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Gov't to guide flow of capital

By Jiang Wei (China Daily)
Updated: 2007-02-27 08:55

But Li noted there are a number of changes in the country's policies expected to affect the country's ability to lure foreign investors.

According to a draft law, the country will unify income tax rates for domestic and foreign companies at 25 percent. Chinese domestic companies currently pay 33 percent income tax, while foreign companies, which benefit from tax waivers and incentives, pay an average 15 percent.

China also strengthened regulations on processing trade and reduced export tax rebates in some categories and will further adjust land use and environmental protection policies this year, all of which is likely to dampen favorable policies for foreign investors.

"That means some uncertainties in attracting foreign investment," Li said.

According to the latest survey of the United Nations Trade and Development Council, China has replaced the United States as the preferred location for multinationals' research and development centers.

Li said China is expected to benefit from the change because it will help the restructuring of domestic industries and improve the quality of foreign investment.

China received some $69.5 billion in actualforeign direct investment(FDI) last year, but growing foreign capital also caused strong debate about whether too many foreignmergers andacquisitions (M&As) will hurt domestic industries.

Li said that foreign M&As are not a threat now, as "M&As by foreign investors are actually seldom seen in China and most of the FDI to China is greenfield investment".