I. Encourage Foreign Businesses to Invest on Technological Development and Innovation

1. For foreign-invested enterprises that have been established and fallen into the category of encouragement or restricted category B, foreign-invested research and development centers, and technologically advanced and export-oriented foreign-invested enterprises, when they carry out technological renovation, they may be exempted from import tax and import link tax according to regulations for importing equipment for own use which cannot be produced at home or cannot meet the need in function as well as related technology, components and spare parts, based on the production and management sphere of the original approval.

2. For foreign-invested enterprises fallen into the category of encouragement or restricted B category, if they buy home-made equipment out of their total investment, and the said equipment, if imported, will be exempted from import tax, the added value tax of the said home-made equipment can be fully rebated. When foreign-invested enterprises buy home-made equipment to carry out technical renovation in conformity to the state industrial policy and produce high-tech products, the home-made equipment bought by them can offset enterprise income tax according to regulations.

3. Out of their total investment, foreign-invested research and development centers buy equipment for their own use which cannot be made at home or cannot meet the needs in function as well as related technology, components and spare parts, the said equipment may be exempted from import tax and import link tax according to regulations.

4. Foreign enterprises transferring technology inside China are exempted from business tax; if the technology is advanced and with preferential conditions, the enterprise income tax is exempted with the approval of the taxation department under the State Council. Income obtained by foreign-invested enterprises (including research and development centers set up with foreign investment) through technological transfer is exempted from business tax.

5. Foreign-invested enterprises, seeing a 10% and over growth rate in technological development fee than the preceding year, are allowed to use 50% of the actual technological development fee to offset the income tax due that year. Concrete measures will follow the "Methods on Pre-tax Deduction of Enterprise Technological Development Fee" formulated by the State Bureau of Taxation.

6. To further expand the export of foreign-invested enterprises, foreign-invested enterprises established before the end of 1993 are allowed to export products with the approval of taxation institution, and before the end of 2000, they may choose the policy of "no tax no rebate" or "exempt from offset" (They can choose only once).

II. Strengthen Financial Support to Foreign Investment

1. When foreign-invested enterprises make loans inside China, China-funded commercial banks are allowed to accept the guarantee of foreign shareholders. Foreign-invested enterprises are allowed to use the method of foreign exchange mortgage to apply for RMB loans with the appointed China-funded banks at home which handle foreign exchanges. All foreign exchange funds of foreign-invested enterprises can be used as mortgages; RMB loans under the item of foreign exchange guarantee can be provided with credit guarantee by financial institutions outside China or foreign-funded financial institutions inside China; remove registration procedures for foreign exchange mortgage and foreign exchange guarantee as well as special restrictions on the credit grades of foreign-funded banks in providing foreign exchange guarantee. RMB loans under the guarantee of foreign shareholders and the guarantee of foreign exchanges should conform to industrial policies, and the money can be used to meet the need of fixed asset investment and working capital, but not to be used to buy foreign exchanges.

2. Set up a special industrial investment fund to relax the existing problem of not having enough funds on the side of Chinese capital when foreign- invested enterprises add capital. At the same time, China-funded commercial banks at home are allowed to give a certain proportion of capital loan to the shareholders of the China side under the condition that when shareholders of the foreign side in Sino-foreign joint and cooperative enterprises add capital.

3. Foreign-invested enterprises at home are allowed to make their overseas assets of foreign investors as a mortgage to overseas branch of the China-funded banks at home, and the loan is issued by the overseas branch or domestic branch of the China-funded commercial bank.

4. Eligible foreign-invested enterprises may apply to issue A shares or B shares.

5. In accordance with the pro-active and steady principles, various kinds of insurance services such as political insurance, contract execution insurance, guarantee insurance are provided to foreign investors who have invested in the fields of energy and communication, areas encouraged by the state.

III. Encourage Foreign Businesses to Invest in the Central and Western Regions

1. The Catalogue on Making Use of Foreign Capital Favorable Industry and Favorable Projects formulated by various provinces, autonomous regions, and municipalities in the Central and Western regions will be put into force after the approval of the State. Projects in the Catalogue may enjoy the policies included in the encouragement type under the "Foreign-Invested Industry Guide Catalogue", and the import of equipment for their own use which cannot be produced in the country or cannot meet the required function as well as related technology, parts and spare parts can be exempted from import tax and import link tax according to regulations.

2. Relax conditions for absorbing foreign-invested spheres and the establishment of foreign-invested enterprises in the Central and Western regions; and relax limitations on the proportion of shares held by foreign businesses in foreign-invested enterprises established in the Central and Western regions.

3. For foreign-invested enterprises in the Central and Western regions and under the class of encouragement, after they fulfill the existing preferential taxation policies, they may be exempted from 15% of enterprise income tax in the following three years.

4. For re-invested projects of foreign-invested enterprises in the Central and Western regions, if the proportion of foreign capital surpasses 25%, the projects can enjoy the treatment of foreign-invested enterprises.

5. Foreign-invested enterprises along the coastal regions are allowed to contract, run and manage foreign-invested enterprises and home-funded enterprises in the Central and Western regions.

6. Various provinces, autonomous regions and municipalities in the Central and Western regions are allowed to choose one established development zone in their capitals to apply for the establishment of a state-level economic and technological development zone.

