2008-8-9 Discount to foreign investment, China still has advantage.The labor cost is rising rapidly in China. In the past, the human resources were rich in China, and it cost less to employ talented people. But now, this Low-cost labor environment is disappearing.

If the labor cost keeps rising in China, the foreign companies will have to revise their strategy when they expand their business in China. And what is more important, China is reviewing the preferential treatment policy for foreign company. At present, a major problem is whether to levy same tax to domestic company and foreign company, which is similar to the corporate tax levied by Japan. Because of lack of funds, in order to attract overseas investment, China implements a very favorable tax rate for foreign companies. The tax rate for domestic company is about 33% and the tax rate for foreign company is less than 15%.

Then, with the more and more violent competition between domestic and foreign companies, the policy of giving preferential treatment to foreign companies has particularly been criticized. With the debate of whether to abolish the preferential treatment to foreign investors going on, China recently announced that it would implement a unified corporate tax rate.

Meanwhile, China will also change the policy of attracting foreign investment from quantity to quality. In order to enhance the international competitive edge, China is likely to be more selective when attracting foreign enterprises and focuses on high-tech industries.

If these new policies implement, the investment environment in China will be deeply affected. For foreign companies, China, as foreign investment target, its status will inevitably be weakened.

However, compare to other Asian countries, China still has economic advantage. The rising of labor cost and other cost will stimulate the further development and upgrade of China domestic market and industrial structure. The positive and negative impact brought by the rising of China labor cost should be comprehensively assessed.