Laws of the People's Republic of China

CHAPTER I THE GOAL OF THE POLICY AND KEY DEVELOPMENT PRODUCTS CHAPTER II VERIFICATION AND AUTHORIZATION OF PRODUCTS CHAPTER III STRUCTURE OF THE INDUSTRY CHAPTER IV TECHNICAL POLICY OF THE INDUSTRY CHAPTER V INVESTMENT AND FINANCITY POLICY CHAPTER VI POLICY FOR USING FOREIGN FUNDS CHAPTER VII IMPORT CONTROL POLICY CHAPTER VIII EXPORT CONTROL POLICY CHAPTER IV LOCALIZATION POLICY CHAPTER X CONSUMPTION AND PRICING POLICY CHAPTER XI RELEVANT INDUSTRIAL AND SOCIAL SECURITY POLICY CHAPTER XII INDUSTRIAL POLICIES, PROGRAM AND PROJECT MANAGEMENT CHAPTER XIII OTHERS

The policy is aiming at building China's automotive industry (including motorcycle sector) into a pillar industry of the national economy by changing the current scattered investment, small-scale production and backward products in the industry to raise the development capacity of the producer as well as upgrade their product quality and technology and equipment level in a bit of achieving a reasonable streamline industrial structure and economic scale of production in the industry. With implementation of the policy, China's automotive industry will lay down a sound foundation by the turn of the century and become a pillar industry of the national economy after two more Five-Year Plans Periods, that is by 2010, to bring up the rapid development of the relevant industries.

CHAPTER I THE GOAL OF THE POLICY AND KEY DEVELOPMENT PRODUCTS

   Article 1 The State is to guide the automobile enterprises to make good use of both domestic and overseas funds and open up and expand domestic and international market under a diversified and economic scale of production to meet over 90 percent of domestic demand by 2000 with output of sedans accounting for more than a half of the total output and basically meeting the household demand, and motorcycles basically meeting the domestic needs and exporting a certain amount.

   Article 2 The State is to encourage a gathering of investment and an industrial restructuring in the industry so as to avoid the excessive number of manufacturing factories, scattered investment, disorder in examination and approval of automobile projects, duplicated import of low-level products and the low speed in construction of State-designated key factories and localization of products. The goals in stages are: in the Eight Five-Year Plan period, the stresses will be put on prompting the State approved assembly and auto part manufacturing projects to go into operation as soon as possible and creating conditions for accelerated development of China's automotive industry; by the turn of this century, through support by the State, 2-3 automotive manufacturers (or enterprise groups) will be developed into large producers of a considerable strength, 6-7 automotive manufacturers (or enterprise groups) will be developed into domestic backbone enterprises of the industry, and 8-10 motorcycle manufacturers will be built into key enterprises to both meet domestic and international market demands so as to achieve of a new system of decreasing number of producers, mass production and orderly competition among a small number of large enterprises on the market with the domestic three top sellers of a same kind of cars (according to the classification of the QC/T59-93 industrial standards) accounting for over 70 percent of the automobile market, and before 2010, under the guidance of the State, the large and backbone enterprises will be integrated into 3-4 large automobile as well as 3-4 large motorcycle conglomerates to join in international competition under own efforts of development, production and marketing:

   Article 3 Key development products:

1. Auto parts and components: key parts and components of sedans

2. Passenger automobiles (Class M): economic sedans and special chassis for large and middle-sized passenger coaches

3. Trucks (Class N): special motor vehicles and new engines

4. Motorcycles (Class L): engines

5. Equipment: die sets

6. Basic components: casting and forging blank components

CHAPTER II VERIFICATION AND AUTHORIZATION OF PRODUCTS

   Article 4 The State will effect control on the safety, pollution control and energy saving of automobile products (including motorcycles) according to the law.

   Article 5 The State will adopt the international conventional verification of up to standards on automotive products (including motorcycles) the products without verification of up to standards shall not be allowed to be marketed, imported and used.

   Article 6 The automobile enterprises should apply for verification and authorization in accordance with the requirements of "verification and authorization system for models of automobile products." The authorities responsible for verification of automobile products shall issue certificates and labels to the qualified products and publish the catalogue and the public security departments shall handle registration of new motor vehicles in accordance with the certificates and catalogues mentioned above.

   Article 7 Automobile manufacturers are still responsible for all problems in designing and manufacturing after their products are qualified after the verification.

CHAPTER III STRUCTURE OF THE INDUSTRY

   Article 8 The restructure of automotive industry is to promote conglomeration of automobile enterprises, serialization of products and specialization of production procedures; so as to make effective use of the automobile production bases in the country and bring into full play the initiatives of the central authorities, localities and enterprises, to avoid low-efficiency and blind competition and optimize structure of industrial organizations.

