Tax Collection Triggers Riot, Arrests and Reform in Zhejiang (Updated)

Hundreds of angry migrants in Zhili, a town in Zhejiang province, clashed with riot police late Thursday night after the owner of a children’s clothing company refused to pay his taxes and then rallied a group to turn on the tax collectors, according to state-run media. From The Washington Post:

The report did not explain why the business owner did not want to pay his taxes. But a local doctor surnamed Zhao contacted by The Associated Press said he had heard that town authorities were imposing a higher tax rate for migrant businesses than for local ones, causing unhappiness among the group who were from neighboring Anhui province.

The Huzhou Online said police had detained five suspects and that another 23 suspects were being held as part of the investigation.

Around 100 protesters swarmed toward the township government offices, hurled rocks and destroyed street lamps, smashing the windows of more than 30 private cars, said the Zhejiang Online, a provincial news website. It added that several police and urban management officers were injured.

Protesters also smashed an Audi car, whose driver ran the vehicle into the group, knocking down 10 people, the Zhejiang Online said. All 10 were hospitalized and the driver was being held by police, it said.

Reuters published a set of photos from the scene, and reported that searches for Zhili on Sina Weibo had been blocked, though photos posted of the riots could be found through other search terms. The riots indicate growing agitation among migrants, middle- and lower-class households and private businesses in a Chinese economy marked by stagnant incomes and high inflation. From The Wall Street Journal:

The protests come as smaller private-sector firms, many of which are concentrated in the area near Shanghai, have been squeezed by government efforts to tap the brakes on economic growth in order to tame inflation. Those efforts have limited credit for some small firms, which in turn prompted new government measures this month to help small- and medium-size businesses.

See also previous CDT coverage of the credit squeeze underway in the mid-section of China’s economy and the surge in “mass incidents” as a means to address grievances.

Update: The Zhili government announced Friday it will rescind the tax in question as more details surrounding the cause of the riots emerged. From The Wall Street Journal:

According to people interviewed by telephone in Zhili, the disturbance followed aggressive collection of new charges for the use of machines used to make children’s wear, the town’s mainstay product. The tax was targeted at small, independent workshops that often aren’t licensed and are manned mostly by migrant laborers who earn money per piece produced.

They said workshop managers were being charged between 300 yuan (about $48) and 600 yuan for each machine used, in what Chinese discussing the matter online called the “sewing-machine tax.” It amounts to about twice as much as was collected in the past. An unidentified man who apparently objected to the payment rallied others to join this week’s protest, locals said.

China’s economy is slowing and the Zhili government’s pullback on tax levies reflects a strategy Beijing is increasingly likely to take to soften pain of the deceleration, according to analysts. This week, the central government said it would reduce double-taxation of certain transportation in China, a move expected to encourage some business activity and amounts to a philosophical change, according to analysts.

This tax reform is part of the structural tax reduction, and thus can be viewed as a signal of expansionary fiscal policy,” Minggao Shen, a Citigroup economist said in a research note Friday.The influence on China of a weak global economy is clearly being seen in Zhejiang province, home to nearly 50 million people and by some measures the country’s wealthiest region. Nearly 12% of China’s total exports came from the province in August. But Zhejiang factory owners say their already-thin margins are disappearing.

October 28, 2011 3:57 AM
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