Description of the issue selected
Economic development incentives refer to the inducement policies offered by governments to appeal or maintain local and foreign investors (Long 45). Incentives range from a number of policy forms. Notably, the forms center on tax inducements and infrastructure developments (Aronson 67).
The types of incentives offered vary based on the local government meeting the cost of the inducements (Long 45). As such, the overall aim of economic development incentives is to create new jobs, enhance infrastructure development in remote locations, and generate lasting tax income.
Why I selected the policy
I selected the above policy because of its importance in the local government’s economic growth. Based on the above illustrations, it is apparent that citizens can benefit if local governments come up with effective and manageable economic development incentives.
It has been noted that a number of local governments using economic development inducements have dissimilar intentions with the companies receiving them (Long 45). Local governments are focused on offering services to the people, while businesses benefiting from the inducements are centered on increasing their profits.
Therefore, to attain their objectives local governments should review the paybacks of projects benefiting from the inducements in contrast to the cost of public expenditure.
Even though there is no distinct approach for the review providing a detailed and rigorous examination all projects, it is essential for culpability and durable revenue impacts.
Accountable usage of public cash necessitates that developments funded offer an appropriate return for the local government and investments offered in a genuine manner with appropriate knowledge of their temporary and lasting costs and benefits.
Historical background information about the policy
Starting from the early 1990s, China has experienced a huge economic growth. The growth has attracted the attention of both local and international policy makers and academicians (Li 20). The drastic growth of China’s economy is attributed to township and village enterprises.
The key role played by the enterprises in the country’s economic development and continuous reorganization progression has now been extensively recognized. It has been established that economic development progress has benefited the most from the local government policies.
The country’s local governments play a significant part in the economy. In the recent years, their revenue was estimated at 8% of the country’s GDP.
With respect to tax sharing, the additional-budgetary local returns are not necessarily shared with the national government (Li 45). Through this, the local governments are able to come up with a robust incentive to promote local industries.
In a bid to attract foreign investors, local governments have set up distinct industrial zones. The zones are located in rural regions of China.
Is the policy a regional, city, state, or national problem?
Economic development incentives are not only spearheaded by the local governments in China but also with the help of national government. In the last decade, the central government and the local governments have come up with two policies to improve its central and western regions.
In the year 2000, the country came up with the Western Development Strategy (Li 45). The policy is aimed at enhancing the economies of the western provinces. In the year 2004, the country established the Rise of Central China Plan. The policy aims at synchronizing local development in six central provinces.
To attain the comprehensive objectives defined in the plans, the central and the local governments offered a number of initiatives to induce a number of investors to the regions. Based on the above illustrations, it is apparent that economic development incentives in China are national issues.
For investors planning to invest in the country, a comprehensive understanding of the policy will offer an important guide to gaining contact with possible clients in untapped regions.
What circumstances have led to the issue and why it should be analyzed?
The step and measure of China’s financial revolution have no past comparison. During the year 1978, the country was ranked among the poorest nations (Li 78). Ever since the economic policy reforms were initiated in the late 1970s, the country’s economy has increased progressively.
As such, the reforms opened the country to the outside world. The quick and continued developments in average living conditions have made the country the second largest economy after the United States of America.
Because the country is reputable for its very high rates of saving and investment, it is evident that its rapid growth in the last few decades has been influenced by productivity growth.
In general, the local governments’ economic development incentives brought about by the government untiring institutional transformation and policy reorganizations that have lessened distortions are the key causes of the productivity growth.
Despite the importance of economic development incentives, it should be noted that the policy has attracted a number of criticisms. According to those opposed to the policy, the projects are usually very costly and benefit the developers rather than the citizens (Li 45).
Others argue that development inducements do not create new industries or employments but simply transfer them. The above argument can be valid when discrete areas of the towns are offered with inducements to draw investors.
To address and to understand the degree of the drawbacks of economic development incentives, the topic should be analyzed. Similarly, the topic should be analyzed to understand how the policy should be effectively formulated, implemented, and managed.
Future trends related to the issue
Given that China will face increased competition in the future from other developing countries as an investment destination, the country is expected to announce more competitive economic development incentives.
The incentives will be tailored at retaining and attracting foreign investors. The regions that will benefit the most from these incentives are the central and western parts of the country.
Current policies being taken to address the issue
The local Chinese governments have come up with a number of policies to boost incentives aimed at enhancing foreign investment in its remote areas. Through this, the governments will uplift the economic conditions of these poverty-stricken regions.
The first policy aims at attracting investors to central and western parts of the country. Through this, the financial institutions are encouraged to give priority to companies having projects in the region. The other policy aims at identifying distinct industries to operate in the western and central region of the country.
Similarly, another policy aims at relaxing restrictions on investors operating the regions. Through the above policies, local governments aim to attract several multinational companies in their region to create jobs and sustainable tax base.
Desired policies that should be taken to address the issue
To address the issue, it is desired that the local governments should increase the amount of soft loans spent on development in these regions. Similarly, the local governments should come up with policies that are unique and tailored at solving the region’s challenges.
The above will ensure that both the foreign investors and the citizens benefit the most from economic development incentives.
The cost to finance the desired issue
It estimated that the cost of implementing the desired policies would be higher. With $5.1bn, the local governments can increase the amount of soft loans spent on development in their regions. Similarly, the money will enable the local governments to come up with appropriate policies.
Recommendations for the future
In the future, it is advisable that the local governments scrutinize the detailed benefits and costs related to economic development incentives, priorities, programs, and plans. The analysis should encompass a review of the suppositions, cost, paybacks, and procedures being used to validate the incentive.
Even though there is no distinct approach for the review, providing a detailed and rigorous examination all projects is essential for culpability and durable revenue impacts.
Conclusions
The article analyzed the local governments’ incentives to attract and retain foreign investments by utilizing the available policies in the country. Throughout the paper, an illustration of Chinese local governments’ incentive policies is provided.
As such, the additional-budgetary local returns are not compulsory to be shared with the national government. Through this, the local governments are able to come up with a robust incentive to promote local industries. In a bid to attract foreign investors, local governments have set up distinct industrial zones.
The zones are located in rural regions of China. Similarly, it should be noted that the Chinese local governments have come up with a number of policies to boost incentives aimed at enhancing foreign investment in its remote areas.
By doing so, the governments will uplift the economic conditions of these poverty-stricken regions. The first policy aims at attracting investors to central and western parts of the country.
Works Cited
Aronson, J. Richard. Management Policies in Local Government Finance. 6th ed. Washington: Published in Cooperation with the Municipal Finance Officers Association by the International City Management Association, 2012. Print.
Li, Linda Chelan. Rural Tax Reform in China: Policy Process and Institutional Change. Milton Park, Abingdon, Oxon: Routledge, 2012. Print.
Long, William J. Economic Incentives and Bilateral Cooperation. Ann Arbor: U of Michigan, 2006. Print.