In 2014, China declared a “war on pollution”. Since then, air quality has improved significantly, with nationwide levels of PM2.5 – harmful fine particles less than 2.5 micrometres wide – dropping by 58%. With the first campaign in that war won, China is now setting its sights on less visible pollutants.

The term “new pollutants” (新污染物) has come up frequently. It appeared in the 14th Five Year Plan, during the crucial Two Sessions political and legislative meetings, and in the outline of the Vision 2035 plan for “socialist modernisation”. It refers to hidden pollutants that lurk in the environment, cause damage in the long term – and are much harder to tackle.
The main source of these pollutants is the production and use of harmful and toxic chemicals. In May, the State Council published an action plan on new pollutants, kicking off a process of identifying such substances and assessing the harm they cause. Restrictions and bans were also put in place for a first batch of chemicals. There are hopes this will plug existing gaps in China’s chemicals regime.

Exposing the new pollutants

In actual fact, many “new” pollutants are nothing new. At a press conference in March, a Ministry of Ecology and Environment spokesperson said such pollutants are being described this way because they are less familiar to the public than conventional pollutants like sulphur dioxide and nitrogen oxides; and because as understanding grows of the damage chemicals cause, and methods for detecting them improve, new harms and pollutants are being identified.

New pollutants are chemical in nature. In the US, the Environmental Protection Agency refers to them as “chemicals of emerging concern”. These substances may be more common than you think, occurring in everyday medicines, cosmetics, insecticides and detergents, as well as commonly used industrial products. Think of the formaldehyde in shampoo, plastic microbeads in toothpaste, plasticisers in food packaging, fire retardants in televisions, and even antibacterials in soap. Their use and release into the environment can cause long-term negative effects and health issues, even in small quantities. These include endocrine disorders in both aquatic life and humans, and antibiotic resistance.

Both government and the public have overlooked these new pollutants — He Linghui, senior project chief with Shenzhen Zero Waste

China’s standards for environmental quality and pollutant emissions mainly focus on more conventional pollutants, as do its lists of managed chemicals. Most feature on one of two lists: for air pollutants and for water pollutants. Once listed, chemicals can be controlled under laws on air and water pollution.

“Most new pollutants – such as antibiotics, microplastics and perfluorinated compounds – aren’t covered by environmental standards for air, water and soil, and mostly go unmonitored,” said He Linghui, senior project chief with Shenzhen Zero Waste, adding that “both government and the public have overlooked these new pollutants”.

Fixing holes

The State Council’s new action plan includes identifying and assessing the environmental risks associated with these chemicals and deciding which ones most need to be controlled. Whole-lifecycle restrictions will be placed on new pollutants, including bans on their production and use, reduction of emissions during use, and end-of-pipe solutions (pollution control that concentrates on filtration prior to discharge into the environment rather than preventing the pollutant occurring in the first place).

According to the action plan, the identification process for high-concern and high-production volume chemicals will be complete by 2025, as will a first batch of environmental risk assessments.

“The action plan reflects a prevention-first approach to environmental risks,” said Liu Jianguo, an associate professor at Peking University’s College of Environmental Sciences and Engineering. “It is an important step in plugging gaps in China’s management of hazardous chemicals.”

That management has long been focused on industrial safety and prevention of accidents, leading to significant blind spots. The “imminent” risks of inflammable, explosive and highly toxic chemicals get plenty of attention, but hidden and long-term environmental harms are overlooked.

“China has a grasp on the risks associated with the 2,800 substances on the lists of hazardous chemicals. But there’s a lack of information and understanding of the potential environmental and health harms associated with tens of thousands of other chemicals on the market,” Liu said.

Many manufacturers use chemicals in their fabrics, not all of them with negligible health impacts

A first list of “new pollutants for priority control” will be published this year, the plan says. Substances on those lists will either be banned or subjected to usage and emissions restrictions. Meanwhile, regulators are revising guidelines on industrial restructuring in order to gradually phase out some pesticides, veterinary drugs, cosmetics and industrial chemicals.

The action plan also calls for stronger environmental impact assessments, with tough requirements for projects involving new pollutants. The list of new pollutants for priority control will be updated as more chemicals are assessed.

An earlier consultation draft of the plan included a list of 28 new pollutants for priority control. These were mainly persistent organic pollutants, endocrine-disrupting chemicals and antibiotics already restricted by international treaties.

