Facing higher taxes, costs, foreign companies shutter operations in China

Updated 2017-01-18 09:25:07 Global Times

Closing up shop

The planned closure of U.S. disk drive manufacture Seagate's factory in Suzhou, East China's Jiangsu Province, as well as U.S. tech giant Oracle's layoff of one of its research groups in China, has put the country's changing business environment under the spotlight. Taxes, rising labor and leasing costs, as well as uncertainties over U.S. President-elected Donald Trump's presidency are the major challenges faced by foreign companies working in China, experts noted.

It has been less than three weeks since the start of 2017, and foreign companies have already begun announcing that they are shutting down some of their operations in China.

U.S. disk drive manufacture Seagate will close its factory in Suzhou, East China's Jiangsu Province, as part of the company's continued optimization of operational efficiencies, according to an e-mail it sent to the Global Times on Friday.

The move will result in the loss of more than 2,000 jobs, domestic news website the paper.cn reported on Sunday.

Seagate said it was closing the factory because of "shrinking market demand," according to the e-mail. The disk drive manufacturer said it is seeking to "decrease the scale of Seagate's global production so as to better adapt to current and future market demands."

However, most of the laid-off workers, who received notice of the closure over a week's time, did not buy the explanation, according to a statement the factory workers sent to the Global Times on Monday.

Some have staged a strike to demand better compensation. "The Suzhou plant is apparently making a profit, so why would it close?" the statement asked.

As Seagate trims its global business, it has been relocating the bulk of its operations to Southeast Asia, according to media reports.

It plans to invest 0 million in Thailand over the next five years to expand capacity at its largest facility in the country, Reuters reported in February 2015. The company said it is scaling up operations in Thailand due to the country's "workforce and favorable cost structure."

"Sluggish demand might be part of the reason, but the differences in Seagate's strategy between China and Thailand sheds light on a string of changes in China's business environment, such as growing tax burdens and labor costs, as well as uncertainties brought by U.S. President-elected Donald Trump's upcoming presidency," said Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation.

These factors combined may have dampened foreign investors' enthusiasm for China, Bai told the Global Times on Sunday.

On Saturday, U.S. tech giant Oracle also announced plans to lay off all of the 200 employees on its research team for storage and operating systems in Beijing, citing "adjustments in the company's business," according to sources close to the matter. The number represents 10 percent of the company's research and development staff in China.

The cutoff comes amid robust revenue performance in the storage business and a large global demand for such services, a senior engineer in Oracle's storage department, who spoke only on the condition of anonymity, told the Global Times on Sunday.

Growing tax burdens

Media reports have linked Seagate's Suzhou factory closure with a 2014 government audit that determined the company owed 1.5 billion yuan in back taxes, stemming from "tax and interest associated with changes to the company's tax filings for the calendar years 2007 through 2013," the Jiangsu Provincial State Administration of Taxation said in a statement posted on its website.

The two sides also reached a deal that allows the administration to ascertain tax liabilities in advance.

"Seagate voluntary applied for a deal to ascertain tax liabilities beforehand, and the move is in line with relevant Chinese tax laws," according to a statement on the administration's website on Tuesday.

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