Operation Costs of Foreign-Invested Enterprises in Chongqing

By Xinyi Li, EDITOR

Labor Cost

Based on the survey, 77% of respondents were satisfied with the labor cost burden, increasing by 3% compared with 2017; and only 3% of respondents were unsatisfied.

53% of respondents indicated that their labor cost in 2018 is higher than that in 2017, while 44% of respondents considered there was no change. Regarding the sharply increasing labor cost in 2018, the respondents considered that rising payroll cost and social security cost were the key factors (accounting for 30% and 24% respectively).

46% of respondents indicated that the performance assessment was the main reason to adjust salary.

Most respondents indicated that their employees were self-owned, and the proportion of human resource outsourcing was dispatched staff is not high. 69% of respondents considered the employee turnover was stable in 2018.

Overall, foreign-invested enterprises in Chongqing have a clear concern on labor cost: the payroll cost and social security cost are continuously increasing. It’s suggested that the Chongqing government could promulgate relevant policies to reduce the levy rate of social security; establish a minimum wage adjustment mechanism which is in line with the level of economic development; establish and improve the floating management system of employment injury insurance premium rate; and implement the policy of unemployment insurance fund to support enterprises to stabilize their headcounts. At the same time, it is suggested that the Chongqing government shall make clear the enterprises’ demands on talent/workers, optimize the environment of recruitment market, to effectively reduce the labor cost of foreign-invested enterprises.

Energy Cost

Based on the survey, 86% of respondents were satisfied with the energy cost burden, increasing by 2% compared with 2017; and only 2% of respondents were unsatisfied.

80% of respondents indicated that their energy costs in 2018 are almost the same as that in 2017, while 17% of respondents indicated that it increased, which was similar to the last year.

Regarding the components of energy costs, the respondents indicated that the cost of electricity and water for production use are the major ones (accounting for 44% and 33% respectively). 61% of respondents estimate the energy cost would maintain in the future while 32% of respondents estimate that it would go up, increasing by 4% compared with 2017.

Regarding the respondents’ problems and challenges in energy cost control, the top three are (1) high expenses and difficulty in cost control management, (2) high costs of new energy technology or immature of new energy technology, (3) lack of management- related technology and talent.

The respondents considered that the key topics of China’s long-term energy strategy are (1) priority strategy for energy conservation, (2) development of clean and low-carbon energy.

In conclusion, Chongqing performs well in supplying sufficient energy and maintaining the price stable. It is suggested that the government pays attention to energy saving and comprehensive energy services of enterprises; accelerate market-oriented reform and innovation of pricing mechanism of electricity, water, and gas; promote transformation and upgrading of enterprises, and further enhance industrial competitiveness. At the same time, to vigorously support the new energy industry to form a diversified energy supply.

Logistics Cost

Based on the survey, 84% of respondents were satisfied with the logistics cost, increasing by 2% compared with 2017; and only 2% of respondents were unsatisfied.

68% of respondents indicated that the logistics costs in 2018 are almost the same as that in 2017, while 30% of respondents indicated that it increased, 2% of respondents indicated that it reduced.

Regarding the components of logistics costs, the respondents indicated that the cost of transportation, loading & unloading & handing are the major ones (accounting for 44% and 23% respectively).

The respondents indicated that highway transportation is the main method of transportation (accounting for 71%). In 2018, airline transportation increases sharply, taking place of trainline transportation to become the second top of transportation ways (accounting for 18% and 11% respectively).

Outsourcing logistics has a huge change in 2018, showing that there is only 42% of respondents choose this way, while 86% of respondents preferred in 2017; and the rest of respondents hold a view on considering and eliminate outsourcing logistics. However, over half of the respondents think that the weight of outsourcing part in total logistics activities would be increased in the future.

The top three problems and challenges in logistics costs control are (1) imperfect infrastructure and facility, (2) long goods turnover and heavy inventories, (3) low level of enterprise's logistics informatization.

Overall, it is suggested that the Chongqing government attract high-level professional logistics service enterprises, encourage enterprises to improve the quality and level of logistics service and logistics transport capacity. At the same time, to increase the investment in logistics infrastructure construction, and to reduce tolls of highways, in order to effectively reduce the logistics costs of foreign-invested enterprises.

