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Outsourcing companies are likely to enjoy a big gift by the government this year-- including a 15 percent preferential corporate income tax, which would come on the heels of the 25 percent income tax adjustment that was passed by the National People's Congress this past March.
These businesses must be approved as either conducting information technology outsourcing (ITO) or [link widoczny dla zalogowanych] (BPO) by the Ministry of Commerce and related departments. The EO has learned that this law will likely be passed in the early half of this year and will be extended to approximately 1,000 domestic outsourcing firms.
On April 10, at the first meeting of the China Outsourcing Development and Cooperation Symposium, Li Zhiqun, director of the department of foreign investment at the Ministry of Commerce, said that the Ministry is cooperating with the telecomm, technology, and 20 other agencies to draft the policy.
The Ministry had previously announced that each year it would reserve 100 million yuan in a special fund for the outsourcing industry. The National Development Bank will provide 5 billion yuan in loans to be used for local software outsourcing bases and industrial infrastructure. A detailed plan for how the funding will be distributed will come out later this year as well.
Industry insiders regard this as an effort to overtake India in the outsourcing industry. They say that these preferential policies seek to integrate local outsourcing resource superiority, to clearly define China's outsourcing industry, and get a plan rolling for the currently disorganized industry.
According to United Nations Conference on Trade and Development's (UNCTAD) estimates, the total value of global outsourcing in 2007 will reach ��120 million. Among the world's largest 1,000 companies, approximately 70 percent have yet to move any business operations to low-cost countries. In 2006,[link widoczny dla zalogowanych], the value of software programming being outsourced to China reached ��1.09 billion,[link widoczny dla zalogowanych], while India's service and software outsourcing industries were valued at ��47.8 billion.
Needless to say,[link widoczny dla zalogowanych], the policy has been warmly received the service sector. But what worries China's service outsourcing industry the most actually isn't money.
A senior manager at a Dalian software outsourcing company tells the EO, "This policy is without a doubt positive, but what the industry is most concerned about is where to find people. There's no one [to hire]. Many orders go unfilled."
Today, human resources are what most worries Dalian and Beijing outsourcing businesses. IBM's global service center in Dalian is an example-- originally planned to employ 20,000 people, a lack of human resources has left the center employing a scant 2,000. In 2005, the Dalian Software Park and IBM jointly hosted a large-scale training seminar where more than 200 undergraduates were snatched up. And farther inland, the scarcity of human resources is even more marked.
Experts tell us that although the Ministry and other agencies are determined to push the policy, in order to solve the human resource problem, long-term training programs must be drafted. And it's not just Dalian's problem. "Dalian is one of ten outsourcing industry zones specified by the Ministry of Commerce," points out Liu Jiren, board chair at Neusoft, a software outsourcing company.
To this end, Li says that the Ministry will line up funding for training and mandate that local governments do the same.
Recently, the Ministry worked on drafting an outsourcing personnel training plan for 2007, dubbed "from the thousands to the tens". As part of the preferential policy, confirmed outsourcing companies can deduct from income taxes any training expenses that don't exceed more than 2.5 percent of an employee's salary.
According to the process, over the next five years, China will establish ten internationally competitive outsourcing base cities, and push 100 well-known multinational companies to move operations to China.
According to sources, the Ministry of Commerce has already launched a pilot project in the Suzhou Industrial Zone. But the expansion of outsourcing policy is still facing obstacles�� according to senior managers at some outsourcing businesses in the Suzhou Industrial Park, outsourcing companies have yet to take shape because, with their narrow field of vision, they must still rely on government guidance.