Tougher management of consumer products

China is the world’s biggest producer and consumer of chemicals. Globally, the chemicals industry is worth around US$4 trillion a year, with China’s industry accounting for 45% of that figure. In 2020, chemicals worth US$1.77 trillion were consumed in China. These essential raw materials are widely used in making medicines, pesticides, fertilisers, plastics, textiles, building supplies, laundry detergents and cosmetics.

Information on excessive levels of chemicals in consumer products has long been buried in reports on “below-standard products” issued by regulators. Shenzhen Zero Waste collected info on 1,300 China-sourced products listed on the EU’s Rapid Alert System for Non-food Consumer Products warning system between 2019 and 2021, along with 1,700 reports of products failing sample testing published by China’s own regulators. Problem products included clothes, appliances, stationery, toys, home textiles, handbags and shoes. The organisation then looked at cases where levels of chemicals were found to be in breach of standards, finding over 100 different chemicals at fault, with phthalates the most common offender.

Phthalates – a group of chemicals often used to make plastic more flexible and therefore durable – disrupt the endocrine system, harm fertility, and can be absorbed through skin contact or respiration. They are particularly harmful for pregnant women and young children.

This is a significant step forward for China’s chemical regime

— Liu Jianguo, associate professor at Peking University

“The main problem is a lack of controls during manufacturing,” said He Linghui. “But we also note that the number of consumer product chemicals subject to controls in China is limited, with most persistent organic pollutants and endocrine-disrupting chemicals not listed, or only listed in certain products.”

She explained that persistent organic pollutants are not covered by any consumer product standard. These include perfluorooctanoic acid (PFOA) – which is used to coat non-stick cookware and fast food packaging – and short-chain chlorinated paraffins (SCCPs) – the uses of which include fire retardants for textiles. Bisphenol A, an endocrine-disrupting chemical, is banned in baby bottles, but permitted in certain quantities in food packaging.

The action plan aims to bolster management of chemicals in consumer products, calling for limits and bans on new pollutants for priority control to be included in environmental labelling systems, standards and certifications, and requiring those substances be listed in labelling for key consumer goods. It also calls for restrictions on new pollutants to be added to the compulsory national standards for products such as toys and school supplies – and strictly enforced.

“The health or environmental damage caused by a chemical isn’t decided by its properties alone – the dose to which people or organisms are exposed is the deciding factor,” Liu Jianguo noted. “In the past, national standards for chemicals in consumer products were limited. Those chemicals, under the heading of ‘new pollutants’, will now be covered by product standards, to some degree bringing China in line with international practice. This is a significant step forward for China’s chemical regime.”

Controlling drinking water risks

The Yangtze and Yellow River basins are major sources of drinking water for China, but their banks are home to many chemical plants. The action plan will see pilot projects launched to clean up new pollutants on the rivers and other important sources of drinking water, and in certain industries. The list of new pollutants for priority control issued with the earlier consultation draft included antibiotics, perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) – all of which have been the cause of recent concern over polluted drinking water.

In 2020, the news magazine Outlook Weekly published a report on antibiotic pollution of the Yangtze basin, putting average levels at 156 nanograms per litre of water – higher than levels found in the US and EU.

Antibiotics in the environment lead to antibiotic-resistant bacteria and genes, which are a threat to human health and the environment. Outlook’s report was included in a submission to the Two Sessions by the China Association for Promoting Democracy, which in turn was noted by the government.

In 2021, a team from Tsinghua University published a study in Environmental Sciences Europe, showing that drinking water in 66 Chinese cities and regions had high levels of perfluorinated and polyfluorinated alkyl substances, peaking at 502.9 nanograms per litre in one city. Over 40% of the cities studied had levels over a recommended limit published by the US state of California in 2019, of 5.1 nanograms per litre for PFOA and 6.5 nanograms for PFOS.

Animal studies have found exposure to perfluorinated compounds to be linked to a range of negative outcomes, including higher rates of testicular and kidney cancer, falls in fertility, and immune system and thyroid issues.

In March this year, China revised its safety standards for drinking water, with a wider range of pollutants included in compulsory restrictions and water quality values. New pollutants such as perfluorinated compounds are now included as a measure of water quality, but not antibiotics.

According to the action plan, the first steps towards a system for monitoring new pollutants in the environment will be in place by the end of 2025. The Ministry of Ecology and Environment’s National Environmental Analysis and Monitoring Centre says methodologies for monitoring antibiotics, perfluorinated compounds, volatile organic compounds and persistent organic pollutants have already been developed. The ministry is also to promote sharing of new-pollutant monitoring data gathered by research bodies.

