BUSINESS IN CHINA

New transfer pricing regulations and their impact on foreign businesses in China

2009-04-09T16:26:00.000-07:00

China has finally unveiled a set of highly comprehensive rules and regulations governing Related Party Transactions under the newly unified legislations for Corporate Income Tax.

On January the 8th 2009, the State Administration of Taxation published the 'Implementation Regulations for Special Tax Adjustments - abbreviated to the 'Implementation Regulations'. The Implementation Regulations establish a basis for the tax authority to make tax adjustments in relation to areas such as thin capitalisation, controlled foreign corporations and transfer pricing. It also provides detailed guidance for Chinese enterprises on entering Cost Sharing Agreements (CAS) and Advanced Pricing Arrangements (APA). In addition, the long awaited Contemporaneous Transfer Pricing Documentation requirement is also set out in the Implementation Regulations.

Apart from the new contents, the Implementation Regulations also supersedes previous major tax circulars governing the administration of Transfer Pricing. With the Implementation Regulations now established, those tax circulars have been revoked.
The Implementation Regulations set the milestone in the development of Transfer Pricing regulations in China. It demonstrates that the Chinese tax authority is strengthening governance of anti-avoidance. The Chinese tax authorities are increasingly capable and competent in dealing with sophisticated Transfer Pricing issues and are moving towards an international standard.
In the following, we highlight some of the key contents of the Implementation Regulations, which could have significant impacts on foreign investors.

Contemporaneous Transfer Pricing Documentation Compliance

The requirement to prepare Contemporaneous Transfer Pricing Documentation is for the first time being formally introduced into China's Transfer Pricing legislation. Currently, such requirement is only imposed on entities with a significant amount of cross-border Related Party Transactions. The previous regulations though did include the criteria for documentations that should be kept by companies and the Transfer Pricing basis relative to companies Transfer Pricing practices.

The criteria for which is defined as below:
* Annual amount of Related Party purchase and sales is not less than RMB 200 million; OR
* Annual amount of other Related Party transactions is not less than RMB 40 million.
The Contemporaneous Transfer Pricing Documentation shall include:
* An Organisational Structure of the Group
* A Summary of Business Operations
* Information on the Related Party Transactions
* A Comparability Analysis
* A Selection and Application of Transfer Pricing Methods

Each obligated entity shall prepare the documents on an independent basis. Each entity within the same group shall submit its own set of contemporaneous documents, no consolidated documentation on the group level shall be accepted. Entities shall submit the documentation for the current fiscal year by May 31 of the following year. The deadline for 2008 has been extended to Dec 31st 2009. Refusal or failure to submit the Transfer Pricing documentation within the time limit could be lead to a fine of RMB50,000. In addition, a penalty interest of 5% per annum could be imposed on the tax payment due from the special adjustments, however this penalty may be waived where if the Contemporaneous Transfer Pricing Documentation is available.

Transfer Pricing Audit

Detailed selection criteria for the targets of Transfer Pricing audits are set out in the Implementation Regulations. The tax authority tends to focus on enterprises with the following features:
* Enterprises with Related Party Transactions of large amounts and multiple types;
* Enterprises with long-term loss, slight profit or fluctuating profit;
* Enterprises with profit lower than the industry level;
* Enterprises with profit mismatching the function and risk assumed;
* Enterprises which have transactions with Related Parties based in tax havens;
* Enterprises which fail to declare Related Party Transactions or which fail to prepare contemporaneous documentations;
* Enterprises which obviously violate the arm's length principle.

The Implementation Regulations permit tax authorities to use public as well as non-public information when carrying out a Transfer Pricing assessment. The tax authority will present a formal conclusion on whether the Transfer Pricing of the enterprise is reasonable or if tax adjustment is necessary. If an enterprise is required to carry out a tax adjustment, it will enter a 5-year tracking period, during which it should submit annual contemporaneous information and documents to the tax authority.

Enterprises with single function of processing activities

The Implementation Regulations reiterate the position that a contract manufacturer, which takes orders solely from Related Parties and which manufactures products for Related Parties, and which does not take on any other functions should not be taking losses resulted from management issues, such as the insufficient capacity, product obsolescence etc. A steady level of profits is expected for such type of entity if the related transactions are conducted on the arm's length basis.

Thin Capitalisation Rule

Prior to 2008, there was no thin capitalisation rule imposed on foreign invested enterprises. Since the unification of the Corporate Income Tax legislation however, foreign invested enterprises are also subject to the thin capitalization requirement. A safe-harbor debt-to-equity ratio of 5:1 for financial enterprises and 2:1 for all other enterprises has been announced. Interests attributable to the excessive leverage portion shall not be deductible for Corporate Income Tax.

The Implementation Regulations further provide detailed guidance on determining whether an enterprise is thinly capitalised. The Related Party debt-to-equity ratio is defined as the sum of the average monthly Related Party debt divided by the sum of the average monthly equity. The back-to-back loans through unrelated parties (e.g. entrusted loans) and debt with third parties that have been guaranteed or supported by a Related Party is also included in the scope of "Related Party Debt". In determining the equity component of the equation, the book value of equity is used rather than the fair market value of equity.

Litigation rises rapidly in Chinese legal market

2009-03-12T20:53:00.000-07:00

Litigation levels are rising rapidly in China. This is due to legal reforms that have facilitated litigation, but there is more work to be done.
In 2008 alone, Chinese courts handled 10.71 million cases, around 11% more than in 2007.
In the civil sector, the fastest growth is occurring in labour disputes, followed by cases involving health care, housing and consumer rights.
Due to the economic downturn and the adoption of the new Labour Contract Law, labour dispute cases exceeded 286,000 last year, which is almost double the 2007 figure.
Financial disputes, which account for around 10% of the total cases concluded, have seen a 15% increase, exceeding 1 million.
Intellectual property right infringement cases are also in the top five, with a one-third increase. Between 2003 and 2008, China launched many special campaigns to rectify and standardise intellectual property protection. Wang Shengjun also has stated that Chinese courts will severely penalise IPR infringement.
There have been 3.17 million civil cases handled through mediation, accounting for about 60% of total civil cases. International firms are seeing more potential to expand into alternative dispute resolution work, but domestic firms are also looking to get a piece of the action.
Most Chinese prefer to avoid court litigation, not only because of the complexity and expense that can develop but also because of cultural reasons. But when it comes to unavoidable situations, there is no big difference between litigation and arbitration for clients. Now, we can see that the quality of Chinese judges has improved greatly.

New transfer pricing regulations and their impact on foreign businesses in China

2009-03-07T16:25:00.000-08:00

China has finally unveiled a set of highly comprehensive rules and regulations governing Related Party Transactions under the newly unified legislations for Corporate Income Tax. On January the 8th 2009, the State Administration of Taxation published the 'Implementation Regulations for Special Tax Adjustments - abbreviated to the 'Implementation Regulations'.
The Implementation Regulations establish a basis for the tax authority to make tax adjustments in relation to areas such as thin capitalisation, controlled foreign corporations and transfer pricing. It also provides detailed guidance for Chinese enterprises on entering Cost Sharing Agreements (CAS) and Advanced Pricing Arrangements (APA). In addition, the long awaited Contemporaneous Transfer Pricing Documentation requirement is also set out in the Implementation Regulations.

Apart from the new contents, the Implementation Regulations also supersedes previous major tax circulars governing the administration of Transfer Pricing. With the Implementation Regulations now established, those tax circulars have been revoked.

The Implementation Regulations set the milestone in the development of Transfer Pricing regulations in China. It demonstrates that the Chinese tax authority is strengthening governance of anti-avoidance. The Chinese tax authorities are increasingly capable and competent in dealing with sophisticated Transfer Pricing issues and are moving towards an international standard.

In the following, we highlight some of the key contents of the Implementation Regulations, which could have significant impacts on foreign investors.

Contemporaneous Transfer Pricing Documentation Compliance

The requirement to prepare Contemporaneous Transfer Pricing Documentation is for the first time being formally introduced into China's Transfer Pricing legislation. Currently, such requirement is only imposed on entities with a significant amount of cross-border Related Party Transactions. The previous regulations though did include the criteria for documentations that should be kept by companies and the Transfer Pricing basis relative to companies Transfer Pricing practices.

