Xi'an subsidizes Samsung chip plant

Experts criticized local governments' unsparing subsidies to foreign investors, after a report said that the Xi'an city government has promised over 200 billion yuan ($32 billion) in tax breaks and infrastructure expenditures to attract Samsung Electronics' mobile-chip factory in China.

Xi'an defeated Beijing and Chongqing in a competition to win the $30 billion Samsung project, the company's largest overseas investment, by offering "more favorable fiscal and administrative support," including zero income tax for the first 10 years of the plant's operation and only half of the tax in the following 10 years, free land and buildings, as well as construction of new highways, subways and other facilities to connect and furnish the factory, Economic Observer newspaper reported over the weekend, citing unnamed sources.

"This reflects myopic behavior of the local government officials. They think about enlarging the GDP during their tenure, and do not care about the consequences in the next 20 to 30 years," Liu Shengjun, deputy director of CEIBS Lujiazui International Finance Research Center, told the Global Times Sunday.

"The local governments are using taxpayers' money to subsidize foreign investments. The officials will benefit politically from the enlarged GDP, but the taxpayers are going to suffer from the burden of such costs," Liu said.

"After China's accession to the WTO, any excessively favorable policies for foreign companies amount to discrimination against the domestic ones. As the country is shifting toward expanding domestic consumption, such methods to attract foreign direct investments should be discouraged," said Zhang Liqing, dean of the School of Finance at Central University of Finance and Economics.

Xi'an, capital of Shaanxi Province, has lagged behind in attracting top international companies to the city due to inferior infrastructure, whereas neighboring Chongqing and Chengdu have lured the likes of Hewlett-Packard, Foxconn and Intel Corp to set up key manufacturing plants there.

The report said that the city government plans to allocate 33.3 hectares of land in the Xi'an High-tech Industries and Development Zone for the first stage of the Samsung plant, which is scheduled to go into operation by the end of 2013.

The land subsidy for the first stage alone could amount to 25 billion yuan, based on a market price of 333,333 yuan per hectare, the report said.

Xi'an Mayor Dong Jun told his subordinates last week to speed up relocation to make the land available for the project by even "breaking the norms," , according to xiancn.com, a local news portal under the government.

Calls to the mayor's office and the high-tech zone went unanswered Sunday.

The process of government support is not transparent and there's no supervision on how much actual benefits local governments are giving to foreign companies, therefore, under-the-table transactions can't be ruled out, Liu said.