A taxing situation in China

Friday, August 31, 2007

HME providers could see modest increases in product pricing--probably between 2% and 5%--any day now as manufacturers look to offset a new tax imposed on some equipment exported from China, say industry watchers.
On July 1, China scaled back the rebate on its 17% value-added tax (VAT). The exact amount China now rebates on exports varies from product to product, but the net result is that all manufacturers--not just HME--pay more to export products to the United States and other countries.
For the most part, HME products affected by the tax include lower-cost commodity products like crutches, canes and other bent metal. Power wheelchairs and other more sophisticated products--products that require a high-degree of engineering expertise--may use some parts exported from China but most are made in Taiwan or the United States.
In addition to the VAT, manufacturers also have had to grapple with rising fuel costs and a poor exchange rate on the dollar with China. That triple whammy adds significant cost to products made in China and then exported to the United States or some other country.
"I think prices have hit their very, very bottom, and I believe prices will begin to creep up somewhat but will still be very reasonable for dealers to work with for competitive bidding," said Harvey Diamond, president of Drive Medical in Farmingdale, N.Y.
Even with the VAT increase, "there is nowhere else in the world where you can go and make good products for less," Diamond said.
By decreasing the VAT rebate, the Chinese government hopes to cool its red-hot economy and head off inflation. In the United States, the Federal Reserve Board does this by raising interest rates, said Carl Will, Invacare's group vice president for HME.
"This is going to create a real pinch for people," Will said. "It's jacking up prices for everyone who does business over there, and I think it is going to mean price increases."
Ken Spett, Graham-Field's vice president of marketing, said companies may start looking at other countries to manufacture product in, but he doesn't believe the VAT will diminish the amount of products coming out of China. That's because while the Chinese government has reduced VAT rebates, the cost of manufacturing in China can vary from province to province.
"It will raise prices, no two ways about it, but what's not mentioned is that there still exist local incentives," Spett said. "There are new industrial areas coming up all the time. I'll be there next month (August) visiting an area you can't get to by plane."