Enterprises
One of the most important tasks of factory directors and of department heads in charge of finance is to turn the flow of financial resources between their enterprise and the government increasingly in their favor. The greater the proportion of revenues they keep, the more prosperous will be their employees and the greater their ability to fund their own expansion. Such growth and prosperity will be viewed favorably by their superiors.[10] The nominal tax rate on enterprises in China is very high. Taxes on sales revenue or value added usually take from about 10 to 15 percent, and of the remaining "realized profit" (shixian lirun ) there is a standard income tax (shouru shui ) of 55 percent, an individually set adjustment tax (tiaojie shui ) that usually is between 5 and 30 percent, and a variety of smaller local taxes and levies.
The remainder is kept by the enterprise and put into several funds in proportions decided upon by the finance bureau, with participation of their "leading organ" (lingdao bumen or zhuguan bumen )—either an industrial bureau (gongye ju ) or a company (gongsi ). Commonly, a portion is for employee benefits and bonuses, another for development of production, and a third for reserves. Only one of these funds, for bonuses and benefits, comes close to meeting perceived factory needs (though managers commonly feel pressure to enlarge this fund even further).[11] China's reformers also encourage enterprises to pay for more of their own expansion out of retained funds. From 1977 to 1984 the percentage of national investment paid for by enterprises increased from 38 to 44
percent.[12] But retained profits themselves cover only a fraction of enterprise investment funds: as late as 1982, enterprise depreciation funds were still double the amount of retained profits.[13] In short, enterprises must still rely upon public investment and bank loans to cover their projects, and they must have tax breaks in order to repay these loans.
Therefore, negotiations over investment projects and marginal changes in revenue flows have assumed central importance to the manager; they determine the prosperity and future vitality of the firm. Managers seek to reduce the effective taxation rate on their enterprises in both the long and the short run. Their primary opportunity to do so is when they are given permission to engage in a major construction or renovation project that expands plant capacity or increases the technical efficiency of the firm. When this occurs, the flow of funds must be renegotiated in the short term, because enterprises otherwise will be unable to repay their loans, and in the long term, because plant improvements or expansion can greatly affect the firm's ability to generate revenues. Almost every investment project is accompanied by a corresponding set of tax breaks. The task of the manager, therefore, is to get investment projects approved and to negotiate the most favorable possible tax treatment, both during and after the project. He must draw up financial projections, submit applications to leading organs, and persuasively present the project, both formally and informally, to the members of the city's industrial circles.