Controls on processing trade in China tightened

The State Council has recently introduced a series of new measures to tighten its control on processing trade activities. Document No. 35 "Opinion on further improving the Bank Guarantee Deposit System for the Processing Trade Enterprises" means that, as from 1 October 1999, various measures will be implemented with the aim of providing a conducive environment for legitimate processing enterprises to prosper, while stamping out illegal activities such as smuggling, tax and foreign exchange evasion.

The new measures will categorise processing enterprises and goods imported for processing. Enterprises will be categorised on the basis of their management efficiency and record of compliance with customs regulations. Goods will be classified into three categories: prohibited, restricted and permitted goods. Enterprises will be required to make security deposits equivalent to the sum of the import duty and VAT on restricted goods which are imported for processing. However, enterprises may find that the restrictions are eased if they fall within the various categories indicating good management efficiency and compliance records. Other measures also tighten controls on factory transfers and processing trade activities involving different customs jurisdictions. These measures put into place on a nationwide basis the "Measures to control the processing trade involving materials transferred between factories and across customs territories" regulations which were trialed in Guangdong and Fujian provinces in April.

Aili Zhao, +86 10 6590 0389,