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Home China Biz News Industry Brief Game Changer: Auto Policy’s Implications for RV Industry
Game Changer: Auto Policy’s Implications for RV Industry PDF Print E-mail
Written by CRVC   
Friday, 11 December 2009 00:00

China’s top policy watchdog National Development and Reform Commission (NDRC) abandoned one of its policies on imported auto parts, which may have a significant impact on the RV industry.

Started in September this year, all imported auto parts are subject to a 10% import duty. The old rule to identify knock-down kits and tax them as fully assembled vehicles (if the SKD or CKD kits are equal or more than 60% of the value of the fully assembled vehicles) is abandoned. Currently, the import duty for auto parts is 10% and fully assembled vehicles 25%.

This change creates opportunities for foreign RV makers who want to have a piece of action in China’s growing RV industry. Compared to importing fully assembled RVs, importing knock-down kits for RVs may save not only import duties (10% vs. 25%) but also other taxes due to a lower tax base, including value-added tax (17%) and consumption tax (12-40%). The tax savings will result in lower landed costs and put imported RVs in a better position when competing with local brands.

Up until 2005, approximately one half of foreign brand autos sold in China were imported as knock-down kits. Foreign automakers use the strategy to avoid higher duties and protect their proprietary technologies. However, regulations were introduced and became effective on April 1st, 2005, which taxed auto parts (including knock-down kits) as fully assembled vehicles if the parts account for 60% or more of the total value of the vehicles. The regulations effectively stopped automakers from taking advantage of the difference in import duties. The regulations sparked disputes between China and its major trading partners, including EU, Canada, and the U.S., which resulted in last year WTO’s ruling against China.

The policy change can have significant implications for foreign RV makers. Foreign RV makers may want to consider the same strategy automakers took when entering China, starting with knock-down kits and slowly increasing local parts and components. The strategy may allow foreign RV makers to bring in their RVs at lower prices, establish their brands, and grow their business in China.