The criteria for which is defined as below:

* Annual amount of Related Party purchase and sales is not less than RMB 200 million; OR
* Annual amount of other Related Party transactions is not less than RMB 40 million.

The Contemporaneous Transfer Pricing Documentation shall include:

* An Organisational Structure of the Group
* A Summary of Business Operations
* Information on the Related Party Transactions
* A Comparability Analysis
* A Selection and Application of Transfer Pricing Methods

Each obligated entity shall prepare the documents on an independent basis. Each entity within the same group shall submit its own set of contemporaneous documents, no consolidated documentation on the group level shall be accepted. Entities shall submit the documentation for the current fiscal year by May 31 of the following year. The deadline for 2008 has been extended to Dec 31st 2009. Refusal or failure to submit the Transfer Pricing documentation within the time limit could be lead to a fine of RMB50,000. In addition, a penalty interest of 5% per annum could be imposed on the tax payment due from the special adjustments, however this penalty may be waived where if the Contemporaneous Transfer Pricing Documentation is available.

Transfer Pricing Audit

Detailed selection criteria for the targets of Transfer Pricing audits are set out in the Implementation Regulations. The tax authority tends to focus on enterprises with the following features:

* Enterprises with Related Party Transactions of large amounts and multiple types;
* Enterprises with long-term loss, slight profit or fluctuating profit;
* Enterprises with profit lower than the industry level;
* Enterprises with profit mismatching the function and risk assumed;
* Enterprises which have transactions with Related Parties based in tax havens;
* Enterprises which fail to declare Related Party Transactions or which fail to prepare contemporaneous documentations;
* Enterprises which obviously violate the arm's length principle.

The Implementation Regulations permit tax authorities to use public as well as non-public information when carrying out a Transfer Pricing assessment. The tax authority will present a formal conclusion on whether the Transfer Pricing of the enterprise is reasonable or if tax adjustment is necessary. If an enterprise is required to carry out a tax adjustment, it will enter a 5-year tracking period, during which it should submit annual contemporaneous information and documents to the tax authority.

Enterprises with single function of processing activities

The Implementation Regulations reiterate the position that a contract manufacturer, which takes orders solely from Related Parties and which manufactures products for Related Parties, and which does not take on any other functions should not be taking losses resulted from management issues, such as the insufficient capacity, product obsolescence etc. A steady level of profits is expected for such type of entity if the related transactions are conducted on the arm's length basis.

Thin Capitalisation Rule

Prior to 2008, there was no thin capitalisation rule imposed on foreign invested enterprises. Since the unification of the Corporate Income Tax legislation however, foreign invested enterprises are also subject to the thin capitalization requirement. A safe-harbor debt-to-equity ratio of 5:1 for financial enterprises and 2:1 for all other enterprises has been announced. Interests attributable to the excessive leverage portion shall not be deductible for Corporate Income Tax.

The Implementation Regulations further provide detailed guidance on determining whether an enterprise is thinly capitalised. The Related Party debt-to-equity ratio is defined as the sum of the average monthly Related Party debt divided by the sum of the average monthly equity. The back-to-back loans through unrelated parties (e.g. entrusted loans) and debt with third parties that have been guaranteed or supported by a Related Party is also included in the scope of "Related Party Debt". In determining the equity component of the equation, the book value of equity is used rather than the fair market value of equity.

Pitfalls, considerations and the latest regulations for Processing Trade in China

2009-03-07T15:41:00.000-08:00

China's processing trade has gone through many development stages during its 30 year history, and it continues to play a vital role in China's economy. Offering comparatively low land, labour and production costs, many foreign investors carry out processing trade in the Pearl River Delta, and indeed, over the last thirty years, this region has frequently been referred to as the 'Factory of the World'.
Although processing trade has brought in billions of dollars of revenue, its presence also leads to environmental pollution and the use of the discouraged low technologies. It is worth noting that the Chinese authorities have been strengthening their administration of processing trade by promulgating a number of tax, customs, foreign exchange and business regulations. Keeping track of regulations and any ensuing business implications can pose a challenge for foreign investors.

Enterprises carrying out processing trade should pay attention to avoid potential pitfalls. In practice, the local authorities' administration of processing trade may vary from area to area. Many practical considerations may arise during the operations of processing trade, which include:

• The correct methods for the disposal of defective goods and scraps.
• Assessing the level of unit consumption rate and wastage rate.
• Correct factory transfer arrangement.
• Discrepancies between the quantities of physical inventory, inventory records in customs handbook and accounting ledgers.
• Verification and cancellation of customs handbook.

In addition, foreign investors need to evaluate which processing trade arrangement is the most suitable for their business needs - contract processing arrangement or import processing arrangement.

Before making a final decision, foreign investors may consider certain key factors, such as the importation of bonded equipment, the percentage of domestic sales over total sales, any export VAT refund rates, selecting the right locality from amongst various bonded zones (e.g. export processing zones, free trade zones, bonded logistic zones) as well as the overall tax burden.

This article serves to discuss the common pitfalls and relevant considerations when carrying out processing trade in China. In addition, we highlight the latest regulation and their impacts for processing trade operators.

Prior to our discussion on potential pitfalls, the common features of contract processing arrangements compared with import processing arrangements are highlighted below.

Contract Processing Arrangement

Under a contract processing arrangement, a foreign consignor will engage a domestic company or a foreign invested enterprise (FIE) to act as the processor. The foreign consignor supplies raw materials free of charge to the processor. The processor will process the raw materials and then return the finished goods to the foreign consignor. The processor will charge a processing fee to the consignor. Under this arrangement, the foreign consignor has the ownership of the raw materials and finished goods throughout the whole processing process.

Before entering into a contract processing arrangement, the processor should register a production contract with the local Ministry of Commerce (MOFCOM) to obtain approval for the importation of bonded raw materials, i.e. free of custom duty and import VAT. The production contract should state the list of raw materials and finished goods and their estimated quantities, specifications and amount. The valid period of a production contract is normally six months.

Under a contract processing arrangement, domestic sales of the finished products are not permitted under Chinese law.

Import Processing Arrangement

Under an import processing arrangement, the FIE purchases the raw materials from overseas or from domestic suppliers, and the legal titles of the raw materials are held by the FIE throughout the processing process. After processing the raw materials into finished goods, the FIE will then sell the finished goods to its customers.

An FIE can import bonded raw materials free of custom duty and import VAT for further processing into finished goods and then export the finished goods to overseas customers. Similar to the contract processing arrangement, the FIE should register its production contract under import processing arrangement to the local MOFCOM.

Under an import processing arrangement the FIE is permitted to conduct domestic sales.

Common pitfalls when carrying out Processing Trade

1. Evaluation of locality and type of Processing Trade

The local practice, requirements and preferential treatments for carrying out processing trade may be different from one area to another area. The regulations and treatments for contract processing arrangements are also different from those for import processing arrangements from customs, foreign exchange, taxation and business perspectives. In view of this, it is highly recommended that foreign investors evaluate these factors and make a comparison between contract processing and import processing arrangements before making a final decision.

2. Estimation of Unit Consumption Rate and Wastage Rate

To estimate accurate unit consumption rate and wastage rate of bonded raw materials is not easy. In practice, the unit consumption rate and wastage rate declared by the enterprises are likely to be different from those average unit consumption rate and wastage rate adopted and announced by the customs authority. The discrepancy may cause problems when the enterprise performs a verification and cancellation of its production contract.

Customs authorities are vested in greater power to attest the authenticity and accuracy of unit consumption rates. They can establish upper and lower unit consumption rates.

All of the above poses difficulties for processing trade operators. Furthermore, under certain circumstances, the enterprise might be subject to penalties by the customs in-charge. Negotiation with the customs authorities should be arranged where appropriate.

3. Disposal of Scraps

According to the prevailing regulations, if the scraps arising from processing trade are sold domestically without obtaining any prior approval from the competent authorities, the enterprises may be penalized with back payment of import duties. Enterprises should be aware that the dutiable value of scraps can vary in different zones such as Export Processing Zones and Free Trade Zones. Enterprises should pay attention to the proper compliance and consequences for disposal of scraps.

