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Bought in China: Luxury Car Makers Ripping Off the Chinese Market

Business
Bought in China: Luxury Car Makers Ripping Off the Chinese Market

A product that is tagged with a sign that it was made in China will usually invite a second or third look not because of the buyer’s interest in the item, but rather because of the doubt about the quality of the product. Made in China items are usually incredibly dirt cheap, amazingly perfect knock offs or imitations of the original product, but of low quality, workmanship and build.

The Chinese are one of the best in imitations. They have been known to make knock offs of everything from designer bags and clothes to pirated copies of music and videos. That is not even the tip of the iceberg, as they have also imitated an entire Apple store, complete with design, sample gadgets and all; and they have also managed to copy entire towns and cities, building an almost exact replica of the UNESCO heritage town of Hallstatt, Austria and a scaled down version of Paris in Tianducheng. They copied an entire village and city, with the Paris knockoff complete with its own Eiffel Tower, Arc de Triomphe and the famous fountain that is found in the gardens of the Palace of Versailles.

The result is that the economy of the country is booming, as its cheap replica products have found a ready market both domestically and in foreign lands, with people always looking to get cheaper versions of just about anything.

Largest Potential Market in the World

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China has the largest population in the world. Foreign businessmen and investors, therefore, are lining up to get a piece of this huge market. The Chinese have learned how to take advantage of this, leveraging its huge market to ward off protests from foreign governments regarding how it runs its economy.

As practically no smart businessmen would risk being shut off from the Chinese market, China gets to control the situation and call the shots. In a way, it is probably a win-win situation, with businesses getting access to the Chinese market, while the Chinese people get to reap the benefits of more foreign investments.

The Challenge of Doing Business

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In order to do business in the country, a business has to deal with China’s high tax rates, tariffs and other charges. For example, for luxury car imports, the Chinese government charges a steep 25 percent import tax for all purchases. This is against the import tariff in the United States, where the standard charge is only 2.5 percent for cars, though it charges a similar 25 percent for pickup trucks.

Additionally, the Chinese government also charges a value-added tax of 17 percent. There is also an additional consumption tax based on the vehicle’s engine size. Compare that to the rate in New Jersey, for example, where the tax charges are only seven percent for value-added tax, plus some additional increments depending on the size of the vehicle’s engine.

Bought in China

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What goes around will really probably come around. If products and goods that are made in and exported by China are cheap, items that are imported by the country and bought in China can become really expensive. So expensive that it is sometimes up to three times the cost of the product when sold in Western markets.

The Chinese will probably feel they are getting ripped off. While the foreign companies are indeed subject to high taxes and tariffs, the government points out the extremely high profit margins by the businesses. Automobile industry experts in China estimate it to be as high as 30 percent.

Still, the demand has been so high that the luxury brand makers can afford to charge a high price tag. Thus, the irony of expensive bought-in-China products to balance out the cheap made-in-China items.

What Difference Does It Make?

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The Chinese get richer, which allows them to buy luxury cars, they also get to travel more that exposes them to the price of these same cars in the Western market. The difference can be quite appalling.

Consider the following items:

1. The Audi A4 is a compact executive car from the German giant automaker. The top of the line model has a 3.2-liter V6 FSI engine mated with an eight-speed Multitronic system. It comes in a couple of styles, the four-door sedan or the five-door wagon. In the United States, it sells for $54,690. In China, it goes for $94,282.

2. The BMW X5 is a medium-sized luxury sports utility vehicle from BMW. The top of the line model of this vehicle is a 4.4-liter V8 twin turbo engine mated with an eight-speed ZF 8HP automatic transmission. It carries a massive 555 horsepower. In the United States, this SUV is sold for $103,000. In China, it is sold for an astounding $330,000.

3. The Ferrari 458 Italia is a medium-sized sports car that comes in either the Berlinetta or Spider. It has a rear mid-engine layout and rear-wheel drive. It has a 4.5-liter V8 engine from a combined design of Ferrari and Maserati. It is mated with a seven-speed dual clutch transmission system. This powerful vehicle has a massive 562 horsepower. This luxurious super car is being sold in the United States for the hefty price tag of $230,000. That amount is nothing compared to its selling price in China of $723,923.

4. The Mercedes Benz E Class is an executive car from the prestigious German car manufacturer. It comes in a four-door sedan, five-door station wagon, two-door convertible or two-door coupe. It comes in a 3.5-liter V6 engine with a choice among a six-speed manual, five-speed automatic or seven-speed automatic transmission systems. It is sold in the United States for $48,000; but in China, it goes for $70,000.

5. The Mini Cooper is not a luxury vehicle, but for purposes of illustration, it is included in this list. This iconic two-door saloon with a small engine displacement is priced at $52,500 in the United States, but $85,000 in China

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