Good business environment key to attracting foreign investment

DOWNWARD PRESSURE has prompted some emerging market economies, including India, Thailand and Vietnam, to cut tax on enterprises so as to attract more foreign investment. Beijing Youth Daily comments:

India has reduced its business income tax rate for manufacturing enterprises founded after Oct 1 to 17 percent, compared with China’s 25 percent. And Thailand has reduced the tax burden on manufacturing enterprises relocated to it from China by 50 percent.

Apparently, the continuously worsening international trade conditions and “synchronized” slowdown of 90 percent of economies as highlighted by the International Monetary Fund have forced the emerging markets to resort to the remarkable tax abatement to attract foreign capitals. These tax measures have instantly improved their appeal to foreign businesses in their contest with China. They, including China, are in a dire need of foreign companies, particularly those in advanced manufacturing, to not only boost their growth, but more importantly, accelerate their industrial upgrading and economic restructuring.

And some multinational corporations do need to relocate their production capacities in a bid to stay away from policy uncertainties and trade barriers, as rising trade protectionism has caused many trade frictions in different parts of the world.

Although China has also lowered the tax burden on its enterprises — last year by reducing it business tax and fees by 800 billion yuan ($112.9 billion) — the new round of tax cuts by its neighbors has largely offset any advantages in this respect, so it has no choice but to further cut its business tax and fees to prevent them from becoming a formidable burden to foreign investment.

And China should also never ignore the importance of continuing other measures to improve the country’s institutional business environment and government services and efficiency, which is no less important than tax factors in driving innovation, attracting talents. More importantly improving the transparency of its business environment and strengthening protection of intellectual property rights are both key factors to enhance the attractiveness of China as an investment destination for foreign businesses.

The collective rise of India, Thailand, Vietnam and other developing countries should be welcome, as it bodes well for regional common development, and also serves to stimulate China to spare no efforts in enhancing its business environment and move up the value chain.