So basically the income of the Financing LLC while registered to China is taxable in the US?
Yes - that is correct - as long as a foreign entity ( the Financing LLC registered in China) will have income form
How will it report it's interest income in the US?
Generally foreign entities are classified as corporations - and file income tax return
- form 1120F OR partnership - and file income tax return - form 1065.
However in your situation - I see no reason of having two separate entities - just additional overhead.
What if China also tax the LLC does it qualify for foreign tax credit
It is possible that an entity or a person is subject of income tax in several jurisdictions. As you know the US and China have different tax laws
. However the purpose of income tax convention between these two countries is to eliminate or reduce double taxation
of the same income. For instance - US residents may claim a credit for taxes paid to foreign jurisdictions. Most likely China has similar policy.
Specifically - see page 13 - http://www.irs.gov/pub/irs-trty/china.pdf - ARTICLE 22 (Elimination of Double Taxation).
Let me know if you need any help.