Khorgas, An Empty Shell For Film Companies

摘要: In today’s Chinese film market, we seldom have good films coming out. And under these circumstances, film industry insiders are still plagued by the gold rush. Capital, shell companies, tax evasion, all these have been the very center of the film industry. Just when will they start putting the content in the center?

(Chinese Version)

Khorgas is a border city located in Ili Kazak Autonomous Prefecture, Xinjiang province of China. It’s the land border that connects to Kazakhstan, facing the country across the Khorgas river.

Jinghe–Yining–Khorgas Railway, Lian-Huo highway, 312 national highway, and the Central Asia Gas Pipeline all end up here in this little border city. If you don’t really know about geography, or don’t work in the natural gas industry, chances are you have rarely heard of this city before. But in recent years, the name of the city has somewhat become familiar for film industry insiders and Chinese movie fans.

Many might be confused by the fact that the name of the city has been appearing on the big screen. And to find out what makes Khorgas so special in the film industry, TMTPost had recently paid the remote border town a visit.

The recent hot film Duckweed, directed by Han Han, also mentions Khorgas in the credit as it reads Khorgas Orange Film. The film company also produced I Belonged to You.

When you were watching Buddies in India and Chongqing Hotpot, Khorgas Youth Engligth appeared in the credit as well. Big Fish & Begonia and Throne of Elves are produced by Khorgas Coloroom Pictures. Journey to the West: The Demons Strike Back is co-produced by Khorgas Hehe Pictures and Khorgas Lianrui…

Last month, the newly new three board listed company Star Light announced in its bulletin that the company would pour in ¥5 million to establish its subsidiary in Khorgas. The announcement shows that Star Light would set up a subsidiary named Khorgas Start Light Cultural Development Limited. The register location is border cooperation center, Shanghai Road, Khorgas, Ili Kazak Autonomous Prefecture, Xinjiang province of China while the register capital is ¥5 million.

Khorgas, a remote city that rarely raises public attention, seems to become a concentration area for film companies.

It’s not difficult to see that most Khorgas-based film companies are run by famous stars and directors.

For instance, Khorgas Orange is owned by Deng Chao, while Khorgas Jiaxing Pictures is Yang Mi’s company, and Khorgas Buer Culture and Media Group is run by Wu Xiubo. The list goes on and on.

To date, there are around 20 Chinese stars and nine directors that have registered their companies in Khorgas. The list includes: Wu Xiubo, Huang Bo, Zhao Benshan, Li Xiang, Deng Chao, Yang Mi, Wu Jing, Liu Tao, Chen Jianbin, Wang Xuebing, Zhang Jiayi, Xu Jinglei, Liang Jing, Wu Qilong, Fan Bingbing, Chen Kun, Guan Yue, and Hu Jun etc., as well as director Han Han, Ning Hao, Zhang Meng, Gao Xixi etc.

So what exactly draws all these first-tier celebrities to this remote border city?

Driven by The Belt and the Road policy

As a matter of fact, Khorgas was once a very important node in the silk road.

Khorgas was open for crossing officially in 1881. In November 1983, the state council approved its reopening. It’s the nearest Chinese city to central Asia, West Asia and Europe. And since the Belt & Road policy came along, Khorgas then enjoys special policy treatment supported by the state, and therefore it became a hot register destination for investors.

Statistics show that since 2015, there are more than 200 film and media companies that have registered in Khorgas. Literally almost over 50% of China’s mainstream film companies have chosen Khorgas as their register location.

The truth is, besides film and cultural companies, all industries listed in the List of Encouraged Industries In Xinjiang Difficult Region can enjoy the supporting policies. The list includes 34 industries and each every one of them can enjoy a different level of tax preference. Key supported companies will enjoy better tax policies than those in the mainland.

TMTPost concluded these tempting policies:

1. Newly registered companies can enjoy a five-year corporate income tax free policy(national tax 15%, land tax 10%, 25% in total). After five years, the remaining 40% (60%:40%, central and local corporate income tax) will be given back to companies as reward.

