The People's Republic of China offers a variety of tax breaks and financial incentives to encourage inbound investment.

National government incentives vary based on how much money you are investing and whether or not your project is located in one of China's special economic zones; local incentives vary by jurisdiction according to relative bargaining power. The tendency in recent years has been for China's central and western provinces, who have been starved of foreign investment in comparison with well-fed coastal cities like Shanghai and Beijing, to offer incentive packages that are considerably more generous than those offered to foreign investors 'back east'. The national government is now actively encouraging foreign investors to pour money into China's relatively undeveloped hinterlands in order to spread wealth more evenly throughout the country and stem the flow of economic migrants to the coast.

China's standard corporate tax rate is set at 30%. However, in certain locations the rate can decrease dramatically. Enterprises located in certain areas designated as 'open to foreign investment' pay only 24%. The favored children among overseas investors, however, are enterprises located in national-level economic and technical development zones, such as certain industrial parks like Suzhou Industrial Park (near Shanghai) and California Industrial City (in central China). They enjoy a permanent corporate tax rate of only 15% - but even that rate only kicks in during the sixth profit-making year. The rate is zero for these enterprises during their first two profit-making years, and rises to only 7.5% for the following three years, before returning to 15% for the sixth year. Any enterprise classified by the P.R.C. government as a 'Technologically Advanced Enterprise' or an 'Export Oriented Enterprise' (an enterprise with an export value of at least 70% of its production value during any given year) enjoy a corporate tax rate of only 10% for their sixth through tenth profit-making years.

China offers further tax incentives for enterprises that reinvest their profits domestically, and these incentives operate in addition to rather than in replacement of the above tax incentives. In particular, enterprises that reinvest their profits to increase their own capital or to establish or invest in another foreign invested enterprise in China are eligible for a refund of 40% of the corporate taxes already paid on those reinvested profits. The refund rate rises to 100% if the enterprise in which profits are reinvested is classified as a Technologically Advanced Enterprise or Export Oriented Enterprise. This refund must be returned, however, if the reinvested finds are withdrawn within five years.

The foregoing description is not exhaustive - China offers various other investment incentives. That was the good news; the better news is that incentives are offered not only by the national government but also by provincial and local governments that compete fiercely with each other for a slice of China's lucrative foreign investment pie. But that's another article.