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IFC report hails business reforms in China

By Xin Zhiming (China Daily)
Updated: 2008-09-11 08:01

China has introduced important reforms since June 2007 that make it easier for businesses to obtain credit, pay taxes and enforce contracts, according to Doing Business 2009 - the sixth in a series of annual reports published by the World Bank Group's International Finance Corporation (IFC).

As a result, the country's global ranking in terms of the ease of doing business rose to 83 from 90 in the last report.

China introduced a new property law in October 2007 that made obtaining credit easier by expanding the range of assets used as collateral to include accounts receivable. It also reduced the tax burden on businesses by cutting the corporate income tax, according to the report, released Wednesday.

China's legislature, the National People's Congress, approved a unified corporate tax last March, which reduced the corporate income tax rate from 33 percent to 25 percent. The law came into effect on January 1.

In addition, tax bureaus have shortened the time required to pay taxes, while contract enforcement was also strengthened. These are "big improvements", making it easier for businesses to pay taxes, said Josephine Bassinette, IFC's program manager of business enabling environment in China.

The country has also unified the criteria and accounting methods for tax deductions, according to the report.

However, the report dubbed China's revision of its Labor Contract Law as a "negative" reform in terms of the ease of doing business. Thes new law, which forbids employers from willfully firing workers to protect the latter's legitimate interests, came into effect on January 1.

"The way they (IFC researchers) measure it is that it is harder in a sense to hire and fire workers; there is a loss of flexibility," said Bassinette. "However, it is not a quality statement; it's not saying that it is a bad thing," she added. "If you look at it from a social perspective, which the report does not, it protects labor rights."

Globally, regulatory reforms are gaining momentum worldwide, reaching record numbers this year, the report said.

"Economies need rules that are efficient, easy to use and accessible to all who have to use them," said Michael Klein, World Bank/IFC vice-president for financial and private sector development. "Otherwise, businesses get trapped in the unregulated, informal economy, where they have less access to finance and hire fewer workers, and where workers lack the protection of labor law."

Singapore leads the rankings in terms of the overall regulatory ease of doing business for a third consecutive year. New Zealand was runner-up, and the United States was in third place.