By Chet Scheltema, Manager, Dezan Shira & Associates
Jan. 21 – China has rapidly implemented value-added tax reform over the last two years, and it has pledged to complete the reform by finally extending it even to the financial services and real estate industries by 2015.
While value-added tax systems have grown in popularity worldwide over the last thirty years as a new source of dependable tax revenue (reportedly even US presidents Barak Obama and Richard Nixon briefly considered it), the Chinese value-added tax (VAT) system is unique and far more intricate and resource-consuming than normal. It is heavily dependent upon printed VAT invoices that can only be issued and used by resort to elaborate verification processes designed to ensure tax collection and to curtail fraud.
Failure to effectively manage the system can result in substantial tax liabilities that may wholly consume already thin profit margins.Therefore, it is critical for every foreign invested enterprise in China (i) to plan for the impact of VAT from the very beginning, (ii) to establish an independent internal (or outsourced) system to monitor and manage the company’s VAT position, and (iii) for senior enterprise leaders to stay abreast of the company’s VAT position and to consider it when transacting business.
Jan. 20 – A looming trust product default of 3 billion RMB (approximately US$500 million) recently raised concerns about the regulatory system of China’s financial industry. The product in question was issued by China Credit Trust Co., with funds mostly invested in the assets of an unlisted Chinese coal company that has subsequently gone into liquidation.
The state-owned Industrial and Commercial Bank of China (ICBC) acted as a custodian and had been marketing the fund to their private banking clients. According to AASTOCKS.com, a Hong Kong-based news agent, ICBC has suggested that it would not reimburse the investors if the product defaults.
As reported by Reuters, an ICBC spokesman said that, “regarding this unsubstantiated rumor, a situation completely does not exist in which ICBC will assume the main responsibility (for the trust product).” Continue reading
First nation to report over 20 million units sold
Jan. 20 – China became the first country to sell in excess of 20 million auto units last year, with nearly 22 million passenger and commercial vehicles being sold in the country over that time. This figure represented a 14 percent increase over 2012, and was double the China Association of Automobile Manufacturers estimate. Of these, 59.7 percent of the market was taken by foreign joint ventures. Volkswagen replaced General Motors as the top China seller for the first time since 2003, while Ford sales grew by 49 percent and Japan’s Toyota enjoyed a record year, despite political problems with China. Continue reading
Jan. 17 – Total foreign direct investment (FDI) in China rose by 5.25 percent in 2013 after the decline which was witnessed in 2012. China’s Ministry of Commerce (MOFCOM) recently disclosed this information during a routine press conference on January 16.
According to Shen Danyang, the spokesman of MOFCOM, FDI statistics kept to a positive growth trend since February of 2013. While there were only 22,773 newly established foreign invested enterprises in total, a decrease of 8.63 percent compared to 2012, total FDI amounted to US$117.59 billion, an increase of 5.25 percent compared to 2012. The actual use of foreign capital in China was US$12.08 billion by December 2013, which rose by a year-on-year rate of 3.3 percent (excluding the financial sector).
Jan. 16 - Over the last week, China Briefing has published several specially-commissioned pieces written by well-known China writers to summarize the key events of 2013 and points to look forward to in 2014. The complete series is summarized and hyper-linked below for your convenience.
China 2013: A Year in Review by Kerry Brown
Kerry Brown is the Director of the China Studies Centre at the University of Sydney and directs the Europe China Research and Advice Network funded by the EU. In this piece, he examines the major themes of the Xi Jinping leadership of China in its first proper year in power. Continue reading
Jan. 16 – The new issue of Asia Briefing Magazine, title Payroll Processing Across Asia, is out now and will be temporarily available as a complimentary PDF download on the Asia Briefing Bookstore throughout the months of January and February.
Collecting tax revenue and administering social insurance are two of the most fundamental roles of government. When establishing or operating a business in Asia, companies must take special care to comply with regulations concerning taxes deducted at the source of employee payroll (withholding tax) and mandatory contributions to social insurance programs.
As you might expect in a region comprising so much diversity and complexity, the systems utilized by governments in places like China and Vietnam (countries with large populations and with a communist background) are substantially different than those in places like Hong Kong and Singapore – small jurisdictions with a distinctly capitalist outlook. India, a populous emerging nation with a democratic system of government, provides an interesting contrast in terms of how it taxes and supports its citizens. Continue reading
This week, China Briefing is featuring a series of specially-commissioned articles from prominent China-based writers regarding their thoughts on the key developments in the country during 2013, and what lies ahead in 2014. Today’s article is written by Chris Devonshire-Ellis, founder of Dezan Shira & Associates, as well as founder and publisher of China Briefing.
2014 Forecast: Some Decline in China, Growth in Southeast Asia
Jan. 10 – As has been noted both on this website and by other respected China commentators, China is somewhat in a period of transition at the present time. Reforms, led by the new President Xi Jinping, are being enacted, but will still take time to reach their full potential – many of these will be rolled out as ‘pilot’ schemes first, and in some cases, such as the intentions over the Shanghai Free Trade Zone, announced but without the full implementing rules. It was ever thus of course, this deliberation is nothing new. China has been a case of ‘wait and see’ for nearly 30 years now. That the country has generally proceeded with its plans in the past should not go unnoticed. Continue reading
Jan. 9 – On Monday, China’s State Council announced its decision to modify a series of measures on foreign investment approval and admission within the Shanghai Free Trade Zone (Shanghai FTZ). This move is part of a wider effort to reform China’s foreign investment management system and further open its service sector to foreign investors. Continue reading