The Chinese government has responded with a new settlement to US tax reform and weakening of foreign investment in China. The Ministry of Finance announced that foreign companies would no longer have to tax ir profits if y invested m in country again under certain conditions. The step was to strengn foreign investment in China again. The Regulation shall apply retroactively to 1 January 2017. Refunds can also be made for expiry of year. China wants to actively use foreign investments, promote and improve ir quality, ministry shared.
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However, in order to be exempt from tax, foreign companies must meet certain conditions for ir new investments. For example, y must invest in industries that Chinese government is particularly encouraging. Foreign investments in first ten months of this year were only up by 1.9 percent compared to same period last year. In November, however, y increased by 90 percent, which means that China now has an average investment increase of 9.8 percent for first eleven months.
The recently adopted tax reform of US President Donald Trump, however, increased pressure on country. Through reform, US companies have benefits if y return ir profits through operations abroad to ir home country. In addition, innovations reduce costs for companies in US and make country more attractive as a business location. As a result, Beijing feared that capital could drain from China or that some US companies might even withdraw from country. In Germany, too, industry and companies recently demanded reforms in response to US tax reform.
According to recent surveys, conditions for foreign companies in China have worsened. Thus, entrepreneurs complained of local protectionism, lack of market access, rising costs, especially for personnel, and unfair predatory competition. German and or European companies are also holding back with new investments in China.
