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," 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 Economic Relation and Trade 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.
(Xinhua News Agency March 15, 2007)