Jaguar Costs Less in China

The improbable story in today's Wall Street Journal [China gets Jaguar to Cut Prices] involves the price of a Jaguar in China.  It was hard to believe the story was true, unless you understand that China does not play economic numbers the way everyone else does.  Walmart, Rio Tinto, and many others knew this already, but Tata Motors may just be finding it out.

China has a government organization with the unlikely name, National Development and Reform Commission which has pressured Jaguar to lower prices by 19% or so.  Jaguar sells for less than $100,000 in the U.S. and $300,000 in China.  The Chinese say that is proof enough that there in a reason to lower the price.  Why would a car cost almost three times as much in one country as another?

I went to an article in Want China Times that explains the cost difference.
(you can read it yourself at http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20130805000005&cid=1102)

Cars in China are subject to a 25% tax based on cost, insurance rates, and freight.   They add 17% for value added tax, which isn't done in the U.S.  It is then subject to a tax on consumption which is based on engine size.  That cost is between 1% and 40% with the highest rates charged for engines that have the largest displacement.  Jags have big engines, as we know, so they are going to pay the heaviest penalty.  A BMW 650i that costs $91,000 in Germany, costs $326,000 in China.

So, we have the interesting situation where China charges enormous sums that are tacked onto the price of a car, via a series of taxes, then complain about the prices of the car being so high.  I don't know about you, but this sounds like Tata Motors is not thinking clearly about the business in China.  Would anyone think this was a good business environment to be doing things in?  They charge all these taxes so they can sell domestic cars at a good price, compared to all those imported models.  It seems like some companies are influenced by this illogical and corrupt way of doing business.  India has a $31B trade deficit with China.  They could surely find a way to even that out a little.