Qianhai officials are sparing no effort to attract foreign investment with a dozen promotional events held in Hong Kong in the past few months. Situated just along the Hong Kong border, the 15 square kilometer special zone is Shenzhen’s last chunk of undeveloped land which the southern city hopes to use to regain its leading role in China’s opening-up. However, due to one hurdle or another, progress has been painfully slow.
It would be unfair to say that Qianhai lacks Beijing’s blessing. In June last year, the State Council promulgated a 22-point policy blueprint for Qianhai covering a range of areas from cross-border renminbi transactions to liberalization of capital flow, indicating that the top leadership intends to allow the zone to trial certain financial and economic reform initiatives. However, the excitement fizzled out as implementation guidelines have been slow in coming.
One of Qianhai’s major selling points was to offer a break from China’s rigid commercial and civil legal regime to facilitate business activities. It was once hoped that Qianhai would be vested with the power to enact legislation on civil and commercial affairs and set up an organization patterned after Hong Kong’s Independent Commission Against Corruption to clean up endemic graft. But Southern Weekend revealed in a recent report that the National People’s Congress, China’s legislature, shot down the proposals, noting the time and conditions were not ripe for such a radical arrangement.
Another thorny issue is taxation. Hong Kong professionals hoping to contribute to Qianhai’s progress will certainly be spooked by the 45 percent individual income tax if the zone’s officials fail to secure a waiver from the State Administration of Taxation. The Qianhai authority has reportedly found a way to get around it by levying the full amount as required and then refunding half of it using Shenzhen’s own fiscal revenue.
The establishment of the Shanghai pilot free trade zone has also slowed Qianhai’s momentum — the number of enterprises newly incorporated in Qianhai has tumbled more than a half since the Shanghai FTZ was inaugurated in September, media reports said.
Enterprises incorporated in Qianhai stand a high chance of enjoying a lower rate of 15 percent, but probably not including financial sector. It is rumored that Shanghai has expressed grave concern about the proposal, fearing it may have a lot to lose if financial institutions can enjoy the discounted tax rate in Qianhai.
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