China is cracking down on tax evasion. Officials are looking into international firms operating in China, that may be exploiting loopholes in the tax law. Primarily, they will be looking into businesses that liberally use offshore accounts to escape paying some of their taxes. Businesses send profits and money to shell businesses in Hong Kong, which in turn route funds towards tax shelters, usually the Caiman Islands.
China has focused these efforts primarily on international corporations, rather than national ones, although officials said that this will change in the future, and focus their efforts on domestic businesses.
The increased scrutiny on tax evasion and enforcement of tax laws may have negative repercussions for Chinas economy, but this is likely to happen only after focus has been shifted to domestic businesses. This is largely due to the fact that China wants to protect its own businesses that have begun to invest and develop internationally.
Some reasoning behind the recent crackdowns, besides China desiring the income that is legally its own, is to assert control over Hong Kong. The student protests of last year, combined with the tax evasion operations in the city, have shifted government focus towards asserting dominance over the city, which only recently transitioned into Chinas control.
The recent decrease by the Chinese government have some large firms concerned, as the legal system in China is difficult to navigate. Businesses are concerned that improperly given fines or seizures by the Chinese government will be nearly impossible to rectify in the Court system, and will be lost to the companies that deserve them.