The Silicon Valley of the East?
February 29, 2004 | BY
clpstaff &clp articles &One of the key mandates for China upon its accession to the WTO is to provide national treatment to other WTO member countries. The upside of this is the…
One of the key mandates for China upon its accession to the WTO is to provide national treatment to other WTO member countries. The upside of this is the gradual phasing out of tariffs and other trade barriers. But the downside could be, at least in the short run, the abolishment of preferential policies given only to foreign investors, such as tax concessions. Interestingly, however, in the Zhangjiang Hi-Tech Park in Pudong, Shanghai (Zhangjiang or Park), the current preferential policies offered to enterprises by the local government do not appear to differentiate between the source of investment (i.e., domestic or foreign). Rather, they differ on the type of enterprise. In addition, in an effort to improve administrative efficiency to meet international standards, Zhangjiang has streamlined its business registration application process.
Zhangjiang
Zhangjiang was established in July 1992 as a national-level park designated for the development of new and high technology. Since then, some well-known names in the market, such as Shanghai Huahong, Semiconductor Manufacturing International Corp., Sony, GlaxoSmithKline and Roche, have established a presence. Some believe that it has the potential to become China's Silicon Valley, since two of the leading industries in the Park are information technology and biotechnology & pharmaceuticals. The Park is also attracting venture capitalists, both from home and abroad, who are keen to invest in its tech-oriented enterprises. Zhangjiang has at least two main attractions for investors: administrative efficiency and preferential policies.
Administrative Efficiency
Zhangjiang offers a "one-stop shop" for those who want to set up a business there. All the key government bodies have a presence in Zhangjiang, including the Administration of Industry and Commerce (AIC), State Tax Bureau (STB), Local Tax Bureau (LTB), and the Finance Bureau (FB), which conveniently saves investors the bother of visiting them all individually.
The Zhangjiang Hi-Tech Park Leading Committee and Administrative Office (Administrative Office) was established in 2000 and is the responsible approval body for encouraged and permitted foreign investment projects with a total investment of below US$30 million. The Administrative Office also handles applications for project certifications, such as the recognition of hi-tech enterprises, IC enterprises and software enterprises. Enterprises simply submit their application materials to the Administrative Office, which then coordinates with the relevant approval bodies to grant the certification to the enterprises. Again, this saves the applicants considerable time and effort.
Preferential Policies
In addition to the relevant tax concessions given pursuant to national laws, the Pudong government also offers financial subsidies to qualified enterprises in Zhangjiang, regardless of whether these enterprises are domestic or foreign-invested. For hi-tech enterprises, subsidies of 7% of gross profit for the first three years and 3.5% for the following five years are granted; for sales income, it is 5% for the first three years; and for value-added, 4% for the first three years.
For self-manufactured IC and software products, subsidies of 7% of gross profit for the first three years, and 3.5% for the following five years are granted; 5% for the first three years, and 2.5% for the following five years for sales income; and for value-added, the figures are 4% for the first three years, and 2% for the following five years.
The relevant regulations do not provide further guidance as to the meaning of gross profit, sales income and value-added but the Zhangjiang authorities interpret these terms to refer to the following: for gross profit, a subsidy equivalent to the applicable percentage (i.e., 7% or 3.5%) of the enterprise's income; for sales income, a subsidy equivalent to the applicable percentage (i.e., 5% or 2.5%) of the enterprise's sales that are subject to business tax; and for value-added, a subsidy equivalent to the applicable percentage (i.e., 4% or 2%) of the enterprise's sales that are subject to value-added tax.
Overseas Returned Students
An interesting feature of Zhangjiang is that it encourages investment in the Park by Chinese who have studied abroad and wish to return to China. Specifically, it sets separate minimum registered capital requirements for foreign-invested enterprises by returned students, which are more akin to domestic enterprises. For non-production enterprises, a minimum registered capital of US$62,000 (as compared with Rmb500,000, or about US$60,400 for domestic enterprises) is required, while for production enterprises a minimum registered capital of US$12,000 (as compared with Rmb100,000, or about US$12,100, for domestic enterprises) is required.
Support of Academic Institutions
Silicon Valley in the US is surrounded by world-class universities such as Stanford and the University of California that participate in the R&D of new technology and products. In an effort to commercialize the results of research by many of China's top universities and to increase participation by these institutions in industry, Zhangjiang has actively introduced various kinds of educational and research institutions closely related to the IT, biotech and pharmaceutical industries. At present, the Park boasts of Fudan Software College, Tsinghua University's Institute of Microelectronics and School of Information Security Engineering of Shanghai Jiao Tong University.
Conclusion
Zhangjiang may be seen as an example of China's overall efforts to eliminate the distinction between domestic enterprises and foreign-invested enterprises and to become a world-class hi-tech park.
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