Foxconn Technology Co Ltd, the Taiwanese manufacturing company that produces many of Apple Inc.'s products, is fighting to preserve hundreds of millions of dollars in tax breaks from Chinese cities and provinces, as China cracks down on local government spending.
According to a Wall Street Journal report, Foxconn Chairman Terry Gou met last month with the mayor of the city of Zhengzhou, Ma Yi, to discuss promised subsidies worth about 5 billion yuan ($805 million), according to sources familiar with the matter. Foxconn is said to have asked the city's local government to honor previous subsidies worth about 2 billion yuan ($322 million), as well as incentives worth 3 billion yuan ($483 million) that would cover the next five years.
After years of double-digit growth, China's economy has slowed in recent years. High levels of local government debt have been of particular concern to the ruling Communist Party, which has cracked down on the ability of local and regional governments to offer financial incentives to domestic and foreign investors.
The uncertainty over financial incentives is also holding up a proposed 35 billion yuan ($5.6 billion) Foxconn plant in Zhengzhou that would make high-end phone displays, according to sources cited by the Journal.
China's corporate tax rate is 25 percent, but some industries, including in the electronics and hi-tech sectors, pay a reduced rate of 15 percent, according to accountancy firm PwC. If government incentives are removed, Foxconn could be forced into the 25 percent corporate tax bracket, according to the Journal.
As China ramps down its commitment to subsidizing foreign companies operating in the country, other nations are stepping up with incentives of their own. In January, Brazil announced that it would provide Foxconn with tax reductions and exemptions, in a bid to bolster a proposed facility that would manufacture Apple iPads in the South American country.