China Offering Tax Breaks As Incentive to Tax Overhaul in U.S.

China has responded to the tax overhaul in Washington by offering a break to foreign companies on taxes in China in an attempt to keep investment.

Late Thursday, the measure was announced and is the Beijing’s first major reaction to the decision by the U.S. to slash corporate taxes. It comes following a flurry of communist leaders’ promises to increase growth in the state-dominated, slowing economy by opening additional industry to international companies.

Foreign businesses are to be exempt from any withholding taxes on their profits that they re-invest in Beijing specified industries, said the tax agency and Finance Ministry. The measure is retroactive to January 1, 2017, meaning that companies would be given a refund on the taxes they paid in 2017.

Beijing is attempting to attract foreign investors from where several countries have unveiled similar fiscal measure to lure domestic and foreign investment, said Xinhua News Agency the official news agency.

The exemption applies to companies that have their profits re-invested in industries that are cited in government investment catalogs. Those include wind and solar power, green farming as well as other fields where Beijing is attempting to develop new technology.

Supporters of the changes in the U.S. enacted during December say it encourages U.S. investment. Governments that include Canada and analysts in the private sector warn that it could draw money from their communities.

It is not clear if China’s new tax break was of significant proportion to influence decision of investment in emerging industries where foreign companies complain they have been shut out of new promising areas or are faced with pressure to hand technology over to potential competitors in China.

China has been amongst the top destinations globally for investment for a long time, but enthusiasm has cooled from foreign investors. Surveys completed by different business groups have shown that companies are moving emphasis to other economies in Asia that are seen as being more profitable and less restrictive.

The OECD or Organization for Economic Cooperation and Development has ranked China No. 59 out of its list of 62 countries in openness to direct foreign investment.

Official data in China show foreign investment into China grew by only 1.9% during the 10 months between January and October of this year compared to last year’s data, but did jump during November. However, economists in China say it is a poor measure of interest by foreign companies because most of the money is from Chinese companies repatriating it.