SHANGHAI, Oct. 10 - The central government has given the Beijing-Shanghai high-speed railway the green light according to a notice posted on the National Development and Reform Commission’s website Tuesday.

With a speed of up to 350 kilometers per hour, the high-speed train would shorten rail travel times between Beijing and Shanghai from the current 10 hours to less than five.

The project, which has been on the drawing board for more than a decade with work expected to begin last year, was to be operational by 2010 before construction was postponed. The cost of the project, with initial estimates ranging from RMB130 billion to RMB170 billion, could exceed RMB200 billion due to rising real estate prices and the cost of resettling people who live along the proposed path.

The 1,318 kilometer rail project has attracted the attention of France’s Alstom, Canada’s Bombardier, Japan’s Kawasaki Heavy Industries and Germany’s Siemens, all vying to provide technology. It’s expected that high-speed wheel technology, like that used in Europe, Korea and Japan, will be employed over more the costly magnetic levitation that currently is only used on a tester extension in Shanghai. (more…)

By Cathy Gao/Dezan Shira & Associates

SHANGHAI, Sept. 26 - Currently in China, labor contracts are regulated by the Labor law of the PRC and over 25 separate employment contract regulations by individual provinces and cities. These current regulations and rules are now being challenged by the recently passed Contract Labor, set to take effect January 1, 2008. Here we look at the differences between the labor regulations already on the books in Shanghai and the new law.

Written contract
Under Shanghai’s rules, all individual employment contracts must be concluded by written contract for each employee. The Contract Labor law strengthens this position by entitling employees who are not given a written contract within the legal term limit double wages per month to an open-term contract.

Less flexibility for the employer
Compared to Shanghai’s rules, the national law shortens the maximum allowable probation period for new employees, reducing flexibility for employers during the probationary period. However, during this period, employers have more flexibility in terminating their relationship with the employee. (more…)

By Helen Ye/Dezan Shira & Associates 

HANGZHOU, Sept. 26 - We have been seeing a lot of variations locally on how the individual income tax (IIT) regime has been administered for expatriates, and Hangzhou, just west of Shanghai, is a perfect example of this.

Previously in Hangzhou, it was permissible to have an agent, not related to the individual’s employment, report the individual’s monthly IIT filings to the local tax bureau. This allowed an expatriate to “hide” the complete make-up of his salary from his companies local payroll officer should he want to.

However, beginning in the month of October, monthly IIT filings will not be able to be handled by third parties and must instead be handled by the expatriate’s payroll department.

This is just on of a raft of changes that we have seen taking place locally throughout China concerning IIT. For more information on changes taking place in Shenzhen, Dongguan, and other places in the country, please see the relevant regional pages of this site.

For business advisory services, assistance establishing, structuring or operating a business and contract drafting in Hangzhou, please contact Helen Ye in the Hangzhou office of Dezan Shira & Associates, tel. [571] 5685 9956.

Textile manufacturers in and around Hangzhou, long one of the region’s pillar industries, are beginning to move their operations inland as China reduces the VAT burden in the central provinces.

Beginning July 1, 2007, the Ministry of Finance and the State Administration of Taxation reduced the VAT burden in eight sectors within 26 specified industrial cities in the six central provinces of Anhui, Henan, Hubei, Hunan, Jiangxi, and Shanxi.

The new system, which applies to both domestic and foreign invested enterprises in the central provinces, benefits general taxpayers engaged in the equipment manufacturing, petrochemical, metallurgy, automobile manufacturing, agricultural product processing, mining, electrical power, and high/new technology sectors within the 26 specific industrial cities.

The input tax can be deducted upon activities listed below:

• purchase of fixed assets (including fixed assets obtained as donation and capital injection)
• goods purchased or services obtained for self-produced fixed assets
• fixed assets obtained by financial lease and the lessor paid VAT as per the relevant tax regulation (Guoshuihan [2000]514)
• transport costs paid for fixed assets (more…)

Earlier this year, a new policy of conducting an on-sight tax inspection for any new representative office (RO) or wholly foreign owned enterprise (WFOE) has come into practice in Shanghai.

Under this current practice, the tax inspection on the office premises will have to be conducted before tax registration can begin. Because the tax officer will normally alert the RO/WFOE only one day in advance of the inspection, most companies will find that they have little time to prepare. Therefore, we think it necessary for companies to understand the relevant requirements in advance.

Generally, the following matters should be prepared:

• original leasing agreement
• original formal leasing invoice
• original business license (WFOE) or registration certificate (RO)
• company logo/signage for building lobby, floor of office, and office suite entrance
• basic office funishings, such as desks, tables, chairs (more…)

By Andy Scott 

HANGZHOU, Aug. 24 - Foreign invested commercial enterprises best look elsewhere when considering a place to set up, at least that is the consensus we are getting from Hangzhou, where the authorities are making it very difficult for FICEs to receive their VAT refunds on exported goods.

