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CHINA / Foreign Media on China

China raises taxes on gas guzzlers
By KEITH BRADSHER (NYtimes)
Updated: 2006-03-23 10:43

http://www.nytimes.com/2006/03/22/business/worldbusiness/22cnd-yuan.html

HONG KONG �� The Chinese government will increase existing taxes and
impose new ones on April 1 for everything from gas-guzzling vehicles to
chopsticks so as to improve the country's environmental record, conserve
energy and narrow China's wide gap between rich and poor, the official
New China News Agency said Wednesday.

New or higher taxes will fall on vehicles with engines of over 2 liters,
disposable wooden chopsticks, planks for wood floors, luxury watches,
golf clubs, golf balls and certain oil products.

China's finance ministry disclosed the higher taxes in a statement on
Tuesday night, which was reported by the official New China News Agency
today morning. The finance ministry statement offered the strongest
signal yet that some senior Chinese officials may be having second
thoughts about the rapid growth of privately owned family vehicles, which
has pushed up sales from just 640,000 in 2000 to 3.1 million last year.

"In recent years, car ownership in China has grown rapidly and fuel
consumption has risen considerably, and this highlights the conflict
between supply and demand of oil resources," the statement said. "At the
same time, pollution caused by motor cars has become the main source of
pollution in big and medium-sized cities."

The finance ministry is imposing a 5 percent tax on disposable wooden
chopsticks and wood floor planks, citing a need to conserve timber.
Environmentalists around the world have been warning that China's
voracious demand for wood was contributing to the clear-cutting of many
forests, especially in Southeast Asia.

The production of disposable wooden chopsticks consumes 2 million cubic
meters (70.6 million cubic feet) of timber each year, the ministry said.
Plastic chopsticks, which can be washed and were reused, will not be
subject to the new tax.

A new tax of 10 percent on yachts, golf clubs and golf balls, and a 20
percent tax on luxury watches, is squarely aimed at China's emerging
elite of wealthy industrialists and well-connected Communist Party
officials.

China's yacht market is still in its infancy, as military restrictions on
ocean traffic and commercial restrictions on river traffic have mostly
limited yachts to lakes �� although a few entrepreneurs have been able to
get around the rules to cruise on the Yangtze River near Shanghai. Golf
has periodically been controversial in China, especially when villages
and farms are demolished with little compensation to make way for new
golf courses.

The biggest commercial effect of the new taxes is likely to fall on sport
utility vehicles and luxury sedans. China is reducing slightly its tax on
vehicles with an engine of 1 to 1.5 liters, to 3 percent from 5 percent,
while leaving the rate unchanged for slightly more powerful engines and
raising rates for those with the most powerful engines.

The tax rate will climb to 20 percent, from 8 percent now, for vehicles
with engines over 4 liters.

The taxes are likely to hit foreign automakers more than Chinese
automakers, which tend to produce models with smaller engines. American
automakers, with some of the largest models, may feel the greatest impact.

The big question for automakers is how much of the tax to pass on to
consumers, as the tax is collected from the manufacturers. With a week
and a half remaining until the new tax takes effect, marketing executives
were scrambling on Wednesday to assess the impact and no automaker
immediately announced price increases.

"We are doing the calculations and assessing the impact, and on the other
hand watching the actions of our competitors," said Kenneth Hsu, a
spokesman for Ford's China operations, which sell everything from compact
cars with 1.6-liter engines to Lincoln Navigator full-size SUVs with
5.4-liter engines.

Trevor Hale, a DaimlerChrysler spokesman, said that the company was also
assessing the taxes and noted that the company offered fuel-efficient
engines; many Mercedes sedans are sold in China with considerably smaller
engines than models available in the United States. Patty Zhao, a GM
spokeswoman, said that GM was also examining the taxes and would issue a
response by Wednesday morning.

Chinese officials had considered and rejected a tax system based on gas
mileage instead of engine displacement, an approach that would have
benefited foreign automakers with better technology that allows them to
squeeze more power out of the same size of engine than purely Chinese
manufacturers. Yale Zhang, an analyst in the Shanghai office of CSM
Worldwide, a big automotive consulting firm based in the Detroit suburbs,
said that Chinese automakers had growing influence in policy debates and
that the new rules might lead to a proliferation of vehicles with engines
a hundredth of a liter below the thresholds for higher taxes.

Chinese regulators previously imposed stringent fuel-economy regulations
that take effect for all vehicles sold after July 1, and have said that
they are considering a separate gas-guzzler tax for models that do not
comply. The finance ministry's statement regarding tax increases on April
1 made no mention of such a gas-guzzler tax, however, and finance
ministry officials could not be reached for elaboration.

The finance ministry also announced a modest new tax of a penny a liter
(0.1 yuan/liter) for aviation fuel and 2 cents a liter (0.2 yuan/liter)
for naphtha, solvents and lubricants, but said that it would not collect
the new aviation fuel tax for now and would only collect 30 percent of
the new tax on naphtha, solvents and lubricants.

Applying taxes on oil products but not collecting them while prices are
high could set a precedent for how China handles taxes on gasoline and
diesel. Chinese officials have said repeatedly this winter that they
would like to raise fuel taxes so as to encourage conservation, but do
not want to act while world oil prices are close to record levels.

China will also lower on April 1 its tax on motorcycles with engines
displacing fewer than 250 milliliters to 3 percent, from 10 percent,
while leaving the tax unchanged at 10 percent for motorcycles with more
powerful engines. Western manufacturers like Harley Davidson are trying
to break into the Chinese market with powerful bikes, while Chinese
manufacturers like Lifan mainly produce less powerful models.

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