   Article 9 The State encourages automobile enterprises to develop inter- department and inter-regional enterprise groups through assets merge, annexation and joint-stock system and accelerate reform of the corporate system based on reform of the property right system of the State-owned enterprises in a bit to establish a modern enterprises system.

   Article 10 The State will select a number of automobile, motorcycle and auto part manufacturing enterprises or enterprise groups which have independent product and technology development capacity, a certain scale of production and a market share for special support; the enterprises or enterprise groups which will enjoy such support shall have the conditions and development goals before the end of 1995 as:

1. For an, enterprise which has an annual capacity of producing over 300,000 units of automobiles and selling over 200,000 units and spends at least three percent of its sales value on technological development, The state will support it to acquire an annual production capacity of over 600,000 units.

2. For an enterprise which has an annual capacity of producing over 150,000 automobiles and selling over 100,000 units and spends at least 2.5 percent of its sales value on technological development, the State supports it to develop an annual production capacity of over 300,000 units.

3. For an enterprise which has an annual capacity of producing over 100,000 units of automobiles and selling over 800,000 units and spends at least two percent of its sales value on technological development, the State supports it to acquire an annual production capacity of over 200,000 units.

4. For an enterprise which has an annual capacity of producing over 20,000 units of heavy-duty trucks and selling over 15,000 units and spends at least two percent of its sales value on technological development, the State supports it to update its products and acquire a proper scale of mass production.

5. For an enterprise which has an annual capacity of producing over 1,500 units of large or medium-sized motor coaches or the chassis of motor coaches and selling over 1,000 units and spends at least two percent of its sales value on technological development, the State supports it to develop a certain scale of mass production.

6. For an enterprise whose products of key parts or components of sedans accounts for at least 25 percent of the domestic market or belong to niche or urgently needed products in the country (the catalogue is not determined yet), the State supports it to develop toward the goal of economic scale of production.

. For a motorcycle enterprise whose products account for over 10 percent of the sales volume of the domestic market, the State supports it to further expand output and increase varieties:

   Article 11 The production capacity and the sales volume of an enterprise or enterprise group means the amount of the serial products, which include that of the parent company and its solely owned subsidiaries, holding companies and its subsidiary Chinese-foreign joint ventures.

   Article 12 For an enterprise which meets the requirements listed in Article 10 of the present policy, it will enjoy the following treatments after approval by the State when developing the products listed in Article 3 of this policy from 1996 through construction, renovation and expansion of facilities:

1. Zero rate of orientation regulation tax for its investment in fixed assets;

2. Priority for it to issue and list its shares and debentures;

3. Active support in bank loans;

4. Priority for its use of overseas fund in the foreign funds use plan;

5. Policy-based loans will be arranged for projects of economic cars, auto parts and components, die sets and casting and forging mills; and

6. The financial company within an enterprise group may expand its business scale after approval of relevant State departments.

   Article 13 Automobile and engine projects (including Chinese-foreign joint ventures and cooperative firms) newly approved by the State shall be built, in principle, according to the following scales:

1. The sedan project with engine displacement capacity up to 1600 cc shall have an annual production capacity of 150,000 units at least;

2. The light-duty truck project shall have an annual production capacity of 100,000 units at least;

3. The light-duty bus project shall have an annual production capacity of 50,000 units at least;

4. The heavy-duty truck project shall have an annual production capacity of 10,000 units at least;

5. The motorcycle project with engine displacement up to 1500h cc shall have an annual production capacity of 150,000 units at least;

6. The auto gasoline engine project with displacement up to 2500 cc shall have an annual production capacity of 150,000 units at least; and

7. The auto diesel engine project with displacement up to 3500 cc shall have an annual production capacity of 100,000 units at least.

CHAPTER IV TECHNICAL POLICY OF THE INDUSTRY

   Article 14 The State encourages and supports automobile enterprises to set up their own product research and development institutes and build up independent product development capacity through assemiliation of foreign technology. The State supports joint development of key research projects among enterprise groups with research and development funds.

   Article 15 The State encourages dissemination and use of electronic technology, new technology and new materials in auto production, production of energy-saving and low-pollution automobiles and research and development of new fuel and new power driven automobiles.

   Article 16 Construction of the new automobile enterprises must ensure the advanced level of their products; upgrading of the existing products and the self-developed products must reach the advanced international level in the early 1990s and the products manufactured with imported technology must reach the contemporary advanced international level in the 1990s.

   Article 17 The passenger motor coaches and trucks not up to 3.5 tonnes shall use 90 gasoline as the fuel step by step before 2000; the passenger motor coaches not up to 2 tonnes shall use lead-free gasoline; and the passenger motor coaches and trucks exceeding 5 tonnes shall mainly use diesel as the fuel after 2000.

   Article 18 The State supports establishment of national research, experiment and testing institutes of automobiles, motorcycles and key components of undertake formulation of standards, product authentication and inspection of import and export commodities.

