National income registration and local income tax registration. Both registrations are mandatory and the registration application must be submitted within 30 days of obtaining the business license from the local office of “State Administration of Industry and Commerce” at the city level or above;

Value added tax registration – General taxpayer who sells goods or imports goods into the PRC, or provides taxable services shall apply for a VAT registration certificate.
VAT export rebate registration – VAT taxpayers applying for tax rebate on the VAT paid for the inputs in the manufacture of export goods shall apply for a VAT export rebate registration;
Temporary tax registration – Non-residents having the obligation to pay tax may apply for a temporary tax registration through its appointed tax agent or the withholding entity to do so.
Tax withholding registration – Entity or individuals who has an obligation to withhold tax and pay it to the tax authority shall apply for a tax withholding registration.

Withholding obligations
Individual income tax – Under the PRC Individual Income Tax Law (The IIT Law) and the PRC Tax Collection and Administration Law, the employee is required to pay the tax each month while the employer or the entity at which the employee performs duty is obliged to withhold payment by making deductions from the payroll and pay it over to the local tax bureau. Failure to comply with the withholding obligation will be subject to fines and in serious cases, invite criminal consequences.
Social security contributions – Social security is a staff cost, which includes payments for unemployment, retirement, personal injury, and medical insurances. Both the local employee and the employing entity as the paying unit must make prescribed contribution to the pool of social security funds. The social security is computed by reference to the employee’s average wages, as announced by the provincial offices of the Ministry of Labor and Social Security. The social security regulations specify that the employing entity are under an obligation to withhold a certain sum from the payroll of the employees and pay it over to local tax office who collect the payments for social security funds.
License fee and royalty – Non-residents foreign enterprises or nationals receiving license fee or royalty arising from the use of intellectual property rights inside China are subject to PRC income taxes. The resident company or enterprises are required to withhold and pay the tax on behalf of the non-residents.
Legal responsibility – The withholding entity has the obligation to comply with the requirement under the PRC Tax Levy and Administration Law. Non-compliance shall invite administrative punishment or in serious cases criminal consequences.

Non-arm’s length transfer pricing
Under article 24 of the PRC Tax Levy and Administration Law, the tax authority has the power to make adjustment to the transaction prices fixed between related parties which are different from that fixed between independent third parties.

Legal liability for breach
There are two kinds of legal liability depending on which institutions impose the punishment for breaching the tax law. If the PRC tax authority imposes the penalty under the PRC Tax Levy and Administration Law, that will be an administrative liability. If the amount is large and that the case is brought to the People’s Court under the PRC Criminal Law, that is criminal liability.
Administrative punishment

The tax authority shall impose a fine of not exceeding RMB2,000 or a fine between RMB2001 and RMB10,000 for serious breaches, and order the taxpayer to put things right within a specified period of time in respect of the following non-compliance: -
Failure to apply for tax registration, amending, or canceling the tax registration within the statutory time; failure to keep books of accounts and information; failure to submit reports of financial statement, accounting policies and treatment. Article 37 of the PRC Tax Levy and Administration Law refers.

The tax authority shall order withholding entity or agent who fails to set up accounting records, keeps tax withheld and pays tax to put things right within a specified period. If the tax withholding agent does not make the correction within the specified period, the tax authority shall impose a fine of not exceeding RMB2,000 and a fine between RMB2001 and RMB5,000 for serious breaches. Article 39 refers.

Tax evasion
What is it?
Article 201 of the PRC Criminal Law provides that any individual or entity who by means of farcified accounting records or hiding accounting information from the tax authorities, understates its income or overstates its expenses, or refuses to submit a correct tax declaration as ordered by the tax authority, or refuses to pay tax or pays a lesser amount of tax, is considered to have evaded tax.

Consequences of tax evasion

All of the sentences shall be increased to more than 3 years if the revenue loss to the tax authority is greater than the above-mentioned amount.

The PRC Enterprise Income Tax Law (referred to as the “EIT Law” hereafter) and the Implementation Regulations of the PRC Enterprise Income Tax Law (referred to as the Implementation Regulations hereafter) will take effect on January 1, 2008. In accordance with Article 57 of the EIT Law, the State Council gives notice on the issues of grandfathering preferential policies under the EIT Law as below:

1. Provisions relating to grandfathering tax preferential treatment for enterprises of which the incorporation have been approved before the promulgation of the EIT law

The tax preferential policies that enterprises have been enjoying in accordance with the old income tax law, regulations and the documents announced under the legal authority of the State Council shall be grandfathered and implemented in the following way:

As from 1st January 2008, the enterprises that have enjoyed preferential tax rates shall be taxed at rates to be increased from the current rate to the full rate under the EIT law within a period of 5 years. Among others, the enterprises that have been taxed at 15% currently shall be taxed at 18% in 2008, 20% in 2009, 22% in 2002, 24% in 2011 and 25% in 2012; the enterprises that have been taxed at 24% under the old income tax law shall be taxed at 25% as from 2008.

As from 1st January 2008, the enterprises that have been granted “two plus three” and “five plus five” tax concessions shall continue to enjoy the tax concessions until the expiry day in accordance with the tax preferences under the old income tax law, regulations and relevant provisions. Where the tax preferences have not been granted due to the fact that the enterprises have not made any profits, the tax preferential period shall commence as from 2008.

The enterprises, to which the tax preferential policies apply during the transitional period, refer to those enterprises that have obtained the business registrations at the local office of State Administration of Industry and Commerce before 16th March 2007. The scope and items to which the grandfathering preferential policies apply are set out in the “List of Grandfathering Preferential Policies for the Implementation of the PRC EIT Law (See attached list)”.

2. Continuing the tax preferential policies in the grand development of China’s Western region

The tax preferential policies for the grand development of the Western regions shall be continued in accordance with the “Notice of the Issues on Tax Preferential Policies for the Grand Development of Western Regions by the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs” jointly issued under document Cai Shui (2001) 202 by the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs in accordance with the spirit of the State Council documents that implement the grand development of the Western regions.

3. Other Provisions on the Implementation of Grandfathering Tax Preferential Policies for enterprises

The enterprises to which the grandfathering income tax preferential policies apply shall compute the taxable income in accordance with the rules of the EIT Law and the Implementation Regulations, and compute the tax preferences in accordance with part one under this notice.

The enterprises can choose the more favorable preferential policies where the there exist any intersections between the grandfathering preferential policies and the preferential policies as provided under the new EIT Law and Implementation Regulations, except that the enterprises shall not receive duplicate preferences. After the enterprise has made the choice, no change is allowed.

It has been a 13-year journey from the preliminary work in 1994 to the passing of thePRC Enterprise Income Tax Law (referred to as “the EIT Law” hereafter) on 16th March 2007, which marked the completion of the unification of two tax systems for  domestically funded and foreign funded enterprises in China. It is a system innovation in the process of building socialism and a harmonized society within the country. To reap the benefits of the new tax system depends very much on its implementation in an effective manner. A few days ago, the State Council announced the long-awaited  Implementation Regulations of the PRC EIT Law (referred to as “the Implementation Regulations” hereafter), which is to come into play with the implementation of the  EIT Law.

