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	CIRCULAR OF THE GENERAL OFFICE OF THE STATE COUNCIL ON FORWARDING THE OPINIONS OF THE MINISTRY OF FOREIGN TRADE AND ECONOMIC COOPERATION AND OTHER DEPARTMENTS ON FURTHER ENCOURAGING FOREIGN INVESTMENT

	(Circular of the General Office of the State Council on Forwarding the Opinions of the Ministry of Foreign Trade and Economic Cooperation and Other Departments on Further Encouraging Foreign Investment (No. 73 [1999] Promulgated by the General Office of the State Council), August 20, 1999: The Opinions on Further Encouraging Foreign Investment of the Ministry of Foreign Trade and Economic Cooperation, the State Planning Commission, the State Economic and Trade Commission, the Ministry of Finance, the People's Bank of China, the General Administration of Customs, the State General Administration of Taxation, the State Administration of Foreign Exchange and the State Administration of Entry and Exit Inspection were approved by the State Council)


SUBJECT : FOREIGN INVESTMENTS
ISSUING DEPARTMENT : GENERAL OFFICE OF THE STATE COUNCIL OF THE PEOPLE'S REPUBLIC OF CHINA
ISSUE DATE : 08/20/1999
IMPLEMENT DATE : 08/20/1999
LENGTH : 1,936 words
TEXT :

In order to attract more foreign capital, encourage the introduction of advanced technologies and equipments, enhance the capability of utilizing foreign capital, promote the industrial re-structuring and technological progress, maintain the fast and sound development of national economy, we hereby set forth the following opinions on how to further encourage foreign investment:

I. FOREIGN-FUNDED ENTERPRISES ARE ENCOURAGED TO MAKE TECHNOLOGICAL EXPLOITATION AND INNOVATION AND ENLARGE THEIR DOMESTIC PURCHASE

(1) For any established foreign investment enterprise in the encouraged or restricted category, foreign-funded research and development center, or any technical innovation of an advanced-technology-oriented or product-export-oriented foreign-funded enterprise, the import customs duties and the taxes incurred in the import link may be exempted in accordance with the provisions of the Circular of the State Council on the Adjustment of Taxation Policies on Imported Equipments (No. 37 [1997] issued by the State Council) for the import of self-used equipments as well as the technologies, fittings, spare parts attached to such equipments which are imported within the originally approved scope of production and operations but cannot be produced in China or whose performance cannot fulfill the needs.

(2) Where a foreign-funded enterprise which purchases any Chinese-made equipment within the total amount of investment, if the aforesaid imported equipment falls in the scope of the tax exemption catalogue, the value-added tax on the domestic equipment may be refunded in full amount and the enterprise's income tax may be deducted or exempted according to relevant regulations.

(3) For any foreign-funded research and development center, the import customs duties and the taxes inccurred in the import link may be exempted in accordance with the provisions of the Circular of the State Council on the Adjustment of Taxation Policies on Imported Equipments (No. 37 [1997] issued by the State Council) for the import of self-used equipments as well as the technologies, fittings, spare parts attached to such equipments within the total amount of investment which cannot be produced in China or the performance of those made in China cannot fulfill the needs. For the technology transfer thereof, the business tax may be exempted with reference to that of a domestic scientific research institution.

(4) Where a foreign enterprise transfers any technology into the domestic territory, if the technology is advanced or the terms are favorable, the business tax and enterprise income tax may be exempted upon the approval of the administrative department of taxation of the State Council. The income as generated from the technology transfer shall be exempted from business tax.

(5) Where any foreign-funded enterprise increases its expenditure for technical development by 10% or more as compared with that of last year, with the approval of the tax authorities, a deduction of 50% of the actual expenditure for technical development may be allowed from the taxable income for the same year. The specific proportion thereof shall be executed according to the Measures for the Control of Pre-tax Deduction of Enterprises' Technical Development Expenses as formulated by the State General Administration of Taxation.

(6) In order to further enlarge the export of foreign-funded enterprises and encourage them to use more domestic materials to produce export products, with the approval of the tax authorities, the foreign-funded enterprises as founded in 1993 is allowed to enjoy the preferential policy of "no collection and no refund" or "exemption, deduction or refund"(one choice only) for their export goods by the end of 2000.

II. STRENGTHEN THE FINANCIAL SUPPORT FOR FOREIGN-FUNDED ENTERPRISES

(1) Where a foreign-funded enterprise raises funds domestically, a Chinese-funded commercial bank is allowed to accept the guaranty of its foreign shareholder. A foreign-funded enterprise is allowed to apply to a designated Chinese-funded bank of foreign exchange for any Renminbi (RMB) loan by means of foreign exchange pledge. All the foreign exchange funds of a foreign-funded enterprise may be used as a pledge; the RMB loans under foreign exchange pledge may be provided with the credit assurance of an overseas financial institution or a foreign-funded financial institution within the Chinese territory; the special restrictions on the registration formalities for foreign exchange pledge or foreign exchange guaranty and on the credit grades of foreign-funded banks which provide foreign exchange guaranty shall be canceled. The RMB loans as guaranteed by any foreign shareholder or foreign exchange shall conform to the industrial policies, may be used to meet the demand of fixed asset investment or liquid funds, and shall not be applied to any foreign exchange purchase.

(2) When establishing any special industrial investment fund to ease the problem of the Chinese party's insufficient capital when a foreign-funded enterprise increases its capital, and at the same time, on the condition that the increased capital of the foreign shareholders to the equity joint or contractual joint venture has been fully paid, a joint-venture or contractual enterprise, a Chinese-funded commercial bank situated within the territory of China is allowed to provide the Chinese shareholders a loan of no more than 50% of the capital stock and the term thereof shall not be any more than 10 years. The specific proportion shall be decided by the commercial banks involved at their own free will according to the principles of granting loans.

