On 2 August 2010 the Legislative Affairs Office of the State Council issued the Act on Supervision and Examination of the Costs Regarding the Prices Set by the Government (Draft to Seek Comments) in order to implement the Price Law. According to the Price Law, there are three kinds of price: the market-adjusted price (formed according to the demand and supply of the market), the government-set price (set by the government) and the government-guided price (set under the guidance of the government). The purpose of the act is to prevent concerned business operators from inflating government-guided or government-set prices by inserting different kinds of unreasonable and irrelevant costs. The act will affect mostly state-owned enterprises engaging in public utilities, natural resources and some other state-monopolized products.
Pricing-Cost Examination
To achieve the above purpose, the act is to supervise and examine the costs related to the prices set by government through a pricing-cost examination).
Concerned governmental pricing agencies conduct a pricing-cost examination to verify the pricing costs of the concerned goods and services (collectively referred to as “goods”) on the basis of the manufacturing and operating costs of the concerned business operators in respect to the goods. Pricing agencies are not to verify the pricing costs of any price of any goods—instead, they are to verify the pricing costs of goods that are their responsibility or are under their guidance. The act emphasizes that the pricing costs should be (i) consistent with the national or regional averages of reasonable expenditures incurred for manufacturing of the goods by business operators under the same category or (ii) in line with government-guided or government-set pricing.
The government shall compile a catalogue of the goods under the pricing-cost examination. The price of the catalogued goods shall not change without conducting another pricing cost examination appropriately.
Pricing Agencies
Pricing agencies shall take the lead in pricing-cost examinations at either a provincial or a county level. In case the pricing agencies involve two or more agencies, the governmental agency that is responsible for pricing shall take the lead in the process.
Principles
The pricing-cost examination shall follow three principles: the legitimate principle, the relevant principle and the reasonable principle.
By the legitimate principle, all pricing costs shall be appropriately vouched for and booked in accordance with China’s accounting rules. By the relevant principle, pricing costs shall be relevant with the manufacturing process of the goods, and reflect the normal requirements of manufacturing and operation. By the reasonable principle, pricing costs shall reflect the macroscopic demand and supply of the market, the requirement of the national economy and social development, and the overbearing capacity of the whole society. All of the technological and economic benchmark standards applied for the pricing-cost examination shall be appropriate across the industry, or reasonable.
Costs Excluded from the Pricing Costs
Costs that do not conform to the legitimate principle, relevant principle or reasonable principle shall not be taken into account for the pricing costs. Some of these include:
- Costs that laws, administrative regulations or accounting principles prohibit from being added into the pricing costs
- Costs that do not occur in a continuous and normal process for manufacturing and operation, with an exception to the costs related to a natural disaster or any other force majeure
Costs that are irrelevant with the manufacturing and operation activities of the government-set price
Costs related with investments and subsidies the concerned government makes without requiring compensation, governmental incentives or social donation
- Expenses and expenditures that are misappropriated to some supervisory governmental agencies and affiliated institutes not in accordance with any law or regulation
- Any expenditure related with donation, sponsorship, fines and damages for breaching of a contract
View details about the act in Chinese and submit comments before 1 September 2010.
中文版