Sources: New Law to Jolt Outsourcing(1)

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 business process outsourcing (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 telecom, 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, the value of software programming being outsourced to China reached ＄1.09 billion, while India's service and software outsourcing industries were valued at ＄47.8 billion. 

Needless to say, 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."