| Since the reform and opening-up, enterprises with foreign investment in China keep developing in a high speed. Beyond all doubt, the introduction of foreign capital has promoted Chinese economic development. However, though the number of enterprises and number of projects looks exciting, few enterprises reports to be making profits. Implausibly, about 50% of the enterprises with foreign investment in China claim to be in deficit.Is it real that so many enterprises are in deficit? As far as the author observed, it is not the fact. Lots of enterprises pretend to be in deficit in book but make profits in practice. For the purpose of evading taxations and defrauding of preferential policies, they adopt the instruments of "transfer pricing", and"fraudulent accounting"to manipulate the profits. However, the public has insufficient understanding of their behaviors of profit manipulation. This paper is to analyze the main instruments of profit manipulation of enterprises with foreign investment in China. To promote the economic development in China and better development of foreign capital introduction, it is brought forward that the behaviors of profit manipulation in enterprise with foreign investment should be controlled and better control ways should be sought.This paper consists of five chapters.The first chapter, it introduces the current status of foreign capital introduction, shows with data the serious deficit situation of enterprises with foreign investment in China, and shows the strange phenomena that investment become more and more enthusiastic when the deficit become more and more serious. Through analyzing the rate of gross profit on sales during the 7 years from 1998 to 2004, this paper reveals the abnormal phenomena that the gross profit rate on sales of enterprises with foreign investment are lower than that of domestic enterprises and brings forward the judgment of profit manipulation inthe enterprises with foreign investment.The second chapter analyzes the motive of profit manipulation of the enterprises with foreign investment to be taxation evasion, monopolizing EBT, accelerating capital reflow and make exchange risk aversion.The third chapter focuses on "transfer pricing", one of the main instruments for profit manipulation. Firstly, it analyzes transfer pricing in the businesses including import and export of merchandise and equipments, loan, labor service, intangible assets transfer, etc. Then it expounds with a case the procedure of profit manipulation by transfer pricing, and the result of profit as well as the general adjustment method for transfer pricing.The fourth chapter discusses another instrument of profit manipulation in the enterprises with foreign investment, fraudulent accounting. The fraudulent accounting methods for eleven items such as prime operating revenue, cost and expense are listed and analyzed in detail.The fifth chapter analyzes the adverse effects caused by profit manipulation to Chinese economy. It illustrates that they are moves for hitting illegal acts and purifying investment environment to control behavior of profit manipulation. Then it offers several proposals such as legal system construction, administration of judicature and social audit on the control of transfer pricing and fraudulent accounting. |
