EDITORIAL : THE CHINA DAILY, CHINA

           

 

High import tariffs

A clash of opinions over the need to cut import duties on "luxury" goods has broken out between China's financial officials and commercial policymakers.

Spectacular as it is, the ongoing debate has so far done little to boost domestic consumption, a desirable goal that both sides agree on.

Responding to loud public calls for lower taxes on imported goods, the Ministry of Commerce recently told the press that reducing import duties on luxury goods is only "a matter of time" as key ministries have reached general agreement on the issue.

However, no sooner were Chinese consumers celebrating that news than the Ministry of Finance bluntly denied it had agreed to cut the duties on luxury goods.

Citing concerns over its impact on the national coffers as well as the already huge wealth gap in the country, some people from the finance ministry even suggested that such import tariffs should be raised instead.

There is definitely merit in the argument against tariff cuts.

China's import duty, value-added tax and consumption tax on imported goods, including luxury items, reached more than 1.25 trillion yuan ($193 billion) last year, accounting for 30 percent of the central government's fiscal income. The finance officials are obliged to ensure that any change in import tariffs will not make too big a dent in the central government's fiscal revenues.

Besides, tax cuts for imported luxury goods, which, more often than not, are associated with conspicuous consumption, do not sell well in a country facing such huge income disparities.

In theory, financial officials' concerns are fairly justified. Yet, in reality, they have ostensibly failed to take the bigger picture of the national economy into consideration.

The fiscal health of the central government is certainly of vital importance in itself and to the economy. But by no means should it be an excuse to prevent or put off reforms crucial to the country's balanced and sustainable development.

Further cutting import tariffs, including those on luxury goods, is not only about the country's membership of the World Trade Organization, it is also about China's growth strategy of increasing imports to balance trade and easing pressure on yuan appreciation resulting from its large trade surplus.

Though there is much media fanfare predicting that China will soon surpass Japan as the world's largest luxury consumer market, with an estimated value of $14.6 billion, Chinese policymakers should bear in mind that what really lies behind the demand for lower import tariffs is a trillion-dollar domestic market boasting the world's largest group of middle-income consumers.

Even a back-of-an-envelop calculation will show that the benefits from a reduction in import tariffs will far outweigh the costs.

If China is to inevitably wean its economy off long-term dependence on investment and exports for growth, the two ministries must bridge their differences as fast as possible and lift the unnecessarily heavy taxes on imports, be they luxury products or not, so as to boost consumer-led growth in this country.

Charity's credibility

There is no smoke without fire.

This is exactly the case with the Guo Meimei incident, which has tarnished the reputation of the Red Cross Society of China (RCSC). Guo showed off her luxury car and other wealth online and claimed to be general manager of the Red Cross Commercial Society.

Despite the RCSC's public declaration that it had no links to any such society and no connection with Guo, Guo Meimei is reported to be the girlfriend of a board member of a company connected to the RCSC.

Though RCSC asserted that there is no such organization as the Red Cross Commercial Society, there is indeed a Commercial Sector Red Cross Society, which is attached to the RCSC. And the RCSC has announced that it has already frozen all activities of its commercial organization and all its accounts will be audited. This is by no means evidence that RCSC has any problem in the management and use of the charity donations it has received.

However, the blow to RCSC's credibility is heavy. An online investigation shows that 90 percent of the people surveyed said that they will not donate to RCSC any more.

The RCSC, as a non-profit charity organization, has the obligation to keep all its activities transparent and let the public know how it manages its donations and where it has spent them. Yet, its lack of transparency in the use of charity donations has long been a matter of concern to the public.

In April this year, an RCSC branch in Shanghai spent nearly 10,000 yuan ($1,547) on a reception dinner for just 17 diners, more than 500 yuan for each person, much higher than the RCSC's permitted ceiling of 150 yuan per person. The invoice was posted online and aroused public indignation.

In the same way, the piecemeal exposure of Guo Meimei's identity has given people yet another excuse to question what more the RCSC is keeping from the public.

On this matter, the RCSC needs to first conduct an investigation into the entire incident and then tell the public what its commercial organization has done, whether it has made profits and how the profits, if any, have been used.

Then it needs to think hard about how it can rebuild its credibility. Maybe it should think about a thorough plan to disclose how it spends the administrative fees from the State coffers and set up a mechanism to make the entire process of managing and use of the donations transparent.

Transparency is the best remedy to repair the damage it has suffered to its credibility.