Why should things cost more on the mainland?

PUBLISHED : Monday, 06 December, 2010, 12:00am
UPDATED : Monday, 06 December, 2010, 12:00am

As the founder of Lenovo, the mainland's largest computer maker, Liu Chuanzhi is one of China's most admired and influential business leaders. Millions of mainlanders snap to attention whenever he dispenses his down-to-earth wisdom.

So last week, when he took a dig apparently aimed at the mainland customs department's unpopular directive to impose hefty duties on inbound travellers carrying iPhones or iPads, it further inflamed the already boisterous debate.

'The perfectly good, ordinary people have to pay customs duties on items worth only a few thousand yuan. Why go after such petty cash?' he said. 'Normally we should write a letter to the government, and I think I should write one myself. Since we have such large foreign exchange reserves, wouldn't it be a good thing if we spent some, which would help lessen the pressure on the yuan?'

Liu made those comments to reporters in Wuhan last Tuesday, when he also urged the government to boost imports and stimulate domestic consumption. Since then, many internet users and businessmen, including Soho chairman Pan Shiyi , have taken up Liu's call.

It is unclear whether Liu has sent the letter, but let's hope the central government has heeded his call.

Indeed, ever since the South China Morning Post was among the first overseas media publications to break the news report in late October, customs' controversial decision to tax individual users of iPhones and iPads has been a focus of rising criticism.

The crackdown has come as more and more mainlanders fly to London, Singapore or New York to shop for the latest electronic gadgets, cosmetics and other fashion items. People in Shenzhen and elsewhere in Guangdong head across the border to buy even their groceries and daily necessities in Hong Kong.

Every foreign consumer product, from iPads to Levi's jeans to Clarks shoes to Dove shampoos, seems to be much cheaper outside the mainland - by 30 to 60 per cent. The irony is that almost all brands coveted by mainlanders carry 'made in China' tags.

Instead of having customs tax individuals who bring in those products for personal use, mainland leaders should instead ask themselves this question: 'Why cannot those products be cheaper on the mainland?'

Finding effective solutions to this issue could greatly help the central government's drive to boost domestic consumption as part of its efforts to rebalance the economy. It would greatly relieve international pressure on the yuan and the trade surplus, since it would stimulate a great increase of imports.

Much has been written about Beijing's difficulties in boosting domestic consumption. Both domestic and overseas economists argue that many ordinary mainlanders are reluctant to spend because of the inadequate social network covering education, medical care, housing and pensions.

That may be true theoretically, but it can not explain why every mainlander, rich or poor, becomes a big spender when overseas. Chinese millionaires stay in the Shangri-la or Marriott hotels and splash out on Louis Vuitton bags and Cartier watches.

But most mainlanders stay in tiny hotel rooms in Wan Chai or Yau Ma Tei, eat instant noodles all day - but spend tens of thousands of Hong Kong dollars on jewellery, clothing and electronic gadgets for themselves and the folks back home.

Their big spending is hardly impulsive. They are fully prepared, having dipped into their savings for the trips.

Here, the first lesson for the central government is that it must streamline its tax regime, particularly the value-added tax, consumption tax and business tax, which have made imported products prohibitively expensive.

It is ridiculous to think that the mainland imposes a 30 per cent luxury tax on cosmetics, whether domestically manufactured or imported. The tax was first introduced in 1994, when cosmetics were considered a luxury.

Second, the mainland can certainly do something to streamline the multilayered distribution systems, which are largely controlled by the state-owned companies and which have greatly inflated the cost of imported consumer goods.

The central government has blamed hot money for spikes in the prices of agricultural products, but in fact various government departments should take the major share of the blame.

Before a domestically manufactured or imported product reaches the end users, its price absorbs not only unreasonable taxes but also very high distribution and transport costs - including toll fees and various administrative charges.