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News & Updates

China Sets Minimum Selling Prices for Industrial Land

China’s Ministry of Land and Resources announced minimum prices for the sale of land for industrial use on December 27, 2006, a move aimed at curbing over-expansion of industrial land. The new standards are significantly higher than current typical industrial land sales prices across the country. Many local governments have been selling land-use rights for industrial use at very low prices to attract investment and to seek higher GDP growth. Rampant illegal land acquisition has led to redundant construction projects and ruined farmland. The government believes that curbing the excessive growth of credit and land supply could be an effective way of cooling the economy. The central government took measures to tighten land supply in the second half of 2005, including imposing higher taxes on urban land use and stripping local governments of their authority to spend money obtained from land sales.

New Duties Levied on Luxury Items

The Ministry of Finance announced on December 26, 2006, that taxes were being raised on individual travellers’ purchases of luxury goods from overseas as of January 1, 2007. The tariff on golf clubs and equipment and luxury watches will increase from the current 10 percent to 30 percent, and the cosmetics tariff will jump from 20 percent to 50 percent. The new duties will also apply to such goods shipped from overseas. Experts say the increased tariffs will not undermine local customers’ desire to shop abroad, since those luxury goods are still cheaper in foreign markets than those sold in the domestic market, even after the imposition of the new duties.

Beijing Olympics Organizers Purchase Liability Insurance

Organizers of the 2008 Beijing Olympic Games took an important first step in developing a comprehensive insurance programme by purchasing an insurance package to guard against liabilities resulting from the 2008 Games. The liability insurance policy for the Beijing Olympics was signed between the Beijing Organizing Committee for the Games of the XXIX Olympiad (BOCOG) and PICC Property and Casualty Company Limited (PICC P&C), China’s largest public non-life insurance company.

The policy, which took effect on January 1, 2007, and which will continue its coverage until the conclusion of the 2008 Paralympic Games, covers public liability, product liability, professional liability and employer’s liability, in addition to general liability coverage for the Paralympic Games. The policy will cover risks such as food security, intellectual property rights, venue safety and medical services. Both parties refused to disclose the value of the policy. According to PICC P&C officials, the policy has been designed in line with the insurance experience from the previous Games and the claim settlement process will be straightforward.

As the official insurance partner of the Beijing Olympic Games, PICC P&C has provided a series of insurance services for BOCOG, including those for Olympic venue construction, the launch of the Olympic weather satellite, Olympic volunteers, and Olympic test events. According to the contract, PICC P&C will provide BOCOG with more insurance services next year, including property, ship and personal accident insurance.

Listed Companies Required to Provide Information

China’s securities watchdog is mulling over a new rule that would require listed companies to provide transparent, up-to-date information about their performance and, more generally, to provide investors with adequate and timely information. Price fluctuations of overseas stocks and financial derivatives must be swiftly communicated to domestic investors and significant events affecting the company must be reported, according to the China Securities Regulatory Commission. The move will help promote transparency in company governance and help curb market manipulations. Both individual and institutional investors are entitled to have access to the latest information, according to the new rule. Companies will be required to disclose information via official reports or notices not by means of a press conference. Listed companies in China have long been criticized for vague and out-of-date information they provide to investors. The new rule said intermediate agencies such as accounting firms should not be mealy-mouthed when evaluating listed companies’ financial performance.

China’s Chery to Build Small Cars for Chrysler

Daimler Chrysler AG’s Chrysler Group and China’s Chery Automobile Company have signed a deal for the latter to build small cars that will be sold worldwide, Chrysler said on December 29, 2006. The cars, which will be built “fairly soon,” will be sold under a Chrysler Group brand, either Chrysler, Jeep or Dodge, Chrysler spokesman Jason Vines said, adding, “We chose Chery because it is a very attractive partner.” But he declined to reveal the quantity and financial terms of the agreement. The deal must be approved by Daimler Chrysler’s supervisory board, which meets next month, and by the Chinese Government, Vines said.

Beijing Approves Postal Savings Bank

China has formally approved the establishment of a new postal savings bank, setting the stage for the transformation of China Post’s vast network of savings accounts into an independent financial institution. The China Banking Regulatory Commission (CBRC) said on its Web site that the new bank would be fully owned by the China Post Group, an entity recently carved out of the State Post Bureau to carry out its business functions. The new bank will concentrate on retail banking and intermediary services, serving both urban and rural residents, but with particular emphasis on the latter, the agency said. To that end, the bank will set up a department specifically for rural financial services, the CBRC said, adding that the bank would work with policy banks and rural credit cooperatives to improve the coverage and quality of rural finance. The CBRC did not disclose any financial details about the new bank, but State media reported earlier that the postal system had deposits worth 1.5 trillion yuan (US$192 billion) at the end of June 2006, which would make it the country’s fifth-largest lender based on deposits.

China Post had already begun to expand the services offered through its 36,000 post offices in preparation for the bank’s creation, setting up a pilot programme for small-scale loans in several provinces last year. Previously, it did not offer loans.

