Are Chinese Enterprises Being Taxed to Death?

SHANGHAI – A couple of weeks ago, an interview with the Chinese auto-glass tycoon Cao Dewang sparked a heated discussion across China. Cao explained that his recent $600 million investment to establish a US manufacturing branch for his company, Fuyao Glass Industry Group, was driven largely by China’s high taxes, which Cao claims are 35% higher for manufacturers in China than in the US. Has the tax burden on Chinese enterprises really reached economically lethal levels?

Going strictly by the numbers, this does not seem to be the case. Measured as the ratio of the government’s fiscal revenue to GDP, China’s overall tax burden, according to the International Monetary Fund’s Government Finance Statistics Manual, is just over 29%. That is 10% less than the global average.

Another way to measure the overall tax burden is to calculate the ratio of tax revenue and social security contributions to GDP. By that measure, China’s average tax burden from 2012 to 2015 was 23.4%, or 12% lower than the OECD countries. As a percentage of GDP, China’s tax revenues amount to about 18% – compared to around 26% of GDP in developed countries and around 20% in developing countries (in 2013) – and continues to decline.

Yet not everyone agrees that China’s tax burden is relatively low, especially at the firm level. A recent World Bank report indicates that the total tax rate for Chinese enterprises averaged 68%, putting China 12th in the world. This may be where Cao got his 35% manufacturing-tax figure. It is not clear, however, how the World Bank calculated its rate.