The Influence From Fdi Enterprises' Ajustment Of Tax Rates To China's Production

The study of economy growth theory shows that keeping the necessary investment level is the premise for the growth of any economic entity. Especially for such a developing country like China, for the purpose of achieving a higher economic growth rate, a higher level of investment compared to developed countries'is the necessary condition. Since adopting the reform and open-up policy, the constant inflow of foreign direct investment (FDI) in some degree satisfies China's increasing need for capital, relieves the employment pressure, introduces advanced technology from foreign countries, enhances the market competitiveness of the Chinese enterprises and facilitates the transformation of relative institutions. As an important part of China's legal institutions, tax policies influences the flow of FDI in concert with other factors. Recently a big change has taken place in China's economy that the new "Enterprise Income Law" that gives the China's mainland enterprise and the FDI enterprise the equal tax treatment would come into force on January 1, 2008. According to the new tax law, the enterprise income tax rate stands at 25% equally for both the mainland enterprise and the FDI enterprise, which marks the end of the super-national tax treatment enjoyed by the FDI in China for almost 30 years.In estimating the influence of the adjustment in tax rate for the FDI enterprise, the traditional FDI theory does not explain the inner function mechanism or give tacit consent to the fact the adjustment from variation in tax only matters in the product market. In fact, the impact to FDI from the adjustment in the tax rate in FDI enterprises in some degree would make the money supply become endogenous, and then affects the domestic production level through both monetary market and exchange market. Moreover, with the process of the liberalization of China's financial market and, with the transfer media of interest rate and exchange rate, the impact of the adjustment in the income rate of FDI enterprises is becoming increasingly obvious. Based on that, this paper studies the influence of the adjustment in the income tax rate of FDI enterprises from another angle, namely in the view of money market and exchange market. There are four chapters in this paper:The first chapter outlines the background of this paper's subject and the significance of the research, and provides the research method, the structure and the innovation points of this paper.The second chapter reviews the relative research achievements by domestic and oversea scholars.The third chapter and the fourth chapter are the core parts of this paper. Based on the point of theory, by using the money analysis method of international balance of payment, the third chapter firstly adds the influence of money supply from the variety in tax rate to the traditional money supply and demand formula, and putting the endogenous effect of the money supply which is originated from the variety in tax rate into the classical IS-LM model and the DD-AA model transformed from the IS-LM model in the open economy, with the interest rate and the exchange rate as the conductive intermediaries, this paper analyses the productive influence and the conductive mechanism from the variety in money supply caused by the change in tax rate, and gets the conclusion combining with the empirical research that in the money market and exchange market the productive influence from the variety in tax rate mainly comes from the variety in interest rate, the shock from which can be absorbed by a suitable monetary police.Based on China's relative data from 1994 to 2008, from the angle of demonstration, the fourth chapter firstly conducts the empirical test to check out the conclusion from the above theory forecast, and the results are consistent with the anticipation to some extent. Secondly, in the purpose of further researching the effects of the relative variables relating to interest rate and exchange rate respectively in the money market and exchange market, based on China's interprovincial panel data from 2001 to 2007, this paper respectively conducts the empirical researches to test the effects of the relative variables in the levels of the national and the eastern, central and western regions. Besides, in consideration of the distribution of FDI at the present stage in China that the most FDI is concentrated in the secondary industry, based on the relative panel data of China's 33 sectors in the secondary industry, this paper respectively conducts the empirical tests in the three categories (the manufacturing sector, the mining sector and the electricity, gas and water production and supply sector) in the secondary industry to specify the effects of the relative variables.Finally, corresponding suggestions for policy makers are put forward in the fifth chapter on the basis of the conclusion from the theory and empirical researches.