We need to avoid a vicious circle where today’s replacements become tomorrow’s pollutants
– Zheng Minghui, State Key Laboratory of Environmental Chemistry and Ecotoxicity

While commenting on clean-up and substitution of perfluorinated compounds in an interview with China Environmental News, Zheng Minghui, vice-chair of the standing committee of the State Key Laboratory of Environmental Chemistry and Ecotoxicity, said that China is only just starting research into replacements for high-risk chemicals. This process, he said, will focus on identifying new pollutants and their toxic effects, possible replacements, and providing support for clean-up operations. “We need to avoid a vicious circle where today’s replacements become tomorrow’s pollutants,” added Zheng, who is also a researcher at the Chinese Academy of Sciences’ Research Centre for Eco-Environmental Sciences.

Also, key manufacturers and industrial zones in the petrochemical, paints, textiles, rubber, pesticide and pharmaceutical sectors will be chosen for pilot clean-up projects, with replacement and emissions reduction measures to be taken. This will reduce these forms of pollution at source, while polluted water, soil and sludge linked to these operations will be treated.

The next step: legislation

As tackling new pollutants will cover a range of sectors, cross-departmental cooperation and a comprehensive approach will be needed. The action plan was published by the State Council, with the Ministry of Ecology and Environment (MEE) the lead department in charge of coordinating across other bodies: the National Development and Reform Commission, the Ministry of Agriculture and Rural Affairs, and market and pharmaceutical regulators, among others.

“This means State Council-level coordination on implementing the action plan, which will help establish a cross-departmental mechanism for managing chemicals. That’s a key condition for ongoing reform and improvements,” said Liu Jianguo.

While the action plan includes targets and timetables, experts say there’s a lack of legislation to support its implementation.

Currently, China has no law specifically on management of chemicals in the environment. Wang Jinnan, an academic in the Chinese Academy of Engineering and head of the MEE’s Chinese Academy of Environmental Planning, has written that there is no legislative backing for the reporting and risk-reduction responsibilities the action plan delegates to businesses. The same is true for bans and restrictions on the use of toxic and harmful chemicals.

A Hazardous Chemicals Safety Law, China’s first such legislation, is currently in a consultation phase. Industry insiders say it may simply be an upgrading of an existing set of regulations, which may be insufficient in addressing the problem of chemicals with long-term harmful effects.

China’s management of chemicals has always been focused on preventing industrial accidents, with the Ministry of Emergency Management (MEM), formerly the State Administration of Work Safety, in charge. It was the MEM which drafted the proposed Hazardous Chemicals Safety Law.

In China, the term “hazardous chemicals” is generally taken to refer to those which are inflammable or explosive, or do immediate harm to health and the environment. The Hazardous Chemicals Safety Law may therefore focus on the prevention of industrial accidents, but overlook the long-term harm chemicals can cause in ordinary production and use.
However, the action plan does call for regulations to manage “toxic and harmful” chemicals. Insiders say that would fill out the chemicals regime and allow for better management of environmental risks, while granting more powers to the MEM.
“As a developing nation and a major producer and consumer of chemicals, China is facing far more complex economic, technical and management challenges than other countries,” said Liu Jianguo. “Tackling new pollutants will be a case of slow and steady progress. The action plan is appropriate for China and reflects how our management of chemicals is shifting from a focus on industrial safety to managing environmental and health risks.”

This article was originally published on China Dialogue under the Creative Commons BY NC ND licence.

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research services can help you build knowledge and understanding of the Chinese market prior to investment.

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The UK government has implemented the National Security and Investment Act, which came into force on 4 January 2022.  The Act allows the government to scrutinise and intervene in certain acquisitions that could harm the UK’s national security.  This includes imposing certain conditions on an acquisition, including unwinding it or blocking it completely.  The Act applies to acquisitions that are in progress, in contemplation or have been contemplated but excludes acquisitions completed before 12 November 2020.

How will the new Act affect UK-China collaboration?

Under the Act, investors and businesses have a legal obligation to notify the government about certain acquisitions across 17 sensitive areas of the economy:  

• Advanced materials
• Advanced robotics
• Artificial intelligence
• Civil nuclear
• Communications
• Computing hardware
• Critical suppliers to government
• Cryptographic authentication
• Data infrastructure
• Defence
• Energy
• Military and dual-use
• Quantum technologies
• Satellite and space technologies
• Suppliers to the emergency services
• Synthetic biology
• Transport

This could have an impact on UK companies looking to collaborate with Chinese companies and on UK start-ups seeking Chinese capital investment.