To enable the taxpayers and the tax administrators to better understand and  follow the spirit inside the Implementation Regulations, the reporter interviewed theofficials in charge of the State Administration of Taxation on certain questions about  the Implementation Regulations. The officials in charge made the remarks that the drafting of the Implementation  Regulations followed the principles of legality, practicality, global convergence,conservatism, and easy operability. The drafts have brought the existing tax policyinto the contents of the Implementation Regulations and demonstrated the continuity  of the tax policies, without stepping outside the scope of the EIT Law. The Implementation Regulations give details to the EIT Law taking into account the economic activities and the latest development of the economic systems, and this hasdemonstrated the scientific properties of the current policies. In addition, the drafting  committee borrowed the prevailing international income tax policies and learned from  the experiences of international tax reforms. The Implementation Regulations have  embodied international custom and shows the forward-lookingness of the tax policies.According to the officials in charge, the Implementation Regulations contain 8 chapters with 133 clauses, mainly giving details to the provisions in the EIT Law. The  officials in charge gave detailed elaborations on certain key policies and designs in  the EIT Law.

The definition of actual management organization is to protect tax sovereignty.

To share the international experiences, the EIT Law expressly lays down the legal person income tax system, adopting the defined concept of resident and non-resident   enterprises.

The key to define the taxpayer under the legal person income tax system is the  criteria for resident enterprises and non-resident enterprises. The EIT Law uses the  place of incorporation and actual management organization as the criteria todetermine the resident and non-resident enterprises. It is easier to understand and  apprehend place of incorporation but it is difficult to understand the criteria for placeof actual management. How is the place of actual management determined in theImplementation Regulations and what are the relevant considerations?

The officials in charge made the remarks that from the experiences of international practices in recent decades, the place of actual management is in general the place where the enterprise carries on its daily production and business activities. From a legal perspective, it also includes the place where important business decisions are made. From an administrative perspective, the tax law only lays down the principle or

does not lay down anything, leaving the detailed rules to be developed from decided tax cases. To protect tax sovereignty and the willful tax evasion, the Implementation Regulations have expanded the scope for place of actual management and provide that it is the place where the enterprise exercises actual and overall management and control over its production, staff, books of accounts and assets. That helps the issue of administrative decisions later with reference to the actual situations of the enterprises, better protect the tax sovereignty of our country. Detailed criteria can be developed by issuing ministerial rules from the practices in tax collections and administrations.

Budgeted fiscal appropriation is non-taxable income

The EIT Law introduces the concept of non-taxable income. Fiscal appropriation is one of the three items of non-taxable income. What about the various types of subsidies enterprises receive from local governments at the provincial levels or below? How is it provided under the Implementation Regulations?

The officials in charge remarked that the fiscal appropriation, defined as non-taxable income under the Implementation Regulations, is the funds appropriated to the institutions, social bodies and organizations administered under the budget of the local governments, with the exceptions that the State Council, the Ministry of Finance and the State Administration of Taxation provide otherwise. That in general excludes the subsidies and the rebates of local taxes that the enterprise receives from various local governments, and narrows down the scope for fiscal appropriations as an item of nontaxable income. The main considerations for these are (i) the various types of subsidies that the enterprise receives not only include exemption and reduction of turnover taxes, but also include special subsidies for the enterprises to carry on designated activities, both resulting in the increase in net assets and economic benefits flowing in, thus the imposition of income tax being lawful; (ii) the imposition of income tax on the enterprises that receive subsidies from local governments strength the dministration of tax exemption and reduction since the local governments offer various types of tax exemption and reduction in disguise in luring inbound investments, resulting in the erosion of the tax base at the national level; and (iii) the existing legal rules on accounting for government subsidies classify government subsidies as non-operating revenue. That tax rules should be consistent with the accounting rules on government subsidies.

Deduction of reasonable wages and salaries before tax

The EIT Law unifies the deduction of actual payments for various items of expenses,and provides that enterprises can claim deductions of actual and reasonable cost and expense before tax. The Implementation Regulations make specific provisions for the items to be deducted and the criteria for deduction before taxes.

According to the officials, in respect of deduction of wages and salaries, the Implementation Regulations provide that actual and reasonable wages and salaries can be deducted from income. It means that scrapping the limited deduction of wages and salaries for domestically funded enterprises in the past years relieve them of the tax burden. The amount of deducted wages and salaries must be reasonable. Obviously unreasonable amount is not deductible. To the employees in general, the remunerations that the enterprise pays should be considered to be reasonable. There

may be exceptions. Where the shareholders and their close relatives work as the employees in the company, the payment of excessive wages and salaries is thedistribution of dividends in disguise. Alternatively the wages and salaries of the management working for the state owned enterprises are raised in breach of the rules of the departments for the supervision and administration of state owned assets. All

these complicated cases relating to wages and salaries will erode the tax base of the enterprise income tax. To strengthen the administration over tax bases, the Implementation Regulations add the qualification “reasonable” to wages and salaries.The official revealed that the State Administration of Taxation shall issue the 5 “Administrative Measures for the Deduction of Wages” to clarify what is considered

to be “reasonable” wages and salaries in the Implementation Regulations.

60% of the incurred business entertainment expenses are deductible, not exceeding 0.5% on the sales (business) turnover for current year

The Implementation Regulations provide that 60% of the business entertainment expenses incurred in connection with production and business activities shall be deductible from income, but the maximum amount shall not exceed 0.5% of the sales (business) turnover for the current year. What are the policy considerations lying behind this rule?

The official said that the amount of business entertainment expenses is a mix of corporate entertainment and personal consumption. Among them, the personal consumption falls under non-business expenses that should not be deducted before tax. Therefore, there is a requirement to limit the amount of business entertainment to a certain percentage. However, it is difficult to distinguish between business entertainment and personal consumption. The international practice is to arbitrarily set

a relative percentage between the two. In Italy 30% of the business entertainment expenses is deductible before tax. In Canada, the amount is 80%. In the US and New Zealand, the amount is 50%. Taking into consideration of international practices and the existing practice of limiting the deduction of business entertainment to a percentage of the sales amount, we combine the two practices as per experts’ recommendations on the adoption of a strict policy: business entertainment is subject to a 60% deduction and not exceeding 0.5% of the sales amount (business turnover) for the current year.

Limiting the deduction of advising expenses to 15% on sales revenue, and remaining amount being carried over for deduction in future years

The Implementation Regulations consider the combined amount of advertising expenses and business promotion expenses, and provide that the amount of deductible advertising and promotion expenses shall not exceed 15% of the sales amount (business turnover), except for the provisions of the Ministry of Finance and the State Administration of Taxation to the contrary. The amount exceeding the prescribed 15%

can be carried over to future tax years for deduction.

The officials in charge explained that advertising expenses that possess the properties of one-off payment of a large sum and benefit the enterprise for a long period of time should be regarded as a capitalized payment and cannot be deducted in whole in the current tax year. Business promotion has similar properties and should be subject to limits on deduction. The Implementation Regulations permit the deduction of advertising and promotion expenses up to 15% of the sales amount (business turnover), and that the portion in excess of the 15% can be carried over to future tax

years for deduction. The administration has given due consideration to the advertising and business promotion expenses in some industry sectors that require specific

measures to be adopted. In the light of expert opinions and views from relevant departments, the qualification “except for the provisions of the Ministry of Finance and the State Administration of Taxation to the contrary” has been included in the Implementation Regulations with a view to making ministerial rules on the deduction of advertising and business promotion expenses for different industry sectors, in accordance with the provision for the delegation of rule making power in the EIT Law.

Indirect credit helps Chinese enterprises “go abroad”

In accordance with the EIT Law, the corporate income tax the resident enterprises bear indirectly on the dividend and bonus issues from equity investment outside China is eligible for indirect credit. The Implementation Regulations provide that the resident enterprise should hold 20% controlling interest in the equity of the foreign company. What are the policy considerations on this?

