22nd May 2019

China stokes trade war by cutting corporate taxes on tech companies

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By NY Post

In the latest salvo in the escalating trade war between the US and China, the Chinese government said Wednesday it would give huge corporate tax breaks to domestic chip makers and software developers.

The move came as US Treasury Secretary Steve Mnuchin said Wednesday that the US was studying how proposed tariff increases on roughly another $300 billion in Chinese imports would affect consumers and was at least a month away from enacting them.

Integrated circuit makers and software companies will be exempt from paying corporate taxes for two years, beginning this year, and their tax bills will be cut in half from the standard 25 percent rate imposed on Chinese companies for three years after that, the South China Morning Post reported Wednesday, citing a statement from the country’s Finance Ministry.

“The government is acting very quickly this time to support the domestic high technology industry after Huawei was targeted in the rising trade tension,” Wu Kan, an investment manager in Shanghai, told the paper.

“The megatrend is that China will have to develop its own chips and software on a large scale to reduce its reliance on the US. We’ll see other support measures and that’s big positive news for China’s technology sector in the long turn.”

The acrimony between the two countries with the world’s largest economies intensified last week when Washington put Chinese telecom equipment company Huawei Technologies on a blacklist that curbs Huawei’s access to US-made components.

The move is a potentially devastating blow for the company that has rattled technology supply chains and investors.

China now relies heavily on US technology imports, but hopes to cut that reliance significantly if not entirely by 2025 under its “Made in China 2025” campaign to increase domestic production in tech and other sectors.

Washington earlier this month hiked existing tariffs on $200 billion in Chinese goods, including farm products and consumer electronics, prompting Beijing to retaliate, as talks to end a 10-month trade war stalled.

President Trump, who once declared that trade wars were “good” and “easy to win,” has embraced protectionism as part of his “America First” agenda.

Regarding the proposed further tariffs, “There won’t be any decision probably for another 30 to 45 days,” Mnuchin told the House Financial Services Committee.

He said he had spoken with Walmart’s chief financial officer about how the tariffs would impact consumer prices.

Walmart, the world’s largest retailer, has said its prices would spike because of the higher tariffs on Chinese goods.

“That’s something I can assure you the president will be focused on before we make any decisions,” Mnuchin said.

The Chinese government’s top diplomat, Wang Yi, said Wednesday that China’s door would always be open to further trade talks with the United States, but added that Beijing would not accept any unequal agreements.

Chinese President Xi Jinping has said this week that his country must prepare for a long trade war with the US, citing the Mao Zedong-led communists’ long struggle for victory in the Chinese Civil War against the Kuomintang.

With Reuters

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