Treasury Today Country Profiles in association with Citi
Treasury Today in China Issue 1 Buy print copy button

January 2008


Issue One 2008

The start of the new year has once more been a watershed in China’s compliance with World Trade Organisation (WTO) principles. It has now been six years since China became a member of the WTO and one year since the country completed the opening up of its banking sector to foreign competition. This year the new Enterprise Income Tax (EIT) law is designed to bring China’s business environment more fully in line with WTO principles by creating a more level playing field for companies operating in China.

The law came into effect on 1st January 2008 and is essentially a consolidation of the two different laws that previously governed the taxation of foreign and domestic companies.

Domestic companies have, up until now, been disadvantaged by tax incentives originally designed to stimulate foreign investment in China. Thanks to China’s strong economy and increasing level of foreign investment, the new EIT law should bring benefits for domestic companies as the tax environment is made fairer and more transparent. In this issue’s Treasury Management article we provide an overview of the key changes brought about by the new law.

Companies, particularly Foreign Invested Enterprises (FIEs), may need to review their business models and strategies to take into account the effects of a change in taxation. One of the most important areas at which companies are increasingly looking when reviewing their finances is the financial supply chain. We provide an introduction to this concept in our Cash Management article.

The end of 2007 also saw the deadline for banks to meet the Guidelines on Market Risk Management of Commercial Banks, issued by the China Banking Regulatory Commission (CBRC). The Guidelines were introduced to help protect banks from the increase in market risk brought about by the increasing liberalisation of the Chinese banking sector. We look at them in more detail in our Finance A-Z article.

All state-owned commercial banks and joint-stock commercial banks should by now have implemented the requisite changes. Other commercial banks now have until the end of this year to bring their practices in line with the Guidelines.

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