The China Venture

Incentives for Foreign Investors:
In general:
Reduced corporate tax (15 - 24% instead of normally 30%)
No additional income tax (normally 3 - 10% of the corporate tax)
No industry or trade taxes levied on export products
In addition for Sino-foreign production joint ventures:
No corporate tax for the first two years with profits
50% tax reduction for the following 3 respectively 5 years
Additional incentives for the reinvestment of profits for foreign investors:
40% reimbursement of the already paid corporate tax on the reinvested portion of the profit for
minimum 5 following years
100% reimbursement possible in case the reinvestment is used to found a high-tech enterprise for
export purposes only
Customs:
Liberation from customs (and liberation from industry and commerce tax) for the import of raw
materials as well as manufacturing equipment for joint ventures (this regulation was cancelled for
the coastal regions per April 1 st 1996)
Other incentives:
Cheap rents for land use
Good access to public infrastructure
Flexible Government administration
TABLE 3-2: Incentives for foreign investors 86
3.2.4.2 Loans and Guarantees by the State
Currently, financing for foreign-investment projects in China is generally provided partially
by foreign investors and partially through borrowing from overseas banks with suitable
guarantees provided by the Chinese parties. Such external debt is monitored by the State
Administration of Exchange (SAEC). The Bank of China may provide several types of loans
to foreign-investment enterprises, including fixed asset loans, working capital loans, and loans
secured with cash deposits. Foreign companies may also apply for RMB loans to be secured
by their own foreign-exchange reserves, including foreign exchange borrowed from abroad.
To control the loan guarantee activities of Chinese entities, the Ministry of Foreign Trade and
Economic Co-operation (MOFTEC) has produced a list of Chinese and foreign entities that
are authorised to make financial guarantees to PRC investment projects. The Government has
co-operative relationships with the World Bank and is a member of the Asia Development
Bank. In addition, China has been granted low -interest loans by many state-owned banks of
different countries, and these loans may be used to finance investment projects in China. 87
86 China - Wirtschaftspartner zwischen Wunsch und Wirklichkeit, Reisach et al., 1997, p. 60.
87 Doing Business in China, Ernst and Young, 1994.
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