(3) A domestic foreign-funded enterprise is allowed to provide mortgage to any overseas branch of a Chinese-funded bank with the overseas asset of the foreign investor, and the loan shall be granted by the overseas branch or domestic branch of the Chinese-funded commercial bank.

(4) Any foreign-funded enterprise that meets the requirements may apply for the issuance of A-shares or B-shares.

(5) In accordance with the principle of activeness and steadiness, such insurance services as the political risk insurance, performance risk insurance and guarantee insurance shall be provided to foreign investors in such fields as energy and traffic as key sectors encouraged by the state.

III. ENCOURAGE FOREIGN INVESTORS TO INVEST IN THE MID-WESTERN REGIONS

(1) All provinces, autonomous regions and municipalities directly under the Central Government in the mid-western regions shall pay close attention to formulating a catalogue of priority industries and projects for utilizing foreign investment, report it to the state and implement it upon the approval thereof. Any project in the said catalogue may enjoy the same policy as those in the encouraged category of the Catalogue of Industries for Guiding Foreign Investment. The customs duties and the taxes inccurred in the import link may be exempted in accordance with the provisions of the Circular of the State Council on the Adjustment of Taxation Policies on Imported Equipment (No. 37 [1997] issued by the State Council) for the import of self-used equipments as well as the technologies, fittings, spare parts attached to such equipments which cannot be produced in China or the performance of those made in China cannot fulfill the needs.

(2) The fields of the mid-western regions for attracting foreign investment shall be broadened and the terms for establishing a foreign-funded enterprise shall be loosened. The restrictions on the proportion of stock as held by foreign investors shall be relaxed. The specific measures thereof shall be formulated by the State Planning Commission, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation.

(3) For the foreign-funded enterprises that fall within the state-encouraged category as established in the mid-western regions, they may, within 3 years as of the expiration of the implementation term of the current preferential tax policies, pay their enterprise income taxes at the reduced rate of 15%.

(4) The projects as re-invested by a foreign-funded enterprise in the mid-western regions may, where the proportion of foreign capital reaches 25% or more, enjoy the foreign-funded enterprise treatments without exception.

(5) A foreign-funded enterprise in the coastal regions is allowed to contract the business operations and management of a foreign-funded enterprise or Chinese-funded enterprise in the mid-western region.

(6) All provinces, autonomous regions and municipalities directly under the Central Government in the mid-western regions are allowed to select an established development zone in the provincial capital or capital city thereof to bid for a national-grade economic and technological development zone.

IV. FURTHER IMPROVE THE ADMINISTRATION AND SERVICES TO FOREIGN-FUNDED ENTERPRISES

(1) The Catalogue of Industries for Guiding Foreign Investment shall be adjusted according to the economic development in a timely manner. In order to meet the demands of further deepening the opening up and attracting foreign investment, the restricted projects as prescribed in the Catalogue of Industries for Guiding Foreign Investment where the Chinese party shall have a holding share or wholly-foreign-funded enterprise is not allowed shall be reduced appropriately.

(2) All the foreign-funded projects in the encouraged catalogue requiring no national comprehensive balancing shall be subject to the examination and approval of the people's government at the provincial level and reported to the State Planning Commission, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation for archival filing. Where the State Planning Commission, the State Economic and Trade Commission or the Ministry of Foreign trade and Economic Cooperation has any different opinion, it shall make a reply within a month of the acceptance of the archival report. The specific measures thereof shall be formulated by the State Planning Commission, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation. The relevant departments of the State Council and all the local people's governments shall further simplify the examination and approval formalities for establishing foreign-funded projects and enterprises and accelerate the examination and approval progress.

(3) The declaration form verification network system for the examination of the authenticity of foreign exchange sales under the current account shall be further improved and the time for examination and approval shall be shortened. Whoever cannot use the declaration form verification network due to any special circumstance and needs to make the verification by way of letter investigation, the examination process thereof shall be quickened up. A foreign-funded enterprise may handle its formalities for sale and payment of foreign exchanges under technology import upon the strength of the technology transfer agreement as concluded between both parties and the approval documents as issued at the time of its establishment. A foreign-funded enterprise may turn the deposits in its foreign exchange settlement account into fixed deposits within a limited amount. According to the principle of territorial jurisdiction, the archival filing and registration system for the exchanges settlement for the foreign exchange income under the capital item shall be transferred to the lower levels.

(4) The scope of compulsory value appraisal on the imported equipments of a foreign-funded enterprise shall be narrowed step by step. The appraisal method thereof shall be improved and the compulsory value appraisal on the imported equipments of a wholly-foreign-funded enterprise shall be canceled, the customs administration be regulated, the efficiency of handling affairs be advanced, and the step of customs clearance be accelerated. Any arbitrary charge of fees, random inspections and all kinds of apportionment as imposed upon any foreign-funded enterprise shall be firmly curbed. The State Economic and Trade Commission shall, in collaboration with the State Planning Commission, the Ministry of Finance, the Ministry of Foreign Trade and Economic Cooperation, etc., take charge of this specific work and shall produce good effects.

(5) A foreign-funded enterprise that has obtained its land use right by means of transfer may be exempted from land use fees.

(6) The Ministry of Foreign Trade and Economic Cooperation shall take the lead and collaborate with other relevant departments and pay close attention to sorting out the policies and regulations on foreign-funded enterprises, adjusting those policies or regulations that are unfavorable for attracting foreign investment, and pay close attention to perfecting the regulatory system on foreign investment.