BEIJING - China's recent move to cancel preferential policies for international companies will have little impact on investments into China, financial analysts said.

On Dec 1, China imposed two taxes on international firms that they were exempt from paying since the nation's reform and opening-up. The exemptions were made to attract international investments. Domestic companies, which have always been required by law to pay these taxes, are now on equal footing with multinational firms, at least on taxes.

Robert Poole, vice-president, China operations, with the US-China Business Council (USCBC), said that the two taxes - an education surcharge and a construction tax - mark the beginning of a standard national tax treatment for international and domestic companies. He said the new policy will not likely have any major impact on US companies' investment decisions in China.

"Companies don't object in principle to have equal tax treatment. Their competitors have the same taxes, so prices will go up for all producers," he said.

Li Dagang, vice-president and general manager for Avery Dennison Roll Materials, a leading producer of pressure sensitive adhesive materials in the US such as sticky pads, echoed Poole's sentiment, saying the new taxes will not have a significant impact on the company's investment decisions.

"Our success in the Chinese market is not from preferential policies but from our products and technology. As long as the Chinese government treats foreign companies and domestic companies by the same standards and the same regulations, we are very competitive," Li said.

But David Piejak, general manager of US operations with LP Amina, a US-based environmental engineering company, said the two new taxes will inevitably lead to higher costs and additional uncertainty in China's business climate.

Piejak estimated that the tax will add 2 to 3 percent in unanticipated costs in 2011.

Lu Jinyong, director of China Research Center for FDI with University of International Business and Economics, said that historically it has been "international practice to end preferential tax policies when the timing is right". Lu explained that the preferential policy is no longer the main reason to lure companies in.

The emerging market from the second largest economy in the world has attracted around 21,000 US companies, bringing in a total $62.2 billion by the end of 2009, according to statistics from the Ministry of Commerce.

The ministry said that there has been a substantial increase in foreign direct investment from the US in 2010, which had reached $3.14 billion by the end of October, increasing 10.75 percent year-on-year.

American Business in China 2010 White Paper, an annual survey from the American Chamber of Commerce in China, shows 76 percent of the 240 respondent companies said their profit rates are greater in China than global company profit rates in 2009.

According to the survey, 65 percent of the 319 respondent companies said their financial performance in China in 2009 are profitable and 6 percent called it very profitable.

But American firms are still weary of the nation's markets because of its lax rules on intellectual property rights and market barriers.

"Some of the companies in the United States have good technology but they are afraid if they come to China they will lose control," Poole said.

China's repeal of its preferential tax policy, however, will hit labor-intensive manufacturers the hardest.

Yao Zhizhong, a researcher at the Chinese Academy of Social Sciences, said the new tax policy is a move to squeeze inefficient companies out of the market. The "squeeze out" effect in general will not damage American investments in China, analysts said, because only an estimated one-fifth of US investments in China go to manufacturing.

Eric Jou contributed to this story.

China Daily