The recent closure of some companies with investment from the Republic of Korea (ROK) does not have a major impact on local economy in east China's Shandong Province, Governor Jiang Daming said on the sidelines of the country's parliamentary session.

"On the contrary, it will help improve our industrial structure and the quality of local economy," said Jiang, also a deputy to the 11th National People's Congress.

A number of ROK-invested companies have closed down their China operations this year, leaving workers unpaid. In Jiaozhou, a city close to Qingdao Port, 103 ROK-invested businesses have shut down, without paying wages or taxes.

"Most of these companies are small plants," said Jiang. "It's natural for the investors to leave when they are not able to make money here."

He said the closures were mainly prompted by a uniform business income tax that began to apply to Chinese and foreign-invested companies this year.

A new law taking effect on Jan. 1 sets an unified income tax rate for domestic and foreign companies at 25 percent.

Previously, the average income tax rate on Chinese companies was 25 percent, while that on foreign enterprises was 15 percent.

Besides the higher tax rate, ROK media pointed to China's rising labor costs and more restrictions on pollution as factors behind the withdrawals.

(Xinhua News Agency March 10, 2008)