Investing in China: Provincial and Local Tax Incentives

China’s national government offers a tempting variety of financial incentives designed to lure inbound foreign investment, some of which were introduced by this author in the article “Investing in China: Tax Incentives”. However, additional incentives offered by provincial and local governments significantly sweeten the investor’s overall incentive package. These incentives tend to become more generous as one moves westward from the investment-saturated coastal provinces to China’s heavily populated interior, allowing the investor to cash in on China’s fierce domestic competition.

Central China’s Henan province, for example, offers manufacturing-oriented Foreign Invested Enterprises (FIEs) 100% waivers of business tax and a variety of local administrative fees. Furthermore, FIEs engaged in technology transfer, development work, and related consulting may apply for a full refund of business tax already paid.

Municipal governments, however, are often even more generous than provincial governments. Although various incentives are offered by Chinese municipal governments, the city of Zhengzhou (a metropolis of about 4.4 million people in central China) makes a good case study, if for no reason other than that the author is more familiar with its policies.

Zhengzhou rewards local FIEs in various ways:

Tax Breaks for Local Reinvestment of Profits Local FIEs that reinvest their profits within Zhengzhou will receive a 30% refund of the locally retained portion of corporate income tax actually paid on these reinvested profits (the national government offers an even bigger tax refund applicable to the nationally retained portion).

Investment in “Pillar” Industries and State-owned Enterprises Zhengzhou offers a three-year, 50% refund of the Investment Banks of corporate income tax paid on FIE funds invested in certain designated “pillar industries”. It also offers a financial incentive for investing in and reorganizing provincially administrated state-owned enterprises, and this incentive is magnified if the FIE retains a certain percentage of the enterprise’s original employees after reorganization.

Inward Remittance of Export Earnings Zhengzhou offers export incentives in the form of cash payouts of approximately 0.2% to 0.5% of every dollar of hard currency export earnings remitted inward (the highest payouts are reserved for the export of technologically advanced products).

Matching Funds The Zhengzhou municipal finance administration will provide one-to-one matching funds for the international market development funds of small and medium-sized export enterprises that are supervised at the provincial level (whether an enterprise is supervised at the provincial level or the national level depends on how much money has been invested in the enterprise, i.e., its “Registered Capital”).

Enterprises with an export volume of five million US dollars or more in the previous year that are verified by the National Tax Bureau to have increased tax refunds due for the current year will enjoy a 100% interest subsidy.

Anti-Dumping Insurance Zhengzhou will assist FIEs in responding to anti-dumping initiatives, and will also subsidize expenses arising from participation by exporting enterprises in anti-dumping responses, as long as these initiatives are not otherwise subsidized by national and provincial authorities (which they often are). It may seem strange for an American company to establish a subsidiary in China, be sued for dumping by the United States, and then receive subsidies from the Chinese government for the expenses necessary to defend against the suit, but it’s possible.

Interest Subsidies for Loans Secured by Tax Refund Accounts. Zhengzhou will subsidize an amount equal to 70% of the interest due on loans secured by a tax refund account. If the FIE has no such loans, Zhengzhou will grant a subsidy equal to 50% of the interest that would have been paid on such a loan had it been taken out – the Zhengzhou municipal government will even provide the fund from which the interest is subsidized.

Export Incentives An export enterprise with either (i) a yearly export volume of at least ten million US dollars or more and actual export growth of more than 25% over the previous year, or (ii) a yearly export volume of at least five million US dollars, actual export growth of more than 40% over the previous year, and inward remittances from exports of at least 80%, will be designated a “Zhengzhou City Advanced Foreign Exchange Generating Export Enterprise” and awarded 30,000 RMB (roughly $3,500 US dollars) as long as it has not committed any serious regulatory violations during the same year.

Although a few of the foregoing incentives represent relatively small payouts, they are numerous and can make a significant difference when combined with the broad range of incentives offered by the national government.

David A. Carnes is a California attorney working for California Industrial City in Zhengzhou, China. His website, Start a Company in China, is at www.chinacompanystartupguide.com/58.html and offers free, step-by-step information on how to establish a business presence in China.

Beginners Guide To Investing

Where should a novice really start off? First of all, I believe it should be with this realization.

The stock exchange is not the place for 'get rich quick' ambitions. If riches can be acquired in a flash, it's not in the investment field, despite appearances. While you may hear some home run stories, in the end, most averagely financed people hardly ever get rich from stock investments. Even if share value doubles in a year (a highly unlikely event), you will still need to have invested a fortune to gain an extra fortune. If you cannot invest that much to begin with, would a 100 percent return make you wealthy? Right, it's Not so fast. First rule: to be a good investor, It's better to put away any desperation for quick riches.

To be sure, there are ways for an investor can make an obscene amount of profits. But these almost always involve gigantic risks. Options and futures are such avenues. For a beginner investor with limited mileage, you do yourself a huge favor to steer away from such investment vehicles. First, you will knock your brains out to learn them. Next, total bang-up losses can come so swiftly. Worse still, potential losses can be more than the sum invested, if you dabble in futures and are not careful. Markets often move quickly and you cannot turn your attention to other urgent matters. There are better ways to start as an investor than do options or futures, which are more like gambling to me. I may sound traditional here but I believe a prudent investor always look for solid and proven companies to invest. Companies that are quoted in the stock exchange, companies that are trusted to have a predictably brighter future. Such investments are better for beginners to pick, and relatively safer to invest with their money.

Nonetheless, it must be bear strong emphasis that beginners will not find it easy to make money at the stock exchange. If it were easy, who then would be Warren Buffet? Everybody who's an investor would be a billionaire. The path to investing success takes time, serious study, disciplined efforts and most importantly, independent thinking. Only a few has the will and endurance to sustain this journey. I have certainly faltered time and again. But then, tell me who should be spared from setbacks and confidence knockers? So, there's not only no fast road to investment riches, there's no easy road too. That's the second rule to realize, for every beginner out there.

The third rule to realize in this online investing guide for beginner: though you can treat your investments as 'hobby', it can never be a 'fun' thing. The world of investments is ruled by the investment banks and their executives. They handle all the big deals like floating companies, issue bonds, trade stocks, bonds, currencies and commodities. They do make huge amounts of money. They also employ armies of MBAs to give them an edge to win the investment games. It's their business to go all out to make money. They are not playing around. It is serious business.

So, if you want to succeed, you need to buckle up and be businesslike. How do you adopt this non-intuitive approach to investing? A good place to learn is to look up for books by Benjamin Graham. Digest them in earnest. This will take you a while and it's the right place to start your education. You will be learning from Ben Graham, the father of successful businesslike investment methodology.

With all the above rules, it may sound overly difficult for the little guy to make money. But I can tell you it's still possible because I know I do make money as a little guy. What gives us an edge is, big money funds find it quite impossible to invest in smaller companies. So if you are able to spot any of these companies' products doing well in the malls or supermarkets, that should give you a head start over the big-time analysts of investment banks. This is another successful investing approach you can learn through the books by Peter Lynch. He will show you how to pick winners that he called 'tenbaggers'.

Investing in the stock exchange, to do well you need to treat it like running a business. Maybe a part-time online business. Still, it's a no-nonsense business.

As a beginner's guide to investing, I cannot stress enough that it is extremely difficult to make a second income from the stock exchange. It can be done and you will learn the skills, but it will take time. That's not all, you will need to put in serious study, consistent effort, and independent thought, to end up doing really well.

Jim Banks has over 15 years investing experience investing in everything from real estate to commodity futures and is a frequent contributor to http://www.profit-mountain.com

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