National Policies Ease Thin Margins for Printing and Packaging: Demand, Credit, VAT and Tariff Support Align

The financial turmoil that began in the United States, together with the worldwide economic slowdown, pushed China’s economy toward recession as well. To keep the national economy stable and healthy, the government introduced a package of supportive policies. China’s printing industry, already accustomed to paper-thin margins, faced even harsher conditions after the crisis; state support, however, created a new opening for development.

From Export to Domestic Sales: Finding a New Route

Rising labor costs, exchange losses and sluggish capital turnover have become major bottlenecks for printing companies. Export-oriented packaging printers were hit especially hard. As costs compete with profits and businesses bargain with customers, shifting to new markets has become a key move for packaging printing enterprises seeking a way out.

Confronted with the crisis, the central government rolled out strong measures to expand domestic demand, planning to invest RMB 4 trillion by 2010. Greater support for loans to small and medium-sized enterprises (SMEs), along with adjustments to import tariff rates for printing and printing-equipment firms, also gave the sector a lift.

At the 2008 Autumn Canton Fair, about 70% of participating companies planned to switch from export to domestic sales. In a difficult market, these policies are expected to play a positive role in helping the printing industry expand domestic demand.

Credit Relaxation: A Ray of Hope

One newly announced State Council measure to expand domestic demand—'removing credit scale restrictions on commercial banks'—marked the end of the central bank’s quarterly control over bank lending scale. This makes it easier for cash-strapped SMEs to secure loan support. Under the old restrictions, some normal borrowing needs went unmet, and small firms bore the brunt. Large enterprises, often long-term bank clients, were prioritized, while small-business loans were squeezed first. With the cap removed, banks now have greater autonomy in lending.

Beyond lifting credit limits, the central government also allocated RMB 5.11 billion in special funds for SMEs to ease financing difficulties. Of the RMB 2.2 billion newly added this year, RMB 1.6 billion will support SME credit guarantee institutions that provide loan guarantee services. Meanwhile, financial services are being innovated: some financial authorities encourage new institutions better suited to SMEs, such as microcredit companies and village banks, while adjusting credit structures and increasing credit supply and lending to SMEs.

In 2008, China had 102,043 printing enterprises of all types, and 80% of them were SMEs engaged in workshop-style production. The new policies have clearly brought a ray of hope to these printing businesses.

VAT Deduction: Timely Help

In November 2008, the State Council executive meeting reviewed and approved in principle the Interim Regulations of the People's Republic of China on Value-Added Tax, setting out a nationwide VAT transformation plan for 2009. Starting January 1, 2009, while existing VAT rates remain unchanged, all VAT general taxpayers across China—regardless of region or industry—may deduct input VAT contained in newly purchased equipment. Any uncredited input VAT can be carried forward to the next period for continued deduction.

For example, for a domestic printing machine priced at RMB 1 million, the deductible VAT figure is 145,299 (calculated as RMB 1,000,000 / 1.17 × 17%). Compared with the past, a printing company buying the equipment saves nearly RMB 150,000. For small and medium-sized printers that mainly purchase domestic equipment, this is a significant sum. The reform should therefore encourage printing enterprises to buy domestically made printing equipment.

As supporting measures for the VAT transformation, the VAT exemption policy for imported equipment—which had benefited printing enterprises—and the VAT policy for foreign-invested enterprises purchasing domestic equipment will be cancelled. Because authorities review import printing-machine exemptions strictly, requiring government-approved exemption quotas and customs import volume limits, only a small number of enterprises nationwide (mostly state-owned printers under the news and publishing system) have enjoyed such exemptions. The cancellation is therefore unlikely to have a major impact on the printing industry.

Lower Tariffs, Easier Equipment Imports

With economic pressure mounting, preventing a sharp export decline and creating a favorable foreign-trade environment is critical. On October 21, 2008, the Ministry of Finance and the State Administration of Taxation issued a notice on raising export tax rebate rates for certain goods. From November 1, 2008, rebate rates were appropriately increased for some labor-intensive, high-tech and high-value-added products. Export rebate rates for certain publications and paper stationery were raised to 13% and 11%, respectively. Paper stationery, previously at rates ranging from 5% to 7%, is now at 11%; publications, previously at 11% or 13%, are now at 13%.

The higher export tax rebates will serve as a 'lifeline' for many exporters. They not only improve net export profit margins and reduce export pressure, but also ease tight cash flow for some companies.

On December 17, 2008, the Ministry of Finance released the 2009 Tariff Implementation Plan, announcing further adjustments to import and export tariff schedules from January 1, 2009. Two parts of the adjustment affect the printing industry: first, temporary import duty rates will continue for 16 types of printing equipment and spare parts; second, specific and compound duty rates on imports of more than 10 types of printing photosensitive materials will be adjusted. Next year, China will continue applying lower temporary import rates to more than 670 goods, including 16 categories of printing equipment and parts—such as computer-to-plate (CTP) machines, sheet-fed offset presses, screen printing machines and inkjet printers.

A comparison of the 2009 and 2008 Temporary Tariff Rates for Imported Goods shows that five categories will have a 2009 temporary rate of 0: computer-to-plate (CTP) machines, parts for CTP machines, ink remote-control devices for offset presses, thermal print heads, and contact image sensors (scan heads). The other 11 categories will have temporary rates of 3%, 6%, 7%, 8% or 9%.

Interest Subsidies for Imports: Applying for Support

On January 27, 2008, the Ministry of Finance and the Ministry of Commerce jointly issued a notice on applications for 2007 import interest subsidy funds, stating that certain equipment imported in 2007 could apply for such subsidies.

Through active coordination by the General Administration of Press and Publication, three types of offset presses are eligible to apply for the subsidy: newspaper web offset presses, commercial web offset presses, and sheet-fed offset presses. Industry experts note that these three presses are widely used and important in publication printing, and also account for a large share of import volume and value. Customs statistics show that in 2007, 1,135 sheet-fed printing machines were imported, worth USD 728 million; 114 web offset presses were imported, worth USD 146 million; together, these two equipment categories accounted for 60% of total import value. In addition, die-cutting machines, widely used in packaging printing, can also apply.

The import interest subsidy standard is as follows: the import amount serves as the principal for calculating the subsidy, and the subsidy rate shall not exceed the latest one-year RMB loan rate published by the People's Bank of China at the time of subsidy settlement. The Ministry of Finance and the Ministry of Commerce determine the subsidy coefficient within the total annual subsidy funds and approve the subsidy amount.

For printing enterprises squeezed by lower printing prices, rising raw and auxiliary materials, higher labor costs and difficult financing, the import interest subsidy policy allows them to obtain subsidy funds of up to 6%–7% of the import amount. With a 28.7% tax rate plus a 6%–7% subsidy rate, enterprises can receive support equal to about 35% of the import amount. In addition, importing offset presses helps domestic printing-machine manufacturers learn advanced foreign technology and improve their own equipment, which is highly beneficial for technological upgrading.

—This article is reposted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-361956.html