The Chinese government has ordered some cities and municipalities to roll back tax breaks to foreign companies in a bid to enable local governments to control spending and the country’s growing debt.
According to an article at CNN.com, the move will likely affect the manufacturing sector in less developed cities, which are expected to lose most of their foreign investments.
Kenneth Jarrett, president of the American Chamber of Commerce in Shanghai, told CNN that the Chinese central government decided to pull back the incentives because it is aware that the local debt has been accumulating and the government wants to ensure that the national assets are used properly.
In recent years, many Chinese cities offer incentives such as tax breaks and lower land prices to attract foreign investors. In 2014, foreign investments in China have reached $120 billion and many big multinational companies have set up offices in the country over the years.
According to the CNN report, foreign companies in China reacted to the move, complaining that doing business in the country has become trickier.
An annual survey of the American Chamber of Commerce in China showed that from 44 percent a year ago, 47 percent now say they felt less welcome than they were a year ago.
China had conducted antitrust probes in major firms such as Qualcomm (QCOM, Tech30) and Microsoft (MSFT, Tech30), and also investigated and penalized some companies from various industries for different violations that range from price-fixing to failing to deal properly with consumer complaints, among others.
Jarrett said that the withdrawal of the tax breaks serves as a reminder that doing business in the country is challenging. However, China's economy is very significant and that makes it very attractive to investors.