IV. Improve Further the Management and Service for Foreign Investment

1. According to economic development, readjustment will be made to the "Foreign-Invested Industry Guide Catalogue." To adapt to the need of expanding further opening to the outside world and absorbing foreign funds, limitations in the "Foreign-Invested Industry Guide Catalogue" on asking the Chinese side to control shares and not allowing foreign business to set up solely-funded undertakings should be suitably reduced.

2. Foreign-invested projects under the encouragement class and not involving in the state comprehensive balance, can be examined and approved by the provincial people's government, and reported to the State Development Planning Commission, State Economic and Trade Commission, and Ministry of Foreign Trade and Economic Cooperation for the record. After receiving the report, if the above-mentioned commissions and ministry do not agree, they must make a reply within a month. Related departments of the State Council and various people's governments should further simplify examining and approving procedures on foreign-invested projects and the establishment of enterprises, and accelerate the speed of examination and approval.

3. Improve further the Internet examining system on the sales of foreign exchanges under the current account and shorten the time; for those that cannot use the Internet examining system but use written forms, efficiency should be improved. With the technology transfer agreement and its approval obtained at the establishment of the enterprises, foreign-invested enterprises may undergo the procedure of selling and paying foreign exchanges under the item of technology introduction. Within the quota, foreign-invested enterprises may transfer their deposit under the foreign exchange item to regular deposit. According to the management principles of different places, the rights of examination and approval of foreign exchange income and settlement under the capital account will be delegated, and the system of registration and record of foreign exchange income and settlement under the capital account will be removed.

4. Gradually minimize the sphere of compulsory value appraisal of equipment imported by foreign-invested enterprises, and change it to appraisal methods, and no compulsory value appraisal is made on the import of equipment by wholly-owned foreign-invested enterprises. Regulate customs management, raise efficiency and accelerate the time for passing customs. Measures will be taken to stop strictly random fee collection, random examination and random money apportion against foreign-invested enterprises.

5. Foreign-invested enterprises, obtaining the land use right by sales, do not need to hand in land use fee again.

6. Check up policies and regulations on foreign-invested enterprises, regulate as soon as possible related policies and regulations not in the interest of absorbing foreign capitals, and perfect the laws and legal system of foreign investment.

V. Relax Areas for Foreign Investment

China has prepared or is preparing to relax areas for foreign investment in ten spheres.

1. China has declared to foreign businesses that it will eliminate the regional restriction on foreign investment in financial spheres, and foreign financial institutions may apply for the establishment of financial institutions at any part in the country. At the same time, China will gradually expand the trial run regions and management scale for foreign-funded monetary institutions to run Renminbi business.

2. In 1999, the Chinese government gave approval to another four foreign-funded insurance companies to do business in China, and extended the areas opening to insurance from Shanghai and Guangzhou to Shenzhen, Chongqing, Dalian and Tianjin. Hereafter, the Chinese insurance industry will increase yearly the access of the number of foreign-funded and joint ventures, gradually expanding the number of trial areas that will allow foreign capitals to enter. According to the maturity of the development of insurance market, China will gradually expand the kinds of insurance allowed for foreign funds and reduce restrictions on share structure.

3. On June 25, 1999, with the approval of the State Council, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation issued jointly "The Trail Methods on Foreign-Invested Commercial Enterprises", expanding the trial areas to provincial capitals, municipalities, cities on separate list and special economic zones, and beginning trial work on wholesales industry in Beijing, Tianjin, Shanghai and Chongqing to absorb foreign investment.

4. Expand the business of investment companies to set up by multinational in China. Now the Ministry of Foreign Trade and Economic Cooperation is working on concrete rules to adjust and expand the business sphere of investment companies which includes: allowing investment companies to sell in China and abroad products made by the enterprises invested by them in China and providing after-sales service; allowing investment companies to make purchase for its parent company (or investors) outside China and export its products and let them enter the international sales network of the parent company; and allowing investment companies to set up research and development centers to provide technical support for the invested enterprises.

5. To expand the sphere and number for trials of joint foreign trade companies, and consider expanding the investment function of joint foreign trade companies as well as regulations for the establishment of companies, so as to facilitate joint foreign trade companies to develop business in China.

6. Expand the trial for foreign-invested intermediary services such as accountant offices, appraisal institutions, supervisory companies, and law consultation companies, and efforts are being made to revise related laws and regulations.

7. China will let its air transportation industry to absorb more foreign-invested air companies (there are only three for the present).

8. Efforts will be made to support eligible companies and internationally strong companies to set up joint ventures and engineering companies, and encourage them to contract domestic and foreign large engineering projects.

9. To explore actively the opening of telecommunications industry, and open the telecommunications market by steps with the following concrete steps: First of all break the monopoly at home, make trials to add the value-added telecommunications business in absorbing foreign investment, gradually expand this to the industry of infrastructure telecommunications, and gradually allow foreign capitals to enter China's telecommunications market.

10. In tourism, the National Tourism Administration and the Ministry of Foreign Trade and Economic Cooperation jointly issued the "The Interim Methods on the Trial of Sino-foreign Joint Tourist Agencies" in December 1999, and efforts will be made on organization and expand the region and number for trials for the Sino-China joint tourist agencies. In addition to the above-mentioned areas, China is studying concrete measures to expand opening in the fields of medicine and health, education, city construction and infrastructure.

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