As the new administration ushers in changes to the U.S. tax code, U.S. businesses are faced with economic opportunities abroad and at home. After the U.S. cut the corporate tax rates in an attempt to keep more companies on U.S. soil, China answered back with new corporate tax incentives.
Foreign companies are now allowed to open shop in industries that used to be off-limits. Companies looking to expand into solar, green farming and wind energy will find tax rates to be in their favor. China is looking to gain an advantage in eco-power and will limit taxes on companies that reinvest their profits in China. However, since the U.S. has offered the same incentives, China has to maintain an edge. To do this Beijing has promised to make the tax incentive retroactive to 2017. If a foreign company has reinvested profits in China, then they can make use of those tax benefits.
But China isn’t feeling competition from the U.S. alone. Data indicates that foreign investment in China is at a low point, with foreign investors looking to other Asian nations that have looser regulations and a more favorable tax climate. ABC News has reported that the Organization for Economic Cooperation and Development places China third from last place when it comes to “openness to foreign investment.”
China’s lack of openness is seen through limits on foreign companies in the finance sector, utilities and telecommunications. When foreign companies are allowed to invest in these fields they must do so with Chinese partners, which sets the stage for working closely with competitors. This scenario is not favorable for many reasons, the most obvious of which is the potential for company innovations to be stolen.
Now that U.S. companies have an incentive to stay at home, the effects of the tax overhaul are expected to be seen in China, Canada and other nations with heavy U.S. investment.