China is gradually taking back preferential policies toward overseas-funded businesses, which have been levied the same tax as their domestic counterparts in the use of urban land from January 1 this year.

Preferential taxation and land policies, which are described as "policies superior to national treatment", have always been important attractions to overseas investment since China began the reform and opening-up in the late 1970s.

"It's necessary to offer certain incentives to foreign investors during the initial period of the reform and opening-up, when China was stranded by the lack of capital, foreign exchange and an unsound market system," said Justin Yifu Lin, a renowned economist and a member of China's top political advisory body.

Generous tax incentives have fueled foreign capital influx. China has been one of the world's top destinations for foreign direct investment, taking in 53.5 billion dollars in 2003, 60.6 billion dollars in 2004, and 60.3 billion dollars in 2006 in terms of the amount actually used.

But problems have surfaced along with China's rapid economic development. Dual income tax rates have incurred growing complaints from domestic enterprises, some of which even disguise themselves as overseas-funded enterprises to dodge tax, according to the Ministry of Finance.

Zhang Yansheng, director of the International Economic Research Institute under the National Development and Reform Commission, pointed out that China's situations have changed a lot over the years.

"Capital and foreign exchange no longer bottleneck China's economic development, and thus decline from the top goal of attracting foreign investment," Zhang said.

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