Picture: Each citizen can apply for tax deductions with a downloaded phone app. For foreigners without a Chinese ID card number it requires a trip to the tax bureau. Per Linden, CEO of Scandic Sourcing was entitled for a CNY 5000 deduction per month due to 4 children and 2 elderly parents in Sweden (!).

For us that have worked long in China a changing regulatory environment is one of those things that we learn to live with and thrive on. This year there are, as usual, several quite substantial changes. We will point out just a few which we think will have far reaching consequences.

The economy in China goes through a transformation stage of lower growth and onset of maturity, and is at the same time under stress from increasing costs and the trade war with USA affecting many manufacturing companies. 

Will Social Insurance premiums kill manufacturing?

The rule that will have the biggest impact on production in China is the tightening of Social insurance payments. From January 1, social insurance contributions will be paid to China’s tax bureau, instead of the HR bureau. The rule has always been that all compensations should both be taxed and form the basis of social insurance contribution, however, it has been a common practice due to lack of coordination between the agencies, to use different base for income tax and social insurance, by having a low basic salary on which social insurance was paid and avoid to pay on allowances and overtime. If implemented fully this new law will have a severe impact in the manufacturing industry in China where migrant workers often refuse to contribute to social insurance, as the system is not nationwide and they will not enjoy all the benefits. Scandic Sourcing help clients monitor their Chinese subcontractors for social compliance as part of the Scandic Supplier code of conduct Audit program and have audited hundreds of factories in China. “We often find that companies pay social insurance for their local resident workers but at the wrong level and for migrant workers it is fairly common that they don’t pay at all. There will be a substantial cost increase in labor intensive manufacturing companies”, says Fredrik Sundstrom, Operation manager at Scandic Sourcing in Shanghai. There are no news yet on when a unified national social insurance system will be introduced.


Will there be a lack of workers

To finance the social insurance system start to look like a tough challenges for China with an aging population. Now the awareness of that the population will peak in a few years and then rapidly decline start to worry. By 2050 it is also estimated that 30% of the population will be over 60 and the active workforce shrink with 300 million people from its peak. The one child policy was abolished in 2015, to be replaced with a recommendation, but still a restriction to have two children, and lately there has been discussions to abolish the system completely and to encourage 3 children. This is not so easy with high cost of living and especially real estate prices in the cities. Young people are focusing on their careers and having children later. Newly married people in some parts of the country now have to pay a deposit of about CNY 20,000 when they get married, which they can get back after they produce a baby (1 CNY= 6.9 USD)

(Continue to read…)


China's August Value Added Tax reform, in short named Circular 37 had international shipping companies at a clear disadvantage with unequal tax treatment in regards to their Chinese counterparts. This is now being revised with a new VAT-tax reform called Circular 106 which will yet again level the playing field for international shipping companies operating in China. 


shanghaichinashippingThe seas have been quite rough lately for International Shipping Companies operating in China. Luckily, some unfair VAT tax reform practices will be amended as of January 1, 2014.


Three Gorges

The world's biggest dam, the Three Gorges, established as part of China's enormous investments in renewable energy.

Last year China spent more than any other nation in the field of renewable energy; 65 billion USD, an amount corresponding to one fourth of the rest of the world’s green energy investments combined. The spending is part of a new 5 year plan, drafted in 2011 to reach ambitious climate goals: to lessen coal usage for electricity production from 70% to 63%, while lessening carbon dioxide emission by 40% by 2015. The goals for 2020 is even loftier: to have renewable energy support 20% of China’s energy production.

Despite the stated goal to allow markets to play a larger role in the Chinese economy following China’s Third Plenum, Chinese citizens are still not entirely free to take capital out of the country, though many are trying to do so illegally. Currently, the cap is set to $50 000/year. The Hong Kong and Shanghai Banking Corporation (HSBC) predicts that the renminbi will be one of the most traded currencies in the world, on par with the euro and the dollar by 2015, but many things still hinder unfettered cross border transactions with the renminbi (RMB).[1]
Despite the $50 000/year investment cap, wealthy Chinese (with over 10 million RMB to their name) still hold 19% of their assets overseas and 44% have plans to emigrate themselves according to the Hurun report.[2]

china traffic jam2

Increasing amount of cars spurs China’s oil demands: Currently, there are around 100 million cars in China –  a number expected to grow to 350 million before 2030.

In September, China passed the US as biggest oil importer in the world. China now imports 6.3 million barrels per day, compared to the United States’ 6.24 million barrels. According to Wood Mackenzie, an energy consultancy, Chinese oil imports will rise to 9.2 million barrels per day by 2020.*