The officials said that the PRC EIT law retains the direct credit for tax paid on dividends and bonus issues at the shareholder level and it also introduces the indirect credit for tax on profits earned at the company level out of which the dividends and bonus issued are paid. The adoption of direct and indirect credits gives a helping hand to Chinese resident enterprises going international and increases their competitiveness

in international market. From the perspective of international practices, indirect credit are given on condition that resident enterprises should have actual equity investments in foreign companies. In accordance with the tax laws in the US, Canada, the UK, Australia, and Mexico, resident enterprises holding 10% or more voting rights in the equity investment in foreign companies are eligible for indirect credit. The tax law

requires the equity interest in foreign companies to be 25% for Japanese and Spain investors. It is the first time the PRC EIT law adopts the indirect credit method. The Implementation Regulations provide that the equity interest in foreign companies is 20% for resident enterprises to receive the indirect credit.

New and high technology enterprises by industry sectors

In the light of the requirement for national economic and social development,successful international experiences and the requirement for simple tax system, broad tax bases, low tax rates, and stringent tax collections and administration, the PRC EIT Law adjusts and integrates the tax preferential policies for both domestically and foreign funded enterprises, and gives effect to changes in two dimensions: the tax

policy changes from region-specific preferences to industry-specific preferences,which is to be supplemented by regional tax preferences; the form of tax preferential treatment changes from direct tax exemption and reduction to direct tax exemption and reduction, which is to be combined with reduction in tax bases for indirect taxes.The Implementation Regulations make clarifications on the scope, the conditions, and

the recognition criteria for tax preferential treatments as laid down in the EIT Law.

The officials in charge said that there are three important issues in the recognition of new and hi-tech enterprises. The first is the scope of new and hi-technology enterprises. The Implementation Regulations change the classification of new and high technology by products to classification of the new and high technology by sectors. The Implementation Regulations provide that the products (services) of new and hi-tech enterprises should fall under the scope of <the new and hi-technology industry sectors that receive prior supports from the State> so that it can avoid the problems that product listing and coverage under existing policies are too narrow and that the existing policy is not forward looking. The second issue is the recognition criteria. The Implementation Regulations provide those criteria in principle: the amount of research and development as a percentage to sales; the sales revenue of new and hi-tech products (or services) as a percentage of total revenue; the ratio of employees who possess technical qualifications to the total number of employees in

the company, and other conditions to be met. The Ministry of Science and

Technology, the Ministry of Finance, and the State Administration of Taxation shall formulate policies on this and give the detailed benchmarks with the flexibility to make adjustments for later development.

The third issue is the core proprietary IP rights. The Implementation Regulations lay down the primary requirement for getting recognized as new and high technology enterprises is the ownership in “proprietary IP rights”. In view of the fact that there is no official definition of “proprietary IP rights”, the inclusion of trademark rights, exterior design, copyright that may not have bearing on the core technological

competitiveness of the enterprise into the “proprietary IP rights” will make the scope too wide. The Implementation Regulations finally adopt the “core proprietary IP rights” as one of the criteria for getting recognized to be new and hi-tech enterprises. It is relatively easy to operate and has pointed out the direction for technological innovation. The key point is the IP rights that the enterprise owns and that give core

technical support to the main products and services of the enterprise.

Annual taxable income of small and low profit-making enterprise not exceeding

RMB300,000

The Implementation Regulations give the amount of annual taxable income, the number of employees and the amount of total assets as the benchmark for small profit-making enterprises. Specifically for production enterprises, the annual taxable income shall not exceed RMB300,000, total number of employees shall not exceed 100, and the total asset amount shall not exceed RMB 30 million; for non-production enterprises, the annual taxable income shall not exceed RMB300,000, the number of employees shall not exceed 80, and the total amount of assets shall not exceed RMB 10 million. The scope of the tax concession is larger and the magnitude of tax concession is higher than that as given under the old tax law for domestically funded enterprises.

The officials said that the dividing line that the annual taxable income is RMB300,000 drawn under the Implementation Regulations results from careful testing. About 40% of the enterprises shall be taxed at 20% given that this benchmark is adopted.

The business profits that non-profit making organizations earn are taxable

The PRC EIT Law provides that the income of qualified non-profit making

organizations is exempted from tax. Article 85 of the Implementation Regulations provides that the income of the qualified non-profit making organizations excludes the income derived from profit-making activities of the non-profit making organization. Why is it?

The officials in charge said countries all over the world make a distinction between profit-making and non-profit making activities and give tax preference to non-profit making activities. The relevant legal rules in China provide that non-profit making organizations cannot carry out profit-making activities. To regulate these organizations and plug the loophole that may arise from the profit making activities

carried out by these tax-exempt organizations, the Implementation Regulations expressly provide that the income derived from the profit-making activities would not be exempted from tax. Where some non-profit making organizations derive income from profit-making activities and use them in whole for charitable events, that should

be primarily encouraged under the national policies. Therefore, the Implementation Regulations include the qualification “except for the provision of the Ministry of Finance and the State Administration of Taxation to the contrary”.

Dividend and bonus issue derived from investment over 12 months being exempted from tax

The PRC EIT Law provides that dividends, bonus issues and income from equity investment are tax-exempt income if they are distributed by resident enterprises that satisfy prescribed conditions. What are differences between the conditions to be met by the resident enterprises and the provisions on the taxation of dividends and bonus issues in the old tax law for domestically funded enterprises? What are the policy

considerations?

The officials in charge said that the exemption of income tax on dividend and bonus issues that are distributed among resident enterprises is to eliminate double taxation. Under the old tax regulations for domestically funded enterprises, the distribution of dividends from an enterprise that pays tax at a lower rate to an enterprise that pays tax at a higher rate attracts additional taxes for the high-tax enterprise on the rate

differences. In order to make the tax preferential treatment available to enterprises created in the development of the Western region, the new and high technology enterprises, and the small and low profit-making enterprises, the new EIT Law scraps the practice of imposing additional tax on the rate difference and exempts the income tax on dividend and bonus issues that are distributed by unlisted companies and listed companies, of which the ownership in the investment in the listed companies is over

12 months. To encourage direct investment in production and business activities, the stock speculations in the secondary capital market that is characterized by short-term ownership (less than 12 months) without the primary objective of receiving dividends and bonus issues should not become targets for tax preferential treatments.

The tax exemption and reduction commencing in the year the first sales transaction is reported

The Implementation Regulations provide that enterprises deriving income from the investment in projects of public basic infrastructure that receive primary support from the state shall enjoy tax preferential treatment in the form of “three years’ tax exemption and three years’ tax reduction”, commencing from the tax year in which the first sales transaction for the project is reported. The old tax law for foreign

invested enterprises provided that the year for tax exemption and reduction commences from the first profit-making year. The EIT Law has changed the previous practice from the first profit-making year to the year the first sales transaction occurs. What is the reason for this?

The officials in charge said that the old tax law for foreign invested enterprises adopted the first profit-making year as the year in which the tax exemption and reduction period commenced. That would in practice encourage the postponement of the first profit-making year to avoid paying taxes and made the tax collection and administration a difficult job. The Implementation Regulations adopt a new method under which the tax exemption and reduction commence from the year in which the first sales transaction is recorded. On one hand, this policy change can avoid the

practices by the foreign invested enterprises of putting off the first profit-making year to later years. On the other hand, this policy change can address the issue that the investment scale is big with long period of construction. It is more realistic to the situation under which the domestically funded enterprises receive tax preferences from the date of incorporation. It also encourages the enterprises to shorten the construction period, make the project profitable at the earliest possible moment and improve the return on investment.