4. The discrepancy of inventory quantities amongst records

The possible discrepancy amongst the quantities of physical inventory in the warehouses, the inventory records stated in customs handbooks and the accounting ledgers is often a headache to processing trade operators. If an enterprise fails to explain the reasons for the discrepancy, and in cases where the customs in-charge deems the missing bonded inventory as having been sold by the enterprise to domestic customers instead of exports, it may encounter barriers in performing verification and cancellation of the production contracts and be required to pay for the imported custom duty and VAT for the missing bonded inventory.

The latest amendments to Processing Trade regulations

In order to cope with the stern situation of import and export trade caused by the global financial crisis, the Chinese government has adopted a series of measures to maintain the growth of import and export trade. At the same time, Chinese Customs also adopted different measures to enforce the administration on processing trade and the collection of customs duty and import VAT.

1. Frequent Update of Export VAT Refund Rates

The Chinese government increased the export refund rates for the fourth time in 2008. According to Caishui [2008] No.144, the fourth round of increases focuses on certain high value-added products, labour intensive products and high-tech products such as plastic, forestry, mould and glass products, sea food or river food, bags, shoes, hats, umbrellas, furniture, bedding products, lights, watches and bells, certain chemical products, stone products, non-ferrous metal products and certain electrical machinery. The updated tax refund rates for these products now range from 9% to 14%. For details, please refer to Caishui [2008] No.144.

With constantly changing export VAT refund rates, it can be a challenge for processing trade operators to comply with the latest regulations.

2. New Tariff Scheme

In order to promote the steady increase and structural optimization of imports and exports, China has announced its new tariff scheme, which became effective from 1 January 2009. The Customs Tariff Commission promulgated Shuiwaihui [2008] No.40, which defines the new customs tariff implementation scheme.

Under Circular 40, the Chinese government has adjusted its tariff scheme, including changes to the:
• Most Favored Nation rate
• Interim duty rate
• Preferential tariff rate
• Special preferential tariff rate
• Other tariff items
It is recommended that enterprises review the tariff codes of their raw materials and finished goods so as to ensure compliance with the latest development.

3. New Administration for Country of Origin

The PRC General Administration of Customs (GAC) issued Customs Order No.181 on 8 January 2009. This sets out the administrative measures and operational guidelines for country of origin (COO). Order No. 181 will become effective from 1 March 2009. Enterprises should be aware of the new requirements for COO certificates and COO declarations. Requisite documents should be submitted to the customs authorities. Any inconsistency between documents or missing documents may be regarded as an inaccurate declaration and may result in penalties.

4. Customs Deposits

In 2007, MOFCOM and the GAC jointly issued Circular GAC [2007] No.44, which officially took effect from 23 August 2007. According to Circular No. 44, all Categories A and B processing trade enterprises in Eastern China will have to pay deposits equal to 50% of customs duties and import VAT when they either import or export commodities which fall into the restricted category under processing trade. Categories C processing trade enterprises will have to pay deposits equal to 100%.
In effect, this measure forces the majority of processing trade enterprises to pay some form of deposit, and which in turn can place a heavy strain on an enterprise's cash flow.

In this context, Eastern China includes Beijing, Tianjin, Shanghai, Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian and Guangdong.

In order to alleviate the financial difficulties faced by enterprises under the current economic crisis, MOFCOM and the GAC jointly issued Order No.97 [2008] (Order 97), which became effective from 1 December 2008. Under Order 97, the customs authorities temporarily suspended the 'actual payment' of custom deposits for 1,853 tariff items under the restricted exports category and 272 tariff items under the restricted import category for textile products for Categories A and B processing trade enterprises. Keeping track of the frequent changes in the classification of restricted and prohibited categories under processing trade is challenging for operators and non-compliance may result in penalties.

5. VAT Reform

Effective from 1 January 2009, China implemented a VAT reform.

Prior to the VAT reform, enterprises are not allowed to claim the creditable input VAT for purchasing machinery and equipments. FIEs which fall within the 'Encouraged Category' can import machinery and equipments free of custom duty and import VAT whilst processors under contract processing arrangement can import machinery and equipments free of custom duty and import VAT.

However, under this VAT reform, enterprises are allowed to claim the creditable input VAT for purchasing machinery and equipments. Enterprises cannot however enjoy the VAT exemption for the importation of machinery and equipments and cannot enjoy the VAT refund for the purchase of domestically manufactured machinery and equipments from 1 January 2009 (or from 1 July 2009 if certain conditions can be fulfilled).

Processors under contract processing arrangement are also required to pay import duties for the importation of equipment.

VAT reforms will have an impact on most processing trade operators. Enterprises should evaluate the potential impacts on their business model, tax burden and cash flow.

Conclusion

It is envisaged that in the near future, the Chinese authorities will further strengthen the administration of the processing trade and will expect processing trade enterprises to improve their compliance status. As the Chinese government is determined to tackle environment problems arising from manufacturing activities, measures to eliminate high polluting industries or products are to be expected.

Enterprises must consider upgrading their production process and equipment in order to reduce pollution, whilst considering the use of more environmently-friendly materials during manufacturing.

In order to improve compliance with processing trade regulations and to ensure good preparation for potential inspection by the customs authorities, it is recommended that processing trade enterprises engage professionals and conduct a health check on their processing trade operations. A thorough and comprehensive customs and VAT health check is helpful in identifying an enterprise's existing non-compliance issues, to quantify the potential non-compliance exposures and to devise possible solutions where appropriate.

New transfer pricing regulations and their impact on foreign businesses in China

2009-02-22T06:44:00.000-08:00

China has finally unveiled a set of highly comprehensive rules and regulations governing Related Party Transactions under the newly unified legislations for Corporate Income Tax.
On January the 8th 2009, the State Administration of Taxation published the 'Implementation Regulations for Special Tax Adjustments - abbreviated to the 'Implementation Regulations'. The Implementation Regulations establish a basis for the tax authority to make tax adjustments in relation to areas such as thin capitalisation, controlled foreign corporations and transfer pricing. It also provides detailed guidance for Chinese enterprises on entering Cost Sharing Agreements (CAS) and Advanced Pricing Arrangements (APA). In addition, the long awaited Contemporaneous Transfer Pricing Documentation requirement is also set out in the Implementation Regulations.

Apart from the new contents, the Implementation Regulations also supersedes previous major tax circulars governing the administration of Transfer Pricing. With the Implementation Regulations now established, those tax circulars have been revoked.

The Implementation Regulations set the milestone in the development of Transfer Pricing regulations in China. It demonstrates that the Chinese tax authority is strengthening governance of anti-avoidance. The Chinese tax authorities are increasingly capable and competent in dealing with sophisticated Transfer Pricing issues and are moving towards an international standard.

In the following, we highlight some of the key contents of the Implementation Regulations, which could have significant impacts on foreign investors.

Contemporaneous Transfer Pricing Documentation Compliance

The requirement to prepare Contemporaneous Transfer Pricing Documentation is for the first time being formally introduced into China's Transfer Pricing legislation. Currently, such requirement is only imposed on entities with a significant amount of cross-border Related Party Transactions. The previous regulations though did include the criteria for documentations that should be kept by companies and the Transfer Pricing basis relative to companies Transfer Pricing practices.

The criteria for which is defined as below:

* Annual amount of Related Party purchase and sales is not less than RMB 200 million; OR
* Annual amount of other Related Party transactions is not less than RMB 40 million.

The Contemporaneous Transfer Pricing Documentation shall include:

* An Organisational Structure of the Group
* A Summary of Business Operations
* Information on the Related Party Transactions
* A Comparability Analysis
* A Selection and Application of Transfer Pricing Methods

Each obligated entity shall prepare the documents on an independent basis. Each entity within the same group shall submit its own set of contemporaneous documents, no consolidated documentation on the group level shall be accepted. Entities shall submit the documentation for the current fiscal year by May 31 of the following year. The deadline for 2008 has been extended to Dec 31st 2009. Refusal or failure to submit the Transfer Pricing documentation within the time limit could be lead to a fine of RMB50,000. In addition, a penalty interest of 5% per annum could be imposed on the tax payment due from the special adjustments, however this penalty may be waived where if the Contemporaneous Transfer Pricing Documentation is available.

