By suddenly offering tax relief to get companies to stay in China, the leaders show they fear the Trump tax cuts.
If you want proof that the Trump tax cuts threaten to bring companies back to the United States from overseas, consider China’s sudden change of tax policy. They are reducing taxes on companies as long as those companies will invest their earnings in certain sectors of the Chinese economy. Obviously, they wouldn’t be doing this unless they were afraid that companies might leave because of the Trump tax cuts.
The New York Times reports, “China Offers Tax Incentives to Persuade U.S. Companies to Stay.”
China said on Thursday that it would temporarily exempt foreign companies from paying tax on their earnings, a bid to keep American businesses from taking their profits out of China following Washington’s overhaul of the United States tax code.
There is, however, a catch: To be eligible, foreign companies must invest those earnings in sectors encouraged by China’s government — including railways, mining, technology and agriculture — according to a statement from the Finance Ministry. The measure is retroactive from Jan. 1 this year, the ministry said.
The move would “promote the growth of foreign investment, improve the quality of foreign investment and encourage overseas investors to continuously expand their investment in China,” the ministry said. It did not elaborate.
Despite its appeal as a manufacturing hub, one where companies from around the world have set up operations to tap into a highly skilled work force and strong infrastructure, China charges high taxes. On top of a standard corporate rate of 25 percent, companies are required to make social security contributions and other payments that push their tax burden higher than it is in many other countries.
The newly approved tax incentives in the United States could appeal to companies that are frustrated by China’s rising labor costs, ambitious local competitors and tangled legal systems, or those that would rather spend their money at home or elsewhere. And officials in Beijing have worried that the overhaul could prove to be a challenge to Chinese laws that aim to keep money from leaving the country’s borders.
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