Foreign-Invested Firms to Lose Tax, Land Use Privileges

Foreign-invested firms may not like it, but Chinese businesses are cheering new tax policies intended to end many privileges enjoyed by overseas companies on the Chinese mainland. Beginning January 1, 2007, joint ventures and wholly foreign-owned firms will no longer be exempt from paying land-use taxes. Also, later this year, a new corporate income tax structure is expected to be passed and implemented that will see foreign and domestic firms taxed at the same rate, ending years of special corporate tax breaks for overseas firms.

The land-use or property tax rate will now apply equally to local and foreign developers and will triple the old rate which was set in 1988.

In large cities the annual property tax rate will range from 1.5 yuan to 30 yuan per square metre depending on its location and type of use. In medium-sized cities the rate will range from 1.2 yuan to 24 yuan per square metre, and in small cities the rate will vary from 0.9 yuan to 18 yuan. In counties, townships and mining areas, properties will be taxed at a rate of between 0.6 yuan to 12 yuan per square metre per year.

This first revision of land-use tax regulations since 1988 is aimed at bringing better control and better planning to the development and re-development of land, according to sources with the Legislative Affairs Office of the State Council.

China to Raise Taxes on Use of Vehicles, Ships

The Chinese Government will raise taxes on the use of vehicles and ships beginning on January 1, 2007, according to a new regulation published on December 31, 2006. The upper limit for vehicle taxes will double, bringing the annual tax on passenger-carrying vehicles to between 60 yuan and 660 yuan, according to the State Administration of Taxation (SAT). The yearly tax on freight vehicles will rise to between 16 yuan and 120 yuan per ton. The old tax standard, set 20 years ago, was too low, according to SAT. The tax collection on ships will continue based on each vessel’s capacity. By raising both the lower and upper limits, it will come to between 3 yuan and 6 yuan per ton. The regulation applies to domestic and foreign companies, as well as both Chinese and foreign individuals, the SAT statement said.

Chinese Await Mobile 3G Handsets

A survey released on December 28, 2006, claims that more than 77 percent of Chinese mobile users are keen to buy 3G handsets when they become available, if the price is right. According to the survey by the China Centre for Information Industry Development (CCID), 17 percent of users said they expect to buy 3G handsets and merely 6 percent of users say they would not buy one. Mobile TV, video calls and high-speed internet access are functions the 3G services subscribers are most looking forward to. Users also  want music downloads, multimedia transmissions and wireless positioning. About 76 percent of users surveyed expect to buy handsets worth less than 2,500 yuan (US$320), including 25 percent of users who go for low-end mobile phones costing less than 1,000 yuan (US$128).

Less than 24 percent of the users would consider buying high-end handsets that cost more than 2,500 yuan (US$320), according to the survey. Handset prices will be a critical factor affecting the promotion of 3G services, said the CCID. The fact that the price of 3G mobile phones will initially be higher than 2G handsets will slow the spread of 3G services, said the report. China has more than 455 million mobile users and the figure is increasing by more than 5 million a month. The country has been preparing for the launch of 3G service for years and is expected to issue 3G licenses next year.

Inflow of Speculative Capital Slows under Stricter Supervision

China’s efforts to curb the inflow of speculative funds seem to be working. The country’s total short-term external debt growth continued to slow in September 2006, foreign exchange authorities reported. Short-term external debt rates are an indicator of cross-border capital flows, and its sharp rise usually means increased financial risks. Figures from the State Administration of Foreign Exchange (SAFE) show the balance of combined foreign debts at the end of September totalled US$304.97 billion, an increase of US$23.93 billion over the same period last year. The short-term external-debt balance was US$168.58 billion, up US$12.44 billion from the end of last year, accounting for 55.28 percent of the total outstanding external debt, lower than the 55.81 percent at the end of last June. Trade credit, which is the main cause of increasing short-term debt, grew by US$100 million per month in the third quarter, much lower than the US$1 billion monthly growth reported in the first half of 2005.

China’s short-term external debt increased rapidly during the past five years, accounting for 55.94 percent of combined debt by last March. Foreign trade enterprises with bad records in foreign exchange settlements have been put under close watch by the SAFE, which has helped prevent inflows of speculative capital.

Google Eyes Stake in China Online Firm

The world’s top search engine Google has bought a stake in China’s Xunlei Network Technology Company, which provides file-sharing and other services, a Google spokesman said on January 4. Google is reportedly partnering with Ceyuan Ventures, a Shanghai-based venture capital firm, for the investment. Shenzhen-based Xunlei provides person-to-person file sharing networks and other downloading services. More than 80 million users have installed its software and its Web sites attract more than 50 million visitors a day. Baidu.com controlled nearly 57 percent of China’s search-engine market at the end of June 2006, according to Analysis International, a Beijing-based IT research company. Sources have said both Baidu and Google, which has only 16 percent of the China market, are exploring options to expand their online video services in the world’s fourth-largest economy. The moves came after Google closed its US$1.65 billion acquisition of top online video-sharing site YouTube. Baidu also launched its own Chinese-language video Web channel on a trial basis a few months ago.