China Regional Focus: Hangzhou, Zhejiang Province
By Yao Lu
Jan. 2 – Hangzhou, whose name translates to the “heaven of the earth”, is the capital of Zhejiang province. The city is located in the southern part of the Yangtze River Delta, the western end of Hangzhou Bay, the lower reaches of the Qiantang River, and the southern end of the Beijing-Hangzhou Grand Canal. It is a financial center in the south wing of the Yangtze River Delta, and a traffic hub for southeast China.
Over the past decade, Hangzhou has earned recognition from investors for its remarkable economic development, and the city’s economic strength continuously ranks among the top ten medium to large cities in the country.
In 2012, Hangzhou’s GDP exceeded RMB 780.4 billion and grew at an annual rate of 9 percent. Breaking Hangzhou’s growth down further, the city’s primary industry contributed RMB 25.6 billion (2.5 percent growth) and its secondary industry RMB362.7 billion (8.5 percent growth). The remaining RMB 392.1 billion came from the service sector, which grew 10.1 percent year-on-year.
For the first time in its history, Hangzhou’s service sector contributed to more than half of the city’s GDP at 50.2 percent in 2012. Tourism – which brought in close to RMB 140 billion in 2012 – accounted for a major portion of service sector revenue, with close to 84 million foreign and domestic tourists visiting the city last year alone.
Industry also play a vital role in Hangzhou’s economic development, and the city has constructed a diverse manufacturing system with the following five pillar industries:
- Electronics and information;
- Medical and chemical engineering;
- Mechanical manufacturing;
- Textile and garment; and
- Food and beverage.
In addition to manufacturing, the city has a solid agricultural foundation. Thanks to its rich land, subtropical climate, lakes and mountains, Hangzhou is renowned as the “Land of Fish and Rice”, “Tea Capital” and “Home of Silk”.
Development zones in Hangzhou have comprehensive service systems designed to assist corporations seeking to establish and develop in the zone simultaneously. These systems provide free “one-stop” service to domestic and foreign investors.
The main development zones in Hangzhou include:
- Hangzhou Economic & Technological Development Zone
The Hangzhou Economic and Technological Development Zone was approved as a national development zone in 1993. The zone has five pillar industries: machinery and electronics, biology and pharmaceutical, high-tech chemistry, textile and chemical fiber, and food processing.
- Xiaoshan Economic & Technological Development Zone
The Xiaoshan Economic & Technological Development zone was approved as a national development zone in 1993. The zone has already built itself into a strong export-oriented model based on machinery, textile and garment industries. Specialized structures such as the women’s garment industrial park and equipment manufacturing center have been established in this zone.
- Hangzhou Export Processing Zone
The Hangzhou Export Processing Zone was established in 2000 upon approval by the State Council. The zone mainly focuses on electronics, telecommunications and home appliance industries.
- Hangzhou Hi-Tech Industrial Development Zone
The Hangzhou Hi-Tech Industry Development Zone was established in 1990 and was approved as a national hi-tech zone in 1991. The zone has formed eight industrial clusters including software and service outsourcing, e-commerce, internet of things, cultural and creative industry, communication equipment manufacturing, Photovoltaic, IC design and digital television.
- Hangzhou Qianjiang Economic Development Zone
The Hangzhou Qianjiang Economic Development Zone was established and approved as a provincial economic industrial zone by the Zhejiang Government in 2006. The zone is designated as the “Hangzhou High-Tech Industrial Park” and “Hangzhou Qianjiang Science and Technology City”, focused on new material, biotechnology, chemical production and processing, and electronics manufacturing and packaging.
Hangzhou spares no effort in attracting foreign investment, and the municipal government has rolled out various preferential policies to foreign investors including tax incentives, financial support and subsidies.
According to the Several Opinions on Better Utilizing Foreign Investment released by the Hangzhou government in 2011, the city will gradually open the education, medicare and sports industries to foreign investment, and will encourage foreign investors to participate in the development of the city’s culture and tourism sectors.
Moreover, the municipal government will award financial support to investment projects by Fortune 500 companies and foreign investment projects in the following fields:
- Energy-saving and environmental protection industry;
- New generation information technology industry;
- Biology industry;
- High-end equipment manufacturing industry;
- New energy industry;
- New material industry; and
- Modern service industry.
In addition, the government will also provide the following preferential policies to foreign investors:
Qualified foreign-invested R&D centers are exempted from import duty, value-added tax and consumption tax for the import of R&D equipment and facilities.
Qualified high-tech enterprises are able to pay corporate income tax rate at 15 percent, while qualified foreign service-providers are exempted from business tax for the provision of offshore services and may pay corporate income tax at a rate of 15 percent.
The land use right may be granted to foreign investment projects at a price no less than 70 percent of Zhejiang’s lowest price of industrial land.
Foreign Exchange Policies
Upon compliance with national foreign exchange administration policies, foreign investors may use offshore RMB to increase capital, borrow RMB, loan or return RMB foreign debt. For foreign investment enterprises that fail to pay registered capital on time due to capital shortage, the term of capital contribution can be extended upon approval.
The Hangzhou Government will encourage financial institutions to provide more support to foreign investment projects and will encourage foreign investment enterprises incorporated in China to issue short and middle-term financing instruments in the inter-bank bond market.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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