Tax adjustment to strengthen the anti-tax avoidance measures

To comply with the relevant provisions on special tax adjustments in the EIT Law and learn from international experiences, the Implementation Regulations expressly lay down provisions for the related parties or associated enterprises in the transactions

with related parties, the adjustment methods for related party transactions, the principle of arm’s length transactions, advanced pricing agreements, the obligations for providing information, collecting taxes as per prescribed profit margins, preventing the use of controlled foreign corporations, prevention on thin capitalization,

general anti-tax avoidance, and the imposition of additional interest on overdue taxes.

The officials in charge said that these provisions strengthen the measures to combat tax avoidance, help prevent and stop acts of tax avoidance and safeguard the interests of the nation. He specially emphasized that after tax adjustments taking effects, the taxpayer, in addition to the payment of additional tax, is liable to a penalty interest that is computed with reference to the bank’s lending rate plus 5% in the period for which additional tax is collected. Where the taxpayer can submit the information to

the tax authority on time, it can be exempted from the payment of additional interest on tax.

Separate rules to be made for filing consolidated tax returns

The EIT Law follows model of the income tax on legal persons. Organizations that are not legal persons should file income tax returns that forms part of the consolidated tax turn for the head office. The filing of consolidated tax returns by head offices would relocate the tax revenues between different regions in the country. Both the taxpayers and local governments are very much concerned about this issue. The Implementation Regulations only lay down one provision in principle. What are the

policy considerations for this?

The officials in charge told us that in accordance with the EIT Law, business organizations that are not legal persons should file tax returns to the tax bureau in the city where the head office is located. That will cause relocation of tax revenue among different regions in the country, and should be dealt with in a reasonable way. We have performed many studies in order to solve the problem of relocation of tax revenues among different regions in a reasonable and proper way and balance the

interests among them after the implementation of the EIT Law and the

Implementation Regulations. The detailed measures shall be formulated by the Ministry of Finance and the State Administration of Taxation, and submitted to the State Council for approval before taking effect. Therefore, the Implementation Regulations only state the principles in general.

Parent and subsidiary companies no longer file group tax returns

The EIT Law provides that except for the provisions by the State Council to the contrary, enterprises should not file group income tax returns. However, the Implementation Regulations do not make relevant provisions for group of companies to file tax returns on a group basis. How will this problem be solved in future?

The official in charge said that as from 1994, the State Council has given approval to 120 large groups of corporations/enterprises to file group tax returns on a trial basis. The policy objective at that period of time is to relieve the enterprises of tax burden and support the development for the groups of enterprises because the operating results of the parent and individual subsidiaries did not present the true information

and it is difficult to distinguish between the enterprises that are operated in accordance with commercial principle and the enterprises that form part of the governmental organizations. With the implementation of the EIT Law, the parent and subsidiary corporations that are legal persons shall file tax returns and pay tax separately. Where there is a requirement to file group tax returns, the State Council shall make separate regulations. Implementation Regulations need not deal with this again since the EIT Law has already made the provisions and delegated the authority on this.

Order of the President of the People’s Republic of China
(No. 63)

The Enterprise Income Tax Law of the People’s Republic of China, which was adopted at the 5th Session of the 10th National People’s Congress of the People’s Republic of China on March 16, 2007, is hereby promulgated and shall come into force as of January 1, 2008.

President of the People’s Republic of China Hu Jintao

March 16, 2007

Enterprise Income Tax Law of the People’s Republic of China

(Adopted at the 5th Session of the 10th National People’s Congress of the People’s Republic of China on March 16, 2007)

Contents

Chapter I General Provisions

Chapter II Taxable Amount of Income

Chapter III Amount of Payable Taxes

Chapter IV Preferential Tax Treatments

Chapter V Withholding by Sources

Chapter VI Special Adjustments to Tax Payments

Chapter VII Administration of Tax Collection

Chapter VIII Supplementary Provisions

Chapter I General Provisions

Article 1 Within the territory of the People’s Republic of China, the enterprises and other organizations which have incomes (hereinafter referred to as the enterprises) shall be payers of the enterprise income tax and shall pay their enterprise income taxes in accordance with this Law.

This Law does not apply to the sole individual proprietorship enterprises and partnership enterprises.

Article 2 Enterprises are classified into resident and non-resident enterprises.

The term “resident enterprise” as mentioned in this Law refers to an enterprise which is established inside China, or which is established under the law of a foreign country (region) but whose actual institution of management is inside China.

The term “non-resident enterprise” as mentioned in this Law refers to an enterprise established under the law of a foreign country (region), whose actual institution of management is not inside China but which has institutions or establishments inside China; or which has not any institution or establishment inside China but which has incomes sourced in China.

Article 3 A resident enterprise shall pay the enterprise income tax on its incomes derived from both inside and outside China.

For a non-resident enterprise with an institution or establishment inside China, it shall pay enterprise income tax on its incomes derived from inside China as well as on incomes that it earns outside China but which has real connection with the said institution or establishment.

For a non-resident enterprise without any institution or establishment inside China, or for a non-resident enterprise whose incomes have no actual connection to its institution or establishment inside China, it shall pay enterprise income tax on the incomes derived from inside China.

Article 4 The enterprise income tax rate shall be 25%.

The tax rate which applies to a non-resident enterprise’s incomes as mentioned in paragraph 3, Article 3 of this Law shall be 20%.

Chapter II Taxable Amount of Income

Article 5 The balance after deducting the tax-free incomes, tax-exempt incomes, all deduction items as well as the permitted remedies for losses of the previous year(s) from an enterprise’s total amount of incomes of each tax year shall be the taxable amount of incomes.

Article 6 An enterprise’s monetary and non-monetary incomes from various sources shall be the total amount of incomes, including:

(1)income from the sale of goods;

(2)income from the provision of labor services;

(3)income from the assignment of property;

(4)dividend, bonus and other equity investment proceeds;

(5)income from interests;

(6)income from rentals;

(7)income from royalties;

(8)income from accepted donations; and

(9)other incomes.

Article 7 The following incomes included in the total amount of incomes shall be tax-free incomes:

(1)The appropriations from the treasury;

(2)The administrative fees and the governmental funds which are charged according to the law and fall under treasury administration; and

(3)Other tax-free incomes as prescribed by the State Council.

Article 8 The reasonable disbursements which are actually incurred and in which have actual connection with the business operations of an enterprise, including the costs, expenses, taxes, losses, etc., may be deducted in the calculation of the taxable amount of incomes.

Article 9 With regard to an enterprise’s disbursements for public welfare donations, the portion which accounts for 12% of the total annual profits or less is allowed to be deducted.

Article 10 None of the following disbursements may be deducted in the calculation of the taxable amount of incomes:

(1)Dividend, bonus and other equity investment proceeds paid to the investors;

(2)Payment for enterprise income tax;

(3)Late fee for taxes;

(4)Pecuniary punishment, fines, and losses of properties confiscated;

(5) Disbursements for donations other than those provided for in Article 9;

(6) Sponsorship disbursements;

(7) Unverified reserve disbursements;

(8) Other disbursements that have nothing to do with the obtainment of revenues;

Article 11 When calculating the taxable amount of incomes, an enterprise is allowed to deduct the depreciations of fixed assets calculated under the relevant provisions.

