Dec. 2 - This is a regular series of relevant industry news from around China.

Air transport

Hainan Airlines Co Ltd.’s Grand China Air will launch flights between Yinchuan, Shijiazhuang and Hefei starting December 10.

The Taiwanese government has approved a fourth rate cut for fuel surcharges of 14.3 percent on short- and long-haul lines beginning December 10.

Mandarin Airlines and its parent company China Airlines Ltd. will open a new route between Kaohsiung, Taiwan and Seoul, South Korea, starting today.

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By Sabrina Zhang

Dec. 2 – China’s Corporate Income Tax Law that came into effect on January 1, 2008 will for the first time affect audit reporting for business in China, including foreign invested enterprises. With preparation for 2008 year end accounts now underway, foreign investors in China will have to follow a new set of guidelines concerning certain aspects of their financial reporting, with a particular emphasis on the treatment of expenses to be booked into the accounts.

We highlight the main categories of these::

Advertising and promotional expenses
These are permitted to be up to 15 percent of the total business income for the year, unless otherwise agreed by the relevant tax departments of the State Council. Amounts in excess of this may be carried forward to the next year.

Business entertainment expenses
Provided that is related to the businesses production and operational activities, up to 60 percent of such expenses may be deductible, but only to a maximum of 0.5 percent of the total sales revenues for the year. (more…)

Dec. 2 - U.S. Treasury Secretary Henry Paulson is on his way to Beijing for the U.S.- China Strategic Economic Dialogue to begin on Thursday. One of his main goals include convincing Beijing to allow Wall Street greater access to the Chinese market, reports the Wall Street Journal.

Mr. Paulson is calling for more market access for American companies entering China. He will have a tough time arguing that Western investment banks, insurance companies and other financial firms will bring economic growth to the country.

According to the Business Cycle Dating Committee of the National Bureau of Economic Research, the United States has been in recession since December 2007. This is in addition to the U.S. markets currently saddled by its mortgage-backed securities.

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Dec. 1 - The December issue of China Briefing magazine is out now and available for download (click on the image - subscription required however this is complimentary).

In this issue, we take our annual look at the end of year considerations for your businesses annual filings, licensing procedures and audit issues that affect all companies in China from January 1. We explain correct accounting procedures, how to book expenses properly into your annual audit, and advise on the various re-registration and license renewals that every China-based business must go through to remain in compliance with China’s State Administration of Taxation and the Ministry of Commerce for the forthcoming year. This is an important subject as for the first time, the new CIT tax laws issued at the beginning of this year affect your annual reporting procedures for the accounts ended year 2008.

In our series on China’s second- and third-tier cities, we focus on Yangzhou in the Yangtze River Delta, Foshan in the Pearl River Delta, and Baotou in Inner Mongolia.

Included in this issue:
Annual licensing review procedures for January 2009

General accounting principles

Issues to be considered for year end 2008 accounts closing

Transfer pricing issues during audit

Dec. 1 - China is likely to gain in increased FDI as a result of last week’s terrorist attacks on India says Chris Devonshire-Ellis, senior partner of Dezan Shira & Associates. “If foreign investors have been looking at India as a financial benchmark to China’s increasing manufacturing costs, then a slightly higher China price will not affect the decision in India’s favor,” he says. “Global manufacturers want stability and China will benefit from India’s security problems in the short term.”

His comments come as India begins its mop up operations in the wake of last week’s attacks. Several key ministers have resigned, along with the nation’s head of security. “I believe India will now adopt a stricter approach to security similar to the Homeland Security Agency that the United States deployed after the September 11 attacks. It is remains difficult in India right now to enact legislation – state elections are being held at the moment with a national election due in May,” Devonshire-Ellis says. He thinks that the past few administrations have been hampered by not having a clear mandate to work - recent governments have been coalitions – and this has “slowed down Indian progress and made the country overly bureaucratic. Problems obviously exist on a basic security level and it will take a while for these to be put right, they need assistance and advice both from the U.S. and Chinese administrations in this regard.” (more…)

By Chris Devonshire-Ellis

Nov. 28 - As the dust starts to settle on a visibly shocked Mumbai, I am reminded yet again of the trials and responsibilities operating in emerging markets brings. Dezan Shira & Associates dispenses legal and tax advice to multinationals investing in China, India and Vietnam – emerging markets all – and the additional responsibilities this brings to the practice is a call that has to be answered. Such countries, as they develop require an expertise and infrastructure that simply cannot be managed from the safety of a lawyer’s armchair in New York, San Francisco, LA, London or Frankfurt. Advising on law, tax or business in emerging countries from China to India, Brazil to Russia or any combination of Asia, Africa, the Middle Eastern or Latin America is not for the faint hearted, and those who stay safely at home do not possess either the desire themselves to commit to such places, nor the infrastructure to support clients when things go wrong.

Our clients in Mumbai were there for a variety of reasons, but all had hired my firm for advice, and introductions. My local office, staffed with Indian lawyers and accountants, were dealing with a number of cases, from Chinese clients wanting to establish distribution networks, to an American client wanting a permanent office from which to bid for, and execute interior design work on the many airport projects that India is developing. (more…)

Nov. 28 - China’s senior railway official said that the country’s national rail network will expand by 41,000 kilometers by 2020 and funded by a RMB5 trillion government spending plan.

Lu Dongfu, vice-minister of railways, told media during a press conference in Beijing that by 2020, China’s rail network will total 120,000 kilometers.

This should cut journey times between capital cities into half and make the railway network accessible to 90 percent of the population. The increased spending on infrastructure is part of China’s overall railway plan.

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Nov. 28 - A chief economist at the National Bureau of Statistics said during a forum that China’s inflation rate is forecast to drop below 4 percent in November and December.

Yao Jingyuan’s forecast contrast from a report from the Bank of Communications which predicted that consumer price index (CPI) in November would decrease to 2.8 percent, its lowest level in 17 months.

According to the bank report, decreasing food prices should lead the slide in the CPI and that the index may drop further to 2 percent in December.

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Nov. 27 - China’s central bank has announced that one-year lending and deposit rates will be reduced on Thursday by 108 basis points; four times the usual margin of 27 basis points.

This is the country’s deepest rate cut since October 1997. One-year lending rates in the country will now be pegged at 5.58 percent and one-year deposit rates at 2.52 percent.

The government has been aggressive in implementing measures to buffer its economy from the global financial crisis. The latest interest rate cut is its fourth one since mid-September. “It means the government is moving on more fronts to stimulate growth,” Stephen Green, a Shanghai-based economist with Standard Chartered told AFP.

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Nov. 27 - Chris Devonshire-Ellis, the senior partner of Dezan Shira & Associates, and publisher of our sister magazine India Briefing, and head of the firm’s India practice has been assured that the firm’s Chinese clients currently in Mumbai have all been reported as “safe” and are in secure places following the dreadful terrorist attacks that took place overnight and are still continuing in the city this morning.

“We have been on the phone all night with our offices in Mumbai and have been able to contact all Chinese clients in the city,” he said. “All are safe, although some were in hotels that were evacuated and had to bed down in a local restaurant. Our staff are all accounted for and all other clients, with the exception of one sole individual are all in secure areas and in no immediate danger. We are working with clients to arrange to bring them home if necessary, although at this moment the international airport remains closed. However all clients have been contacted and are secure.” (more…)