The Impact of China Tax Reform on Taiwan`s Direct Investment

Abstract

China had experienced high-speed economic growth rate, and the FDI (Foreign direct investment) had played an important role. China usually adjusted tax rate to attract the FDI and achieve macro-control. After entering WTO, China started to cancel some foreign favorable tax policies to meet the requirement of WTO. Many scholars thus started to discuss the impact of tax reform and whether this tax reform would promote the industry upgrade. \r\nFrom the data of the Ministry of Commerce, we find that FDI from Taiwan had played an important role. It is because the racial relationship, same language, and near skin color could help overcome the barrier entering China market. What’s more important is that China had released many favorable tax policies, which can attract a lot of FDI. \r\nIn this paper, we introduce the Chinese tax and do the empirical and penal data analysis from the statistic data which mainly focuses on the two tax reforms in 1994 and 2002. After doing this research, we wish we can realize the impact of China’s tax reform on Taiwan’s FDI. Moreover, we expect that this paper can benefit businesses when they are going to invest in China and can be the reference to both Taiwan’s and China’s government when they formulate the policy about the foreign investment.