No depreciation may be calculated for any of the following fixed assets:

(1)The fixed assets which have not yet been put into use, excluding houses and buildings;

(2)The fixed assets rented in by way of commercial lease;

(3)The fixed assets rented out by way of finance leasing;

(4)The fixed assets for which depreciation has been allocated in full amount but which remain in use;

(5)The fixed assets which have nothing to do with the business operations;

(6)The land which is separately appraised and entered into account as an item of fixed asset; and

(7)Other fixed assets for which no depreciation may be calculated.

Article 12 When calculating the taxable amount of incomes, an enterprise is allowed to deduct the amortized expenses of intangible assets calculated according to the relevant provisions.

No amortized expense may be calculated for the following intangible assets:

(1)The intangible assets, for which the self-development expenses have been deducted in the calculation of the taxable amount of incomes;

(2)The self-created business reputation;

(3)The intangible assets which have nothing to do with the business operations; and

(4)Other intangible assets for which no amortized expense may be calculated.

Article 13 The following expenses incurred by an enterprise shall, in the calculation of the taxable amount of incomes, be treated as long-term deferred expenses. Those amortized under the relevant provisions are allowed to be deducted:

(1)The expenses for the rebuilding of a fixed asset, for which depreciation has been prepared in full amount;

(2)The expenses for the rebuilding of a rented fixed asset;

(3)The expenses for the heavy repair of a fixed asset; and

(4)Other expenses that shall be treated as long-term deferred expenses.

Article 14 During the period of external investment, an enterprise shall not deduct the costs of the investment assets when it calculates the taxable amount of incomes.

Article 15 Where an enterprise uses or sells its inventories, it is allowed to deduct the costs of the inventories calculated according to the relevant provisions in the calculation of the taxable amount of incomes.

Article 16 Where an enterprise transfers an asset, it is allowed to deduct the net value of the asset in the calculation of the taxable amount of incomes.

Article 17 When an enterprise calculates its enterprise income taxes on a consolidated basis, it shall not offset the losses of its overseas business institutions against the profits of its domestic business institutions.

Article 18 The losses incurred by an enterprise during a tax year may be carried forward and subtracted from the incomes during subsequent years for a maximum carry-forward period of 5 years.

Article 19 Where a non-resident enterprise obtains incomes as described in paragraph 3, Article 3 of this Law, it shall calculate the taxable amount of income through following approaches:

(1)The taxable amount of incomes from dividends, bonuses and other equity investment proceeds, interests, rentals and royalties shall be based on the total amount of incomes;

(2)The taxable amount of incomes from the assignment of property shall be the balance of the total amount of incomes less the net value of the property; and

(3)The taxable amount of any other income shall be calculated by reference to the approaches as mentioned in the preceding items.

Article 20 The specific measures for the scope and criterions of revenues and deductions, as well as the tax treatment of assets as provided for in the present Chapter shall be formulated by the treasury and tax administrative departments of the State Council.

Article 21 When calculating the taxable amount of incomes, if the enterprise’s financial or accounting treatment method does not conform to any tax law or administrative regulation, the taxable amount shall be calculated in accordance with the tax law or administrative regulation.

Chapter III Amount of Payable Taxes

Article 22 The amount of payable taxes shall be the balance of the taxable amount multiplied by the applicable tax rate minus the tax amounts deducted and exempted as provided for in the present Law .

Article 23 An enterprise may deduct from the taxable amount of incomes of the current period the amount of income tax it has already paid overseas for the following incomes. The limit of tax credit shall be the payable amount of taxes on such incomes computed according to this Law. The part exceeding the limit of tax credit may, during the five subsequent years, be offset by way of deducting the limit of tax credit of each year from the balance after the deduction of the limit of tax credit of the current year:

(1)A resident enterprise’s taxable incomes derived from outside China; and

(2)Taxable incomes earned outside China by a non-resident enterprise with institutions or establishments in China, but which have no actual connection with the said institutions or establishments.

Article 24 For the dividends, bonuses and other equity investment proceeds derived from outside China that a resident enterprise obtains from a foreign enterprise that it controls directly or indirectly, the portion of income tax on this income paid by the foreign enterprise outside China may be treated as the allowable tax credit of overseas income tax amount of the resident enterprise and be deducted within the limit of tax credit as prescribed in Article 23 of this Law.

Chapter IV Preferential Tax Treatments

Article 25 Preferential in enterprise income tax treatments are granted to the important industries and projects whose development is supported and encouraged by the state.

Article 26 The following incomes of an enterprise shall be tax-free incomes:

(1)The income from treasury bonds;

(2)Dividends, bonuses and other equity investment proceeds distributed between qualified resident enterprises;

(3)Dividends, bonuses and other equity investment proceeds which a non-resident enterprise with institutions or establishments in China obtains from a resident enterprise and which have actual connection with such institutions or establishments; and

(4)Incomes of qualified not-for-profit organizations.

Article 27 The enterprise income tax on the following incomes may be exempted or reduced:

(1)The incomes incurred from projects of agriculture, forestry, husbandry and fishery;

(2)The incomes incurred from business operations of the important public infrastructure investment projects supported by the state;

(3)The income incurred from the projects of environmental protection, energy and water saving, which meet the relevant requirements;

(4)The incomes incurred from the transfer of technologies, which meets the relevant requirements; and

(5)The income as prescribed in paragraph 3, Article 3 of this Law.

Article 28 The enterprise income tax on a small meagre-profit enterprise which meets the prescribed conditions shall be levied at a reduced tax rate of 20%.

The enterprise income tax on important high- and new-tech enterprises which are necessary to be supported by the state shall be levied at the reduced tax rate of 15%.

Article 29 The autonomous organ of an autonomous region of ethnic minorities may decide the reduction or exemption of the local portion of the enterprise income tax to be paid by enterprises within the said autonomous region. The decisions of deduction or exemption made an autonomous prefecture or county shall be submitted to the people’s government of the province, autonomous region, or municipality directly under the Central Government for approval.

Article 30 The following expenses of an enterprise may be additionally calculated and deducted:

(1)The expenses for the research and development of new technologies, new products and new techniques; and

(2)The wages paid to the disabled employees or other employees whom the state encourages to hire.

Article 31 A startup investment enterprise engaged in important startup investments which are necessary to be supported and encouraged by the state may deduct from the taxable amount of incomes a certain proportion of the amount of investment.

Article 32 Where it is surely necessary to accelerate the depreciation of any fixed asset of an enterprise because of technological progress or due to any other cause, it may shorten the term of depreciation or adopt an approach to accelerate the depreciation.

Article 33 The incomes generated by an enterprise from producing products conforming to the industrial policies of the state by way of comprehensive utilization of resources may be downsized in the calculation of the amount of taxable incomes.

Article 34 The amount of an enterprise’s investment in the purchase of special equipment for environmental protection, energy and water saving, work safety, etc. may be deducted from the tax amount at a certain rate.

Article 35 The specific measures for the preferential tax treatments as mentioned in this Law shall be formulated by the State Council.

Article 36 Where the national economic and social development so requires, or the business operations of enterprises have been seriously affected by emergencies and other factors, the State Council may formulate special preferential policies concerning the enterprise income tax and submitted them to the Standing Committee of the National People’s Congress for archival purposes.

