CHINA FOREIGN INVESTMENTS POLICES AND PREFERENCES

Industrial Policies

According to Provisions on Guiding Foreign Investment Direction and Industrial Catalogue for Foreign Investment, the industrial projects are divided into four categories: encouraged, permitted, restricted, and prohibited projects. Foreign investment projects belonging to encouraged, restricted and prohibited categories are listed in Catalogue for the Guidance of Foreign Investment Industries. Those permitted foreign investment projects which do not belong to the above three categories are not to be listed in Catalogue for the Guidance of Foreign Investment Industries.

I. Those foreign investment projects under one of the following circumstances shall be listed as encouraged foreign investment projects:

	Projects for new agricultural technology, comprehensive agricultural development of agriculture, and for energy, transportation and key raw materials industries;
	Projects for new agricultural technology, comprehensive agricultural development of agriculture, and for energy, transportation and key raw materials industries
	Projects for new and high technology, advanced and applicable technology which can improve performance of products and increase the techno-economic efficiency of enterprises or produce new equipment and new material that domestic capacity is deficient;
	Projects that are meet market demands, and can promote the quality of products, enter into new markets, or strengthening the competing capability of products in international markets;
	Projects adopting new technology and new equipment for saving energy and raw materials, for comprehensive utilization of resources and renewable resources, and for preventing environment pollution;
	Projects that can make full use of man power and resource advantage in mid-west region and are in accordance with the State’s industrial policies;
	Other cases that are regulated by laws and administrative regulations of the State.

II. Those foreign investment projects under one of the following circumstances shall be listed as restricted foreign investment project:

	Projects adopting out-of-date technologies;
	Projects unfavorable to resource-saving and ecological environment improvement;
	Projects for prospecting and/or mining specified mineral resources protected by laws and regulations of the State;
	Projects in those industries that shall be opened gradually;
	Other cases that are regulated by laws and administrative regulations of the State.

III. Those foreign investment projects under one of the following circumstances shall be listed as prohibited foreign investment projects:

	Projects that endanger the safety of the State or damage social and public interests;
	Projects that pollute environment, destroy natural resources or impair the health of human beings;
	Projects that occupy large amounts of arable land, unfavorable to protection and development of land resources;
	Projects that endanger the safety of military facility and its performance;
	Projects that adopt the unique craftsmanship or technology of our country to make products;
	Other cases that are regulated by laws and administrative regulations of the State.

IV. Encouraged foreign investment projects apart from the preferential terms stipulated in the relevant laws or administrative regulations of the State, may enlarge their scope of business with approval, if they are engaged in the construction and operation of infrastructure facilities related to energy, transportation and urban utility sectors (coal, oil, natural gas, power, railway, highway, port, airport, urban road, sewerage treatment and garbage disposal, etc.), which need a large amount of investment and a long payoff period.

V. Those permitted projects that export all their products directly shall be deemed as encouraged projects. Restricted foreign investments may be deemed as permitted foreign investment projects with approval from the government of provinces, autonomous regions, municipalities directly under the Central Government or cities of direct planning by the State, if the export sales of products amounts to over 70% of the total sales of the product.

VI. Restrictions can be properly eased for those permitted and restricted foreign investment projects that can really make full use of the advantages of mid-west regions. Those projects which listed in Catalogue of Advantaged Industries for Foreign Investment in Mid-west China can enjoy preferential treatments for encouraged foreign investment projects.

In service trades, the Chinese government uses the method of setting experimental units firstly, standardizing and developing secondly, and then gradually expanding. Based on China's development level and its commitment to the entry of the WTO, China has orderly opened some service trades such as banking, insurance, business, foreign-trading, traveling, telecommunication, transportation, accounting, auditing, and law.

VII. Favored Policies Issued by Chinese Government for Foreign Investment in High-tech Fields:

	Technology innovation is available to the foreign-funded enterprises, foreign-invested research and development center, high-tech and export-oriented foreign-funded enterprises listed in the Industrial Catalogue for Foreign Investment and the Industrial Catalogue Restricted for Foreign Investment (B). Import tariffs and import value added tax are supposed to be exempted in accordance with relevant stimulations in the import of equipments for self utility which cannot be manufactured home or fail to meet the practical demand in the formerly approved business scope, as well as related technology, components and spare parts.
	Import tariff and import value added tax are supposed to be exemptible in line with relevant stimulations when the foreign-funded enterprises import necessary equipments for self utility and the related technology, components and spare parts included in the purchase contract, in their manufacture of products listed in Catalogue of National High-tech Products.
	Import tariff and import value added tax are supposed to be free from taxation on the software fee paid overseas when the foreign-funded enterprises import the related technology listed in Catalogue of National High-tech Products.
	Import tariff and import value added tax are supposed to be exempted according to the relevant stipulations when the foreign-funded research and development centers import, within their total investment volume, the equipments for self utility which can’t be manufactured home or fail to meet the practical demands, as well as the related technology, components and spare parts.
	The products listed in Export Catalogue of National High-tech Commodities, if their export drawback rates stand under the taxation rates, are supposed to get drawback after export in accordance with taxation rates and the existing export drawback stipulations, approved by State Bureau of Taxation.
	The foreign-funded enterprises listed in the Industrial Catalogue for Foreign Investment and the Industrial Catalogue Restricted for Foreign Investment (B) are supposed to get back total value added tax of home-made equipments when they purchase home-made equipments within their investment volume on condition that the imported equipments remain in the category of those exempted from import tax.
	In accordance with relevant stipulations, the income tax of foreign-funded enterprises is supposed to be counteracted by homemade equipments purchase in technology innovation and high-tech production in line with national industry policy.
	Sales tax is supposed to be exempted when foreign-funded enterprises, foreign-funded research and development centers, overseas enterprises and international individuals get profits from technology transfer, technology exploitation, as well as related technology consultation and technology services.
	Income tax is supposed to be counteracted by the 50 percent of the performing amount of technology exploitation fee if foreign-funded enterprises increase their exploitation fee by 10 percent from the previous year.
	The research exploitation fee which foreign-invested or overseas enterprises fund unrelated scientific research institutes and universities is supposed to be deducted from the income tax in accordance with Law of Income Tax of Foreign-funded and Overseas Enterprises P.R.C.