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2009-07-02 | All chapters

Beijing moves to tempt multinationals
Kathrin Hille, Financial Times, 1st July 2009

Beijing on Tuesday rolled out financial incentives for multinationals that locate their regional headquarters in the capital, advancing its pitch even as the crisis cools investment ardour.

Hong Kong and Singapore are the traditional favourites for Asia-Pacific headquarters, with Shanghai gaining ground as China overshadows other regional markets and production centres.

Shanghai has been extending financial incentives for seven years, but Beijing’s offer is more detailed and generous as well as retroactive. Extending its offer to new regional headquarters set up since January 1 2009, Beijing will provide subsidies of up to Rmb10m ($1.5m), waive 80 per cent of personal income tax owed to the municipality by one senior executive for three years, provide rent subsidies and fast-track visa processing, according to guidelines published on the city government’s website.

“Beijing’s rules are comparatively attractive. They are not the average kind of incentive,” said Wang Zhile, director of the Beijing New Century Academy on Transnational Corporations, which is affiliated with the Ministry of Commerce.

The incentives come as many multinationals are suspending investment plans because of the global financial crisis. According to a survey published by the European Chamber of Commerce in Beijing on Tuesday, just 39 per cent of respondents are still considering new investments this year, down from 52 per cent in 2008. Respondents also expressed concern about regulatory transparency and a perceived drop in China’s commitment to an open and free economy.

Some multinationals have been keen to move regional headquarters to China to demonstrate their commitment to the market to try to impress Beijing regulators and sceptical shareholders.

While the government does not publish headquarter counts, state media reports tally about 160 regional corporate headquarters for both Beijing and Shanghai but indicate only 41 of those in Beijing have officially registered as such with the authorities.

Mr Wang said, “This policy will encourage those organizations which are already performing headquarter functions [in Beijing] to seek official recognition.”

Most companies with regional headquarters in Beijing are from the electronics, telecom and machinery industries and focused on research and development and government relations.

Shanghai’s conditions for recognition are looser than the capital’s, allowing foreign firms to register a headquarters with just some headquarters’ functions, while Beijing’s new set of rules demands a full regional hub to qualify.

Singapore and Hong Kong have been the location of choice for Asia headquarters because of low taxes, ease of setting up operations and hiring staff, transport links, absence of currency controls and strong judicial systems.

Source: http://www.ft.com/cms/s/0/b29fba90-6559-11de-8e34-00144feabdc0.html

For the European Chamber's Press Release on this Business Confidence Survey, please click here.