Chapter V Withholding by Sources

Article 37 The payable income taxes on the incomes as described in paragraph 3, Article 3 of this Law which a non-resident enterprise earns shall be withheld by sources, with the payer acting as the obligatory withholder. The tax amount shall be withheld by the obligatory withholder from each payment or payment due.

Article 38 For the payable income taxes on the incomes which a non-resident enterprise obtains from undertaking an engineering project or providing labor services inside China, the tax organ may designate the payer of the project price or remuneration as the obligatory withholder.

Article 39 For the income tax that shall be withheld under Articles 37 and 38 of this Law but which the obligatory withholder has failed to withhold or is unable to perform the withholding obligation, the taxpayer shall pay them at the place where the income has occurred. If the taxpayer fails to do so, the tax organ may recover the payable tax of the enterprise from its other income items inside China for which the payer should pay.

Article 40 A obligatory withholder shall turn over the tax payments which it withholds every time to the state treasury within 7 days after the date of withholding and submit to the local tax organ a form of report on the withheld enterprise income taxes.

Chapter VI Special Adjustments to Tax Payments

Article 41 With regard to a transaction between an enterprise and its affiliate, if the taxable revenue or income of the enterprise or its affiliate decreases due to inconformity with the arms length principle, the tax organ may make an adjustment through a reasonable method.

The costs of an enterprise and its affiliate for joint development or accepting the assignment of intangible assets, or jointly providing or accepting labor services shall, according to the arms length principle, be apportioned in the calculation of the taxable amount of incomes.

Article 42 An enterprise may file with the tax organ the pricing principles and computation approaches for the transactions between it and its affiliates, the tax organ and the enterprise shall enter into an advance pricing arrangement upon negotiations and confirmation.

Article 43 When an enterprise submits to the tax organ its annual enterprise income tax returns, it shall enclose an annual report on the affiliated transactions between it and its affiliates.

When the tax organ investigates into the affiliated transactions, the enterprise and its affiliates, as well as other enterprises relating to the affiliated transactions under investigation, shall provide the pertinent materials according to the relevant provisions.

Article 44 Where any enterprise refuses to provide the materials of transactions between it and its affiliates, or provides any false or incomplete materials which cannot reflect the true information about the affiliated transactions, the tax organ may decide its taxable amount of income upon check.

Article 45 With regard to an enterprise which is established by a resident enterprise or controlled by an resident enterprise or by a Chinese resident and which is located in a country (region) where the actual tax burden is obviously lower than the tax rate as prescribed in paragraph 1 of Article 4 of this Law, if the profits are not distributed or if less profits are distributed for a cause not attributable to reasonable business operations, the portion of the aforesaid profits attributable to this resident enterprise shall be included in its incomes of the current period.

Article 46 The interest disbursement for any credit investments and equity investments, which an enterprise accepts from its affiliates, in excess of the prescribed criterion shall not be deducted in the calculation of the taxable amount of income.

Article 47 Where an enterprise makes any other arrangement not for any reasonable business purpose, if its taxable revenue or income decreases, the tax organ has the power to make an adjustment through a reasonable method.

Article 48 If the tax organ makes an adjustment to a tax payment under the provisions of this Chapter and if it is necessary to recover the tax payment in arrears, it shall do so and charge an additional interest under the provisions of the State Council.

Chapter VII Administration of Tax Collection

Article 49 The administration of the collection of enterprise income taxes shall be governed by the Law of the People’s Republic of China on the Administration of Tax Collection in addition to this Law.

Article 50 Unless it is otherwise provided for in any tax law or administrative regulation, the tax payment place of a resident enterprise shall be the registration place of the said enterprise. But if its registration place is without China, the tax payment place shall be the place where its institution of actual management is located.

A resident enterprise which has established operational institutions without legal person status in China shall calculate and pay its enterprise income taxes on a consolidated basis.

Article 51 Where a non-resident enterprise obtains any income as described in paragraph 2, Article 3 of this Law, the tax payment place shall be the place where the institution or establishment is located. Where a non-resident enterprise has established two or more institutions or establishments within China, it may, subject to the examination and approval of the tax organ, choose to have its main institution or establishment pay the enterprise income tax on a consolidated basis.

For a non-resident enterprise which obtains any income as described in paragraph 3, Article 3 of this Law, the place where the obligatory withholder is located shall be the place for the payment of enterprise income taxes.

Article 52 Unless it is otherwise provided for by the State Council, enterprises shall not pay their enterprise income taxes on a consolidated basis.

Article 53 Enterprise income taxes shall be calculated on the basis of a tax year. A tax year commences on January 1 and ends on December 31 of the Gregorian calendar year.

Where an enterprise starts or terminates its business operations in the middle of a tax year so that its actual business operation period in this tax year is shorter than 12 months, its actual business operation period shall constitute a tax year.

At the time of liquidation of an enterprise, the liquidation period shall be a tax year.

Article 54 Enterprise income taxes shall be paid in advance on the monthly or quarterly basis.

An enterprise shall, within 15 days after the end of a month or quarter, submit to the tax organ an enterprise income tax return for advance payment and pay the tax in advance.

An enterprise shall, within 5 months after the end of each year, submit to the tax organ an annual enterprise income tax return for the settlement of tax payments and settle the payable or refundable amount of taxes.

When an enterprise submits an enterprise income tax return, it shall attach to it the financial statements and other relevant materials according to the relevant provisions.

Article 55 When an enterprise terminates its business operation in the middle of a year, it shall, within 60 days after the actual date of termination of its business operations, apply to the tax organ for calculating and paying the enterprise income taxes of the current period.

Before an enterprise goes through the deregistration formalities, it shall make a declaration to the tax organ on the liquidation and shall pay the enterprise income taxes.

Article 56 Enterprise income taxes to be paid under this law shall be calculated on the basis of RMB. For any income calculated on the basis of a currency other than RMB, the amount of taxes shall be calculated and paid after this income is converted into RMB.

Chapter VIII Supplementary Provisions

Article 57 The enterprises which have already been established prior to the promulgation of the present Law and enjoyed low tax rates according to the provisions of the tax laws and administrative regulations in force at that time may, according to the provisions of the State Council, continue to enjoy the preferential treatments within five years after the present Law is promulgated and gradually transfer to the tax rate as provided for in the present Law. Those which enjoy the preferential treatment of tax exemption for a fixed term may, according to the provisions of the State Council, continue to enjoy such treatment after the promulgation of the present Law until the fix term expires. However, for those that have failed to enjoy the preferential treatment due to failure to make profits, the term of preferential treatment may be counted as of the year when the present Law is promulgated.

Within the particular areas established by law for developing foreign economic cooperation and technological exchanges and the high- and new-tech enterprises that need the key support of the state newly established within the areas where the State Council has provided for the implementation of the abovementioned special policies may continue to enjoy transitional preferential tax treatments, with the specific measures thereof to be formulated by the State Council.

Other enterprises falling in the encouraged category as already determined by the State Council may enjoy the preferential treatment of tax reduction or exemption according to the provisions of the State Council.

Article 58 Where any provision in a tax treaty concluded between the government of the People’s Republic of China and a foreign government is different from the provisions in this Law, the provision in the said treaty shall prevail.

Article 59 The State Council shall formulate a regulation on the implementation of this Law.

Article 60 This law shall come into force as of January 1, 2008. The Income Tax Law of the People’s Republic of China on Foreign-funded Enterprises and Foreign Enterprises as adopted at the 4th Session of the Standing Committee of the 7th National People’s Congress on April 9, 1991 and the Interim Regulation of the People’s Republic of China on Enterprise Income Tax as promulgated by the State Council on December 13, 1993 shall be repealed simultaneously.

