Foreign ventures making paper losses

Many FIEs are evading tax by making paper losses, China Business Times said. According to figures compiled by the anti-tax evasion division of the National Tax Bureau, 35- 40 per cent of such firms reported losing money between 1988 and 1993, rising to 60- 65 per cent between 1996 and 2000.

The most popular method of reducing profit is to inflate the costs of production and under-report the cost of the final product. Another method is to take out high-interest loans from related companies and use the interest payments to send the profit abroad.