SHANGHAI — Chinese lawmakers approved a tax overhaul Friday that would eventually end nearly three decades of preferential treatment for foreign companies.
The measure is likely to pinch a variety of U.S. and other foreign corporations, particularly larger manufacturers, whose sales and profits have been growing robustly in China. But analysts don't expect a significant slowdown in foreign corporate investment in China, given the country's large market, extensive supply chain and rapid growth.
Some American businesses welcomed the long-awaited change as a step toward creating a more simplified, transparent and uniform tax system in a nation where local governments often levy different rates depending on relationships with individual companies.
"The more important thing in the long term is that everybody is treated in a fair manner," said Alex Xu, a Los Angeles developer who has opened a chain of two dozen business hotels in China.
Chinese enterprises had long pushed for a unified tax policy, complaining that overseas firms enjoyed an unfair advantage over them. Foreign companies have been paying an income tax rate of 15%, while domestic firms were taxed as much as 33%. A single corporate tax rate of 25% is to take effect next year.
More broadly, the change in tax policy highlights a maturing Chinese economy, now the world's fourth-largest, that is becoming much more selective about foreign investments and focused on nurturing domestic companies and industries.
"Finally, foreign and domestic companies are standing on the same starting line and can compete with each other openly and fairly," said Shang Yugui, spokesman for Great Wall Motor Co., a large privately owned maker of pickup trucks and sport utility vehicles in Hebei province. He said the company expected to save at least $5 million in taxes next year.
The effect of the new law, though, will be complex. Some domestic firms may end up paying more in taxes, as many have set up holding companies overseas to take advantage of the two-tiered tax structure.
The hit to foreign companies also won't be as hard as some feared, thanks to a five-year phase-in period and continued tax privileges for high-tech and other high-priority industries.
General Motors Corp., Dell Inc. and many other big U.S. companies operating in China were reluctant to comment about how their business would be affected, in part because details of the law were unclear.