Depending on the nature of the acquisition, the notification may be mandatory, such as in the acquisition of a controlling right or interest in a qualifying entity above a certain threshold or voluntary, such as in the acquisition of a qualifying asset, including intellectual property (IP).  Interestingly, the term “qualifying entity” applies not only to UK entities but also to non-UK entities carrying out activities in the UK or supplying goods and services to the UK.  From an IP perspective, the Act could be interpreted as applying to non-UK IP rights that can be enforced in the country of origin to restrict the supply of goods and services to the UK.

Non-compliance with the Act will result in the acquisition being deemed void and the offender risking exposure to civil and criminal penalties.  A civil penalty could be as much as 5% of an organisation’s global turnover or £10 million, whichever is greater.

Will a government intervention delay my company’s acquisition? 

As recently as September 2021, the proposed acquisition of the Perpetuus Group by a China-linked group of companies, led by Taurus International, was the subject of a public interest intervention under the Enterprise Act 2002, which provided the government with similar powers to intervene on grounds of national security.  The intervention process is ongoing as of the date of this article.

Nevertheless, the government has provided assurance that the vast majority of acquisitions will require no intervention and will be able to proceed quickly.  Nevertheless, it is critical to consider government guidance and professional advice for any acquisition in the named sensitive areas to avoid downstream problems.  This is particularly relevant to the growing collaboration between UK and Chinese entities in company mergers and acquisitions, investments and IP purchase and licensing.

Government legislation and guidance to help investors and businesses understand their obligations under the new rules can be found here:

https://www.gov.uk/government/collections/national-security-and-investment-act

Jason Teng is a partner with Potter Clarkson LLP, a full-service intellectual property law firm.

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It’s that time of year again: China’s market regulator has released its legislative plan for 2021.

The State Administration for Market Regulation’s (SAMR’s) activities impact pretty much every company trading in China, be they foreign or domestic. Its annual legislative plan plays a major role in shaping China’s business environment, and this year, the SAMR plans on drafting six Administrative Regulations and 61 Departmental Rules and Administrative Measures – a slight increase on last year. The SAMR believes the new measures will improve China’s business environment and strengthen the rule of law.

This year’s list is notable because it is one of the government’s first official proposals to refer to Xi Jinping Thought on Rule of Law

Background

The SAMR is China’s leading governmental authority for regulating market competition, monopolies, intellectual property, and drug safety, as well as a whole host of other things. The Chinese government set it up in 2018 by consolidating the Administration for Quality Supervision & Quarantine, the Food & Drink Administration, and the State Administration of Industry & Commerce. As a result, the SAMR is a behemoth whose actions impact almost everyone.

The SAMR has issued a legislative work plan every year since 2019 to ensure that companies are aware of how their compliance burden might change over following 12 months. The legislative items are divided into two categories: ‘Category One’ initiatives are meant to be completed within the year, with draft policies and related materials due to enter the review phase by the end of June; ‘Category Two’ initiatives don’t have a clear deadline but are meant to be pursued nonetheless. Irrespective of the category, the bulk of these initiatives cover areas including:

• Improving the enforcement of anti-trust and anti-unfair competition legislation
• The implementation of the Patent Law
• Protecting trade secrets
• Improving the safety of food products
• Aligning differing industrial standards, certifications and accreditations
• Geographical Indicators

This year’s list is notable because it is one of the government’s first official proposals to refer to Xi Jinping Thought on Rule of Law, which became official Communist Party doctrine last November. Presented as adapting Marxist theories on the rule of law and applying them within the context of China, this includes provisions designed to ensure that foreign parties trading in and with China follow Beijing’s rules. That could become a problem for foreign companies in China if this new legal system is rolled out to the extent that scholars anticipate.

What are the six new administrative regulations?

What are the most important new departmental rules and administrative measures?

Market access

In terms of delivering improved market access for foreign companies in China, UK firms should focus on the following four items:

Revisions to the Measures for the Administration of Authorised Foreign Registration: SAMR plans on changing the registration system for foreign-invested enterprises to align it with the Foreign Investment Law and the Regulations on the Administration of Foreign Investment. Disparities between how foreign-invested companies are listed under these three measures can cause confusion at the local level among officials considering applications from foreign investors interested in areas listed on the Negative List, according to the SAMR.

