from trading partners and as part of efforts to refocus its economy on domestic consumption instead of exports and investment.
Trimming luxury tariffs would be politically fraught. Some government officials, particularly at the Finance Ministry, would likely oppose such a move, given concerns about already growing fiscal constraints. Beyond that, the idea could be unpalatable for the way it would benefit only a sliver of wealthy consumers at a time when the gap between rich and poor has widened. By implementing the policy, "the government would attract criticism that it is serving the needs of the rich," said Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation, which operates under the Commerce Ministry.
Representatives of several foreign companies selling luxury goods, such as L'Oreal SA, said they are not expecting lower tariffs any time soon. The European Union Chamber of Commerce in China, whose members include LVMH Moet Hennessey Louis Vuitton and Chanel, also doesn't expect imminent changes on taxes on high-end products, according to Dirk Moens, the chamber's secretary general.
"We would welcome an initiative taken by the Chinese government, but are not advising our members to make any changes to their business strategies at this time," Mr. Moens said.
Chloe Reuter, who runs ReuterPR, a Shanghai-based consulting company for luxury-brand communications, said most luxury brands aren't reacting to rumors of tariff changes because they've heard similar reports over the years.
If there were any tariff reduction, luxury companies expect it would be phased in, starting with changes to pricing on cosmetics, alcohol and tobacco, said Torsten Stocker, an analyst at Cambridge, Mass., consulting firm Monitor Group.
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Copyright (c) 2011 Dow Jones & Company, Inc.
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