A notice released by the State Administration of Taxation last week says that overseas companies and overseas-funded joint ventures are expected to be free from business tax when they are doing financial assets disposal business in China, including debt and equity.

Under the new regulations, income from disposing of other debts and equity is exempt from business tax for overseas firms. Gains from tangible assets will still be liable for business tax, or value-added tax (VAT).

Usually, firms buy out other's assets including debt, equity and tangible assets as well as combinations of any of these, and then harvest gains through transfer, recovery, exchange and sale.

Overseas firms can get assets of other enterprises in China through the country's four asset management corporations, which are in charge of handling non-performing assets.

Over the past few years, China's four asset management corporations have been quite efficient. The People' Bank of China, the central bank, says that by 2002, the four corporations had handled more than 36 billion US dollars in non-performing assets and recovered assets valued at 13 billion US dollars, putting the recovery rate at 33 per cent.

China's WTO membership calls for it to open up more in non-performing asset management. Participation of overseas investment banks and corporations could really help China to re-structure its mountains of unpaid loans, which would be good not only for Chinese banks, but also for various companies, especially State-owned enterprises. The new policy signals a gradual opening-up in China's asset replacement sector.