Author: Thomas Clouse



By Thomas Clouse


WTO ruling forces China to lift import tax on car parts

Despite witnessing a massive surge in lending, China will maintain its relatively loose monetary policy, China’s central bank says. Chinese banks granted 7.4 trillion renminbi ($1.08 trillion) in new loans in the first half of the year, significantly exceeding the government’s initial 5 trillion renminbi annual target. The torrent of new loans has prompted concerns over credit quality and potential bubbles in the stock and property markets. While monetary conditions will probably remain loose, Chinese leaders have expressed concerns about overcapacity in some sectors, and bank lending has apparently slowed recently.


China eliminated higher tax rates for some imported car parts in September, ending four years of negotiations and legal proceedings over the controversial policy at the World Trade Organization (WTO). Under the policy, China taxed parts for automobiles that did not meet certain local content requirements at the same rate as imported cars, rather than at the lower rate for imported car parts. The WTO ruled in July of last year that the higher tax rate violated China’s membership commitments. The policy change marks the first time China has complied with an unfavorable WTO ruling.


High tax rates on complete cars do not seem to be denting enthusiasm for imports, however. General Motor expects its China sales to grow by more than 40% this year after continuing an eight-month streak of record-setting months with a doubling of year-on-year sales in August. GM’s total China sales for the first eight months of the year increased 49.6%. GM will also partner with China FAW Group to form a joint-venture light-duty truck and van production facility in northeastern China.


China’s manufacturing activity is picking up, according to the state-sanctioned China Federation of Logistics and Purchasing (CFLP). The industry group’s purchasing managers’ index (PMI) rose to 54 in August, up from 53.3 for the month of July. The PMI assesses manufacturing activity based on surveys with purchasing managers at more than 700 companies, with scores over 50 indicating expansion in activity.