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                Jinpeng Plastics Profile Manufacture Co., Ltd. keeps on increasing its R&D capability.
                Jinpeng Plastics Profile Manufacture Co., Ltd. keeps on increasing its R&D capability.

                China will lower the value-added tax rate on the manufacturing and other main industries to lighten the tax burden of enterprises. The profitability of the Chinese plastics processing industry is expected to increase, hence will encourage the enterprises to invest more in research and development.

                Increasing enterprises’ profit margins

                At the “two sessions” that held in March 2019, the Chinese government announced a package of significant tax and fee reductions totaling nearly RMB 2 trillion. One of the purposes is to lighten the tax burden on the manufacturing and other main industries.     

                In particular, the valued-added tax rate on the manufacturing industries will be reduced from 16% to 13%, and the tax rate on other main industries such as transportation and construction will be reduced from 10% to 9%.

                The Chinese plastics processing industry is highly competitive and has decreasing profitability. The announcement of tax and fee reductions is good news to the industry, which can help enterprises in raising profit margins.

                 “The most direct effect of tax reduction is enterprises can increase their profit margins and stabilize employment,” Su Dongping, Secretary-General of China Plastics Machinery Industry Association, told CPRJ.

                According to her, how to lower the cost by substantially reduces enterprises’ tax burden has been a concern to the Chinese plastics processing industry since last year.

                 “From last year’s value-added tax reduction by 1%, to the inclusive tax reduction for small and low-profit enterprises earlier this year, many tax reduction actions have been taken by the government. This indicates that the promise of a tax reform has been gradually fulfilled, and the reform really focuses on solving enterprises’ actual problems,” added Su Dongping.

                Encouraging more R&D investment

                In the Chinese plastics processing industry, it is expected that more profits will then encourage the enterprises to increase investments in research and development (R&D).

                For example, Tianjin Jinpeng Group’s Tianjin Development Area Jinpeng Plastics Profile Manufacture Co., Ltd.(天津開發區金鵬塑↘料異型材制造有限公司)has benefited from the Chinese government’s tax reduction measures that aim to support enterprises’ entrepreneurship and development for innovations.

                Cao Ling, Vice President of Tianjin Jinpeng Group, said that the reward fund for enterprises’ independent R&D and the policies of tax reduction have been implemented, encouraging enterprises to invest more in R&D. “Notably, more support has been given in addition to the national policy of pre-tax deduction of enterprise research and development fund,” she explained.   

                Meanwhile, enterprises should learn to adapt to tax reforms and get reductions in a wider range, and allocate the resources for improving R&D capability, optimizing business management and strengthen market competitiveness, Cao Ling added.

                During a media interview, Yuan Zhimin, Chairman of Kingfa Technology Co., Ltd.(金發科技股份金烈有限公司), commented that China’s tax and fee reductions will ensure the development of enterprises. In the future, Kingfa will increase its R&D investment and complete its industry chain to gain larger shares in domestic and overseas markets with better products.   

                According to him, Kingfa’s R&D investment accounts for about 4% of its sales revenue every year. With favorable factors like tax and fee reductions, the company will further increase its R&D investment in the future.

                Yizumi’s R&D Center in RWTH Aachen University, Germany.Meanwhile, Chen Jingcai, Chairman of Guangdong Yizumi Precision Machinery Co., Ltd.(廣東伊之除了自己密精密機械股份有限公司), said that the reduction of value-added tax on manufacturing industry to 13% will greatly lighten the burden on manufacturers. In recent years, Yizumi has invested nearly RMB 100 million in R&D every year.

                Yizumi will increase its investment in R&D and equipment to grasp the opportunities brought by the Greater Bay Area, which includes 11 Pearl River Delta cities, enhance its profitability and develop at a fast pace.

                Comprehensive policies needed for long-term development

                However, He Haichao, Chairman of Shanghai Jwell Machinery Co., Ltd.(上海金緯機械制造有限公司), believes that the export tax rebates will be lowered along with the valued-added tax reduction. For enterprises that export a large quantity of products like Jwell, the benefits of valued-added tax reduction will not be so large.

                Apart from tax burden, the Chinese plastics processing industry is also facing challenges such as increasing costs in labor, land, environmental protection, logistics and raw materials.

                In view of that, He Haichao expects the Chinese government to introduce more comprehensive policies which will further help the long-term development of the industry.    

                Chinese plastics processing industry grows steadily

                The China Plastics Processing Industry Association (CPPIA) has recently unveiled the report on the performance of the Chinese plastics processing industry in 2018, showing that the industry continues to grow steadily.

                Last year, the total production volume of plastic products in China reached 60.42 million tones, representing an increase of 1.10% year on year (YOY). Among the products, plastic films contributed the most with 19.54% while the foam plastics had the highest growth rate at 9.99%.

                There were 15571 enterprises above designated size in the industry in 2018, with main business revenues of RMB 1806.18 billion, representing an increase of 5.04% YOY. These enterprises recorded an increase of 3.28% in profits. 

                Guangdong Province was the biggest production base of plastic products in China, contributing 16.59% of the total Chinese production. Zhejiang Province ranked second with a contribution of 13.3%. For growth rate of production, Fujian Province achieved the highest growth rate of 16.1% while Anhui Province had 12.76%.

                Meanwhile, according to the data of National Bureau of Statistics of China, the enterprises above designated size in the plastics processing industry exported products valued at a total amount of RMB 230.94 billion, representing an increase of 7.21% YOY which is slightly higher than the overall Chinese export.

                In its report, CPPIA also pinpointed the major challenges faced by the Chinese plastics processing industry. One of the challenges is the rapid increase in price of raw materials. As the price of plastic products has remained relatively stable, the profits of enterprises in the industry will be limited.

                Besides, China and the US are under trade tension, which affects the operations of plastics processing enterprises most reliant on exports to the US.

                The association suggested that in order to tackle the challenges and drive sustainable growth, the industry has to increase investments in research and development of innovative products, boost the local production of high-end raw materials, and accelerate the transformation to smart and green manufacturing.    



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