Revisions to the Measures for the Implementation of the Enterprise Name Registration Management System: UK companies looking to establish a presence in China will be happy to hear that the process for registering a company name is set to become simpler. The SAMR plans to remove procedures in the current application process deemed unnecessary to reduce the ‘start-up time’ of new enterprises in China.

Interim Measures for the Handling of Disputes over Enterprise Names: These new measures will be designed to address situations of what is known as ‘Name-squatting.’ Specifically, these measures cover instances where ‘Company A’ has discovered that a rival, ‘Company B,’ has maliciously applied to set up an entity with a similar name to Company A in a bid to confuse consumers.

New Regulations on the Administration of the Registration of Commercial Subjects: These are new regulations designed to make it easier for wholly-foreign-owned enterprises to become registered businesses in China.

Intellectual property protection

The Legislative Plan contains three items that should help UK companies to protect their intellectual property in China:

Rules for the Implementation of the Patent Law: Changes made to China’s Patent Law in 2020, covering the duration of pharmaceutical patents, open licensing and the establishment of a National Priority Channel, will all be implemented this year.

Revisions to Provisions Covering the Identification & Protection of Well-Known Trademarks: The Patent Office plans on taking further steps to protect well known international trademarks in China. It plans on doing this by standardising the process through which local supervision and inspection departments determine what constitutes a well-known trademark.

Revisions to the Measures for the Registration & Administration of Collective Trademarks & Certification Marks: The Patent Office will take steps to improve the application process to have a consumer good recognised under China’s Geographical Indicators regime.

Anti-unfair competition

Revised Regulations for the Protection of Trade Secrets: The SAMR plans to improve its definition of a trade secret and the circumstances in which trade secret theft has taken place. It will pay particular attention to addressing unfair competition in artificial intelligence, software development, and other industries where innovation or scientific research plays an important role in determining competitiveness and profitability.

New Provisions Prohibiting Unfair Competition on the Internet: These new provisions will be designed to address behaviours such as deliberately creating confusion between brands or running campaigns aimed at besmirching a rival online. These provisions are particularly relevant to companies that trade in China through e-commerce platforms.

Revised Provisions Prohibiting Unfair Competition in Name, Packaging & Decoration: The SAMR will take steps to prevent companies from maliciously imitating the name, advertising or packaging of another.

Food safety regulation

Interim Measures for the Management of Food-related Product Quality & Safety: These measures aim to improve the quality of labelling on foodstuffs sold in China. A new inspection system will be introduced to improve the accuracy of the ingredients listed on products.

Revised Measures for the Administration of Business Licences for Food Providers: The application process to obtain a ‘Food Business Licence’ will be simplified. Not only will the application process be shortened so that it takes less time, the number of circumstances in which a business needs to obtain a ‘Food’ business licence – rather than a standard business licence – will be reduced. Further measures will be introduced to improve how Food Business Licences are displayed on the premises.

Revised Measures Concerning the Formulation of Milk Powder: The SAMR will take steps to improve the review process of milk products and their constituent parts after past scandals.

Revised Measures for the Supervision & Administration of Quality & Safety in the Marketing of Edible Agricultural Products: These measures aim to standardise the marketing of edible agricultural products and how ingredients are listed.

Pharmaceuticals and cosmetics

Regulations Concerning the Supervision and Management of Cosmetics Manufacturing: A ‘domestic responsibility system’ will be set up in which a representative of the manufacturer is registered as responsible for the safety of a given product.

Revised Measures for the Administration of Medical Device Registration: SAMR will adjust the requirements to obtain a certificate to sell a medical device in China that has been certified overseas.

Standards

The Introduction of a Revised Approach to National Standards Setting: To develop Chinese national standards so that a greater number of them align with international standards.

The Introduction of a Revised Approach to International Standards Management: Similar to the above but focused on the monitoring of international standards.

CBBC View

Previous SAMR legislative plans have tended to improve the business environment for foreign firms in China by resolving inconsistencies in the way laws or administrative processes have been drafted and applied, particularly between the local and national levels. There is no reason why this year’s plan should be any different. The inclusion of terms stipulating that the SAMR’s new measures will be pursued in accordance with Xi Jinping Thought on Rule of Law is interesting, although it’s unclear how it will be applied in practice.

The CBBC will continue to monitor how the SAMR legislative plan is applied over the course of the year and stands ready to assist members in understanding how it will affect their business. Members wanting to find out more should contact Joe Cash (joseph.cash@cbbc.org) or Yuan Yuan (yuan.yuan@cbbc.org) in Beijing.

