Compliance Policy Changes

After China underwent its first reform in the 1980s, a window of opportunity opened up for bribery and financial fraud. Three decades later, by 2015, the government completed over 180,000 investigations and punishments of high- and low- level officials for corruption and abuse of power. In 2014 alone, over 55,000 officials were investigated – a significant 7% increase from the previous year. One thing is clear: the Chinese government is serious in its anti-corruption efforts, a prime example of this being the recent case of former Senior Leader Zhou Yongkang, who was sentenced to life in prison. This sent shockwaves through the country, as now even high ranking party members were no longer immune to scrutiny.

China still has a long way to go when it comes to eradicating corruption, considering that even after dramatically stepping up efforts, its Corruption Perception Score is still embarrassingly low according to Transparency International. Nonetheless, these reforms have triggered a new awareness for transparency and compliance within the government and business sector. After Premier Li Keqiang announced the government’s plan to streamline administration, delegate power and further facilitate market access for foreign companies earlier this year at the Davos World Economic Forum, the State Council took action and issued reform plans for the year 2015. Now, local and international companies alike are subject to more stringent reporting regulations, creating an increasingly fair  and transparent playing field and, consequently, new opportunities for foreign firms in China.

 

As part of this initiative the government launched the Enterprise Credit and Information Disclosure System (ECIDS) in October 2014, for all companies incorporated in Mainland China, replacing the previous annual inspections. This online platform allows the public to access the creditworthiness of these companies and provides transparent and open information submitted by the companies themselves regarding their business scope. Inspections are enforced through a lottery system and if companies are discovered to be noncompliant, they will be added to a blacklist and as a consequence will be restricted or banned from participating in government procurement programs, land usage rights, and tendering processes.

In addition, the Chinese customs administration launched the Interim Measures for Enterprise Credit Management (IMECM) in December 2014 to increase transparency in the customs process, in line with the ECIDS. These new measures replaced the existing Customs Compliance Rating Scheme, reducing customs clearance time and delays in the supply chain for compliant companies.

The State Council is planning to introduce a unified social credit code system to enhance effective management and information sharing. This will replace the current, rather tedious system of companies incorporated in China applying and paying for various codes, including an industrial and commercial registration number, an institutional credit code and a taxpayer identification number when dealing with registration procedures. The government is urging Industrial and commercial departments to introduce this new code system by October 1st, 2015.

Until now, it has been common practice for local governments to enforce their own preferential policies for specific companies and their investors, especially in the realm of taxation, non-taxed revenue, and fiscal expenditure incentives. Since this year, the State Council is enforcing investigations of all relevant ministries and local governments on their existing policies. These will be abolished and aligned with state regulations within a transition period of 3 years, in an effort to create a consistent, nation-wide policy system. The government’s aim is to prevent such policies that impair market mechanisms, undermine government controls, or may even violate international trade obligations.