China offers tax break to keep investors after US tax rate changes

China is responding to Washington’s tax overhaul by offering foreign companies a break on Chinese taxes in a bid to retain investment.

The measure announced late Thursday is Beijing’s first major reaction to the US decision to cut corporate tax rates. It follows a flurry of promises by communist leaders to spur growth in the slowing, state-dominated economy by opening more industries to foreign companies.

Foreign companies will be exempt from withholding taxes on profits they re-invest in industries specified by Beijing, the Finance Ministry and tax agency announced. It is retroactive to Jan. 1, 2017, meaning companies would receive a refund on taxes paid this year.

Beijing wants to “attract foreign investors after a host of countries unveiled similar measures to lure foreign and domestic investment,” the official Xinhua News Agency said. The exemption will apply to companies that re-invest profits in industries cited in government investment catalogues, the announcement said. Those include solar and wind power, “green farming” and other fields in which Beijing is trying to develop technology.

Supporters of the US changes enacted this month say it will encourage investment in the United States. Governments including Canada and private sector analysts have warned that could draw money away from their economies.

China has long been among the top global destinations for investment but foreign enthusiasm is cooling. Surveys by business groups show companies are shifting emphasis to other Asian economies seen as more profitable or less restrictive.

The Organization for Economic Cooperation and Development ranks China 59th out of 62 countries in openness to foreign direct investment.

Chinese official data show foreign investment grew just 1.9 percent in the January-October period over a year earlier but jumped up in November. However, Chinese economists say that is a poor measure of foreign interest because the bulk of it is money brought home by Chinese companies and disguised as foreign investment to gain tax breaks.