Click here to read the original analysis in full.

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It seems to be working. Already the Chinese government has reduced value-added tax across a range of industries thanks to the additional tax revenue coming in, and stronger enforcement is also seen as a key factor in plans to further reduce corporate income taxes and various social security rates.

A brief history of Chinese tax reform

Beginning with the “Golden Tax 3” plan in 2016, which officially transitioned China from being a “fapiao driven tax system” to an “information-driven tax system”, the new tax policies signal a new era for taxation in China. Chiefly characterized by increased financial oversight and greater efficiency when identifying tax evasion and resolving tax disputes, the “Golden Tax 3” reforms also allow tax authorities to include the personal bank account of a business’s legal representative within the scope of a company audit.

Since July 2018, China’s state and local tax bureaus have been integrated, allowing them to consolidate the sets of data from different financial reports filed by a business. This restructuring has significantly improved the efficiency of tax administration, enabling speedy identification of inaccurate reporting and the quick resolution of tax disputes.

It is this kind of administrative restructuring and data sharing across different government bodies that is going to make taxable income more difficult to manipulate and revenue harder to conceal. For many businesses, this will mean paying more taxes. However, as a direct result of the additional tax revenue collected, the tax authorities have announced they will be further reducing corporate tax rates later in 2019, so the tax burden will be reduced for those who are already accurately declaring their tax.

Reform will bring benefits to foreign companies in China who currently adhere to the regulations and pay their taxes

From February 2019, the Peoples Bank of China (PBC) began abolishing the “Corporate Bank Account Opening License” in Jiangsu Province and Zhejiang Province, and will have abolished it nationwide by the end of the year. Originally intended for the central bank to exercise control of all new accounts created in China, with the cancellation of the license, the Chinese central bank will instead exercise control through increased monitoring of both company and personal transactions on a day to day basis. Transactions that exceed predetermined amounts and frequency will be flagged and reported to the PBC for investigation. The predetermined limits are as follows:

• Corporate bank account: A single or cumulative transaction that reaches or exceeds RMB 2 million in a single day.
• Personal bank account: A single or cumulative transaction that reaches or exceeds RMB 500k for domestic transactions in a single day; RMB 200k or USD 10k for overseas transactions in a single day.
• Cash transactions: A single or cumulative cash transaction that reaches or exceeds RMB 50k in a single day.

It’s not uncommon for legitimate transactions to exceed these preset limits and is therefore essential that businesses have sufficient evidence to support the authenticity of transactions if questioned.

Building a credit system

The Chinese government has also been working to build a social credit system within the business environment. Real name authentication for legal representatives, business owners (including the “real” business owner if the majority shareholder is a placeholder), registered finance directors, and even the registered tax accountants have been made an important part of this. Complete and accurate financial reporting has, therefore, become very important for the business owner and the accountant as it directly impacts their personal credit.

Detailed within the Measures for the Information Disclosure of Major Taxes and Untrustworthy Cases (State Administration of Taxation [2018] No. 54) are the thresholds for tax evasion and dishonest behaviour that will result in a credit rating decreasing to class “D”, the lowest class. These include:

• An accumulated tax shortage in excess of RMB 1 million, or exceeding 10 percent of the total tax payables in a year.
• Preventing the authorities from collecting overdue taxes exceeding RMB 100k.
• Either issuing over 100 pieces of false VAT fapiaos or false VAT fapiaos that amount to RMB 400,000 or more
• Other serious violations of tax law with a significant social impact

Companies with a credit rating of D will not only face many difficulties in their business operations but these will also affect the owner and responsible accountant’s personal life. Such restrictions include limitations on travelling outside of China, reduced access to loans, domestic travel restrictions and limited access to their own cash. Thus, proper financial management has become very important for the business owner and also accountants.

Eventually, reform will bring benefits to foreign companies in China who currently adhere to the regulations and pay their taxes. The flip side of this is that, with more stringent oversight, it will be increasingly common that poor accounting practices and non-compliance will result in financial penalties. Business owners are therefore advised to review their compliance status and correct any issues sooner rather than later.

By Lily Li, FCCA, managing partner and director of small business finance advisory at Axel Standard. She has an MBA in finance and has served as CFO for multiple MNCs in China.

 For more information about tax issues speak to CBBC’s Avi Nagel on avi.nagel@cbbc.org

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