Transfer Pricing Audit

Detailed selection criteria for the targets of Transfer Pricing audits are set out in the Implementation Regulations. The tax authority tends to focus on enterprises with the following features:

* Enterprises with Related Party Transactions of large amounts and multiple types;
* Enterprises with long-term loss, slight profit or fluctuating profit;
* Enterprises with profit lower than the industry level;
* Enterprises with profit mismatching the function and risk assumed;
* Enterprises which have transactions with Related Parties based in tax havens;
* Enterprises which fail to declare Related Party Transactions or which fail to prepare contemporaneous documentations;
* Enterprises which obviously violate the arm's length principle.

The Implementation Regulations permit tax authorities to use public as well as non-public information when carrying out a Transfer Pricing assessment. The tax authority will present a formal conclusion on whether the Transfer Pricing of the enterprise is reasonable or if tax adjustment is necessary. If an enterprise is required to carry out a tax adjustment, it will enter a 5-year tracking period, during which it should submit annual contemporaneous information and documents to the tax authority.

Enterprises with single function of processing activities

The Implementation Regulations reiterate the position that a contract manufacturer, which takes orders solely from Related Parties and which manufactures products for Related Parties, and which does not take on any other functions should not be taking losses resulted from management issues, such as the insufficient capacity, product obsolescence etc. A steady level of profits is expected for such type of entity if the related transactions are conducted on the arm's length basis.

Thin Capitalisation Rule

Prior to 2008, there was no thin capitalisation rule imposed on foreign invested enterprises. Since the unification of the Corporate Income Tax legislation however, foreign invested enterprises are also subject to the thin capitalization requirement. A safe-harbor debt-to-equity ratio of 5:1 for financial enterprises and 2:1 for all other enterprises has been announced. Interests attributable to the excessive leverage portion shall not be deductible for Corporate Income Tax.

The Implementation Regulations further provide detailed guidance on determining whether an enterprise is thinly capitalised. The Related Party debt-to-equity ratio is defined as the sum of the average monthly Related Party debt divided by the sum of the average monthly equity. The back-to-back loans through unrelated parties (e.g. entrusted loans) and debt with third parties that have been guaranteed or supported by a Related Party is also included in the scope of "Related Party Debt". In determining the equity component of the equation, the book value of equity is used rather than the fair market value of equity.

More anti-monopoly guidelines published

2009-01-21T16:59:00.000-08:00

The Ministry of Commerce (Mofcom) has published four draft documents clarifying the handling of concentrations and suspected concentrations.

The documents listed below appeared on Mofcom’s website on January 19 and 20, and had previously been circulated to a small group of stakeholders for comment.

Tentative Measures for the Investigation and Handling of Concentrations of Business Operators that have not been Reported in accordance with the Law (Draft);
Tentative Measures for the Collection of Evidence for Suspected Monopolies of Concentrations of Business Operators that have not reached the Reporting Threshold (Draft);
Tentative Measures for the Reporting of Concentrations of Business Operators (Draft for Comments); and
Tentative Measures on Reviews for Concentrations of Business Operators (Draft for Comments)

Specialists reviewing the draft Measures say they should help settle various contentious issues. One involves the factors that Mofcom will take into account when deciding whether one business has acquired control over another.

For the first time, an exact share ratio has been specified. If an acquiring party exceeds this ratio, they can be said to have acquired control. The new documents also seem to confirm that joint ventures will qualify as concentrations (although the position with so-called greenfield ventures is unsure), and explain how to calculate business turnover. This will help companies to apply the long-debated threshold tests contained in the 2008 Anti-monopoly Law, including one which sets a threshold of Rmb10 billion for the aggregate global turnover of all parties involved

For Francois Renard, competition specialist with Allen & Overy, the draft covering “Suspected Monopolies of Concentrations of Business Operators that have not reached the Reporting Threshold” is intriguing.

“Mofcom seems to give a lot of weight to the review of concentration below thresholds,” he says.

This could be interpreted in two ways: as an indication that Mofcom intends to review many below-threshold operations, or simply as a response to previous concerns over the Ministry’s scrutiny of such deals.

Since the promulgation of the Anti-monopoly Law in 2008, many lawyers have commented that supporting guidelines would benefit from external input. It seems the Ministry has been listening, as it has opened the new draft Measures for public comment until February 16.

Although the latest drafts have been generally welcomed, they leave some existing uncertainties unresolved and raise further uncertainties themselves. One lawyer has reported some “very bizarre drafting” in some of the Measures. There is certain to be considerable debate in the weeks ahead.

Chinese New Year - Spring Festival

2009-01-21T16:06:00.000-08:00

Chinese New Year (Chinese: 春節, 春节, Chūnjíe; 農曆新年, 农历新年, Nónglì Xīnnián; or 過年, 过年, Guònián), also known as the Lunar New Year or the Spring Festival is the most important of the traditional Chinese holidays. It consists of a period of celebrations, starting on New Year's Day, celebrated on the first day of the first month of the Chinese calendar, i.e. the day of the second new moon after the day on which the winter solstice occurs, unless there is an intercalary eleventh or twelfth month in the lead-up to the New Year—in such a case, the New Year falls on the day of the third new moon after the solstice. (The next time this occurs is in 2033.) The Chinese New Year period ends with the Lantern Festival, the fifteenth day of the month.

Some Chinese believe that Nian ("Nyehn") was a reptilian predator that could infiltrate houses silently like the infamous man-eating leopards of India. The Chinese soon learned that Nian was sensitive to loud noises, and they scared it away with explosions and fireworks.

Origin
The origin of the Lunar New Year Festival can be traced back thousands of years, involving a series of colorful legends and traditions. One of the most famous legends is Nian, an extremely cruel and ferocious beast that the ancients believed would devour people on New Year's Eve. To keep Nian away, red-paper couplets are pasted on doors, torches are lit, and firecrackers are set off throughout the night, because Nian is said to fear the color red, the light of fire, and loud noises. Early the next morning, as feelings of triumph and renewal fill the air at successfully keeping Nian away for another year, the most popular greeting heard is "gong xi fa cai", or "congratulations."

To ensure good luck in the coming year, the Taiwanese always give every dish a special name. This dish is called the "Five Blessings for the New Year" and represents longevity, wealth, peace, wisdom, and righteousness. (Photo by Su-ching Chang) Even though Lunar New Year celebrations generally last for only several days, starting on New Year's Eve, the festival itself is actually about three weeks long. It begins on the twenty-fourth day of the twelfth lunar month, the day, it is believed, when various gods ascend to heaven to pay their respects and report on household affairs to the Jade Emperor, the supreme Taoist deity. According to tradition, households busily honor these gods by burning ritualistic paper money to provide for their traveling expenses. Another ritual is to smear malt sugar on the lips of the Kitchen God, one of the traveling deities, to ensure that he either submits a favorable report to the Jade Emperor or keeps silent.

Celebration
The Chinese New Year starts with the New Moon on the first day of the new year and ends on the full moon 15 days later. The 15th day of the new year is called the Lantern Festival, which is celebrated at night with lantern displays and children carrying lanterns in a parade.

10 Days before the New Year Day - Sweeping of the Grounds
Preparations for the Chinese New Year in old China started well in advance of the New Year's Day. The 20th of the Twelfth Moon was set aside for the annual housecleaning, or the "sweeping of the grounds". Every corner of the house must be swept and cleaned in preparation for the new year. SpringCouplets, written in black ink on large vertical scrolls of red paper, were put on the walls or on the sides of the gate-ways. These couplets, short poems written in Classical Chinese, were expressions of good wishes for the family in the coming year. In addition, symbolic flowers and fruits were used to decorate the house, and colorful new year pictures (NIAN HUA) were placed on the walls (for more descriptions of the symbolism of the flowers and fruits.

New Year Paintings - During the Spring Festival (Chinese New Year), it is traditional to decorate the homes with new year paintings. The most popular paintings are Door Gods pasted on the front doors to keep ghosts and monsters away.

Spring Couplets - Spring couplets are traditionally written with black ink on red paper. They are hung in storefronts in the month before the New Year’s Day, and often stay up for two months. They express best wishes and fortune for the coming year. There is a great variety in the writing of these poetic couplets to fit the situation. A store would generally use couplets hat make references to their line of trade. Couplets that say "Happy New Year" and " Continuing Advancement in Education" are apprpriate for a school.

