Abstract
China had no foreign direct investment (FDI) before 1979. Now, it is one of the world's largest recipients of FDI. China has been generous to a fault in granting tax incentives to foreign investors. As of January 1, 2008, however, these FDI-specific incentives will be abolished or phased out. What explains the rise and fall? Were the tax incentives not effective in attracting FDI and promoting China's economic growth? What are the implications of the Chinese experience for international tax debates? This article examines these questions.
Part II of the Article provides an overview of the Chinese tax incentive regimes for FDI. It briefly discusses the creation, expansion, and termination of tax incentives and the key motivations at each stage. Part III evaluates these incentives in terms of their effectiveness, efficiency and fairness. Effectiveness is examined on the basis of general data about FDI growth in China and empirical research on investors' reactions to Chinese tax incentives. The economic efficiency of tax incentives is assessed by looking at the positive externalities of FDI in China, the un-intended distortions to investment behaviour, and the extent to which the incentives lead to tax discrimination against local business. The equity aspect of tax incentives is assessed in terms of the role of tax policy in achieving redistributive justice in China. Part IV explores the implications of the Chinese experience for the debate on the use of tax policy in attracting FDI, harmful tax competition and international redistribution. Part V concludes the paper.
Recommended Citation
Li, Jinyan
(2008)
"The Rise and Fall of Chinese Tax Incentives and Implications for International Tax Debates,"
Florida Tax Review: Vol. 8:
No.
1, Article 18.
Available at:
https://scholarship.law.ufl.edu/ftr/vol8/iss1/18