Workers eat their lunch at a restaurant inside a Foxconn factory in the township of Longhua in Shenzhen, Guangdong Province, Jan. 21, 2015. (Photo : REUTERS)
Foreign businesses in China are asking that tax breaks promised by Chinese cities and provinces be retained after the Chinese government swooped down to tame local subsidies.
Local governments are suddenly balking at honoring previous tax breaks, which caught many companies by surprise.
"Most companies would like to see existing incentives grandfathered because they had made their business decisions based on the incentives," said Kenneth Jarrett, president of the American Chamber of Commerce in Shanghai.
The suppression could diminish the lure of foreign investment in China, which attracted $119.6 billion in 2014.
Taiwan-based Foxconn, which makes Apple, Inc.'s iPhone 6, has been negotiating to preserve around 5 billion yuan or $804.6 million in promised subsidies in a central Chinese city.
The Chinese government estimated that the new guidelines would get rid of another 3 billion yuan of stimulus and subsidies to the company in the next five years.
The discussions are holding up a proposed 35 billion yuan Foxconn plant to be based in Zhengzhou that would make high-end phone displays.
China's State Council had issued guidelines in December asking local governments to eliminate several incentives ranging from tax reductions to discounted land pricing.
The Chinese government blames the incentives as the cause of disorderly and harmful bidding wars by local governments to attract foreign and domestic investment.
Officials have asked local governments to submit reports of preferential policies by the end of this month.
Eliminating tax incentives drawn up by local governments would subject companies to China's full 25-percent corporate tax rate.
In the first half of last year, 2,235 listed Chinese companies reported receiving support totaling 32 billion yuan, according to China's Securities Daily newspaper.