The New Year's Eve - Reunion DinnerA reunion dinner is held on New Year's Eve where members of the family, near and far, get together for celebration. The New Year's Eve dinner is very large and traditionally includes chicken. Fish is included, but not eaten up completely (and the remaining stored overnight), as the Chinese phrase "nian nian you yu", or "every year there is fish/leftover", is a homophone for phrases which could mean "be blessed every year" or "have profit every year", since "yu" is also the pronunciation for "profit".

The New Year's Eve celebration was traditionally highlighted with a religious ceremony given in honor of Heaven and Earth, the gods of the household and the family ancestors.

First Day of the New Year

New Year's day is also celebrated within the family. Usually family members gather on the morning of New Year's Day. It is at this gathering that red packets are given to unmarried members of the family. The age of the recipient is not material to receiving the packets. Married couples usually give out two red packets on the first new year after being married. This is because the wife presents one and the husband presents one. In subsequent years they may give one as a couple.
Red packets traditionally consisted of amounts which were considered multiples. Amounts like $2 (two piece of $1), or $20 were acceptable. Similarly "multiples" such as $1.10 and $2.20 were also acceptable. However, this is not strictly adhered to. The gift was originally a token amount but these days it is not uncommon to receive large sums in affluent families. In some families this tradition has evolved into the practice to substituting money-like instruments (stocks, bonds, unit trust) in place of large sums of cash.

Red packets are also given to unmarried visitors but the sums are often smaller than the packets given to family members or close friends.

Second Day of the New Year
The second day of the new year is usually for visiting the family of the wife if a couple is married. A large feast is also typically held on the second day of the new year.

Seventh Day of the New YearThe seventh day traditionally is known as the common man's birthday, the day when everyone grows one year older. It is also the day when tossed fish salad, yusheng, is eaten. People get together to toss the colourful salad and make wishes for continued wealth and prosperity. This is only celebrated amongst the Chinese in Southeast Asia, such as Malaysia and Singapore.

15th Day of the New Year - Lantern Festival
The New Year celebrations ended on the 15th of the First Moon with the Lantern Festival. On the evening of that day, people carried lanterns into the streets to take part in a great parade. Young men would highlight the parade with a dragon dance. The dragon was made of bamboo, silk, and paper, and might stretch for more than hundred feet in length. The bobbing and weaving of the dragon was an impressive sight, and formed a fitting finish to the New Year festival.

Food
There are many foods in Chinese culture associated with the Chinese New Year. Although preferences vary from region to region, some examples include the following:

Niangao (粘糕) The Chinese word 粘, meaning "sticky", is identical in sound to 年, meaning "year", and the word 糕, meaning "cake" is identical in sound to 高, meaning "high". As such, eating niangao has the symbolism of raising oneself higher in each coming year (年年高升 niánnián gāoshēng). Chinese families who practice Chinese traditional religion also offer niangao to the kitchen god, Zao Jun. It is believed that all the household gods go off to heaven to report on a family during the new year. Serving niangao to the kitchen god is believed to help him provide a sweet report on the family because he will be satisfied and not inclined to deliver criticism — or that his lips are so sticky from the cakes that he is unable to make too much of a report.

Fagao Literally translated as "Prosperity Cake", fagao is made with wheat flour, water, sugar and leavened with either yeast or baking powder. Fagao batter is steamed until it rises and splits open at the top. The sound "fa" means either "to raise/generate" or "be prosperous", hence its well intending secondary meaning.

Jiaozi Dumplings, are small or large mounds of dough that are usually dropped into a liquid mixture (such as soup or stew) and cooked until done, some are stuffed with meat and/or vegetables.

Yusheng, a salad of raw fish and shredded crunchy vegetables (such as carrots, jicama, pickled ginger and pomelo) in a plum sauce dressing. Although commonly served in China throughout the year, it was popularised as a Chinese New Year dish in Singapore and Malaysia, a practise which has since spread to other Chinese communities. Originally served only on the seventh day of the new year, it is now eaten on any day, sometimes as early as two weeks prior to the commencement of the new year.

Mandarin oranges (a symbol of wealth and good fortune). The Cantonese word for these oranges is a homonym for gold.

Red Jujubes symbolizes the gaining of prosperity
Whole steamed fish (a symbol of long life and good fortune). This can be seen in wall decorations of fish themes. The word 魚 (yú), meaning "fish", shares the same pronunciation with the word 餘, meaning "surplus" (e.g. having money left over from covering expenses). The common greeting for the new year "niannian you yu" can mean to enjoy a surplus, i.e. financial security, year after year.

Sacred animal recalls Beijing's turbulent past

2009-01-21T15:25:00.001-08:00

In Beijing's Summer Palace, a life-sized bronze ox lies on its belly on the eastern bank of Lake Kunming near the bridge with 17 arches. With both its ears pricked up, the elegant animal seems to be admiring the mountains and lake in the imperial garden.

As a symbol of the Summer Palace, the statue, known as the Golden Ox, has witnessed many memorable events.

It was cast in 1755 on the order of Emperor Qianlong at the height of the Qing Dynasty (1644-1911). An inscription in the emperor's handwriting reads: "This sacred ox is made with gold to keep peace forever and bring good luck."

In ancient China, people often called bronze "gold" but the nickname Golden Ox nearly brought it disaster.

In 1900, when the Eight Allied Forces invaded Beijing, they looted most of the portable valuables in the Forbidden City and other imperial compounds before setting fire to the buildings.

The prospect of getting a golden ox led the troops one dark night to the Summer Palace. Finding it impossible to move the ox even an inch, the soldiers decided to cut off its head instead.

A soldier tried to deal the fatal blow with his bayonet but only left a slight mark on the animal's back, revealing bronze below the gilded surface. The disappointed looters left to seek other valuables.

There are many explanations about why the bronze ox was placed by the lake.

A popular story goes that the bronze ox was the Cowherd who married the Girl Weaver from the Western Heavens. They had two children and lived peacefully, until the Queen Mother of the Western Heavens separated them with the Milky Way. They reunite once every year on the night of Qixi (the 7th day of the 7th lunar month).

Legends say the Milky Way is Lake Kunming and the Girl Weaver can be found at a scenic spot, called the Painting of Plowing and Weaving, opposite the ox across the lake.

The site was burned down in 1860 by British and French troops, who also destroyed the imperial Yuanmingyuan and Qingyiyuan gardens.

In 1888, Empress Dowager Cixi built the Summer Palace on the ruins of the Qingyiyuan. She built a wall on the western bank of the lake and kept the site of the fire outside the Summer Palace.

Some people say she hated seeing the Cowherd find the Girl Weaver, in the same way that she tried to control Emperor Guangxu's marriage.

During a Qixi festival, Cixi is said to have woken up after dreaming that the bronze ox leapt into the lake and swam toward the Girl Weaver. She immediately set out from the Forbidden City toward the Summer Palace to find the bronze ox still there. But she had the ox chained with a long, thick iron chain. The story goes on saying that the ox struggled so hard to get loose that it broke its tail.

In 2004, the Painting of Plowing and Weaving was rebuilt at its original site. The legendary Cowherd and the Girl Weaver can now look at each other across the lake.

There is another, more likely explanation. When China was plagued by rampant floods in ancient times, legendary leader Da Yu led people to fight the floods. He would cast a bronze ox and sink it into the river after diverting the floods. Chinese believe that oxen know water well and can control water demons. Later, people stopped putting statues of oxen on riverbanks.

Two centuries ago, the Summer Palace was built on a network of rivers and lakes. In summer, heavy rain would easily lead to floods. The eastern dike of Kunming Lake is just 10 m higher than the Forbidden City, meaning that any serious flood could bring devastating results to the imperial palace.

Every summer, special officials were dispatched to guard the bronze ox and check the water level. If the water got too near, the officials were under orders to immediately report to the Forbidden City, so measures could be taken in time.

Still bearing the mark left by the bayonet, the bronze ox has been guarding the Summer Palace for 250 years. It is a national treasure testifying to a time when China was too weak to defend its own people.

Chinese New Year

2009-01-21T11:27:00.000-08:00

When is Chinese New Year 2009?
Chinese New Year falls on Monday, January 26th 2009.

