The Research Of The Effect Of Tax Policy On Attracting Foreign Investment In China's Manufacturing Field

Preferential tax policy is the way for host countries to reduce foreign investors' tax burden through varies of means, and almost all the underdeveloped countries and many developed countries attract the potential foreign investors by the way of offering preferential tax policy. Since the opening up to the outside, China's preferential tax policy to foreign-invested enterprises has played an important role in encouraging them to invest in China and has witnessed the huge success. The amount of foreign investment to China has consecutively ranked No.1 among developing countries since 1993, and once became the No.1 around the world after succeeding that of in U.S.A. in 2002. Up to the end of year of 2006, investors from about 200 countries and areas have invested accumulative total amount of 700 billions USD approximately in China.The Chinese government enacted the new Law of Corporate Income Tax in March, 2007. This strategic readjustment of China's tax policy unifies the corporate income tax rate of the home enterprises and foreign enterprises to the 25%. The preferential tax policy based on home enterprises and foreign enterprises is basically canceled, while preferential tax policy based on certain industries or items puts into practice selectively.Now the challenge we're facing is that the intense competition of international tax and the economic globalization brings the international capital flow. in order to attract more of international capital and hi-tech-related investment, some countries have constituted preferential tax policy and the lower corporate income tax rate to foreign investment, whereas, nowadays China readjusts its policy tax. If the tax policy could have played a remarkable role in attracting foreign investment, then the result could be that existing foreign capital withdraw from China to lower-tax countries or new foreign capital invest to other countries or areas directly, so as to reduce the total amount of foreign investment to China. All this would be contrary to China's macro-economic situation and policy. At present, China has already been the accepted base for manufacturing field, and most of the foreign capital flows into the industrial sectors, especially the manufacturing field. So the paper chooses the manufacturing field as the study object, aiming at testifying the effect of preferential tax policy on the process of attracting foreign investment.First of all, this paper mentions the theories of offering preferential tax policy to foreign investors and analyses the necessity of tax policy incentives. Secondly, describes the development of preferential tax policy to foreign investors and the current situation of attracting foreign investment in China. Then, according to the related literature summary, exist research results, and theoretical analysis, this paper designs the demonstration models to test the factors affecting the industries to attract the FDI, and testify the two hypothesizes: preferential tax policy plays remarkable role in the process of attracting FDI, and the effect of preferential tax policy on the exported-oriented fields is more obvious than that on the sale-in-domestic-market-oriented fields. In the end, this paper puts forward the policy suggestions of optimizing the foreign capital structure and upgrading the foreign capital quality.