The second is to plug the tax loophole arising from the transformation. The revised VAT regulations provide that the input VAT for consumables (like vehicles and yachts) is not allowed to get deduction from output VAT since it is easy to mix up corporate consumption with personal consumption that is not relevant to the technological improvement of the enterprise.

The third is to reduce the levy rate for small-scale taxpayer. Before the amendment,small-scale taxpayer who is engaged in production activities is subject to VAT at a 6% levy rate. According to the original VAT regulations, with the approval from the State Council, small-scale taxpayers carrying on production activities and nonproduction activities are taxed at a levy rate of 6% and 4% respectively. After the transformation reform, the tax burden of the VAT ordinary (general) taxpayer has been reduced across the board. To balance the tax burden between the VAT ordinary taxpayer and the small-scale taxpayer and promote the growth of small and medium size enterprises to raise employment level, it is necessary to reduce the tax burden of the small-scale taxpayer. Taking into account the fact that it is commonplace for the small-scale taxpayer to carry on production and non-production activities at the same time, it is difficult to distinguish between the small-scale taxpayer who is doing production business and the one who is not. Therefore, the revised VAT regulations no longer provide for two levy rates for different line of businesses, and fix the levy rate at 3% across the board for the small-scale taxpayer.
The fourth is to incorporate some current VAT policies into the revised VAT regulations, mainly including the deduction rates for agricultural produce and transportation charges, the provisions for the qualifications for being recognized as the VAT general taxpayer, and the abolition of tax exemption for the equipment 5 imported for use in export processing with supplied materials, export processing with samples, and compensation trade.

The fifth is to extend the VAT filing deadline from 10 days to 15 days after the month end in order to provide convenience to taxpayers, improve revenue service level and relieve the workload for handling VAT filing at the counter of the local tax bureaus in accordance with the practices of tax levy and administration. The revised VAT regulations also clarify the issue how to determine the tax withholding agent, the time the tax liabilities arise, the location of paying taxes and the period within which payments should be made for the taxpayer situated outside China.

Presided over by the State Council, or the Cabinet, the conference will map out policies on the country’s rural development for the next few years.

Earlier this month, the National Development and Reform Commission (NDRC), predicted the nation’s grain output will increase for five straight years and reach 525 million tonnes in 2008.

At the same time, per capita income for Chinese farmers would increase more than 6 percent year-on-year. The amount was near 4,000 yuan (585 U.S. dollars) in the first three quarters, according to the NDRC.

This being stated, experts see more challenges coming in the next year for China in terms of stable agricultural development and rural income increases as the international financial crisis deepened.

Market contraction both at home and abroad has driven down prices of agricultural products such as bean, corn and cotton. This raises concerns of decreased agricultural production and farmers’ future income.

Shrinking international demand for Chinese products also forced domestic companies to cut or stop production, driving migrant workers back to their hometowns earlier than usual this year.

So far, statistics from the Ministry of Human Resources and Social Security showed 10 million or 10 percent of China’s total 130 million migrant workers returned home jobless.

The country issued a series of measures to support rural development in the past two months. Farmers are being given subsidies to purchase home appliances, free training for laid off migrant workers is being offered and loans were supplied to help farmers start businesses.

All these policies would be reinforced at the conference, according to analysts.

In the meeting, Chen Deming, the minister of the Ministry of Commerce of the PRC, delivered a working report named “Enhance Confidence and Consolidate Works to Keep the Development of Commercial Businesses Efficient and Rapid”.

He expressed that, in 2008, under the right leadership of the State Council, the cadres and staff in all the commercial systems of China focused on their own jobs, served the overall situation, effectively managed the server natural disasters and the impacts brought by the national financial crisis, and achieved an efficient and rapid development of commercial businesses. In 2008, the domestic market was active and booming. In the first 11 months, the total retail sales of consumer goods reached 9.7759 trillion yuan, the year-on-year growth rate is 21.9%, and it was the fastest-growing period in the last ten years. The trend that the prices of commodities increased fast was effectively restrained. The increment of the Consumer Price Index (CPI) dropped to 2.4%, and it is expected that the increment of the Consumer Price Index of the whole year will be limited within 6%. The foreign trade increased steadily. In the first 11 months, the total export-import volume was US $ 2.3794 trillion, which had increased by 20.9%; the total export volume was US $ 1.3172 trillion, which had increased 19.3%; the total import volume was US $ 1.0612 trillion, which had increased by 22.8%. It is expected that the total export-import volume of the whole year will exceed US $ 2.5 trillion, which would have increased by about 18% over last year. The absorbed foreign capitals kept on increasing. In the first 11 months, the total amount of the foreign capitals absorbed was US $ 86.4 billion, which had increased by 26.3%, and it is expected that the total amount of the foreign capitals absorbed in the whole year would exceed US $ 90 billion; China has been the largest foreign capital absorbing country in all the developing countries for 17 years in succession. The capitals that were invested in foreign countries and the cooperation with foreign countries were both accelerated. In the first three quarters, the total amount of the non-financial direct investments to foreign countries was US $ 32.7 billion, which had increased by 1.5 times, and the accumulative total assets of the Chinese-funded enterprises in foreign countries exceeded US $ 300 billion. In the first 11 months, the total finished turnover of the contracted projects in foreign countries was US $ 47.1 billion, which had increased by 42%; the total finished turnover of the foreign labor cooperation was US $ 7.2 billion, which had increased by 24.2%. The commercial system had achieved remarkable successes in coping with important events, guaranteeing the supplies of markets, enhancing the construction of market system, expanding the domestic consumptions, optimizing the pattern of imports and exports, promoting the healthy development of foreign trades, improving the environment for investments, upgrading the quality of the absorbed foreign capitals, enhancing the management, standardizing the services, accelerating the development of investments to foreign countries and the cooperation with foreign countries, carrying out multilateral and bilateral cooperation, solving the disputes in international trades, deeply studying and practicing the scientific outlook on development, and enhancing the construction of itself.

Chen Deming pointed out that the severe impact brought by the economic depression of the whole world will still go on, so, the domestic and foreign circumstances that the development of Chinese commercial businesses will face in 2009 will be much more complex. The situation for exports will be quite severe. It will be much harder for domestic consumptions to increase. Much more difficulties will be met when absorbing foreign capitals. The situation of trade frictions will not be optimistic. But the basic development situation and the long-term development trend will not change, and there will also be a lot of advantages for keeping the commercial businesses developing steadily and rapidly. First, the positive financial policies and quite easing monetary policies implemented by the government of China will have promoting effects on stabilizing the exports and expanding the consumptions. Especially, the policies such as raising the export rebates, improving the processing trades, adjusting the customs duties, supporting the developments of the medium and small-sized enterprises and so on, will directly promote the foreign trades to develop steadily. Second, the developments of industrialization and urbanization and the quick upgrading of industrial structure and consumption pattern of China will bring strong domestic demands for economic development. Third, the comprehensive national strength of China is rising, the supporting system for the industries of China is quite integrated, the financial system is steady and health generally, the financing supply is sufficient, the qualities of labor forces are increasingly rising, the enterprises’ adaptive abilities to the changing market and environment are being increasingly enhanced, and the systems for allocating the resources in the market are being improved gradually. Fourth, the industrial chain of export is quite integrated, and the comparative advantage is clear. Most of the export products are essentials of lives, and the demand for them is not quite flexible. The strategy of market diversification has got enterprises acquired abundant experiences for exploring international markets. Multilateral and bilateral economic and trade relationships are being improved increasingly, and the international economic and trade circumstance is generally advantageous. The economic adjustment of the world will bring many new opportunities for China to accelerate the upgrading of economic structure, absorb advanced technologies and personnel and use the resources of foreign countries.