The Chinese New Year that is celebrated for about fifteen days is one moment in the year when the whole nation feels united as they can imagine each other's enjoyment. The Chinese New Year gets determined by the chinese new year calendar and therefore it is sometimes called the Lunar New Year. In 2009, the Chinese Lunar Year Festival would start from 26 th of January. As every one is aware of its significance, the working people in china can take weeks of holidays so that they can join the company of their near and dear ones and a feast with their family members on the chinese new year eve or Lunar New Year's Eve. Although with the changing times and increasing mobility of the people the celebration of Chinese New Year Festival has undergone some changes, everybody still very fervently follow all the customs that their elders have taught them.
Chinese have a unique way of representing the New Year through animals. They have 12 different animals to represent each year of the 12 year -cycle and the order remains the same throughout with the year of the rat beginning the cycle and the year of the boar/ pig ending the same. As the Chinese year 2008 was signified as the year of the rat, the following year, 2009, is going to be the year of the ox. Chinese New Year of OX, 2009 will fall on January 26th and will mark the 15 day long festivities beginning on the said date and going on till the 9th February.

Chinese New Year Animal 2009- Ox
Preparations for the Chinese New Year of Ox, 2009 will begin months in advance so that the celebrations be observed in the highest magnitude and splendor. As the different years of the 12 year cycle are characterized by different animals, people born on the different years also feature different traits and characters and most often then not, they are believed to be influenced and inspired by the animals of the particular year they are born in. Chinese new year sales is expected to be very slow this year as people are in the mood of saving money due to the concerns of economy. But still chinese new year eve will be much more colorful and full of excitement.

BEST WISHES FOR 2009

2009-01-02T01:54:00.000-08:00

Business in China wish you all the best for 2009

A great year to go forward, to develop your business and to catch opportunities in China.

Deng Xiaoping : the pragmatic

2009-01-01T16:46:00.000-08:00

The Maoist who reinvented himself, transformed a nation, and changed the world

Though the name of Mao Zedong still has resonance around the world, the man who has inherited the mantle of Chinese hero is Deng Xiaoping. While Mao is now mainly associated with the idea of revolutionary excess and periods of colossal suffering, Deng has come to be linked to China's astonishing economic development, and to the steering of China away from its Leninist and Maoist organizational straitjacket into a wider world of technological growth and international trade. When we think of Deng, it tends to be within a context where Mao's revolutionary legacy is seen as irrelevant. As Mao shrinks in the historical balance, Deng rises; it is Deng who is hailed as the pragmatist, as the man who introduced a new economic dynamism with his striking phrase that it did not matter whether a cat was black or white as long as it could catch mice.
pore's stern symbol

Deng is now thought of, both within China and in the world at large, as having been in some measure heroic. That is due almost entirely to the stances he adopted, and the policies he helped propel into motion, after he had survived two purges and was called back to power in 1977, at the age of 73. What Deng had the intelligence to see was that China would have to break out of its Maoist mold of state control—that the nation's long-dormant entrepreneurial spirit had to be encouraged, not inhibited, and that the capitalist nature of some of the needed changes had to be openly accepted, whatever the political fallout.
Yet Deng did not just focus on the economy. He identified other areas where changes had to be made for China to become a world power: there was the need to revamp the educational system, especially universities and research institutes; the military had to be streamlined and professionalized; lawyers had to be trained in the intricacies of commercial and corporate law, and be able to have cases heard in a viable and expanded judicial system; more Chinese had to be permitted to study overseas, and foreign students and tourists to come to China. As a complementary move, Deng ordered far-reaching reviews of the cases of hundreds of thousands of intellectuals, students and professionals who had been sent into internal exile in impoverished rural areas after the Hundred Flowers Movement in 1957, and later during the Cultural Revolution; under Deng, many were allowed to return to their homes and families.

Taking a broad view of the intellectual and creative worlds that had essentially been banned in the radical Maoist years, Deng authorized the loosening of controls over filmmaking, fashion, music and the visual arts. Investigative journalists were encouraged to lay bare local abuses, even if they might implicate members of the Communist Party. In late 1978 a stretch of blank wall not far from the headquarters of the Party was opened for the airing of political and cultural views in the form of written posters and poems; swiftly dubbed Democracy Wall, it became a focal point for tough-minded criticism of local and national government, a critique from which not even Deng or Mao were spared.
When Deng is described in heroic terms, it is largely because of the long-range effects of this remarkable torrent of change that he set in motion. Leading China down the capitalist path, Deng relaxed all manner of economic controls and launched Special Economic Zones—free-trade enclaves that demonstrated the prosperous potential of a liberalized economy. These initiatives helped transport millions of Chinese out of poverty in the space of just a few decades, a feat unprecedented in history; transformed China into the global manufacturing behemoth that it now is; and heralded the country's arrival on the world stage as a major geopolitical and financial player.

But the reforms Deng activated should not be allowed to expunge the ongoing effects of the changes he abandoned or chose not to make. Democracy Wall, for example, was closed down as a protest site early in 1979, and several of the most strident protestors were convicted of crimes against the state and given lengthy prison sentences. Many of the underground journals were banned, and the poets were silenced. Even as Deng visited the U.S. in 1979, a journey in which he charmed Americans with his apparently folksy ways and made major deals with Boeing and Coca-Cola, Chinese troops invaded Vietnam in an attempt to undercut Russian power in the region. University leaders were removed if their demands for new freedoms were deemed to be too strenuous, and Deng purged his own protégé Hu Yaobang on the grounds that he was pursuing too much change too fast.
The intolerance reflected by the suppression of the Democracy Wall movement resurfaced during the massive demonstrations that began at Tiananmen Square in April 1989 with Hu's funeral and were so bloodily put down in June that year. In his use of the deadly force of the People's Liberation Army to clear Tiananmen Square, Deng showed how deep was his mingled contempt for and fear of the student and other leaders who, he believed, threatened to spread chaos across the country in the name of democracy. The Party's verdict on the Tiananmen protests—that they amounted to a counterrevolutionary act—was never reversed by Deng, and is also an indissoluble part of his legacy.

If Deng's actions were often cautious or even negative, it was because he had fought and lived a revolution for over 60 years, and he could not summon up the conviction that those years had been in vain. Deng could never forget that it was a Maoist vision, however flawed and ruthless, that had helped unite China after its decades of fragmentation. Mao might have pulled the nation together, but it was Deng who pushed it toward prosperity and modernity, and a future as one of the world's great powers.

China Eastern to expand share sale

2008-12-31T16:46:00.000-08:00

China Eastern Airlines will raise 7 billion yuan, more than double the amount originally planned, by selling shares to its State-owned parent company.

The plan is the latest government effort to rescue the beleaguered airline after it reshuffled the company's top executives more than two weeks ago.
The Shanghai-based carrier will sell 1.44 billion Shanghai-traded A shares at 3.87 yuan apiece and 1.44 billion Hong Kong-traded H shares at 1.00 yuan to its State-owned parent company, China Eastern Air Holding Co, in exchange for the new capital, the company said yesterday in a notice to the Hong Kong Stock Exchange.
The money raised will increase the airline's cash balance and lower its debt-to-asset ratio by 8.36 percentage points to 90.13 percent.
China Eastern earlier posted a net loss of 2.29 billion yuan in the first nine months of 2008. Its net operating cash flow was 1.66 billion yuan, far short of the 12.8 billion yuan needed to repay its debts.
"The company's operating and financial condition is under enormous pressure. The continuous fluctuations in global financial markets make it extremely difficult for the company to obtain financial support in the short run," the airline said in a statement.

Trading in China Eastern's shares on the Hong Kong and Shanghai bourses, suspended since Dec 24, resumed yesterday. The company's A shares closed at 4.49 yuan, down 3.65 percent from the closing price before the suspension, while its H shares lost 8.53 percent to HK$1.18.
"The capital injection should help improve China Eastern's liquidity in the short term," said Li Lei, an aviation analyst with CITIC China Securities. But what matters to the company's longer-term health will be market demand, he said.
China Eastern announced earlier this month that it would receive a 3-billion-yuan cash injection by selling shares to its parent company shortly after the government injected the same amount of funds into Guangzhou-based China Southern Airlines, also one of the three major State-owned carriers, including Air China.
Guangzhou Daily yesterday cited an unnamed source as saying that the government will inject 9.5 billion yuan into Air China. But Rao Xinyu, Air China's board secretary, denied the report, saying she has not heard such information "up to now".

