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Equal treatment in a 'maturing' market

(China Daily)
Updated: 2010-12-10 11:19

Editor's note: Wang Zhile, director of the transnational corporations research center under the Ministry of Commerce, shares his views on China's exemption of preferential policies for foreign-funded companies. He spoke to China Daily reporter Fu Yu.

Q: On Dec 1, China cancelled the exemption of two taxes - construction and education surcharge - for foreign-funded companies, the final step in unifying the tax system for domestic and foreign companies. Some media say this is the end of "super preferential national treatment" for foreign capital. What's your view?

A: I have to correct "super preferential national treatment" since foreign-funded capital had never been treated this way. At an early stage of China's reform and opening-up, foreign companies were exempted from some taxes such as corporate tax, construction tax and the education surcharge. However, they still had no equal treatment when it came to market access. Can we still say the companies were given "super preferential national treatment" if they were given insufficient access to the Chinese market compared with their Chinese counterparts?

The cancellation of some preferential tax policies doesn't mean China's business climate is worsening for foreign companies. On the contrary, China's investment environment and policies are maturing.

Q: Some foreign companies point to a wide range of discriminatory government practices and regulatory barriers to foreign investment, government procurement rules that favor domestic companies and the country's lack of a transparent and independent legal system. Why do you still think China's investment environment and policies are maturing?

A: If you research China's latest policies on foreign investment, you will see the government made it clear the country would remain an open and fair place to do business.

The third amendment to China's Patent Law and the draft regulation for government procurement aroused a wave of complaints from foreign-funded companies.

Early this April, Beijing offered to open its procurement market to foreign business by revising government procurement regulations.

This year, the government released a document, Several Opinions of the State Council on Further Utilizing Foreign Capital. This is an extremely important document since it indicates China has raised the quality and level of utilizing foreign capital and is doing better in giving full play to utilizing foreign capital to boost scientific innovation, industrial upgrading and regional coordinated and balanced development.

It also said China will open more markets to foreign companies, especially to invest in China's central and western regions.

The document said policies to upgrade national industries will include qualified foreign-invested companies and China will encourage qualified foreign-invested companies to cooperate with domestic companies and research institutions to apply for national scientific development projects as well as innovative projects.

Last but not least, measures have been made to encourage mergers and acquisitions by foreign-funded companies in China.

Premier Wen Jiabao has repeatedly confirmed that China welcomes foreign enterprises and will treat them as it does domestic companies.

Vice-President Xi Jinping also told an investment forum this year that the government was taking "vigorous steps" to ensure China "remains the most appealing destination for investment in the world".

Q: Since China still welcomes foreign investments, what role will they play in the growth of the economy in the next decade?

A: China should continue to take advice from foreign-funded companies, especially multinationals, and try to create a more open environment for them, because foreign enterprises are a significant growth engine for China's economy.

In the wake of the financial crisis, many multinational companies have given China top priority in their business strategy.

Multinational companies are role models for their Chinese counterparts in energy conservation and to shoulder corporate social responsibilities. Competition between multinational and domestic companies will help certain Chinese companies upgrade their operations. They will also help China form a favorable foreign diplomacy environment for China's growth in next decade.