Come to China and increase (or is it decrease?) your capital assets costs…

How long does a server last? Both in book value and real in world production? What about general technology and computers? What about cars? Or buildings?

I lived in an over 100 year old house in Sydney in Balmain that is no less modern than anything else anywhere….and while I also use a laptop that is coming up to 2 years old….which one would I expect to depreciate quicker and be obsolete quicker?

Conventional wisdom is that a building should last many years, if well built 130+ years is not an issue. A computer, well ignoring failures from moving parts – like any mechanical device should last 3-5 years. Can one live in a 130 year old house without issues? Most certainly. Can anyone use a 5 year old computer? Well not really if it is your main work tool.

Now I understand that with perpetual chain of replacement models and asset cycle times, people may change IT infrastructure on a 2, 3 or 5 year cycle depending on their role and financing. And yes technology does somewhat evolve in accordance with Moore’s law and sometimes that means the useful life of a server may be extended for a given legacy application, unless something like Web 2.0 and ASP’ing comes along. The general consensus is that a building will depreciate slower than technology; and while a building may have no book value left, it is still very usable. Unlike technology which can often be obsoleted while it still contains some significant residual book value.

Now during a recent budget planning session (snore….) I discovered that the Chinese tax departments official allowance for technology depreciation is 5 years straight line.

OK, kinda slow and long….a weighted average and then maybe over 3 years to boot would be more realistic…..what puts this into context is that the official depreciation rate for buildings is 20 years!

So a building depreciates only 4 times slower than a server! Maybe I should just buy a tent and not get a mortgage?

Now while this may seem kinda harsh on tech companies and easy going on real estate developers, one only need look at the quality of some rather popular and pandemic developments around Beijing (SOHO..).

So which is it? Tech in China is somehow more advanced with a better longevity, or that buildings are built like crap? Or that the tax rules are way out of whack with reality?

I’d hazard a guess at the latter two and not the first.

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One Response to “Come to China and increase (or is it decrease?) your capital assets costs…”

  1. Software as a Service, ASPing, ESPing, ISPing and many more "SP's" | Utility Computing dot China Says:

    […] “Plus it does wonders for your tax exposure when you claim all those leasing payments back against your tax. Much better than doing it the Chinese way with a 5 year depreciation curve!” […]

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