Since the 1980s, the country has offered reduced tax rates to woo foreign investors. These days it is having little trouble persuading them to set up shop or expand, thanks to a powerful export-manufacturing base and robust economic growth. Last year alone, foreign companies poured $69.5 billion into Chinese operations.

Indeed, officials now worry that the rapid expansion of foreign-owned manufacturing businesses is using up scarce land and straining supplies of key raw materials. China is also focusing on developing its own domestic champions that can compete with multinationals. In a strategy document issued last year, the government said it will be more selective in foreign investment, and aim for quality, not quantity.

As a result, the government appears increasingly likely to pass a long-discussed tax law during the annual legislative session in March that would, among other things, equalize tax rates for local and foreign companies. The current official rate is generally higher than Hong Kong's and Singapore's, but lower than those of many European countries, and roughly in line with those of other developing nations.

According to a draft of the proposed "Enterprise Income Tax Law" that has been circulating among businesses, the tax rate for foreign and domestic companies will be set at 25%, and most existing tax holidays will be phased out over five years. Currently, the corporate-income tax rate is 33%, but local governments and development zones have often offered foreign companies rates as low as 15% to set up in their jurisdictions.

Compared with the wealth of incentives that are offered now, the draft law allows for only a few exceptions. Small companies with minimal profits would qualify for a 20% tax rate, while high-technology companies considered to be of national importance would still be granted a 15% rate. The new law would also permit areas with large ethnic-minority populations to offer income-tax breaks.

Wang Li, deputy commissioner of the State Administration of Taxation, said the law will be submitted to the National People's Congress, China's legislature, when it meets starting March 5. If passed, as now seems likely, the law could take effect in 2008.

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