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Country Tackles False Accounting by Foreign Firms to Combat State Losses
Accurately valuing physical assets contributed as foreign investment is the key to stemming losses to State coffers and stamping out tariff evasion, according to China's exit-entry inspection and quarantine authorities.
Such an effort will help curb the practice carried out by some foreign businesses of falsely raising the value of their investment to gain more shares in joint ventures, particularly with State-owned enterprises (SOE).
Some foreign firms also intentionally declare a low value for their exports so as to pay less customs duties.
Lu Huanling, a divisional director at the State Administration for Exit-Entry Inspection and Quarantine, said malpractice involving foreign investment activities, such as presenting false reports of assets and introducing shoddy equipment, had caused losses to China.
Physical assets include machinery, raw materials and other equipment used as investment by foreign companies in China.
Over the past five years since 1994, the commodity inspection authorities nationwide examined 55,147 batches of physical assets of foreign investment coming to China. The declared value was US$24.6 billion, according to Lu.
But, after examining the equipment, invoices and products, inspection staff found their actual value only totalled at US$22.7 billion, US$1.9 billion less than what foreign businesses had claimed, she said.
In Beijing alone, 157 value certificates have been issued by exit-entry inspectors so far this year in which foreign businesses declared assets supposedly valued at US$167.8 million. But their real value stood at US$163 million, according to Wang Jiayong, an official with the Beijing branch of the department.
Around 80 per cent of foreign investment in China has been in the form of physical assets since 1985, according to Lu.
Given that examination on just a small portion of these assets had revealed sizable losses to the State, the total damages caused by disloyal investment could be a lot higher, Lu said.
During the establishment of joint ventures in some regions, many domestic enterprises, eager to attract foreign investment, have somehow undervalue their assets, according to Lu.
"The false and intentional raising of the value of investment by foreign firms will lead to the devaluation of their Chinese partners' assets and eventually result in losses to the State,'' she said.
This conduct enables foreign investors to accumulate more stocks in joint ventures, she added.
"The country should never relent in its efforts to accurately work out the value of assets contributed as foreign investment.
Records of foreign investment should be sent to customs departments and watchdogs overseeing foreign exchange and taxation as part of efforts to curb tax evasion and other losses, she said.
The article is contributed to chinadaily.com.cn
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