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    Desert Tax Haven Draws Moviemakers to China’s Far West

    Generous tax holidays bring film and media companies to remote border city.

    A small Chinese city on the border with Kazakhstan has surprisingly shot to stardom among Chinese moviemakers.

    Dubbed China’s Cayman Islands, Khorgos Economic Development Zone has become home to nearly 1,500 film and media companies drawn to the city by its generous tax breaks.

    Located in northwestern China’s Xinjiang Uyghur Autonomous Region, Khorgos is a young city established in 2014. It has a population of 87,000 people — practically a small town in Chinese terms. Few of the media entrepreneurs who have set up companies in Khorgos actually live there.

    Qiao Pengfei, a 23-year-old man from Wuhan in central China’s Hubei province, is the founder of an online video production team called Kankan Studio. He registered his company in Khorgos in July, following a call from an agency singing the praises of the remote Xinjiang city. “I’d been hearing about [Khorgos’] tax policy for a long time and was immediately interested,” he said.

    Qiao decided to go ahead and register there, making a trip to the city in August to complete the paperwork before returning to Wuhan, where he operates his business. Qiao said he had to pay an agency fee of 22,000 yuan ($3,300), but that he stood to save around 200,000 yuan in the first year alone by having his company registered in Khorgos.

    One of two such economic zones in Xinjiang — the other is in Kashgar — Khorgos Economic Development Zone was established ahead of the city itself, in 2010, and released its preferential tax policy in 2011.

    Corporate tax in China is usually 25 percent. However, companies registered in Khorgos enjoy a corporate tax holiday for the initial five years. During the subsequent five years, they have to pay tax to the central government, but they continue to be exempted from the local proportion of corporate tax, which accounts for 40 percent of total amount.

    In addition, under normal circumstances, movie companies in China pay 6 percent value-added tax (VAT) on final revenues, half of which is collected by local governments. But in Khorgos, the local government returns part of this levy to the companies, provided that the company’s local VAT payments exceed 1 million yuan.

    The tax rules apply to companies registered in the city from 2010 to 2020, and that belong to a long list of industries promoted by the Xinjiang regional government, including agriculture, energy, medicine, transport, finance, technology, and culture.

    Liu Shulei, an official from Khorgos who came to Shanghai this week for and event to attract companies to the city, told Sixth Tone in a telephone interview that he preferred to emphasize the city’s strategic position as part of the “One Belt, One Road” (OBOR) initiative rather than go into great detail about tax breaks. Liu said he had been to more than 100 such conferences over the past year.

    OBOR is a vast strategic project that aims to increase China’s presence across Eurasia through international partnerships and trade proposed by President Xi Jinping in 2013.

    So far, 1,476 movie and media companies have registered in Khorgos, according to the city’s Party secretary Wang Gang, who in June addressed a Khorgos-based conference on OBOR and was cited in a Chinese media report. That number had increased by more than 50 percent compared to last year, the report added.

    Besides small players like Qiao’s company, Khorgos has attracted a long list of companies with links to Chinese celebrities, such as the actors Fan Bingbing, Yang Mi, and Wu Xiubo. Major players in China’s movie industry also have set up shop in the far-flung border region, such as Khorgos Youth Enlight Pictures, a subsidiary of Beijing Enlight Media that is the largest television production and publishing company in China.

    Summer blockbuster “Wolf Warrior 2,” released in July, is an example of a film that saved on tax thanks to its close ties to Khorgos. Three out of the film’s six major production companies are registered in the city: Khorgos Spring Era Film, Horgos Orange Image Media, and Khorgos Dengfeng International Culture Communications. The film has so far taken more than 5 billion yuan at the box office, the highest-grossing Chinese film of all time.

    The three companies, whose total revenues from “Wolf Warrrior 2” stand at around 1.1 billion yuan, could have saved 236 million yuan in tax because of the policy, according to estimates from Hejun Consulting, a Beijing-based consultancy firm.

    Movie companies first came to the area in 2014 and 2015, but it wasn’t until last year that there was a large-scale influx, according to a commercial manager at a major private agency responsible for attracting new companies to Khorgos and helping them with their tax affairs.

    “Many people are hesitant at the beginning, especially because Khorgos is far away and [registering there] would prove troublesome if the policy changes. However, people have gradually seen that it’s practical,” said the manager, who requested anonimity because he didn’t want to attract unwanted attention from the local government. The arrival of film and television companies are just a part of a larger trend that also influences industries like investments and advertising, he added.

    Liu, the official from Khorgos, agreed. He estimated that the film and media industry only accounts for 10 percent of all companies registered in his district, and is now setting his sights on attracting companies from a broader range of industries. “We prefer enterprises that can bring in more jobs or make good use of local resources,” he said.

    Editor: Colum Murphy.

    (Header image: Two women visit the China-Kazakhstan Horgos Frontier International Cooperation Center in Korgas, Xinjiang Uyghur Autonomous Region, July 13, 2014. Zhang Xiuke/VCG)