Since June 2004, China has permitted foreign direct investors to establish fully operation, 100 percent foreign-owned companies that can buy and sell in China, holding their own import-export licenses. Such companies have generally been inexpensive to establish and have become a popular vehicle for foreign investors to move into the China market. These FICEs are allowed to apply, at applicable rates, for a refund on VAT costs incurred on the export of products from China. Presently in Hangzhou however, FICEs are finding it very demanding to obtain this refund.

Sources at the Foreign Investment Bureau in Hangzhou tell us that Hangzhou tax bureau has set the qualifying standards to receive a refund so high as to essentially bar all FICEs from receiving such a refund. The problem lies in the national VAT tax policy adjustment that Beijing made in 2005 in which the State Administration of Taxation (SAT) and the local tax bureau divided the VAT refund – 92.5 percent for the SAT, 7.5 percent for the local bureau. The Hangzhou tax authorities were unhappy with this division of taxes and have since made it very difficult for FICEs to apply for VAT refunds. While they won’t put anything on paper, the authorities have been quietly telling potential investors that they will not qualify for their VAT refunds. (more…)

Flights between Shanghai and Beijing just got faster and more reliable, at least that’s the word from five Chinese airline companies who launched an express air service between the two cities yesterday.

Operated by Air China, China Eastern, China Southern, Hainan Airlines and Shanghai Airlines, a total of 36 express flights taking off almost every half hour between Shanghai Hongqiao International Airport and Beijing Capital Airport are available.

The Civil Aviation Administration of China (CAAC) is promising a maximum three-hour turnaround from final check-in to baggage claim. According to a CAAC spokesman, the service includes dedicated express check-in, security check, boarding gates and baggage claims at the two airports. (more…)

While doing some research recently on advice for foreign investors looking to enter the Chinese market, we came upon this letter to an American considering seeking opportunities in Shanghai.

[There is] nothing whatever for you to do in the office in Shanghai, and, as you do not speak Chinese, I cannot put you in charge of a port…There’s not the least use in your trying to learn the language; you must be now fifty years of age, and if a man begins after forty he can never acquire it…My advice to you is not to return to China; you will do best by resigning and asking for your year’s allowance. However, you’re an old servant, and you must think and decide for yourself.

The letter was written in February, 1869 by Robert Hart, the 34-year-old Inspector-General of the Imperial Chinese Customs Service, a post which he had already held for five years. The text comes from the Jonathan Spence book, “To Change China: Western Advisors in China.”

The Grand Canal, a 1,800 kilometer-long waterway stretching from Beijing in the north to Hangzhou in the south linking six of China’s river systems - the Yellow, the Huai, the Qiantang, the Wei, the Hai and the Yangtze - is seeing a revival of conservation efforts following the establishment of a national organization to protect the world’s oldest canal system.

Conservation of the canal was on the agenda at the most recent meeting of China’s top political advisory body - the Chinese People’s Political Consultative Conference. The body has been pushing to have the canal listed as a UNESCO World Heritage site within five years. But conservation of the waterway could prove difficult. Stretches of the northern most sections of the canal have dried up or become impassable pools of wastewater. Today only 1000 kilometers of the canal remains in operation.

David Lague reported yesterday in The New York Times that a US$250 million makeover that began in 2001 has improved water quality and spurred urban renewal and a small 24-mile section of the canal near Hangzhou, but that cleaning up the entire canal could take years and cost as much as US$2.5 billion. (more…)

Provincial tax authorities recently announced an amendment to the regulations that govern tax free contributions to basic pension funds, basic medical insurance, unemployment and housing funds (Cai Shui (2006) Circular 10). Effective July 1, 2007, provincial supervision bureaus have put in place new regulations on housing fund contributions for Beijing, Shanghai and Guangzhou.

When it was issued last year, Cai Shui (2006) Circular 10 set a cap on the basic housing fund contributions actually made by the employer and employee that can be exempted from PRC Individual Income Tax (IIT). This is 12 percent - for the employer and employee contributions respectively - of an individual’s average monthly salary of the prior year, of the given location of the employee’s place of work, which is further capped at three times the city average salary of the previous year. The regulations also stated that employee contributions to the fund would be treated as deductible for PRC IIT purposes. For the basic housing fund, any part of contributions made in excess of the statutory limits specified is treated as normal salary and must be treated as subject to PRC IIT. 

The new housing fund requirements are as follows: (more…)