The effect of China's new tax rate policy on FDI: Would increase of tax rate decrease China's FDI inflow and economic growth?

Abstract

자국의 기업과 자국내 외국기업에게 적용되던 세금율을 통합하려는 중국정부의 정책 변화에 따라 외국기업의 세금율이 상승하게 되었다. 기존의 연구사례들에 따르면 세금의 상승은 FDI의 감소를 기인한다. 하지만 이것이 중국에도 적용되는 것일까. 이번 연구에서는 중국의 높아진 국가경쟁력과 개선된 투자환경이 중국에 투자하고 있는 다국적기업에게 세금보다 더 중요한 요인이라는 것을 Double diamond model을 통하여 입증하려고 한다.

According to the review on existing study on the relationship between FDI and economic growth and the relationship between corporate income tax rate for FDI and FDI inflow, lower tax rate which can affect multinational corporations decisions on investment locations has a positive effect on attracting more FDI inflow in a country. However, its effect is less than other factors such as labor cost and market size. From 1984 to 2007, China has operated a dual tax system, with different tax rate for Chinese domestic companies and for foreign companies who have enjoyed more favorable tax treatment than their domestic counterparts. In 2008, Chinese government increased the tax rate for foreign companies by unifying the tax rate for foreign companies and domestic firms. Will this kind of increase decrease Chinas FDI inflow and economic growth? This paper will answer this question from a more comprehensive method. Using the generalized double diamond model, this research has proved that this increase of tax rate will have no influence on Chinas FDI and economic growth because Chinese national competitiveness and investment climate has improved a lot. In todays China, there are some other more significant factors for multinational corporations comparing to tax rate.