2. Added-value tax(the central government and local government share the tax, 50:50) and other additional tax(100% local). The local remaining tax will be given as reward proportionally to companies after companies have paid one million. In general, the reward is 15%-50%.

One million-three million 15%

Three million-five million 20%

Five million-ten million 25%

10 million-20 million 30%

20 million-50 million 35%

50 million-100 million 45%

Over 100 million 50%

3. Once the individual income tax for company staff reaches 1000, 70% of the local saved tax (central government 60% ad local 40%) will be given back to tax payers. Between 2000-4000, the proportion will be 80%. Above 4000 will be 90%. This tax return will be transferred to the company’s account in two weeks.

4. IT companies that invest fixed assets valued at over ¥50 million, will enjoy a subsidy of ¥50 per square meter.

5. The cost of IT industry related equipment: tax return of the total investment’s 1%( grant-in-aid).

6. Headquarters economy companies enjoy an office subsidy of up to ¥5 million.

In accordance with the policies, we have done a calculation to further illustrate the importance of these policies:

A company enjoys an annual turnover of ¥100 million, with an average profit rate of 10%. The actual rate of added-value tax is 5.6%. So generally, A company would have to pay ¥8,839,622 for the year(corporate income tax+added value tax and additional tax). But in Khorgas, even with the lowest reward standard, which is 15%, the tax will be lowered to ¥5,538,679.

Such money is not a small number for companies. That’s why tax evasion and more interest have become the only incentive for film companies and celebrities’ rush to Khorgas.

An empty shell filled with void of lust

According to company register platform inquiry platform, Enlight Media alone had registered five companies in Khorgas: Khorgas Youth Enlight, Khorgas Coloroom Pictures, Khorgas Guangyin Pictures, Khorgas Kekedou Animation Pictures and Khorgas Guangmei Pictures.

So do these companies really set up their new businesses in Khorgas and develop technologies and teams there?

The answer is, NO!

It’s worth noting that all these film companies were registered with the same location: Beijing Road West and Zhuhai Road South’s testing building, Khorgas, Ili Kazak Autonomous Prefecture, Xinjiang province of China. Without a doubt, it’s quite unreasonable for so many companies to concentrate at one office area.

The city’s supporting policies are actually forging an enormous shell company market.

The company register service, costing only ¥2,000, covers from the register, location selection, tax printer, safer to declare dutiables, tax exemption application, billing etc.

A local accountant who had worked for a film company revealed to TMTPost: “Once the company completed the register process, the company would need no staff at all nor even an office. All the work will be done by the agent company. So the cost here is almost zero.”

She described Khorgas as a big shell base that concentrates the country’s most famous film companies.

Besides the advantages on taxations, Khorgas also rolled out a green pass policy for listing, appealing greatly to those ambitious companies.

According to Khorgas Merchants Group, companies that register in Khorgas zone and are in the backup listing companies base or listed companies, will be given a reward of ¥300,000 to two million since 2017. Companies listed on the mainboard will be given a ¥2 million reward, while companies listed on mid or small board will be given ¥1 million. As for companies listed on the GEM, they will be granted with a ¥500,000 reward and the reward for new three board will be ¥300,000. Listed companies that refinance at over one hundred million will be rewarded ¥300,000.

Groups of listed companies are entering this small city for the policies, making Khorgas look like a prosperous special economic zone. Film companies that already making decent money also come along with the wave. And that’s why we get to see Khorgas’ name so often in the cinema.

The nature of Khorgas’ prosperous shell scene is in fact the very common ground in the film industry: the lust for interest.

In today’s Chinese film market, we seldom have good films coming out. And under these circumstances, film industry insiders are still plagued by the gold rush. Capital, shell companies, tax evasion, all these have been the very center of the film industry. Just when will they start putting the content in the center?


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[The article is published and edited with authorization from the author @Dong Meiqi, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.





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