U.S. News

China's Legislature Passes Landmark Property, Tax Laws

Associated Press

China's legislature passed a milestone property law Friday, strengthening protection for private businesses and property, and also revised a tax law to cut out preferential rates for foreign companies.

The property law was passed in a vote of 2,799 delegates in favor with 52 opposed and 37 abstaining on the final day of the annual two-week session of the National People's Congress.

The property law had been strongly opposed by a small but highly influential group of scholars and retired communist officials, who called it a threat to the state's guiding role and a vehicle for unrestrained privatization that will feed a growing income gap between rich and poor.

The new tax measure was approved by a vote was 2,826 in favor, with 37 opposed and 22 abstentions.

Such opposition, and the communist leadership's ambivalence about reducing the primacy of state property, caused the law to be kicked around for 14 years before a final version was submitted this year.

The property law intends to offer the same protection for private and public property -- a recognition of the private sector's rise since the start of economic reforms in the late 1970s. The private sector, including foreign investment, has grown to account for 65% of gross national product and up to 70% of tax revenues.

State industries, meanwhile, have shed influence along with employees, with China's labor minister saying earlier this week that jobs need to be found this year for another 5 million laid-off state enterprise workers.

Along with private businesses, the law also aims to bolster the rights of house buyers who have pushed the urban home ownership rate to more than 80 percent, as well as farmers who have frequently lost their land to infrastructure and housing projects, with little or no compensation.

Tax Law

The tax law unifies the tax rate for foreign-financed companies with those of Chinese enterprises at 25%, ending an era that saw China create special economic and technology zones with low taxes to attract nearly US$700 billion in foreign investment that has fueled this nation's rise to become the world's fourth-largest economy.

Under the old system, Chinese companies paid 33% of profits in tax, while new foreign investors were exempt from taxes for two years, received a 50% cut for three more years and after that could receive breaks that kept rates as low as 10%. That system had led to frequent complaints about unequal treatment.

Analysts said the law was unlikely to deter foreign direct investment, with foreign firms more concerned with the need for China to continue to level the playing field by promoting rule of law and regulatory transparency than with higher taxes.