Tax Burden

Based on the survey, 77% of respondents were satisfied with the tax burden, and only 4% of respondents were unsatisfied.

41% of respondents indicated that the current tax burden is a bit heavy, while 45% of respondents indicated that it is basically reasonable. 69% of respondents indicated that their tax burden has basically no change after Business Tax to Value-added Tax Convergence Reform, while only 11% of respondents indicate that it increased.

Besides the taxes, the top three government levies which the respondents considered being heavy are (1) social security, (2) educational surtax, (3) the employment guarantee fund for the disabled (accounting for 48%, 18%, and 17% respectively).

82% of respondents were satisfied with current tax preferential policies, increasing by 8% compared with 2017. Regarding the problems of current tax preferential policies, 41% of respondents indicated that it was difficult for them to meet the requirements of tax preferential policies, 30% of respondents indicated that there was no enough propaganda on the policies; and 29% of respondents indicated that there were different interpretations of the grass-roots tax authorities, and the enforcement was not enough.

In a word, despite the successive tax cuts and fee reduction introduced by the central government, the respondents indicated that their tax burden is still heavy when the global economy is not good. It is suggested that the Chongqing government could publish quick measures to guarantee the implementation of tax cuts and fee reduction works smoothly and effectively.

Financing Cost

Based on the survey, only 30% of respondents indicated they didn’t face the fund shortage. However, for the severity, 82% of respondents chose “general”.

42% of respondents indicated that the fund (to be financed) will be used for maintaining the daily operation, 44% of respondents indicated that it will be used for enlarging the production scale, and only 14% of respondents indicated that it will be used for research and development, which has increased by 6% comparing with 2017.

Regarding the funding sources, the top three are (1) self- raised funds, (2) bank loan, and (3) financing by intercompany. And the most preferred financing institutions are the Big Four commercial banks in China (accounting for 48%). 68% of respondents indicated that the current financing channels can basically meet the current needs of financing.

The key factors for the successful financing are the scale, profits situation and the reputation, the credit qualification, the financial system and the financial situation of the enterprise.

55% of respondents believed that the government should implement awards and tax cuts policy for those who have a large number of credit availability and the low strike rate in small and medium-sized enterprises to solve the problem of "financing difficulties“ effectively.

In conclusion, respondents with fund shortage were not obvious and the satisfaction has been promoted comparing with 2017. To support the development of enterprises further, it is suggested that Chongqing could subsidize the financing cost of enterprises in a certain proportion; provide financing support through interest subsidy and risk compensation; encourage banks, commercial insurance companies and other institutions to provide accounts receivable financing for enterprises; establish and improve policy guarantee and re- guarantee institutions for enterprise financing; encourage enterprises to broaden financing channels by means of equity pledge; guide enterprises to make use of overseas low-cost fund and increase the ratio of settlement in local currency of cross-border trade of enterprises.

Institutional Transaction Cost

Based on the survey, regarding the severity that the institutional transaction cost affects the respondents’ operation, 57% of respondents chose moderate, and 29% of respondents considered it relatively large, increasing by 3% compared with 2017.

The top three of existing types of institutional transaction costs are (1) taxes and levies (accounting for 41%), (2) financing cost (accounting for 20%) and (3) time cost for administrative approval (accounting for 17%).

Regarding the effect of the existing measures for reducing institutional transaction cost, reducing the charging standard of social security and cleaning up and cancelling unreasonable charges as well as transition from Business Tax to Value-added Tax, more than 85% of the respondents were satisfied, and the proportion has increased compared with 2017 while less than 1% were unsatisfied.

Overall, the government’s effort to reduce institutional transaction costs were acknowledged and recognized by the respondents. Current institutional transaction costs still focus on tax burden, financing costs and time cost for administrative approval. It’s suggested that Chongqing could simplify the approval/record/registration procedures for foreign investment; continue to promote the reform of the examination and approval system for construction projects and clean up and standardize intermediary service fees; establish a regular communication mechanism for foreign-invested enterprises, and timely collect opinions and suggestions from foreign-invested enterprises. All these measures tend to reduce the institutional transaction costs of enterprises effectively.

Source: Chongqing Association of Enterprises with Foreign Investment