How did China economy changes affect Taiwanese investors?

Question

I read a Chinese magazine that talked about how 10,000 factory owners fleed over night to escape the burden caused by China economy changes, such as the decrease on the export tax rebates. However, I'm still having a hard time understanding the 4 major reasons it mentioned; the tax rebates, the labor rights, the deposit on import and the increase on income tax. Can anyone elaborate more on these?

Answer 1

Hi,

Yes China economy is changing, it is upgrading.

Tax rebate and labor law modification are two leading factors.

1) Tax rebate

As china have promised when it entry into WTO, the tax rebate have been reduced year by year(it is like subsidiary).  So it is a huge challenge for those labor-intensive companies. As we might know, the profit for industry like textile is 5-10%(factor in the 13% tax rebate), if tax rebate drop from 13% to 11%(in 2006) and RMB appreciate for 15% and the trend is still going on, plus the labor cost increase. You can image what happened in textile industry in China.

2) labor law modification

New labor contract law emphasis on labor's right and welfare, the cost of labor is increasing(it should be).

3) I think the third biggest factor(maybe the biggest factor) is currency appreciation.  RMB TO USD conversion rate drop from 8.28:1 to 8:1, now it is 6.9:1.

But China will go on developing:

1) the labor is still cheap overall.

2) domestic demand is increasing

3) high-tech and service exportation is booming.

Regards,

Steven