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Multinational Companies in China Seek Tax Relief to Offset Coronavirus Woes

A man wearing a face mask walks past a store of French luxury brand Louis Vuitton at a shopping mall in Wuhan, the epicentre of the novel coronavirus outbreak, Hubei province, China, Feb. 25, 2020.

Multinationals in China are seeing a “significant” revenue loss from the coronavirus outbreak, with most American and European companies expecting revenue to decrease this year if business cannot resume soon.

Multinationals in China are seeing a “significant” revenue loss from the coronavirus outbreak, with most American and European companies expecting revenue to decrease this year if business cannot resume soon. They are urging China's government to provide tax relief while putting a priority on transparency and consistent policies in its fight against the disease.

An American Chamber of Commerce in China survey released Thursday found that nearly half of 169 company executives expect this year’s revenue to drop if their business operation does not return to usual by the end of April.

Massive revenue drop

Nearly one-fifth of them forecast a massive 50% drop or more in 2020 revenue if the outbreak continues through the end of August, while 10% are already reporting a daily loss of about $70,000 (500,000 yuan), the organization said in a press statement.

Another joint survey by the European Union Chamber of Commerce in China and the German Chamber of Commerce in China also found that nearly half of their 577 member companies expect a double-digit revenue drop for the first half of this year, while a quarter of them forecast a drop of more than 20%, according to their press statement.“

There is, in the short term, a clear and significant negative impact to member company operations, through travel disruptions, reduced staff productivity, increased costs, significant drops in revenue and more,” said AmCham China chairman Greg Gilligan in the statement, referring to major challenges currently facing American companies there.

Some 44% of surveyed American companies also say that uncertainty around the epidemic has harmed their outlook about the U.S.-China relationship in the next two years, while one-third express pessimistic views toward China’s prospects for cost, profits and economic growth.

Inconsistent rules

Meanwhile, half of surveyed European companies say that they face unpredictable and inconsistent rules applied across different jurisdictions and levels of government in China, which can change frequently on a short notice.

For example, deliveries are subject to multiple onerous restrictions when passing through different areas, the statement said.

Other major challenges facing foreign businesses also include highly restrictive quarantine demands and extensive pre-conditions to restart business operations.

“The patchwork of conflicting rules that emerged from the fight against COVID-19 has produced hundreds of fiefdoms, making it next to impossible to move goods or people across China,” said Joerg Wuttke, president of the European chamber in China in the statement.

“While virus containment is the most important task, standardizing measures across larger jurisdictions should also prioritized to get the real economy back on its feet,” he added.

While performing a balancing act between containing the outbreak and restarting the economy, China is required “to release supporting measures for those most affected – especially small- and medium-sized enterprises – until operations normalize,” said Stephan Woellenstein, chairman of the German Chamber.

Tax alleviation needed

In addition to transparency and consistent policies, American companies urge the Chinese government to help foreign business weather the difficult time by offering tax relief.

Moreover, a majority of them also urge the U.S. government to relax travel restrictions into the U.S. and provide further information both on the implementation of the U.S.-China phase one trade deal and clarity of its coronavirus-related business policies.

Meanwhile, Taiwanese electronic and chipmakers operating in worst-hit Wuhan, in China’s Hubei province, are hoping restart their operations after March 10.

With any further delay, the impact on their future performance prospects will be huge, said Yen Shu-chiu, deputy secretary-general of the Taiwan Electrical and Electronic Manufacturers Association in Taipei.

Supply chain disruptions

Major difficulties facing China's electronics sector include disrupted supply of both raw materials and workforce.

Due to quarantine measures, a worker shortage caused by “migrant workers failing to return back to work has posed a negative impact on their business operations," Yen said.

"Another major impact comes from the disrupted supply of raw materials. Many companies have nearly used up their stockpile of raw materials. If the supply chain [of raw materials] remains shut, it will create a major headache,” she added.

She said that the first quarter is traditionally a slow season for the electronics sector. However, the sector will see drops in full-year revenue if the disrupted supply of workforce and raw materials extends through March.

Fortunately, hundreds of Taiwanese factories operating in Dongguan in Guangdong province and Kunshan in Jiangsu province have already resume 90% of their production capacity, although uncertainty remains regarding their future orders, according to Yen.

While it is still too early to say how big an impact the outbreak will have on long-term business prospects, some local governments there have rolled out tax relief, rent cuts and financing to help improve the business conduction and sustainability for foreign businesses operating in China, although more help is needed, she added.