September 16, 2015 / 10:29 AM / 3 years ago

UPDATE 1-AIRSHOW-China's hefty duties hurt locally built foreign jets - Embraer

* Says China production cost 20 pct more than overseas

* In talks with govt on heavy levies on parts

BEIJING, Sept 16 (Reuters) - China’s heavy import duty is hurting the competitiveness of locally assembled foreign airplanes, Embraer SA’s country head said on Wednesday, and that the company was in talks with the government to resolve the matter.

China’s average 3 percent import duty along with 17 percent value added tax has pushed up production costs of locally assembled planes of foreign companies, Embraer’s China chief Guan Dongyuan said.

“Production cost of our Harbin-made business jets is 20 percent higher than those made overseas,” Guan told reporters on the sidelines of the Beijing airshow.

Embraer started assembling ERJ 145 regional jets in northeast China in partnership with Harbin Aircraft Industry Group Co Ltd in mid-2000 and shifted later on to its Legacy 650 business jets in 2012.

Other foreign companies making planes in China, except those which assemble jets in tax-free zones such as Airbus, are also facing the same issue, he said, adding not every Chinese city has a tax-free zone.

He said many Chinese clients prefer to buy business jets overseas and register outside China due to the high taxes.

When asked whether Embraer may stop assembling jets in China, Guan said the company wanted to “let the market to make the decision”.

“Government has been encouraging local production, but the precondition is that you shouldn’t set the bar too high,” he added.

Embraer, which competes with Bombardier among others, now has 80 percent of China’s regional aviation market. It has firm orders of 167 commercial jets from the market, of which 130 have been delivered.

It expects 1,020 net aircraft in the 70-130 seat segment will be delivered to China in the next 20 years. (Reporting by Fang Yan and Matthew Miller in BEIJING; Editing by Gopakumar Warrier)

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