Banking and Accounting
Foreign Banks in Yuan Business to Retain Preferential Tax Rates
Foreign banks conducting yuan business in Shanghai on a trial basis will continue to be taxed at the usual preferential rate. Corporate tax rates would remain at 15% for foreign banks even if they moved into the yuan business, at least for the time being. However, tax officials said that a suitable rate would eventually be found for both foreign and domestic banks Dai Xianglong, governor of the People's Bank of China, suggested that foreign banks could be taxed at 33%. Currently, domestic share-holding banks pay a 33% corporate tax and wholly-owned state banks pay 55%. Mitsubishi, Citibank, and Shanghai Banking Corp. are expected to be among the first foreign banks doing yuan business in Shanghai, and ten other banks say they have met the qualifications and filed applications.
South China Morning Post (HK), 12/18/96
Banking Sector Preparing to Open Up to Foreign Banks
Granting permission to foreign banks to conduct yuan business in Shanghai is seen as a prelude to foreign banks getting complete national treatment in the sector, according to a senior official at China's central bank. After evaluating the experience of foreign banks doing RMB business on a trial basis, China will begin to further open its banking fields. There are currently 530 representative offices of foreign financial institutions in China. China's rapid economic growth has meant that foreign banks have been recording profits sooner than expected. After-tax profits for foreign banks in China increased 50% from 1994 to 1995, reaching $140 million total.
Zhongguo Tongxun (HK), 12/19/96
Underground Banks Increase Activity
So-called underground banks, which operate outside the official banking sector, have been increasing their activities following interest rate cuts on loans and deposits earlier this year. Private lending has increased from between $3-5 million in 1994 to $7-11 million in 1995, and it is expected to grow further this year. Such banks may makes loans worth tens of thousands of dollars now, although they typically charge interest rates ranging from 30-60%.
China News Service (PRC), 12/23/96
Foreign Banks Receive Licences to Trade Yuan
Four foreign banks, Hong Kong Bank, Citibank, Bank of Tokyo Mitsubishi and the Industrial bank of Japan received licences from the Chinese central bank to begin conducting yuan business on a trial basis. The Shanghai branch of the People's Bank of China said that the banks would have to move from the city center to the Pudong district. A date has not yet been set to begin but an official said this would depend on when the banks moved to Pudong. "If they can move over quickly to Pudong as well as get their paperwork done, they will be able to start soon," he said. A great deal of pressure has come from the U.S. and other countries to open its banking sector as part of the qualifications to join the World Trade Organization. Xinhua reported that foreign banks would only pay a 15 percent income tax for yuan business, the same as their foreign currency business. Chinese commercial shareholding banks pay a 33 percent tax and state banks, 55 percent.
South China Morning Post (Hong Kong), 12/31/96
China's Personal Savings Rate Continues to Grow
In spite of two rounds of interest rate cuts and the suspension of deposit interest rate subsidies last year, a growth in incomes and a sound economic environment still resulted in a high savings rate. The new deposits between January and November rose to $98.82 billion, 12 percent higher than the same period in 1995. According to the State Information Center, total private savings over the same period equaled $456.83 billion. Zhang Haikuan, honorary director of the research institute of finance and banking under the People's Bank of China said that the lower inflation last year probably contributed to the rise in deposits.
China Daily Business Weekly (PRC), 01/12/97
Domestic Banks Given Lower Ratio on Foreign Exchange
Chinese bankers said that the central bank cut the reserve rate by three percent for foreign exchange held by commercial banks. The move should free up large amounts of foreign exchange at local banks. A Bank of Communications official and other bankers said that this is intended to boost external trade because banks will have more funds to issue letters of credit and other types of guarantees for forex transactions. It will assist exporters in the short term, and the banking sector in the long term, said Nicholas Kwan, chief economist for Asia Pacific at Merill Lynch.
The Asian Wall Street Journal (U.S.), 01/17/97
Chinese Banks Making Profits
Some analysts say that Chinese banks are beginning to behave like commercial banks elsewhere as major state banks reported profits last year, some of them significantly higher than in 1995. They said the new income was the result of fees from credit cards and electronic banking services while loans were being given out with more care of risk. It is likely, however, that these profits were a cover for the banking systems bad debts from past loans to state owned enterprises and write-offs. "The big banks are gradually being turned into real commercial banks and making loans on a commercial basis," according to an official at the industrial and Commercial Bank in Shenzhen.
South China Morning Post (Hong Kong), 01/21/97
New Regulations for China's Stock Market
The China Securities Regulatory Commission has announced a series of new rules focused on standardizing the way listed firms' disclose information to investors. The new rules, scheduled to take effect on April 1 of this year in both the Shanghai and Shenzhen exchanges, stipulates that all firms listed on the exchanges must make detailed and accounting records public to investors, as well as provide information about investment risks, earnings forecasts and the use of company funds. The CSRC has also said that when a company reports profits 10-20 percent below predictions, they will have to have an explanation and an apology. If profits fall below 20 percent an investigation will be initiated into the company.
Beijing Scene (U.S./PRC), 01/31/97
International Exhibition on Banking Technology to be Held
To speed the computerization of China's banking system, the country will host the International Exhibition of Financial and Banking Technology and Equipment ‘97 China from August 26-30 this year in Beijing. The forth such event in China will display the world's state-of-the-art banking computer networks, payment and clearing systems; credit card systems and equipment; multimedia technology; computer peripherals; banking business operation systems; financial information service systems and banking security systems.
