In 1992-93, a large number of localities began to offer tax concessions that were not authorized by the center. All 30 provinces and thousands of counties and townships launched their own opening up program by establishing various 'zones.' By mid-1993, there were 1,800 zones (including special economic zones, economic development zones, economic and technology development zones, high- and new-tech zone, special zones for Taiwanese investors, border trade zones, etc.) at and above the county level."3 Most of these zones were set up by the provincial or county authorities, some even set up by towns and villages. There are no official stadstics about 'zones' lower than the country level, but the number is exected to be surprisingly large. Most of these zones offered preferential tax policies that previously applied in the SEZs, i.e., a 15 percent flat rate on corporate income, two year tax exemption from the first profit-maling year and thuee year 50 percent tax reduction afterwards. Some zones offer even more aggressive tax reliefs, a standard form being five year tax exemption and five year tax reduction by half.<sup>14</sup> While tax relief policies in many of these zones were offered only to foreign investors, however, there are many others, especaly those at the county and township levels, that offered the same policy to domestic investment.1 Most of these tax exemptions and reductions are not approved by the central taxation authority and are considered illegal by the center. Since mid 1992, the central government has reatedly clmued that tax relief policies offered by these locally-approved zones must be stopped. The circular issued by the center required each province to 'clean' these unapproved zones and all promises made by the localities regarding tax concession can only be fulfilled using the localities' own budgetary funds. However, not until the State Council's September 1993 adoption of a serious austerity program to cool down the economy did these measures take effects.

In addition to 'zones,' many areas offer tax concessions under other names. These tax concessions include legal offers made according to state regulations and those violate state regulations. The current central-provincial revenue sharing system stipulates that provinces can only offer tax exemption and reduction only on the local-fixed items, while exemptions or reductions on the centrl-fixed and central-local shared items are subject to approval by the center, except for those areas where special policies apply. However, these special policies are 13 Source: Ministry of Finance. According to PBC, 233 development zones at and above county level were proposed in Sicken Province in the first half of 1992. By the end of 1992, Tai prefecture of Zhejiang Province has established 152 development zones, among which 134 zones were under the county level.

I Examples are the development zones in Jinin City in Inner Mongolia and Taiyuan City in Shangxi Province.

I Example is the special zone for Taiwanese investors in Lanxi county, Zhejiang Province, which offer the same treatment to all domestic inves;tment. The MOF does not have a estimate about how many zones offered tax relief to domestic investnent, but the number is significant according to their impression.

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