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China challenges World Bank

By Wang Xinyuan (Global Times)

08:23, May 08, 2013

China is hoping to make changes to the World Bank's most popular research report, alleging that it fails to reflect the country's recent efforts to improve its business environment, according to a media report Tuesday.

The world's second largest economy wants to eliminate the ranking of countries in the World Bank's annual Doing Business report, which measures the regulations facing small and medium-sized enterprises (SMEs), the Financial Times newspaper reported Tuesday, citing sources with knowledge of the matter.

China was ranked 91st among 185 economies worldwide in the 2013 Doing Business report, which was released in October 2012. The country's score was dragged down by heavy tax burdens and the bureaucracy involved in granting business permits.

The rank was the same as in the 2012 Doing Business report, but 12 places lower than the 2011 report.

The report "used wrong methodologies, failed to reflect facts, misled readers and added little value to China's improvement of the business environment," Han Bin, China's deputy executive director at the World Bank, was quoted as saying.

Last year, at the request of China and other critics, World Bank President Jim Yong Kim set up an independent panel to solicit comments to review the Doing Business report.

The panel conducted hearings and has received 150 submissions. The panelists are presently involved in drafting their report, which will be handed to Kim by the end of May.

China's Ministry of Commerce was not available for comment by press time.

"A lower rank places China at a disadvantage in attracting foreign investors," Xu Chang

wen, a researcher at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times Tuesday, noting that investors tend to be more cautious amid a sluggish world economy.

China's actualized foreign direct investment reached $111.72 billion in 2012, down 3.7 percent from the year before, but the situation improved in the first quarter of 2013, with a 1.44 percent rise year-on-year, according to official data.

Difficulties in the business environment are partly a result of rising labor costs in recent years, coupled with an economic slowdown and a falling supply of new labor, said Tu Xinquan, associate director of the China Institute for WTO Studies under the Beijing-based University of International Business and Economics.

China's efforts to restructure its economic growth model by moving toward high-end manufacturing have also made it less attractive to foreign SMEs, the majority of which focus on lower value-added businesses, Tu said.

Another factor worth noting is the effort to tighten tax collection, particularly from SMEs, by local governments at a time of volatile fiscal revenues following a decrease in land sales. This has also made life harder for SMEs, he noted.

The Chinese government is trying to reform its tax system by extending value-added tax in the services sector to replace the business tax. But the tax rate and various fees need to be lowered further to spur economic vitality, Tu said.

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