Tax breaks no longer the best lure for business in Jing-Jin-Ji plan
Experts call for a change of traditional thinking when it comes to attracting businesses and investment to the three-city economic scheme
The mainland should revamp its traditional way of luring business and investment through favourable taxes for the new, so-called "Jing-Jin-Ji" co-ordination plan seeking to link Beijing, Tianjin and Hebei's economies closer, experts say.
Tax policy has played a crucial role in spurring growth in the past few decades for regions such as the Yangtze River Delta centred in Shanghai, or the Pearl River Delta in the south.
Cao Jianhai, a senior researcher at the Chinese Academy of Social Sciences, told the that competing for investment with cheaper taxes were no longer the most favoured option as local governments had been told to chase higher quality growth.
"There needs to be measures to promote a more integrated tax system for the three regions," Cao said. "If this cannot be pushed ahead, Hebei may face great disadvantages" in the Jing-Jin-Ji.
A key lesson mentioned by some Hebei government officials was the move starting in 2005 to move steel refineries of the Shougang Group from the capital to Caofeidian, a coastal area in Hebei about 250km from Beijing, in a bid to help clean Beijing's air and upgrade the capital's industries.
Shougang has been able to keep its high-technology steel-panel facilities as well as services operations in Beijing, where the group is still headquartered.
Some experts say that relocation to Hebei has brought fresh sales taxes and jobs to the province, while also helping drive growth of local industries.
But some Hebei officials still complain about the decision to allow Beijing to enjoy the majority of income taxes paid by Shougang, which has played an important role in the capital's fiscal revenue growth. The group's tax contribution to the capital reached 2.8 billion yuan (HK$3.5 billion) with sales at 61.9 billion yuan in 2004.
"That wasn't a reasonable deal," said Lu Ze, the head of the Association of Modernistic Logistics of Hebei, who previously was an inspector at the National Development and Reform Commission's Hebei branch.
The Shougang project "occupied a great area of land and demolished so many agricultural fields in Hebei. It also enjoyed lots of subsidies granted by the local government. But it failed to bring enough tax revenue" to the province, Lu said.
"The core problem lies in conflicting local interests because the fiscal systems are separated."
Zhang Gui, a vice-director of the Centre for Beijing-Tianjin-Hebei Development Research of the Hebei University of Technology, said it would be ideal for the three to share tax revenues.
He welcomed the initiative, as reported by state media, to launch a panel headed by Vice-Premier Zhang Gaoli to oversee Jing-Jin-Ji coordination.
Doing so would help reduce the motive for local authorities to scramble to lure investments while being ignorant of long-term development plans or environmental costs, he told the .
Details of the Jing-Jin-Ji plan might be made public next month, state media reported.
The three local governments have so far signed a number of framework agreements, making Tianjin's Binhai New Development Zone and Hebei's Caofeidian, Langfang, Baoding, Zhangjiakou and Chengde as core areas to take businesses to be transferred from Beijing, said a report by the .
All projects would need to sort out how tax payments will be allocated. China's tax system has many tiers - the lower the tier the local authority belongs to, the smaller the share of tax revenue it will get. Caofeidian, for example, could compete with Tianjin's Binhai for projects but is just a district governed by Tangshan.
Such an administrative structure, Cao said, put Caofeidian at a disadvantage because Tianjin's Binhai enjoys higher administrative power as it is a national-level development zone.
Upgrading the administrative levels of counties such as Caofeidian, experts say, would allow them to get greater tax revenues.
