Price / Cost Calculations Chinese style

Most of us are accustomed to making airline reservations and finding out that the great price we found does not include all of those taxes ! The stripped down price is used to grab your attention and then nail you with the "total cost."

Pricing in China is calculated in much the same manner. The base price is nearly always a stripped down price which si then "rebuilt" with various extras to form the final price. The final price is not always a bargain.

I have a bank account at a HK bank operating in China. They gave be two accounts within the master account. When I make a deposit into one account (with no minimum balance) and then try to transfer funds into the other account I am charged a transfer fee of 1% for the privilege. I was told that this covers their internal costs.

This makes no sense to me what so ever as the transfer was within the same bank and within the same master account. Complaining is of no use !

Purchasing a flat in Shanghai was much the same. Every single transaction has a stamp tax no matter how small including copying. When you add all the costs up it is a shocking revelation that what you thought was a reasonable transaction cost is a hit to your savings account !

viewed another way it is certainly easier for firms to track their costs if every single cost is broken out as a single transaction cost and charged to the customer. It also allows markups to be done at each stage and be easily tracked.

No wonder China is becoming the capital center of the world !

Missing But Not Lost

Apologies to readers for my absence for teh past few weeks. The gap in this commentary is in no way an expression of a lack of commitment or a lack of topics to discuss but rather a reflection of constant work and little rest !

Here starts another sequence of topics !

Export Rebates Increase

China raises export rebate to spur growth

(Xinhua)
Updated: 2009-03-28 00:04

BEIJING - China raised the export rebate on 3,800 items to maintain growth, the Ministry of Finance and the State Administration of Taxation (SAT) said Friday.

It was the sixth increase since last August when the government decided to raise refunds in an attempt to tackle slumping exports amid the global financial crisis.

The export rebate for the textile and garment, iron and steel, non-ferrous metal and petrochemical items will be effective April 1, according to the departments.

The tax rebate for textile and garment items would be 16 percent.

A special item, CRT televisions, would have a 17 percent of tax refund.

"It was an extraordinary measure taken under extraordinary conditions," said Zhao Yumin, a researcher with the Ministry of Commerce.

He said slumping exports presented the Chinese government with unprecedented challenges. The refund increase underscored the government's resolution to maintain economic growth and secure employment.

China's exports plummeted 25.7 percent year-on-year in February, the worst decline in more than a decade, as global demand deteriorated amid the deepening recession.

Although previous data showed some signs of economic recovery, the economic outlook remained uncertain as profits of China's major industrial enterprises contracted 37.3 percent year-on-year during the first two months of 2009, the National Bureau of Statistics (NBS) said Friday.

Bai Jingming, economist with the Ministry of Finance said more refunds meant enterprises could retain more cash in hand and they could use that money to restructure their business and improve production technology.

The SAT said last week that the actual export tax rebate in the first two months increased 20.8 percent year-on-year to 66.7 billion yuan (US$9.77 billion).

Experts said nearly all Chinese exports had a 17 percent export rebate during the Asian financial crisis. Compared to that, China still has room for further rebate increases.

State Owned vs Privately Owned

A privately owned enterprise in China is revered when the economy is going great guns because of their "contribution" to the growth in China. They receive praise and awards and are set on a pedestal as great entrepreneurs and social leaders.

When the economy falters - as it has recently - then private enterprise CEOs are faced with limited ability to borrom capital to maintain cash reserves. They struggle with holding on to their employees and have begun to seek investors to resolve their capital problems.

Private enterprises in China are still second class citizens as their access to capital is limited and their recent experience - over the past 10/15 years - has not provided an experience base to raise capital or seek investment partners.

Many are increasingly stuck in the middle with no good options.

Paradoxes remain.

Enterprises Seeking Investors/Buyers

A sampling of the projects I have come across in the last month:

1. High end specialty baby furniture and clothing web site and specialty store.

2. High end electric transformers for Railways.

3. PVC wrapped industrial cables

4. Wood Flooring factory

All are seeking capital to expand to meet increased demand !