THE PACIFIC : China Criticizes Foreign Investors for Hiding Profits

China on Saturday sharply criticized the “capital games” of foreign investors who whisked their profits out of the country through accounting deceptions and tax evasion.

“We welcome foreign businessmen’s investment in China and will protect their lawful rights and interests,” the official People’s Daily said.

“But we will absolutely not allow foreign businessmen to seek exorbitant profits, to violate our country’s laws, or to use all sorts of illegitimate means to extract (profits).”

The article, headlined “Capital Games and Profit Leaks,” accused some foreign investors of using many fraudulent methods to deny China its rightful share of taxes and profits and to secretly spirit foreign currency abroad.

In one survey, the newspaper said, more than half the foreign-funded ventures had failed to pay in their full amount of registered capital.

Some foreign firms had jacked up the price of the equipment they put into the Chinese investment or used poor-quality machinery to artificially boost the size of their investment.

Some foreign ventures exaggerated their rate of dividend or the prices of the raw materials they used, the article said. Others padded their local expenses and shipped their finished goods back to the head office at below cost.

The article admitted that China’s frenetic emphasis on foreign investment, as part of economic reform, had led to some abuses.

“In recent years, many places linked the number of established foreign-funded ventures with the achievements of local leaders, which gave rise to false enterprises,” it said.

The newspaper, demanding a “strict and standard” system, said laws must be strengthened, particularly those aimed at curbing tax evasion.

China this year reported a sharp drop in foreign investment from the record levels of 1993, when legions of board directors flocked to Beijing in a race to participate in the world’s fastest-growing economy.

Official media have reported that contracted foreign investment in the first five months of 1994 was $32.7 billion in 20,230 projects, against $58.76 billion in 43,632 projects in the first half of 1993.

In the first quarter, contracted investment was $25.39 billion in 10,739 projects, down 51.3% and 43.6% respectively from the same 1993 period.

In the whole of 1993, contracted foreign investment was $122.7 billion, up 76.7% on 1992, a figure China said was the highest in the world.

Economists blame the drop on fewer privileges offered to joint ventures, stronger competition for investment dollars and tighter credit policies by Beijing that have cut growth, especially in real estate.

Some foreign business people have said they are wary of the dangers of investing in China, which is wrestling with an economy on the verge of overheating.

Separately, China said Sunday it hoped to rejuvenate its sagging Class B share markets by adopting unified national regulation of the shares, which Chinese firms sell to foreigners to raise foreign capital.

National newspapers also said China’s central bank is moving anew to seize control over the ill-regulated investment fund market, ordering a temporary halt on new funds and banning other agencies from approving funds.