Chinese airlines booked a combined net loss of about 4.2 billion yuan in the first 10 months of 2008 because of soaring fuel prices earlier this year and falling demand caused by the economic slowdown.
Earlier this month, Liu Shaoyong, former chairman of rival China Southern, took over the helm at China Eastern, and Ma Xulun, former deputy general manager of Air China's parent company, was named president of the ailing airline.

Mixed forecast for China's real estate in 2009

2008-12-30T23:51:00.000-08:00

The China Real Estate Index Academy released a report on Dec 30 which forecasted three trends for the real estate market in 2009:

Turnover will rebound when prices are reasonable

The transaction volume in the real estate market will rebound in 2009 as prices are adjusted to more reasonable levels.

According to the report, many residents are willing to buy self-use houses but are blocked by high house prices. It is suggested that developers should adjust prices and enhance promotions, since real estate markets are very sensitive to price changes.

Furthermore, favorable polices also prop up the housing market. On Oct 22, 2008, the central bank announced that the down payment threshold would be lowered from 30 percent to 20 percent. It also allowed financial institutions to offer favorable policies to support those making their first home purchase for self use and those buying self-use housing for improving living conditions. In addition, the loan interest rate has been cut five times since September.

Looking ahead, the report said that second-home buyers will play an important role in the housing market of 2009, since more favorable policies can be expected to reduce the cost of transactions.

Investment will slow but financing moves can boom
Many industry flagships have confidence in the long-term development of the real estate market but they are not optimistic in the short run and will cut investment plans accordingly.

According to the National Bureau of Statistics, real estate investment growth slowed to 22.7 percent in the January-November period of 2008, down from 24.6 percent in the first 10 months.

Investment growth will slow down further in 2009 but can remain positive.
With policy props, the corporate bond market as well as corporate loans will boom in 2009, since their returns are higher than that of deposits and the risks are limited. The capital-intensive real estate industry should make good use of this opportunity to raise funds through issuing bonds.

However, some small and medium-sized enterprises will continue to find it difficult to raise funds from the equity market and financial institutions. Therefore, following the jungle law, the real estate industry will be further integrated in 2009.

Flexible policies to prop up market in 2009
The government will make more efforts to "rescue the market," as the property sector is one of the biggest drivers of China's domestic consumption, contributing one-tenth of the gross domestic product.

The measures imposed in 2009 will be more flexible and prudent, including reducing taxes and fees at the transaction stage, lowering loan interest rate and offering tax rebates for home buyers.

The government will try to stabilize the housing price and rescue the market if prices dive, including using fiscal revenue to buy low-cost houses.

China SOEs see double-digit profit decline by Nov

2008-12-28T16:48:00.000-08:00

Profits of China's state-owned enterprises declined for four consecutive months since August, due largely to high stockpiles and weaker demand during the global financial crisis.

State-owned enterprises nationwide saw 19.09 trillion yuan (US$2.79 trillion) in business revenues between January and November, a growth of 20.3 percent year-on-year. But the growth was 3.1 percentage points lower than the January-October period.

The total included 1.2 trillion yuan in profits, down 15.7 percent from the same period last year. The decline rate was 7.4 percentage points bigger than the January-October period.

The downward trend was led by the power, nonferrous metal and automotive sectors.

The slowdown for heavy industries was not as serious as light industries, but the impact from the financial crisis has been transferred to heavy industries at a quicker pace than expected.

In August, when light industries had output value growth slowed to 11 percent, the heavy industry still kept a growth of more than 13 percent. However, the output value growth for heavy industries slowed to 7.3 percent in October, then to 3.4 percent in November.
An unsatisfactory performance by the light industry helped diminish demand from downstream sectors for heavy industrial products.

The third quarter of next year, state-owned enterprises would begin to step out of the shadow of the financial crisis, acording the China gouvernment.
An unsatisfactory performance by the light industry helped diminish demand from downstream sectors for heavy industrial products.

Moreover, upstream enterprises rushed to buy more raw materials when prices rose weeks earlier and it took time for them to eat up those overstocks.

Recent government economic stimuli, more money will go towards capital construction, would help heavy industries to recover faster than the light industry.

After 10 years of discussion and planning, China will launch fuel tax reforms in the New Year, part of an effort to streamline its price systems.

It will be just the latest market-oriented major policy move that China has undertaken in its three decades of reform and opening up.

Last week was the 30th anniversary of that drive, and during those three decades gross domestic product (GDP) grew by more than 9 percent on average annually, a rare feat in global economic history.
But the celebration of these achievements was overshadowed by the world financial crisis, which is deepening and spreading globally, devastating financial systems in developed countries and darkening world economic prospects.

Many economists and commentators have expressed worries that China might overreact to the crisis and veer away from reform and opening up. For example, this point of view was expressed by Fred Hu of Goldman Sachs, who wrote in the Wall Street Journal Asia of the "danger" that "Beijing is extracting the wrong lesson from recent events at home and abroad."

Judging from China's recent macroeconomic moves, especially speeches by its top leaders, it is unlikely that China will change course.

At a ceremony on Thursday marking the 30 years of reforms, President Hu Jintao attributed all the country's achievements in economic and social development to the policies, which he vowed to continue.

"The experience of the past three decades tells us," Hu said, that "the decision to adopt reform and opening-up has been in agreement with the people's thoughts, compatible with modern tides, and completely right."

The just-concluded Central Economic Work Conference stressed that China must stick to the basic principles of building a socialist market economy and opening up to the outside world.

China deeds match its words. In November, when the economy felt the chill of the financial crisis, the State Council decided to invest 4 trillion yuan (about US$588 billion) by 2010 to stimulate domestic demand and maintain GDP growth at 8 percent.

China's economy heavily depends on exports, and so far the most serious impact of the crisis on China is shrinking external demand. The government has recognized the danger of over-reliance on exports and has been making efforts to transform the structure of economic growth.

Seen in this light, the crisis is more of an opportunity than a risk. The freshly promulgated policies indicate that the government is paying serious attention to stimulating domestic consumption, especially in rural areas. This move can also narrow the gap between rural and urban areas and income groups.

There is no sign that China will let up on reform. For example, the fuel tax reform, which is to be implemented on January 1, is actually a bold attack on the last two price strongholds that are still under the strict control of the government: fuel and electricity.

Farmers get right use of land

2008-12-27T05:09:00.000-08:00

Farmers can transfer their land-use rights under a new policy to boost agricultural production and rural incomes, according to a landmark policy.

The Communist Party of China (CPC) yesterday unveiled its broad policy document - approved by a plenary session of the CPC Central Committee on Oct 12 - to revitalize the countryside.
Rural residents, who number more than 730 million according to the 2006 census, have ownership of the produce of their land but not the land itself, and are barred from trading land-use rights under current laws.
The document said markets shall be set up to allow farmers to sub-contract, lease, exchange and swap their land use rights, or join share holding entities with their farmland.
Such transfers of land-use rights must be voluntary with adequate payment and in accordance with the law, the CPC Central Committee said.
Under current law, farmland is collectively owned, but given to farmers in small plots under long-term leasing contracts.
Local governments have seized rural plots to sell to factories and property developers, paying compensation to farmers.
Thousands of protests against land grabs every year have alarmed Beijing, prompting discussion on ensuring that farmers have greater security in land rights, if not outright ownership.
Such land transfers have already been taking place, formally and informally, in recent years.
When the document was being drafted, some argued that the new policy might create a few landlords and many landless farmers who will have no means to make living. Another concern was that arable land could be used for non-farming purposes, threatening the country's food security.
To allay such fears, the document said that the country would have in place "the most stringent farmland protection system" and urged local authorities to firmly safeguard the 1.8 billion mu (120 million hectares) deemed as a minimum.
The area of arable land shrank 610,100 mu last year to 1.826 billion mu, only slightly above the government's set target.

