Tax and export quota policies continue to hinder trading in
diamonds and silver at both the
National Diamond
Exchange and the National Silver Exchange, casting a shadow on
the National Gold Exchange which is expected to open at the end of
the year.
The National Diamond Exchange was launched amid fanfare in Shanghai
last October.
Central and local governments established the exchange in the hope
of boosting the domestic diamond trade and encouraging legal import
and export of diamonds.
So
far, there have been no deals done by domestic traders, according
to Yang Zude, an official from the diamond administration.
Besides the two import cases that the media witnessed on the launch
day of the exchange last year, there were very few export and
import deals done. The two diamond processing zones in Lujiazui and
Longhua also received few orders, according to Yang.
Tax burden
"The problem is still the old one - an excessively high tax rate
discouraging dealers from home and abroad," Yang said.
China has erected a high bar for the diamond trade, with a tax rate
of 33.9 percent including tariffs, consumption tax and value-added
tax.
Other countries impose no tariffs on diamond imports and no
consumption tax. Instead, they levy an import charge that accounts
for only 0.02 percent of the deal.
Before the National Diamond Exchange was established, many
interested diamond dealers and processors expressed worries about
the future of the exchange in a public hearing on how the exchange
should be managed.
"Besides the fact that the levying of taxation is a little bit
delayed, I don't see any difference in taxation rates inside and
outside the exchange," said one member of the country's diamond
processing association. He warned at a public hearing in Lujiazui
last year that the exchange might face difficulties attracting
customers.
His was proved right. Business is lacking. The exchange, designed
to be the first to allow foreign shareholders, did not attract
enough member shareholders.
Public caution
If
it is true that diamonds are just a consumption article and their
temporary failure in attracting business has not affected the
liberalization of China's currency market, then the difficulties
that the National Silver Exchange is facing should spark caution
among the public and regulators.
In
June 2000, the National Silver Exchange, the forerunner of the
National Gold Exchange, was officially opened at Huatong Nonferrous
Metal Wholesale Market in Shanghai. Sales were hot in the first
three to four months.
"People were excited by the liberalization of silver trading for
the first time in China," said Zhang Tingting of Huatong's
administration.
The market calmed down soon after that and the trading amount slid
sharply, according to Zhang Changjie, general director of Huatong,
in a speech early this year.
One reason for the sharp slide is tax - the high value-added
taxation on every trade.
The authorities decided that silver manufacturers were to be
charged 17 percent of every transaction through the exchange.
The export quota system, under which only a limited number of
companies have the right to export a limited quantity of silver
every year, causes the extra silver to accumulate within the
country and prices to drop.
Huatong is now applying to have the value-added tax reduced from 17
percent to 13 percent per transaction.
Solution needed
"The problems of the diamond exchange and silver exchange taught us
a good lesson and made us think twice about rules relating to the
management of the planned National Gold Exchange," said a
precious-metal dealer who is involved in preparations for the gold
exchange.
However, he said, he believe it is too early to say whether
taxation rates for the planned National Gold Exchange will be
reduced just because of what happened to the diamond or silver
exchange.
Gold is one of the important hard currencies and the fluctuation of
one country's gold reserve amounts or its prices will affect the
economy greatly, he said.
"The taxation problem relating to the gold exchange will be more
complicated," he said.
(China Daily
HK Edition 08/03/2001)