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China considers tax cut for plane parts to help home-built aircraft

Beijing

CHINA is discussing a plan to cut tariffs on plane parts imported for domestically developed commercial aircraft, a person familiar with the matter said, a move that may also benefit suppliers such as General Electric Co and Honeywell International Inc.

The Finance Ministry proposal, being reviewed by the State Council, could win approvals in a few weeks, the source said, asking not to be identified discussing confidential policy matters. At present, the import tariffs on aviation components are set at as much as 1.5 per cent for most-favoured nations, while the rate is 11 per cent for others.

The finance ministry in Beijing did not respond to a faxed request for comments.

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Such a step would help cut costs for state-owned Commercial Aircraft Corp of China Ltd, which last year successfully carried out the maiden test flight of the nation's first home-built, single-aisle passenger jet - the C919. The Shanghai-based company, which has already started delivering a smaller regional jet to domestic airlines, is also in the process of building a wide-body aircraft, named CR929, in collaboration with Russia.

The passenger jet project is part of President Xi Jinping's ambitious "Made in China 2025" programme, under which aerospace ranks third on his priority list after information technology and robotics. Mr Xi is seeking to transform China's manufacturing to a level where it can start competing with giants such as Boeing Co and Airbus SE.

China will need 7,690 new planes worth US$1.2 trillion over the next two decades, according to Boeing, as the world's No 2 economy is poised to surpass the US as the biggest aviation market early next decade.

For plane manufacturing, besides passenger jets, Beijing has also set its eyes on developing heavy helicopters and various types of engines - in cooperation with global partners. This means that China needs to source components from overseas. Comac's 156-168-seat, single-aisle C919 is built mostly with customised versions of parts from other manufacturers.

Some of the key suppliers to the C919 include GE, Honeywell, Eaton Corp, CFM International - a joint venture between GE and Safran SA that makes engines, and Arconic Inc.

The C919 has racked up orders and commitments for more than 800 planes from carriers and lessors mostly based in mainland China, according to Comac.

Rolls-Royce Holdings plc and GE are currently among those in a race to supply engines to Comac's widebody plane.

The proposal to cut tariffs on plane components is also part of Beijing's pledge to open its economy and foster consumption. In a grand import expo at the beginning of this month, Mr Xi told an international audience that his country is committed to further cutting import taxes and spending more on goods from abroad, signalling that new stimulus measures are on the way. BLOOMBERG