The company plans to develop products in China, for China.
GE is starting to let its research and development organizations in China take the lead on research projects, rather than just playing a supporting role to its global research headquarters in New York, says Xiangli Chen, the general manager of GE's China Technology Center.
The 10-year-old center in Shanghai is one of GE's four global research centers and home to 1,300 researchers and engineers. An additional 700 researchers develop health-care-related projects in the country at two other locations. In the past, GE has focused on creating products in and for rich countries such as the United States, and these products were sometimes adapted for poorer countries. Now it's developing products in research facilities in China and selling them in China before finding new applications for these products in its more traditional markets. GE says this is essential for competing in China, where many companies are able to offer low-priced goods and create new products for emerging markets such as China and India, as well as richer countries.
The increased competition for GE from local companies in China is due in part to a massive push by the Chinese government to promote clean energy and R&D. In recent years, it has rolled out a range of renewable energy targets and financial incentives, including significant tax breaks for companies that invest in research related to energy....MORE
What The Top U.S. Companies Pay In Taxes
How can it be that you pay more to the IRS than General Electric?
As you work on your taxes this month, here's something to raise your hackles: Some of the world's biggest, most profitable corporations enjoy a far lower tax rate than you do--that is, if they pay taxes at all.
The most egregious example is General Electric ( GE - news - people ). Last year the conglomerate generated $10.3 billion in pretax income, but ended up owing nothing to Uncle Sam. In fact, it recorded a tax benefit of $1.1 billion.
Avoiding taxes is nothing new for General Electric. In 2008 its effective tax rate was 5.3%; in 2007 it was 15%. The marginal U.S. corporate rate is 35%.
How did this happen? It's complicated. GE's tax return is the largest the IRS deals with each year--some 24,000 pages if printed out. Its annual report filed with the Securities and Exchange Commission weighs in at more than 700 pages.
Inside you'll find that GE in effect consists of two divisions: General Electric Capital and everything else. The everything else--maker of engines, power plants, TV shows and the like--would have paid a 22% tax rate if it was a standalone company.
It's GE Capital that keeps the overall tax bill so low. Over the last two years, GE Capital has displayed an uncanny ability to lose lots of money in the U.S. (posting a $6.5 billion loss in 2009), and make lots of money overseas (a $4.3 billion gain). Not only do the U.S. losses balance out the overseas gains, but GE can defer taxes on that overseas income indefinitely. The timing of big deductions for depreciation in GE Capital's equipment leasing business also provides a tax benefit, as will loan losses left over from the credit crunch.
But it's the tax benefit of overseas operations that is the biggest reason why multinationals end up with lower tax rates than the rest of us. It only makes sense that multinationals "put costs in high-tax countries and profits in low-tax countries," says Scott Hodge, president of the Tax Foundation. Those low-tax countries are almost anywhere but the U.S. "When you add in state taxes, the U.S. has the highest tax burden among industrialized countries," says Hodge. In contrast, China's rate is just 25%; Ireland's is 12.5%....MORE