Bloomberg News

China Eastern, China Shipping Container Surge on Tax Trial

October 27, 2011

(Updates with closing share prices in second paragraph.)

Oct. 27 (Bloomberg) --China Eastern Airlines Corp. climbed the most in 17 months in Hong Kong trading after saying it expects to benefit from the trial run of a tax change for Shanghai’s transport and service industries.

The Shanghai-based airline jumped 11 percent, the most since May 2010, to HK$3.23 at the 4 p.m. close in Hong Kong trading. China Southern Airlines Co., based in Guangzhou, climbed 7.8 percent, and Beijing-based Air China Ltd. advanced 4.9 percent.

The central government approved a pilot program to replace business tax with a value-added tax on the transport industry and other selected service sectors in Shanghai from Jan. 1, according to a statement from the State Council yesterday. The program may eventually be expanded nationwide, it said.

China Eastern believes airlines will be included in the pilot run and will benefit from the tax change, Board Secretary Luo Zhuping said by telephone today. Detailed guidelines haven’t been released yet, he said.

China Shipping Container Lines Co., a Shanghai-based shipping firm, surged 10 percent to close at HK$1.60 in Hong Kong. Shanghai International Port (Group) Co., operator of the world’s second-busiest harbor, gained 1.9 percent to close at 3.18 yuan in Shanghai.

The program is estimated to reduce tax by 72 billion yuan ($11 billion) for the transport and service industries based on 2010 nationwide figures, Zhu Jianfang, a Beijing-based economist at Citic Securities Co., said in a note today.

The government will add two lower categories of 11 percent and 6 percent into the current value-added tax brackets of 17 percent and 13 percent, the State Council statement said.

The policy change is considered a tax reduction, according to China’s official Xinhua News Agency.

--With assistance from Gregory Turk in Shanghai. Editors: Garry Smith, Lena Lee

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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