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averaged 36 percent of the earnings in urban state-owned manufacturing enterprises, but only 16 percent of the earnings in unusually large manufacturing TVE’s in counties under Nanjing’s administration.118 Now, on the one hand, these TVE’s surely had an exceptionally high level of welfare benefits compared with those offered by all manufacturing TVE’s in China during those years, both because TVE’s in counties near major cities have better social welfare benefits than TVE’s elsewhere and because large TVE’s have better benefits than average-sized TVE’s. On the other hand, average manufacturing TVE worker welfare benefits in 2002 were very likely a higher percentage of those workers’ total compensation than in earlier years. Therefore, pending the discovery of better data for 2002, the average total of social insurance and other welfare benefits for China’s manufacturing TVE employees can be tentatively estimated to be in the range from 0 percent to 16 percent of their total earnings. A reasonable estimate of such employee benefits for the average TVE employee in 2002 is 8 percent, the midpoint of the range. Table 8 estimates average annual total compensation for TVE employees at 7,481 yuan.

Underreporting of urban manufacturing employment and earnings

China’s people and work units were unaccustomed to paying income taxes, value-added taxes, corporate income taxes, or high payments for social insurance during the Maoist decades from 1949 to 1978. The government extracted the money for its budget in other ways, but not so visibly as the way taxes are taken out now. Individuals got benefits in both urban and rural areas, while earnings were kept very low. Today, during the post- Mao economic reform era, employers appear to have developed a culture of tax avoidance. For example, when foreign and multinational companies come to China and attempt to acquire, or set up a joint venture or merger with, a (usually state-owned) Chinese company, the foreign company insists on engaging in a due diligence process to determine whether the joint venture, merger, or acquisition is in the interests of its owners and shareholders. The auditors and accounting companies frequently discover that the target company has two sets of books: “Most domestic enterprises keep separate sets of ‘management accounts’ and ‘tax accounts’.”119 The “tax ledger” is the set of employee and financial data reported to the tax and other authorities, and the “administrative ledger” records a more accurate picture of the numbers of employees, their actual earnings, the true costs and income of the company, its actual profits, and more. The tax ledger is designed to minimize tax exposure, particularly corporate income taxes, value- added taxes, personal income taxes for employer and employees, and required social benefit payments. It is believed that non-public-sector domestic Chinese enterprises avoid taxation and social benefit payments to an even greater extent than the state-owned and collective-owned enterprises.

Such tax avoidance in the manufacturing sector probably has a number of implications.120 First, many urban employees, especially those who are in-migrants and do not have city residence permits or those who are temporary or part-time workers, may be left off the books entirely, at least with regard to what is reported to authorities. When they are, their employment is kept informal, and neither the employee nor his or her earnings, which are paid in cash, are reported. This means that the employee can avoid


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