China MinZhong: Continues to rise strongly, probably after China 2 days ago announced the lifting of the value-added tax (VAT) on the distribution of vegetables in its bid to shield consumers from higher food prices.
Recall yesterday Kim Eng note that the removal will be backdated to 1 Jan12. Previously, a VAT of 13% applies to enterprises engaged in import-export, production, distribution or retailing activities. Lifting the VAT on vegetables will lower the cost of sales for wholesale retailers, who are expected to pass on the savings to end-consumers.
The removal of the VAT also underscores the fact that food inflation remains a key concern. Even though the lifting of VAT will not have a direct impact on upstream players like Minzhong, it does signal a policy shift away from taming prices towards fostering supply growth.