China import cuts will boost multinationals
China's new plan to slash import taxes on a wide range of consumer goods promises to boost the prospects of multinationals in the Chinese market, with everything from Procter & Gamble's nappies to Diageo's whiskey becoming more affordable to local consumers.
Tariffs for 187 product categories will drop from an average 17.3pc to 7.7pc after the cut takes effect on December 1, the Ministry of Finance said in a statement on Friday, citing the need to help consumers access quality and specialty products that aren't widely produced locally.
The new policy follows President Xi Jinping's call at the October Communist Party conclave to meet citizens' demands for improved living standards and better quality products in the world's largest consumer market.
Foreign multinationals stand to benefit as middle-class shoppers seek out goods stamped with foreign brands, while the cuts also encourage consumers to spend at home rather than on trips overseas.
"It's aimed at three things: helping boost consumption in China; reforming the Chinese economy by continuing to open it up; and sending a signal to the world and particularly to the US that it is committed to advancing global trade," said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney.
Tariffs for some types of baby formula were cut to zero, triggering losses in Chinese dairy stocks. Shares climbed, meanwhile, for European food and beverage companies.
The moves will help companies like Irish giant Glanbia, Danone and Nestle that compete with local brands in the large market for infant formula. That industry will see sales increase about 15pc to 123 billion yuan (€15.6bn) in China by 2020, according to a Goldman Sachs Group report in October. Chinese parents worried about a series of food-safety scandals often favour foreign brands.
"This is very good news for Nestle, and excellent news for its infant milk formula," said Jean-Philippe Bertschy, an analyst at Bank Vontobel. "It's a win-win situation for both consumers and high-quality global consumer-goods companies." China has faced criticism for not doing enough to bolster imports, a move that would help balance the trade surpluses that it runs with a raft of other countries. US President Donald Trump has long complained that China engages in unfair trade practices and has pledged to close the trade deficit with China.
Commerce Minister Zhong Shan said this month that a range of measures to open domestic markets will be taken to support demand for imports, a move that could help narrow the $327bn trade gap with the US.
"It is unlikely to move the needle much on the trade balance but it is still a small, solid step forward," said Christopher Balding, an associate professor at the HSBC School of Business at Peking University in Shenzhen.
"China is moving to a consumption economy and with so much cross-border commerce streaming in across these product segments, they are under pressure to lower tariffs."
Taxes for a range of medicines, including various antibiotics and insulin products, were lowered to 2pc from as much as 6pc, potentially a big win for multinational drug companies such as Pfizer and Novartis that import many of their drugs into the country.
China's medical imports stood at $22bn in the first 10 months of 2017, according to latest data from the General Administration of Customs.
The biggest reduction came for vermouth or similar alcohol, from 65pc to 14pc, according to the statement. Whiskey tariffs were cut to 5pc from 10pc.