China will not drop its preferential policies to attract foreign
investment despite the fact that World Trade Organization (WTO)
rules specify that foreign and domestic firms should be treated the
same.
Hu Jingyan, director-general of the department of foreign
investment administration under the Ministry of Commerce, said
China has no plan to change its preferential treatment policies for
foreign investment in the near future.
Hu made the remarks to reassure foreign investors who have been
worried that China might cancel its preferential policies and give
foreign investors the same national treatment as their domestic
counterparts now that the country is in the WTO.
"This is a result of their misunderstanding of what is meant by
'national treatment," Hu said. In line with the WTO rules, national
treatment means the elimination of policies that discriminate
against foreign investment; it does not necessarily mean
elimination of preferential treatment.
On the contrary, the Chinese government will establish more
preferential policies to promote foreign investment, particularly
investment by multinationals, Hu said.
For example, China will allow the creation of foreign-funded,
even solely funded, logistics companies, to improve the poorly
operated domestic logistics industry.
The ministry is also studying preferential policies for
foreign-funded purchasing centers and research and development
centers, which will be put into practice soon.
However, the trend in China will be to level out its treatment
of foreign and domestic companies, Hu added.
"But that is the long-term target, the government will not drop
its preferential policies immediately," Hu said.
Many local enterprises have complained about the preferential
treatment given to foreign-funded companies, saying their
competitiveness is weakened by these policies.
Foreign companies are not required to pay tariffs and
value-added tax when importing equipment for their own
operation.
They also enjoy a lower corporate income tax rate.
Considering preferential policies and other incentives, China's
actual corporate income tax rate is estimated at 26 percent for
domestic firms and 15 percent for overseas-funded firms.
Local companies argue that national treatment not only means
that the government must open more areas to foreign investment, but
also means that it must level out differences in treatment.
However, Zhao Jinping, an expert on foreign investment from the
Development and Research Center under the State Council, said these
local companies should be looking at the macro environment.
"The elimination of preferential treatment for foreign investors
will lead to a slowdown in the increase of foreign direct
investment (FDI), and even a drop, which will have a negative
impact on the country's economic development and industrial
adjustment," Zhao said.
"Therefore, we should keep stable consistent policies on foreign
investment."
Even when the time for dropping such policies is ripe, the change
should be made gradually, Zhao said.
After 25 years of tireless work in attracting FDI, China has a
larger scope and a more orderly investment structure to encourage
foreign funds, and the quality of investment from abroad is
improving continuously.
To date, more than 400 of the world's top 500 companies have
launched operations in China, of which nearly 30 have set up
regional headquarters.
FDI in China hit a record high last year, outpacing the United
States to rank first in the world for the first time.
The country's actual foreign investment in 2002 exceeded US$52.7
billion, a year-on-year increase of 12.51 percent, despite a
decline in global FDI investment.
Ma Xiuhong, vice-minister of commerce, said earlier FDI in China
is expected to total about US$57 billion this year, US$4.3 billion
more than in 2002.
(China Daily October 8, 2003)