China Industrial Real Estate: Land Basics
- CresaPartners
China Industrial Market Background
China’s government has structured the industrial real estate market to encourage and concentrate foreign direct investment. In a number of “development zones” in China, the government has instituted expedited registration and licensing procedures to ease foreign investors’ entries into China. The government previously provided preferential tax policies to foreign companies, but with China’s entry into the WTO and pressure from local companies, most of the tax policies favoring foreigners have been eliminated in order to harmonize taxes among foreign and local companies. There are currently more than 2,000 zones located in China, including over 150 development zones in and around Shanghai.
Classes of Development Zones in China
China has three classes of development zones: State, Municipal/Provincial and Township/County, depending on which level of government issues approval.
The main differences between State and Municipal or Provincial zones are normally their location quality and resources. State level zones tend to be located in more prime areas (near ports and major transportation hubs). State zones normally, but not always, have more resources to hire experienced and professional staff and develop buildings to rent to foreign occupiers. Previously, State level zones offered a greater savings on enterprise income tax than Municipal/Provincial zones did. The new tax law does not maintain the preferential tax policies for the zones, thus this difference no longer exists.
Township or County level zones were instituted by local governments that wanted to attract investment. These zones are technically illegal and the central government closed over 4,000 of them in 2005. However, some still exist (the government did not require the removal of existing buildings) and while foreign companies generally do not locate in these zones on their own, they may do so if they enter into a joint venture with a local Chinese company. We strongly recommend against locating in these zones unless proper due diligence is first undertaken.
Types of Development Zones in China
Development zones are also differentiated according to their business or industry focus and include Special Economic Zones, Economic and Technological Development Zones, Free Trade Zones, Export Processing Zones and Hi-Tech Parks. While they generally offer similar benefits to occupiers, there can be differences depending on how much a company exports and whether they qualify as a hi-tech company. Occupiers are encouraged to analyze their short-, medium- and long-term business plans before deciding which type of zone is most suitable for them.
CresaPartners is an international corporate real estate advisory firm that exclusively represents tenants/space users and specializes in the delivery of fully integrated real estate services. For more information, go to their website at www.cresapartners.com.
