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China's economic development zones, which have attracted huge
foreign investment for over 20 years, are facing a new
challenge.
A draft corporate income tax law, which suggests a unified income
tax rate of 25 percent for domestic and foreign-funded enterprises
to create an environment of fair competition, is expected to be
adopted at the ongoing parliamentary session.
Foreign-funded companies in economic development zones have long
enjoyed preferential tax rates. The law will reduce the
significance of economic development zones as they will be stripped
of this competitive advantage.
If the law is adopted, only certain industries, including
high-technology projects, energy conservation and
environmentally-friendly industries, will enjoy tax breaks.
All this leaves China's economic development zones with plenty of
thinking to do on how to maintain high levels of investment.
"We have realized that our current operations overly rely on
short-term methods and are too unstable to continue to attract
foreign investment," said Wang Kai, director of the research
institute of Tianjin Economic-Technological Development Area
(TEBA), near Beijing.
TEBA has extended its projects from low-profit processing
industries to automobiles, telecommunications and biological
products, Wang said.
The area has attracted 4,316 foreign-funded enterprises involving a
total investment of US$34.577 billion since it was established in
1984.
"Although the law will affect the economic development zones
relying too much on the tax waivers, it does prove the
determination of the Chinese government to standardize domestic
economic order and promote the investment environment," Wang
said.
The economic development zones are the products of China's policy
of reform and opening-up and they mushroomed in the hope of forming
powerful economic engines for the whole local economy.
China has established 147 national economic development zones since
1984, of which 54 zones used one quarter of the nation's gross
foreign investment. So far, China has used US$685.4 billion from
more than 590,000 foreign-funded enterprises.
But the development of the zones began to spawn problems.
"The advantages of the economic development zones have been fading
with the promotion of the whole investment climate nationwide,"
said Professor Xu Fu of Nankai University, in Tianjin.
"Many zones specialise in low-profit processing industries, which
have limited their development," Xu said.
"The extensive management of the economy needs to be switched to
intensive management," Xu said.
"The law will promote development zones to accelerate economic
restructuring," said Song Jinbiao, an official from the Shanghai
Foreign Trade and Economic Cooperation Commission.
Song's view has been echoed by Li Zhiqun, director of the Foreign
Investment Department of the Ministry of Commerce.
"The unified income tax policy places emphasis on the preferential
regulations for certain industries, which offers an opportunity for
the economic development zones to carry out structural reforms," Li
said.
"The government plans to hold a meeting on the new strategies for
economic development zones some time this year," Li said.
Shenzhen Special Economic Zone (SEZ), the earliest established
economic development zone in China, has been striving to make the
high-tech industry the region's mainstay industry.
Shenzhen SEZ has attracted thousands of high-tech enterprises,
including almost one fifth of the world's top 500
enterprises.
An economic authority survey for the three national economic
development zones in Shanghai showed that more than 90 percent
foreign-funded enterprises of the zones would like to stay where
they were.
"Companies in our industry sector have great hope for the future of
the economic development regions, as we believe that the Chinese
government will continue to support high-tech industries," said
Zhou Xiaoyu, general manager of the Shanghai subsidiary of HP
Development Company, located in a low tax region in Shanghai.
(Xinhua News Agency March 15, 2007)
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