Chinese Legislature Passes Landmark Laws

[Belushi]

Chinese Legislature Passes Landmark Laws
Mar 15, 10:45 PM EST
By CHRISTOPHER BODEEN - Associated Press Writer


BEIJING (AP) -- 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 leaderships 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 percent of gross national product and up to 70 percent 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.

The tax law unifies the tax rate for foreign-financed companies with those of Chinese enterprises at 25 percent, 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 percent of profits in tax, while new foreign investors were exempt from taxes for two years, get a 50 percent cut for three more and after that could receive breaks that kept rates as low as 10 percent.

That system had led to frequent complaints about unequal treatment.

Also Friday, Premier Wen Jiabao said China's creation of a new company to invest a portion of its $1 trillion in foreign exchange reserves will have no impact on Beijing's holdings of U.S. dollar-denominated assets.

Wen made the comment at a news conference in response to a question about how the planned company would invest the reserves. Some economists have suggested that China's plans to diversify its investments could affect its substantial purchases of U.S. Treasuries, which helps to finance the U.S. government budget deficit.

China is believed to keep as much as 70 percent of its reserves in U.S. Treasuries and other dollar-denominated assets.

"It is true that in China's foreign exchange reserves, U.S. dollar-denominated assets account for a large proportion," Wen said. "I can assure you that by instituting such a foreign exchange company, it will not have an impact on the U.S. dollar-denominated assets."

Wen gave no other details.

http://www.insightbb.com/story.aspx?doc=ON...0.xml&top=NEWS2
--------------------------------------------------------
Being the resident China freak, what are your thoughts on this, Bai (would that not actually, and literally, be my Chinese family name) ?

[bai_zilong]

I saw this article as well; very interesting! My chief complaint is that there is no mention of what the specific changes were. Article could certainly be much more informative! Indeed it is quite hard to come to any conclusions without knowing more. I would like to say, for example, that I disagree with the dissenting argument that this new law will widen the income gap. In general, securing property rights actually narrows the income gap and promises much stronger economic growth in the long run. Yet it is impossible to say anything here. Will the farmers who constantly lose their property to corporate interests (under the guise of society's interest) FINALLY have secruity of their property (or at least a market-value settlement), or has this facet of property rights in China been left in tact? Who knows?!

[Belushi]

Indeed, I looked (half-heartedly, admittedly) to find a more in-depth article, but alas... nothing.

I wasn't under the impression that property laws had the specific effect of narrowing income gaps. Then again, my knowledge of economics is rather pitiful.

I hope it works out well for all parties. Democracy often requires a strong middle class, and perhaps this will allow one to develop. With more economic freedom, one must wonder what else will jump out of pandora's cute little box in the not too horribly distant future.

This post has been edited by Belushi on Mar 16 2007, 11:29 PM

[Belushi]

http://en.wikipedia.org/wiki/Property_Law_...public_of_China


Maybe this will give you more info on the law.