Cbnet (PRC), 02/18/97
China Minsheng Bank Names Price Waterhouse International Auditor
China Minsheng banking Corporation has named Price Waterhouse as its international auditor, making them the first Chinese bank to prepare and issue financial statements using international accounting and auditing standards. "We are working to develop our domestic business with emphasis on preventing operational risks, developing management systems and other control mechanisms so as to lay a solid foundation for future development," said Tong Zeyin, vice chairman of the board and president of the bank. "In the process, we look forward to drawing on the international experience of Price Waterhouse as auditor and business advisor for many of the world's leading financial institutions."
PR Newswire (U.S.), 02/18/97
Foreign Investment in China May Have Peaked
The death of Deng Xiaoping has coincided with a slowdown in the huge flow of foreign investment into China. Last year, foreign investment reached a new high at $42 billion but this year it is likely to be a different story. Analysts predict that it will decrease because money promised as opposed to money spent actually reached its pinnacle in 1993. In 1995, China received $38 billion, the most direct foreign investment than any country, save the United States. However, some of the figures of investment may be overestimated as a result of round-tripping, where domestic money is taken out of the country and then brought back in to take advantage of tax breaks for foreign investors. However, now that many of these breaks are being taken away, both round-tripping and true foreign investment may be in decline. There are also some emerging signs that some foreign investors are growing weary of China with its segmented markets, lack of intellectual property protection and red tape, says Joan Zheng, who works at the Hong Kong office of J.P. Morgan. This slowdown may only be temporary, however, as it huge market and abundant supplies of cheap labor continue to attract investors. Also, in spite of the fact that many foreign investors are annoyed at the withdraw of value added tax exemption, they are glad to see some previously off-limit industries, like air transport, retail, banking etc., slowly opening to the outside world.
The Economist (UK.), 03/01/97
Service Sector Barriers Block Market Entry
According to the EIU's recently published report, Multinational Companies in China: Winners and Losers, the services sector is protected by the Chinese government more closely than any other. Major regulatory constraints face multinational corporations in accounting, advertising, banking, insurance and law. Accounting firms must be fifty-fifty cooperative joint ventures. These will soon be replaced by "membership firms" but international firms complain that creating local Chinese partnerships will cost an unusual amount of money for training and support. The Ministry of Finance has compromised by allowing up to 33 percent direct holdings by international accounting firms for the first five years of the Chinese member firms' operation. In advertising, only joint ventures are allowed to do direct media buying. Other foreign firms must go through a media broker. The dual advertising rates for foreign and local companies is gradually being replaced by a single-tier system. In the banking sector, foreign banks may not take deposits in Chinese currency. Only in very limited "experimental" locations can banks take these deposits. In the insurance industry the government takes a general protectionist line. Only Shanghai and Guangzhou were open to foreign insurance companies at the end of 1996. Foreign law firms may not advise or interpret laws or represent clients in Chinese courts. Chinese lawyers hired by foreign law firms have their practice certificate suspended. They also are not allowed to form joint ventures to try to avoid the above constraints.
EIU Electronic (U.K.), 03/05/97
Arthur Anderson Discovers it is Hard to Turn a Profit in China
From all outward appearances, growth is remarkable for Arthur Anderson in China. However, senior executives say they think it will be years before they make a profit. All six firms they have in China claim to be losing money. Accounting has grown much faster in other regions of the world such as South America. The accountants blame several factors for their losses: Absurdly high office and expatriate housing rents (more the $80 per sq meter for offices); other expatriate costs from salaries to schooling to apartment rents; and communication costs (IDD rates among the highest in the world).
EIU Electronic (U.K.), 03/19/97
Burden of Debt Overwhelming for State Banks
One of the main items on the agenda of the annual National People's Congress this month was the continued problems in state-owned enterprises and what the country can do to stop the problem from deeply affecting the banking system. It will take many years for banks to lessen their burden of debt from years of bad loans and move toward lending to the private sector. Vice Premier Zhu Rongji said that the banks' asset quality is deteriorating. Dong Fureng, vice-chairman of the Finance and Economic Committee of the NPC and a professor at Beijing University, said: "State firms already have reached their last gasp. The situation cannot go on any more." The future fate of China's banks are closely tied to what happens to state firms. In the long run the reform of the state sector will be good news for banks as it will reduce the amount of non-paying debtors and enable them to lend more to the private sector. However, in the short run, banks will have to write off almost all of their loans given to troubled state firms.
South China Morning Post (Hong Kong), 03/20/97
Increasing Demand for Accountants in China
A recent report says that as China's banking sector becomes more market-oriented, there will be a growing demand for accounting firms. Fu Yi, an official with the Chinese Institute of Certified Public Accountants said that banks want to lower risk and establish a good image so accountants will be used more frequently to check their books and write financial reports. "Accounting firms have business opportunities in every aspect of a bank's management," he said. Challenges from foreign firms will drive domestic CPAs to merge so they may have the strength to conduct bank auditing, one of the most demanding jobs asked of accountants.
South China Morning Post (Hong Kong), 03/31/97