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In early November 2005, officials at the PRC Ministry of Commerce (MOFCOM) told the US-China Business Council (USCBC, publisher of the CBR) that existing manufacturing foreign-invested enterprises (FIEs) that expand their business scopes to include distribution will continue to enjoy manufacturing tax incentives as long as they derive more than 50 percent of their total revenue from manufacturing.
MOFCOM had previously set conflicting thresholds for such tax breaks. In April, MOFCOM indicated that a manufacturing FIE would lose the tax breaks if its distribution revenue exceeds 30 percent of its total revenue after it incorporates distribution into its business. (The CBR reported this figure in our last issue, November-December 2005, p.24). In September, however, MOFCOM's Practical Handbook for Foreign Investors Investing in the Commercial Sector indicated a minimum of 50 percent revenue from manufacturing as the preferential tax treatment threshold. MOFCOM officials confirmed with USCBC that the September handbook sets the correct requirement. MOFCOM apparently failed to revise the April 2005 notice and did not clarify this change elsewhere in writing.
USCBC also confirmed with the State Administration of Taxation (SAT) that companies may receive the tax breaks as long as their manufacturing revenue is more than 50 percent of their total revenue within a given year in the tax holiday period. Thus, companies whose manufacturing does not reach the 50 percent threshold in one tax holiday year may enjoy the tax breaks in subsequent remaining years as long as the manufacturing revenue is more than 50 percent of total revenue during those years. (SAT reviews companies' tax payment and relevant financial situation each year to determine whether they are qualified for certain tax breaks.)
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Top 500 FIEs in China Ranked
In early December 2005, MOFCOM published the 2005 list of the top 500 FIEs in China by sales. The 405 manufacturing enterprises account for 81 percent of the top 500, while services providers make up 18 percent of the total. Hong Kong remains the lead "foreign" investor in China, with 136 enterprises on the list, followed by Japan (83), the Virgin Islands (67), and the United States (32). Hongfujin Precision Industries (Shenzhen) Co. Ltd., Motorola (China) Electronics Ltd., and Shanghai Hewlett-Packard Co. Ltd. ranked as the top three FIEs. As in previous lists, the "foreign" investment of many FIEs is actually domestic Chinese funds that are routed through Hong Kong or another offshore locality to take advantage of preferential policies for foreign investors.
PRC Launches Government Web Portal
In an effort to improve governmental transparency, the PRC government launched an English-language website, english.gov.cn, in late November. Like its Chinese-language counterpart, www.gov.cn, the English-language portal allows visitors to browse news headlines and link to websites of PRC government bodies. The portal also links to websites containing information for prospective investors, residents, and visitors.
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Chinese netizens are increasingly accessing the Internet through broadband connections at home, according to a major survey recently completed by the Chinese Academy of Social Sciences. In 2005, nearly 60 percent of people going online used broadband, while only 18 percent used dial-up modems, down from 53 percent in 2003. Slightly more people were accessing the Internet from home in 2005--76 percent, compared to 73 percent in 2003. This corresponds to a slight drop in the percentage of people accessing the Internet from cafés, from 34 percent to 30 percent. Internet users are also spending more time online, recording an average of 3 hours a day, up from 2 hours in 2003. The survey reveals that Chinese surfers go online primarily for entertainment—to read entertainment news, download music, and play online games. Television and newspapers remain the primary sources of domestic and international news, however. As in previous years, the typical Internet user is young, male, well educated, and well paid.
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