HONG KONG investor interest in Wuhan, Hubei province, is showing signs of decline because of a tax system introduced by the government this year. The economic cooling is reflected by shrinking investment and the decreasing number of firms being established in the city. Lan Lan, the chief of the Wuhan Foreign Investment Office's investment promotion department, said investment capital committed by Hong Kong investors this year was about US$400 million, a drop of more than 40 per cent from $700 million last year. In the first nine months, the city approved the formation of 399 Hong Kong-funded firms, representing a drop of about 30 per cent. This compared with 564 firms established over the same period last year, Ms Lan said. She attributed the drop to investor caution over the new tax system announced by the government. 'Hong Kong investors, especially the small and medium-sized investment firms, are sensitive to the government's policies. 'After the government announced the imposition of value-added tax and the planned real estate gains tax, medium-sized companies expressed caution about the investment environment because of the expected increase of investment cost.' Medium-sized firms involving real estate or manufacturing became worried about the prospects of the city, Ms Lan said. However, big enterprises retained their interest in view of the city's long-term prospects. Recently, Hong Kong's New World Development Co joined forces with Henderson Land Development Co and Sun Hung Kai Properties to expand interests into Wuhan. Investment plans include development of a high-technology industrial zone next to the newly-developed international airport in Hankou district, redevelopment of the urban area near the city centre and restructuring at Wuhan Turbine Engine Plant. Despite reporting a fall in investment, Ms Lan said Hong Kong was still the biggest foreign investor in Wuhan, followed by Taiwan, the United States, Japan and Singapore.