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Newsletter
January 2005 |
SourceGlobal® with presence
in US, China, & India, offers global
sourcing services to the Heavy-Equipment OEMs in North-America. |
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We
are all saddened by the tragic loss of life from the recent
tsunami. Now that relief efforts are well underway we can
assess the damage and effects. According to Munich Re, the
economic damage is expected to be approximately US$13.6
billion. While in no way minimizing the inestimable cost of
lost life, large disasters do not always result in correspondingly
large economic damages. In other words, the aid that
continues flowing in will go a long way to restoring the region
economically. By comparison Hurricane Andrew in the US
resulted in
50
fatalities but over US$30 billion in economic damage.
Citigroup
estimates India's economic losses currently at US$1.6
billion.
The
GDP growth rate currently estimated at 6.5% could fall by as much as
0.4% which would be an impact of up to US$6.5 billion. India
has
so far declined international aid and officials have indicated
confidence that the Indian economy can absorb the impact of
the disaster without serious long term consequences.
Many
firms have contributed to the relief effort:
Dana
Corporation Contributes $100,000 to Tsunami Relief
Komatsu
Sends Aid, Equipment to Tsunami
Region
CNH
Global and Alliance Partner Kobelco Provide Tsunami Aid
PACCAR
Donates $1 Million for Tsunami Relief Efforts
John
Deere Foundation Provides $1 Million to International Tsunami Relief
Effort
Caterpillar
Responds To The Asian Earthquake And Tsunamis
An
Appeal for Tsunami Relief:
Poor
fishermen in coastal parts of India, Sri
Lanka
and Indonesia
were among the most adversely impacted
by the recent Tsunami, who lost
not only
their boats, houses, and many their families. While there are
no easy ways
to rehabilitate all the psychological damages, it is slightly easier to
fix-up
their livelihood. The US
based alumni of the Indian Institute of Technology (www.iitmidwest.org)
are collecting
funds and low horse-power engines (suitable to be used with smaller
boats) for the villages
of Naggappattinam,
Tamil Nadu (India). If you
are able to donate any used (refurbished) or new engines please contact www.iitmidwest.org for further
information. Boats and other implements are being
sourced form India,
while engines and other components will
be sourced from India
and China.
For additional detail:
At
a Glance: Tsunami
Economic Impact
Mapping
The Destruction
Tsunami
Death Toll Rises to 225,000 |
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Quick
Facts
Reputable
Relief Agencies
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China
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| Preferential
Tax Rates Continue For Foreign Firms |
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China
has pledged to maintain preferential tax rates for foreign firms until
2007. Currently foreign firms are subject to a 15% tax rate,
compared with a 33% tax rate for domestic firms. The
preferential tax rate was put in place to encourage foreign direct
investment and by all measures the policy has been a success.
China recently passed Japan as the number three trading nation with
over $1.1 trillion in foreign trade last year and Shanghai has
reputedly passed Rotterdam as largest port by volume in the
world. However these preferential tax rates must be equalized
as a condition of China's entry into the World Trade
Organization.
Once
rate equalization occurs, the new tax rate is expected
to be between 24 and 28% for all companies. Some experts have
complained that the rate of tax reform is too slow and that
growth in tax revenue is outstripping growth in GDP. China's
tax revenue last year grew 25.7% to US$309 billion.
For additional detail:
China
Becomes Number 3 Trading Nation
Foreign
Firms Get Pledge on China Tax Rates
Time
Ripe for Tax System Reform
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| The
Steel Pendulum
Swings |
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Chinese
demand for steel has slowed dramatically in the last half of
2004. Not only has demand slowed but Chinese exports have
risen
22% so that China now is a net exporter of steel with an additional 14%
increase expected for 2005. This increase in cheap Chinese
steel
is expected to dent recently high profits in the cyclical
industry. The slowing of demand in China is partly due to
Beijing attempting to slow the rate of growth to
avoid overheating the economy. However because China has also
been
ramping up production the prospect of oversupply looms large.
Prices
could fall by over $200 per ton in 2005; an obvious boon to
manufacturers and users of steel but steel producers are likely to
struggle.
For additional detail:
China's
Steel Binge and Purge
Mittal
Predicts Rise in Chinese
Exports
China's
Steel Peril May Be Oversupply |
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Quick
Facts
World
Top
Steel Producers
Million
Tons
1
Mittal
48.8
2
Arcelor
42.8
3
Nippon
31.3
4
JFE
30.2
5
Posco
28.9
6
Baosteel
19.9
7
Corus
19.1
8
US
Steel
17.9
9
ThyssenKrupp16.1
10
Nucor
15.8
Subtotal
270.8
World
Total
964.8
Import
duties
Plastics
(PVC)
China (10%)
India (30%)
Indian Prices 17%
Higher
Aluminum
China (8%)
India (15%)
Indian Prices 11%
Higher
Copper
China (2%)
India (25%)
Indian Prices 25%
Higher
Diesel
China (6%)
India (20%)
Indian Prices 21%
Higher
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India
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| Following the Leader in Tax Policy |
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India
is considering adjusting its tax policy to mimic that of
China. India is considering a "supply side" policy of
lowering taxes to promote growth. Tax rates are expected to
be
cut by 5-6% both on corporate taxes and import tariffs.
India's
government is heavily in debt and naturally this proposal is causing
significant controversy. However it seems likely that India
may
be gambling that it can repeat the success of China in lowering tax
rates, particularly for foreign firms.
Whether or not the India follows China's lead on tax policy it is clear
that reforms are needed to India's byzantine and protectionist
policies. Customs duties have fallen from over 300% in the
early '90s to 20% currently and income tax has fallen from 56% to 30%
over the same period. However, more reform remains as tax
administration and collection policies remain behind policy reformation.
For additional detail:
India's Tax Czar
Climbs the Learning
Curve
India's Tax Plan May
Bet on Laffer
Curve
China's Tax Revenue
Surges 25.7% in 2004
ADB Praises India Tax Reforms |
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Quick
Facts
Share
of Global Market
Synthetic
Fibers - China (10%) India (2%)
Tires
- China (4%) India (1%)
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