The CPC document also:
- said the government will strive to double the per-capita disposable income of rural residents from the 2008 level to more than $1,200 by 2020.
- urged more support be given to hasten the development of special rural cooperatives and turn them into modern agricultural organizations so that farmers are competitive in the domestic and overseas markets.
- promised to revise laws to regulate and push forward rural land management reform in "a normative manner".
- said the government wants to spend more on rural infrastructure and increase crop production. Farmers are encouraged to collectively raise cotton, sugarcane and potatoes in areas with suitable resources and environment, as well as raise production of edible-oil plants. The plan also aims to ensure grain output stays above 500 million tons until 2010, and reaches 540 million tons by 2020.
- loans and subsidies will be made available to companies which process produce such as frozen vegetables.

The rights and interests of migrant workers are also given priority in the document, which promised the CPC Central Committee will take effective measures to ensure they have same access to social welfare as urban residents in areas such as education, public health care and housing.
The Central Committee said it would further reform the household management system to reduce residency requirements for migrants working in more small- and medium-sized cities.
This way, ex-farmers who live in towns and cities with stable jobs could become urban resident

LA CHINE DANS UN PAYS TROP GRAND

2008-12-10T07:55:00.000-08:00

Lin Yutang écrivait déjà, en 1937 : «La Chine aurait préféré être comprise plutôt que d'être qualifiée de grande, et cela aurait mieux valu pour tout le monde.»

Qui donc nous expliquera la Chine autrement que par le «péril jaune» ? Qui pourrait en être l'interprète ? «Certainement pas les sinologues», assurait Lin Yutang, qui se dépensa pour faire aimer son pays à l'étranger
A peine sortie des années Mao, la République populaire, proclamée le 1er octobre 1949, s'engage au pas de charge sur la voie du capitalisme. La Chine rêve de son avenir, mais n'en oublie pas pour autant son passé et reste très attachée à ses traditions.
Les Chinois viennent de célébrer la fête de la Lune et les Chinois baignent dans leur histoire. Les gens s'offraient des «gâteaux de lune» dont la pâte épaisse renferme, outre des graines de sésame, des billets de voeux rappelant une coutume datant du XIVe siècle mais encore d'actualité : espionnés de près par les agents des Yuan, dynastie d'envahisseurs mongols, le peuple de la capitale cachait dans ces gâteaux des petits papiers de rébellion contre le joug impérial.

En Chine, il convient d'observer la célébration des anniversaires et des non anniversaires, ainsi que la non célébration des anniversaires. Gavés quant à eux de célébrations officielles, les Chinois préfèrent leurs liesses populaires.

Nous autres, Occidentaux, nous nous gargarisons d'avenir, quand les Chinois baignent dans leur histoire. Ils la connaissent par coeur, au sens propre, avec la même précision et la même innocence que s'ils avaient été enfants sous une très ancienne dynastie.

Guidés et protégés d'un séisme à l'autre par leur long et lourd passé, les Chinois ne s'étonnent de rien. Depuis vingt siècles, ils ont vu passer ministres et souverains attachés à réformer leur pays. Le monde extérieur avait le tort de ne pas être chinois : comment respecter au nord, des gens vêtus de peaux de bête ; à l'ouest des nomades nourris de viande crue ; à l'est, un pays de nains ; au sud, des sauvages incultes ? Tandis qu'à la fin de l'empire, les canonnières de l'Occident enfonçaient l'«homme malade de l'Orient», les princes mandchous (Qing) s'accrochaient à la grande tradition du «non agir» et campaient sur un constat érigé en principe : «Que la réalité soit la réalité», le fameux «She Shi Qiu Shi», «Chercher la vérité dans les faits», dont Deng Xiaoping fera cent ans plus tard la clef de sa politique pragmatique.

Au printemps de 1989, tandis que les manifestants de Tian'anmen s'époumonaient aux cris de «Démocratie !», un jeune homme fit irruption sur la place avec ce slogan : «Pourquoi la Chine est-elle encore pauvre ?» Oui, pourquoi les inventeurs de la boussole, du gouvernail, de l'imprimerie, de la poudre, de la ciboulette, sont-ils à la traîne derrière les pionniers de l'automobile et de l’informatique ?

Ce monde rural entre dans l’OMC au prix d'acrobaties défiant toute dialectique. A peine sorti des années Mao, quand l'annuaire des téléphones était secret d'Etat, il est devenu le plus gros consommateur mondial d'appareils portables. Pétrie de taoïsme, de confucianisme, puis de bouddhisme, la Chine doit retrouver sa vocation originelle d'ouverture pour sortir de cinquante années de glaciation communiste, mais elle fonce sur la voie d'un capitalisme sans bornes.

Aimer la Chine avant qu'il ne soit trop tard
Il y a la Chine officielle : sérieuse et austère, elle a le sens de l'Etat. Et puis il y a cette autre Chine, celle qui veut faire fortune vite. Elle est boulimique et excessive.
«La Chine qui va», forte de son milliard et demi d'habitants, est en train de vivre cette aventure unique de la plongée dans la modernité du quart des habitants de la Terre. C'est la Chine de jeunes aux cheveux rouges et au piercing dans l'arcade sourcilière, y compris dans le fin fond du Ningxia ou du Shandong ; c'est la Chine de l'hyper capitalisme où les inégalités s'accroissent ; cette Chine où chacun rêve de s'enrichir et table sur le fait que son enfant vivra mieux que soi (Ah ! si nous autres, Européens, pouvions en être là !) ; cette Chine où chaque jour il y a cinquante mille abonnés supplémentaires au téléphone portable et où un gratte-ciel de cent étages se construit en quatre fois moins de temps qu'il n'en faut en France.

La Chine, qui est déjà l'atelier du monde, deviendra-t-elle l'eldorado des entreprises occidentales ? Là également, ce n'est pas si simple. Car la Chine sait fort bien que, dans tout marché, le pouvoir est du côté de celui qui achète et consomme. D'atelier du monde qu'elle est aujourd'hui, elle pourrait fort bien passer au stade d'usine du monde pour les voitures et les portables et, un peu plus tard, de laboratoire du monde pour les inventions, alors que pendant des millénaires elle les a négligées au point de se les faire voler. Nous, les Occidentaux, nous jouons gros...

Mais surtout, que sera donc la Chine dans vingt ans ? L'auteur de ces lignes est bien incapable de répondre, si ce n'est qu'il conseille à chacun d'aller en Chine très vite, avant que, peut-être, il ne soit aussi trop tard.

Considerez au plus vite à quoi ressemble ce grand dragon. A coup sûr, vous aimerez.

CE PAYS CONTINUE D'ATTIRER LES INVESTISSEURS DU MONDE ENTIER

2008-12-10T07:30:00.000-08:00

Le potentiel des entreprises étrangères est énorme. Ne pas être présent, c'est passer à côté de nombreuses opportunités de développement.Cependant la Chine est d'approche complexe ; y réussir son développement commercial et industriel exige, plus qu'ailleurs, de comprendre et de maîtriser les spécificités locales.

Certaines difficultés ne sont pas à sous-estimer.

Du projet à sa réalisation en Chine
Nous vous proposons "Une trajectoire gagnante".

Vous voulez : Connaître un marché, développer une activité - Valoriser un savoir-faire - Implanter une entité industrielle ou commerciale.

Notre vocation: Accompagner les opérations des entreprises en Chine.

Nos services:
Concrétiser les projets en phase avec la stratégie de l’entreprise et identifier les facteurs qui
sécuriseront le lancement de l’activité;
Préparer les éléments contractuels;
Accélérer les projets en cours, si l’entreprise ne dispose pas de ressources nécessaires.

Notre savoir Faire :
une expérience de plus de 15 ans en négociation, audit, transfert de technologie, fusion - acquisition et autres transactions stratégiques et opérationnelles

Nos Expertises :
La faisabilité du projet - Le choix du partenaire - L’environnement juridique (propriété intellectuelle, situation immobilière,…) - Les composantes financières et fiscales - La rédaction des statuts et des contrats - Le support aux négociations - Le suivi du processus d’approbation, des formalités d’enregistrement et le démarrage de l’opération. Les relations commerciales, le droit des contrats, des sociétés, du travail, de l’immobilier, et de la propriété intellectuelle.

Contacts :
CD@C [*] Conseil Développement en Chine
Christian DIDIER
+33 6 72 48 26 75

[*] Marque déposée