Chen Deming emphasized that our thoughts and activities must be practically unified with the analysis and judgment made by the central government on the foreign and domestic economic situations, unified with the decisions and arrangements made by the central government, and unified with the requirements that the scientific outlook on development ask for on the commercial works. Our confidence and determinations for successfully finishing the commercial works must be confirmed, the difficulties and challenges that we are facing must be adequately estimated, and every arrangement made by the economic work meeting of the central government must be firmly implemented. The domestic demands must be positively expanded, and the growth of foreign trades must be kept steady. Meanwhile, the transition of development pattern and the adjustment of economic structure must be accelerated, the stamina of development could be enhanced, and great efforts must be made to achieve a rapid and efficient commercial-business development.

Chen Deming said eight aspects of commercial works must be successfully done in 2009. First, the construction of circulation network must be enhanced to expand the consumptions of urban and rural residents. The construction of the circulation network in rural areas must be accelerated, and the circulation networks in urban areas must be improved continuously. The works of promoting home appliances in rural areas must be firmly done, the circulation network for the renewable resources must be standardized and developed, and a large batch of distribution enterprises must be positively developed. Second, the commodity circulation must be boosted, and market adjustment and control must be improved. The monitoring to operation must be enhanced, the guiding function of the information must reinforced, the connections between productions and sales must be enhanced, and circulation of agricultural products must be promoted. The reserves system must be improved, and great efforts must be made to guarantee “collecting and reserving them in boomer harvest time, putting them into market in poor harvest time”. The market orders must be regulated, and the fair competition in market must be safeguarded. Third, the steady growth of imports and exports must be maintained, and the transition of foreign trade pattern must be accelerated. The support of tax policies and financial policies must be enhanced, great efforts must be made to explore the emerging markets, the export commodity composition must be optimized, the service trades must be greatly developed, and the imports must be positively enlarged. Fourth, the scale of foreign capitals that are used must be stabilized, and the quality of the foreign capitals that are used must be raised. The investment environment must be improved and perfected, the composition of the foreign capitals that are used must be optimized, the geographical distribution of foreign capitals must be improved, and the utilization patterns of foreign capitals must be innovated. Fifth, actively and steadily push the development of the capital invested in foreign countries and the cooperation with foreign countries, the level of economic cooperation with foreign countries must be raised. The steps to develop the investment to foreign countries must be accelerated, great efforts must be made to undertake contracted project in foreign countries and carry on the labor service cooperation in foreign countries, and facilitation of investing in foreign countries and the cooperation with foreign countries, and the system for supervising the investment in foreign countries and the cooperation with foreign countries must be improved. Sixth, multilateral and bilateral economic and trade cooperation must be deepened, and outstanding exotic environment must be constructed. The multilateral and bilateral economic and trade relationships must be enhanced and improved, the Doha Round must be positively and increasingly promoted, the construction of free trade areas must be promoted positively and steadily, the opening-up in border areas must be accelerated, the economic and trade cooperation among the Chinese Mainland, Taiwan, Hong Kong and Macao must be promoted, the works of providing assistances to foreign countries must be reinforced and improved. Seven, trade friction must be properly managed to guarantee the safeties of domestic industries. All the operations must be planed as a whole, so risk of trade friction will be reduced. The strengths of all the aspects must be wholly arranged to raise the ability for coping with trade frictions. The trade remedy must be carried out according to the laws, and the effect of trade remedy must be raised. The scientific outlook on development must be deeply studied and practiced, and the systems for commercial works must be further constructed.

Over 300 people including the representatives from the relevant departments of China’s State organs, every province, autonomous region and municipality directly under the Central Government of China, the cities specifically designated in the state plan, the management departments of the Xinjiang Production and Construction Corps, the national-class development areas, and the Border Economic Cooperation Zones, attended the meeting. And during the meeting, the representatives carefully discussed such issues as coping with the financial crisis, expanding the domestic consumption demands, stabilizing the growth of foreign trades, and accelerating the adjustment of economic structure and the transition of development pattern.

He also estimated that foreign investment had exceeded 90 billion U.S. dollars, up about 20 percent.

China has been hammered by the global financial crisis, which has cut exports and foreign investment as the world economy went into a downturn.

The economy grew 9 percent in the third quarter, the slowest pace in five years, as the global crisis sapped demand for Chinese goods and domestic industrial production waned in response to weak demand and rising raw material costs.

Foreign direct investment was 86.4 billion U.S. dollars in the first 11 months, up 26.3 percent year-on-year. The increase was lower than the average of 35 percent for the first 10 months.

The actual use of foreign investment slipped 36.5 percent year-on-year to 5.32 billion U.S. dollars in November.

Cai Qiusheng, an official with the State Administration of Foreign Exchange, was quoted by Tuesday’s Shanghai Securities Journal as saying that foreign exchange reserves were below their peak at 1.9 trillion U.S. dollars as of the end of September.

From January to November, foreign trade was 2.38 trillion U.S. dollars, jumping 20.9 percent year-on-year. However, November’s total trade stood at 189.89 billion U.S. dollars, down 9 percent year-on-year.

Chen told a national conference on commerce on Tuesday that the ministry would take steps to maintain stable export growth next year.

The measures will include expanding financial and fiscal support for exports, such as more credit support to exporters, and making more efforts to explore emerging markets in south and central Asia, the Middle East, South America and Eastern Europe, while consolidating China’s food hold in traditional markets.

The ministry would also strive to improve the structure of export products next year by promoting domestic brand-name products, large machinery and equipment and agricultural products. It would also emphasize labor-intensive products and support small firms’ technological innovation.

The ministry pledged to boost service trade, including software, culture and traditional Chinese medicine. It also vowed to expand imports, especially of equipment with up-to-date technologies as well as key spare parts, through policies including tariff cuts.

Presided over by the State Council, or the Cabinet, the conference will map out policies on the country’s rural development for the next few years.

Earlier this month, the National Development and Reform Commission (NDRC), predicted the nation’s grain output will increase for five straight years and reach 525 million tonnes in 2008.

At the same time, per capita income for Chinese farmers would increase more than 6 percent year-on-year. The amount was near 4,000 yuan (585 U.S. dollars) in the first three quarters, according to the NDRC.

This being stated, experts see more challenges coming in the next year for China in terms of stable agricultural development and rural income increases as the international financial crisis deepened.

Market contraction both at home and abroad has driven down prices of agricultural products such as bean, corn and cotton. This raises concerns of decreased agricultural production and farmers’ future income.

Shrinking international demand for Chinese products also forced domestic companies to cut or stop production, driving migrant workers back to their hometowns earlier than usual this year.

So far, statistics from the Ministry of Human Resources and Social Security showed 10 million or 10 percent of China’s total 130 million migrant workers returned home jobless.

The country issued a series of measures to support rural development in the past two months. Farmers are being given subsidies to purchase home appliances, free training for laid off migrant workers is being offered and loans were supplied to help farmers start businesses.

All these policies would be reinforced at the conference, according to analysts.