Foreign direct investment (FDI) in China more than doubled last
month from a year earlier despite concerns over the impact of
increased corporate income tax on foreign investors which took
effect this year.
FDI in January was $11.2 billion, 109.78 percent more than in
the corresponding month of last year, the Ministry of Commerce said
yesterday. But its department of foreign investment administration
declined to disclose the reasons for the unusual increase.
The ministry said the government approved 2,918 foreign-invested
enterprises last month, down 13.41 percent from a year earlier.
In 2007, FDI rose 13.8 percent to $82.7 billion despite curbs
meant to cool a boom in spending on real estate and other
Lu Jinyong, a researcher at the University of International
Business and Economics, attributed the big rise to possible funds
in place for some major deals approved last year.
The ministry has stopped releasing figures of contracted foreign
investment, which are deals not fulfilled.
"China is also attracting more foreign investors by further
easing restrictions on mergers and acquisitions as well as
improving the investment environment in the service sector," he
FDI inflows have surged since the country joined the World Trade
Organization in late 2001. But many worried the corporate income
tax law that took effect this year may hinder the influx of foreign
Income tax rates for domestic and foreign companies are unified
at 25 percent from this year, compared to 33 percent for domestic
companies and 15 percent for foreign firms - which enjoyed tax
waivers and incentives - before the change.
"In the long term, the new corporate income tax law will benefit
China in attracting FDI because it creates a level playing field
for foreign and domestic investors," Lu said.
Many enterprises benefit from the new law as businesses involved
in high-tech, infrastructure and environmental protection sectors
and small-scale enterprises now enjoy a favorable tax, Li Zhiqun,
director of the ministry's foreign investment administration
department, said in an earlier interview.
He added that foreign enterprises registered before 2008 are
given a five-year grace period of favorable tax rates.
FDI in non-financial sectors is expected to increase 4 to 6
percent year-on-year in 2008 to hit $69-$72 billion, according to a
report released by the Chinese Academy of Sciences.
FDI in the non-financial sector increased 13.6 percent
year-on-year to reach $74.77 billion last year.
The report said FDI in the service sectors, including banking,
insurance and retail, is expected to accelerate this year as China
opens up these sectors wider to foreign investors.
(China Daily February 19, 2008)