By Jack Hu
Recently, Cao Dewang, a billionaire who makes his fortune by making glass, decided to make a more than US$1 billion investment and open a factory in a suburb of Dayton in Ohio. He’s just one of several Chinese manufacturers who have opted to invest in the US because of the country’s friendly tax code and cheap land prices.
As the economy is slowing down in China, the move has been perceived as a warning signal, and his complaints over heavy manufacturing taxes have been circulating on major Chinese social media platforms. The phrase “Cao Dewang has escaped” has even become a hot topic, echoing the concerns of China’s economic elite over the manufacturing slump.
Cao Dewang told China Business Network in an interview that “the tax burden for manufacturers in China is 35% higher than in the US” when explaining his decision to invest 600 million yuan in the US, including taking over a former General Motors plant. Cao’s Fuyao Group investment was announced after President-elect Donald Trump threatened to slap 45 percent punitive tariffs on Chinese imports to protect American jobs.
The Chinese government has made reforms to its tax code in recent years, promoting them as a tax-cutting move that would reduce burdens on businesses. But according to Cao, tax rates are still high, making profits in manufacturing “very thin.”
Cao Shanshi, a well-known commentator on popular social media site Weibo, cited the glass tycoon’s main points in his status update:
Liu Shengjun, an economist and advocate for deeper tax reform, also applauded Cao Dewang’s views:
Since the current administration took office in 2012, the Chinese government has launched a value-added tax reform to reduce taxes on private companies and made further promise to loosen up regulations on businesses. However, many businessmen have complained that there hasn’t been any real tax cuts; meanwhile, the country’s tax revenues have kept growing at a pace faster than gross domestic product (GDP) growth.
Zong Qinghou, China’s beverage king and one of China’s richest billionaires, also recently complained about rising taxes and costs to real economy enterprises, or those that produce goods and services, during an economic seminar held by online news portal Netease. Liu Shengjun summed up Zong’s view on Weibo:
China’s state-run media quickly responded in order to dampen the public’s increasing anger over hefty burdens placed on companies by the government. Global Times, a tabloid controlled by the Communist Party, posted an article saying the labeling of tax rate being “deadly” was too exaggerated. @BlueWhale, an economic journalists’ platform, highlighted the Global Times’ arguments:
2. China’s corporation taxes have gradually dropped in recent years.
3. In a sense, the pace of tax cuts hasn’t matched the pace of profits dropping, so some companies feel that taxes have become heavier.
4. “Heavy taxes force manufacturers to run away” is a distortion of Chinese companies’ overseas investments. Overcapacity at home naturally leads to going out of the country to expand.
5. The central economic conference has decided to further drop corporation taxes.
6. It’s the clash between the system and operating mechanism that has caused high costs for corporations.
For some liberal economists like Xu Chenggang, however, the problem with China’s economy goes beyond tax rates. He called for a genuine reform to address China’s urgent economic problems in an interview with Caijing, a Chinese well-known economic media outlet. Weibo user Caijing summed up Xu’s view in a nutshell:
For Xu and others, a genuine reform of the system is the privatization of state-owned enterprises so as to rejuvenate a competitive market.