科技创新与财税政策-CEAUK.DOCVIP

PAGE PAGE 1 Tax Incentive and Innovation in China Ding Xuedong Ministry of Finance Beijing Jun Li School of University Introduction China has sustained rapid economic growth for over 2 decades after initiating reform and opening to the outside world. China’s GDP reached RMB 21.18 trillion in 2006, ranked fourth place in the world after the United States, Japan and Germany. Under its “market for technology” policy, China has become the second largest recipient of FDI just after the US over the past decades. It is noted that China’s opening to foreign investment was not motivated by a shortfall of domestic savings; rather, through the concept of a “markdet for technology”, FDI, foreign trade and technology transfer were expected to contribute to the modenisation of the national economy (OECDa, 2007). While foreign direct investments have led to knowledge spillovers, they did not appear to generate much needed technology transfers. This has prompted China to transform its mode of economic growth from the existing low value-added, export-driven growth to innovation-driven growth. Incentivizing innovation can take two basic forms: a) financial incentives – direct government funding for private sector innovation activities through grants, loans, subsidies, etc; and b) fiscal incentives – tax relief measures which encourage firms to carry out innovation activities by reducing their cost (Eourpean Commission, 2003). As one of the main instruments of innovation policy, tax incentives are justified by knowledge spillovers and innovation risk. In contrast with subsidies, it can also improve the domestic environment for RD expenditure without any sectoral or technological targeting, thereby reducing administrative costs. OECD’s latest study (2007b) has shown, some 20 OECD countries use tax instruments to encourage firms to increase their RD expenditure, and such instruments are also being developed in non-membre countries, including China. Fiscal incentives allow companie