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Strategies & Market Trends : HONG KONG -- Ignore unavailable to you. Want to Upgrade?

To: Tom who wrote (2635)	1/7/1999 5:34:00 PM
From: Ron Bower	Read Replies (2) \| Respond to of 2951

Tom, " Special considerations for foreign companies go too. Right?" Not necessarily. As I get it, the big difference is the taxes being collected by the SEZ will now be going to Beijing. The secondary impact is on companies selling into the mainland that have an advantage over companies not in the SEZs. Companies must register the amount of business they plan and actually to do within China. Some are 100%, others a smaller percentage, and some are purely exporters. The tax incentives depend on the amount of sales within the mainland versus exports. The portion (or all) of sales that are for export will not only have tax incentives but have received some new subsidies. I don't think the financial impact is as great as the psychological. Do these companies continue to expand China operations or do they start looking at the potential in other countries? Will they and potentially new investors decide that China policy is too unstable? Foreign companies in SEZs that are selling primarily into the mainland must decide if the profits are worth the potential instability. As we know, others have already had problems in this respect. While I don't consider this a major event, it does indicate a lack of understanding of the capitalist mentality and the difficulties China faces. The State owned businesses are claiming their losses are due to competition in the SEZs. Because of the failure of the State firms, the PRC is looking to other sources for tax revenue. At the same time other agencies are trying to expand exports and bring in foreign capital. Policy changes like this will prevent both. FWIW, Ron