The move, which could ease tensions between Beijing and the foreign business community, comes after the government suspended new rules on banking technology that foreign suppliers and trade groups opposed.
Foreign business groups had raised concerns in recent months that China’s latest campaign against big spending by local governments had thrown promised tax incentives and other preferential policies into doubt. They said local governments were balking at honoring tax breaks written into existing contracts, and were waiting for guidance from Beijing on other benefits such as discounted land prices.
The State Council, China’s cabinet, said in a notice posted on its website Monday that such policies already written into contracts with local governments and departments would be fulfilled. It also said existing preferential policies that don’t have an end date need to be “adjusted,” but didn’t provide details on what such adjustment entailed.
The cabinet’s latest notice was aimed at clarifying guidelines issued in December asking local governments to assess and eliminate many incentives offered to companies, ranging from tax reductions to discounted land pricing. The guidelines are aimed at stopping what Beijing regards as disorderly and harmful bidding wars by local governments to attract foreign and domestic investment.
The crackdown was seen as potentially damping foreign investment in China, which totaled $119.6 billion in 2014. It was unclear which companies or sectors stood to benefit most from the decision to honor the tax breaks.
Taiwan-based iPhone and iPad manufacturer Foxconn was among companies negotiating earlier this year to keep subsidies promised to the company by a central Chinese city government, people familiar with the matter said then. For Foxconn, formally Hon Hai Precision Industry Co. , which makes Apple Inc.’s iPhone 6 at a sprawling factory in Zhengzhou that employs more than 200,000 people, roughly 5 billion yuan ($804.6 million) in incentives had been at stake.
The negotiations had held up a proposed 35 billion yuan Foxconn plant for high-end phone displays that was to be based in Zhengzhou, the people had said. A Foxconn spokesperson couldn’t be reached for comment on Tuesday.
Most companies refrain from discussing tax incentives or other agreements reached through private negotiations with Chinese authorities. Experts say the total benefits at stake are difficult to quantify.
Trade groups welcomed the move to exempt existing benefits from the overall effort to eliminate unauthorized incentives. Among them, the U.S.-China Business Council, a nonprofit organization of about 210 American companies that do business with China, said its board of directors raised the issue with senior Chinese officials in meetings last week.
“Grandfathering existing contractually agreed-upon incentives has been a top priority for USCBC member companies,” said Jacob Parker, director and chief representative of the organization’s Shanghai office. “We’re very pleased to see that this seems to have been resolved.”
Trade groups had seen the uncertain fate of such incentives as their latest business challenge in China. Foreign business groups were earlier concerned that China was using its antimonopoly law to unfairly target foreign companies, though China has said it also beefed up enforcement against local companies.
Last month, China suspended bank-technology rules that drew protests from the U.S. government and business groups. The groups saw such rules—which included requirements that companies turn over proprietary software source codes and encryption keys and submit to intense testing—as part of an effort to push foreign technology vendors out of an important market.
Source: Wall Street Journal by Gillian Wong
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