A research note dated 3 January, 2018 of Nataxis, a French banking conglomerate, offers the following explanation -
"The completion of US tax overhaul has created heated debate globally. China is no exception. With the reduction in the US corporate tax rate, many fear that Chinese firms, or at least US companies operating in China, may flee to the US to enjoy the newly released tax benefits. We argue that this is highly unlikely.
First, although China’s officially standard corporate tax rate is 25% but this is really a maximum and there are a number of ways to get a lower one. Second, even when including the value added taxes, China’s effective tax rate is only 17%, which is much lower than the US new corporate tax ratio alone. Third, most Chinese local governments still give implicit subsidies to large investors to compensate for their losses in tax.
The current fiscal situation does not offer China much room to substantially lower its effective corporate tax rate across the board. However, China can still afford to lower the corporate income tax rate for foreign companies only as it constitutes a very small part of the tax base. These measures will not change the current effective corporate tax too much except for a positive signalling effect."
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