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CIRCULAR OF THE STATE COUNCIL CONCERNING THE FURTHER OPENING UP OF HEIHE CITY AND THREE OTHER FRONTIER CITIES

    After the further opening of the aforesaid four frontier cities, they are
expected to expand actively frontier trade and local trade with Russia and
other countries in the Commonwealth of Independent States; to develop economic
cooperation in various forms such as investment cooperation, technical
exchange, service cooperation and so on; and to make reasonable use of local
advantages to develop manufacturing industries and tertiary industries so as
to promote the prosperity and stability of frontier areas.

    The four frontier cities shall carry out following policies:

    1. With respect to the frontier trades and foreign economic cooperation,
the aforesaid four cities shall implement the "Suggestions Concerning the
Vigorous Development of Frontier Trades and Economic Cooperation for Promoting
the Prosperity and Stability of Frontier Areas" which was approved by the
State Council in 1991, and other related stipulations of the state. The
provinces and the autonomous region may, within the limits of their own
authorities, vest the people's governments of those four cities with certain
authority in administering frontier trade and economic cooperation. Within
these delegated authorities, contracts including frontier trade, manufacturing
and service cooperation and so on, may be examined and approved by these four
cities themselves. The four cities may establish, after being ratified by the
Ministry of Foreign Trade and Economic Cooperation, one or two more frontier
trade companies at the city level.

    2. Encouraging the development of manufacturing trade and foreign
exchange-making agriculture. During the Eighth Five-Year Plan period, import
custom duties and product taxes (or value-added taxes) shall be exempted for
seeds, seed plants, feed and other related technical equipment imported for
developing export-oriented agricultural products, as well as for machinery and
other goods and materials imported by enterprises for manufacturing
export-oriented products or for technical improvement.

    3. The four cities shall actively absorb domestic and foreign investments
so as to accelerate economic development. At present, the first stage is to
lay stress on absorbing investments from the Commonwealth of Independent
States and those from domestic enterprises so as to promote the development of
export trade; and is meanwhile to actively create favorable conditions to
expand the absorption of foreign investment from other countries or areas. The
people's governments of the related provinces and autonomous region may
extend, within the limit of their respective authority, the limits of power
vested in the people's governments of the four cities for examining and
approving foreign investment programs. After being approved by local tax
authorities, the enterprise income tax may be levied at the reduced rate of 24
percent for foreign-invested enterprises.

    The investors from the Commonwealth of Independent States are permitted to
include within their total investment value capital goods and other goods or
equipment as contributing investments. These goods may be sold in accordance
with the frontier trade bartering stipulations and shall be granted a 50
percent reduction in import custom duties and consolidated industrial and
commercial tax.

    4. The aforesaid four cities may set aside certain areas within the
administrative region of each city so as to set up frontier economic
cooperation zones. With the intent of attracting investment from inland
enterprises, each city may establish manufacturing enterprises and relevant
tertiary industries, whose products are to be exported to countries within the
Commonwealth of Independent States. The specific limits of the frontier
economic cooperation zones shall be examined and decided by the Office for
Specific Economic Zones under the State Council in conjunction with other
departments concerned.

    5. Those industrial enterprises in the frontier economic cooperation zones
which have a cooperation agreement with other domestic industrial enterprises
and which have a production capacity and export figures over certain amounts,
may be granted licenses for engaging in import from and export to the
Commonwealth of Independent States after the approval by the Ministry of
Foreign Trade and Economic Cooperation. The specific standards of permitted
import and export amounts shall be decided by the Ministry of Foreign Trade
and Economic Cooperation after a study. Enterprise income tax for the
aforesaid enterprises shall be levied at a reduced rate of 24 percent locally.
Investors in the aforesaid enterprises who bring their share of profits back
to other inland regions, shall have 9 percent more income tax collected by the
tax authorities of those inland regions. The investment direction adjustment
tax shall be exempted within the period of the Eighth Five-Year Plan of the
national economy.

    6. Goods which are obtained by the aforesaid enterprises and the
foreign-invested enterprises located in the frontier economic cooperation
zones through barter trade with countries in the Commonwealth of Independent
States may be sold without authorization, and a 50 percent reduction of
customs duties and consolidated industrial and commercial taxes shall be
granted at the time of their importation. As to those commodities whose
imports are limited by the State, the enterprises shall go through the
examination and approval procedures in accordance with related stipulations by
the State.

    7. With respect to machinery, equipment and other construction goods which
must be imported for the construction of the necessary infrastructure within
the frontier economic cooperation zones, import customs duties and product
taxes (or value-added taxes) may be exempted. Within the period of the Eighth
Five-Year Plan, the newly increased fiscal revenue in the frontier economic
cooperation zones may be left with the localities and used for the
construction of the necessary infrastructure.

    8. Within the period of the Eighth Five-Year Plan, the People's Bank of
China shall arrange forty million yuan (ten million yuan for each city) in
special fixed assets loans each year, which shall be used for the development
of the frontier economic cooperation zones. This shall be listed in the state
credit and investment plan.

    The people's governments of Heilongjiang Province, Jilin Province and the
Inner Mongolia Autonomous Region shall strengthen their leadership role
towards the four cities, and shall help them to perfect overall planning of
development. The scale of construction in the four cities must be appropriate
to the feasibility of development, and over-ambitious development plans must
be abandoned. While expanding the opening to the outside world and speeding up
economic construction, the four cities shall strengthen the building of a
socialist society with an advanced culture and ideology, strengthen economic
management and control, and ensure the security and stability in frontier
areas as well as the healthy development of various undertakings.