   Article 19 The State encourages automobile enterprise to establish Chinese-foreign joint venture or cooperative technological research and development companies.

   Article 20 The State encourages automobile enterprises to adopt modern electronic technology and flexible processing equipment, on-line automatic testing equipment, purposely select automation equipment to raise the per capita equipment volume and equipment technology level.

CHAPTER V INVESTMENT AND FINANCITY POLICY

   Article 21 The State encourages automobile enterprises to pool up development fund through multiple channels.

   Article 22 The State guides the enterprises or enterprise groups possessing technological and management advantages to coop with localities which have a good investment environment and amply supply of fund to develop key products of automotive industry in accordance with the overall State plan.

   Article 23 Projects of key automobile products, may raise funds by issuing stocks under approval of the State Council.

   Article 24 The State will formulate the corresponding policy to encourage inter-regional or inter-department flow of investment and protect legal rights and interests of investors.

   Article 25 When conditions permit, non-banking financial institutions for automotive industry may be established under approval of the relevant State departments.

   Article 26 Under approval of the State Council, automobile enterprises may apply for pilot capitalization of the State debts.

CHAPTER VI POLICY FOR USING FOREIGN FUNDS

   Article 27 The State encourages automobile enterprises to develop China's automotive industry with foreign funds.

   Article 28 When using foreign funds, the automobile enterprises shall select the overseas firms with the following conditions as their joint equity or coop venture partners:

1. holding their own product patents and trademarks;

2. owning product development technology and manufacturing technology and their product and technological indices complying with the existing laws and statutes of their residential country or region;

3. possessing independent international marketing channels (or networks); and

4. maintaining sufficient financing capacity.

   Article 29 An overseas firm shall not establish more than two joint equity or cooperative ventures in China to assemble a same model of motor vehicles.

   Article 30 The State supports automobile enterprises with advanced product technology and manufacturing technology to develop themselves through a direct use of overseas financial capital or an indirect use of foreign funds.

   Article 31 A Chinese-foreign joint equity or cooperative automobile enterprise must meet the following conditions before it can be incorporated:

1. An internal technological research and development institute has been established in the enterprise with capacity to develop new generation products.

2. The products therein reach the advanced international level of the 1990;

3. The joint venture established shall have the capacity to balance its own foreign exchange with export of its own products as the main approach; and

4. When the joint venture wants to buy parts and components, the same parts and components made in China should be given priority.

   Article 32 In a Sino-foreign joint equity or cooperative venture which makes whole automobiles, motorcycles or engines, the share of the Chinese side shall not be lower than 50 percent.

   Article 33 Stop examination and approval of the projects which engaged in renewal or scraping of imported old automobiles or motorcycles in any form. The approved contracts shall not be extended and strict supervision measures shall be established to ensure export of all the renewal automobiles and motorcycles and the parts and components scraped down.

CHAPTER VII IMPORT CONTROL POLICY

   Article 34 Whenever China's automotive industry has not acquired the capacity for international competition, the State adopts necessary control measures on import of automobiles, motorcycles or key unit assemblages.

   Article 35 In accordance with the development of China's automotive industry, the tariffs on import of automobiles and motorcycles shall be lowered timely and the tariff structure of independently listed products shall be readjusted.

   Article 36 The State has designated Dalian Xingang Port, Tianjin Xingang Port, Shanghai Port and Huangpu Port and Manzhouli and Shenzhen (Huanggang) land ports as the ports for import of complete automobiles, which may set up special terminals for import of complete automobiles or bonded warehouses of import automobiles. Other ports shall not set up special terminals for import of complete automobiles or bonded warehouses of import automobiles.

   Article 37 All import automobiles and motorcycles, except those stipulated by the diplomatic and governmental bilateral agreements and Article 44 of the present policy, shall pay tax according to the regulations.

   Article 38 According to the market demand, the amount and variety of automobiles imported each year must be in great conformance with the State automobile production plan and the import must be under approval of the State Council. The State bans import of old automobiles and old motorcycles through trade or donation.

CHAPTER VIII EXPORT CONTROL POLICY

   Article 39 The State encourages automobile enterprises to expand export and participate in international competition. The automobile enterprises should take expanding export and participating in international competition as their development goal.

   Article 40 The State encourages automobile enterprises, when conditions permit, to set up joint equity or coop venture or solely owned manufacturing enterprises and after-sale service centres abroad. Article 41 When enterprises satisfy the following conditions, the State encourages them to expand export and give them priority in arrangement of loans and use of foreign funds:

1. An automobile enterprise reaches the following indices in terms of the proportion of export amount of complete automobiles among its sales volume:

Passenger automobiles: M1 three percent

Trucks: N1 five percent

Motorcycles: L ten percent

2. The export of an automobile (motorcycle) parts and components manufacture reaches 10 percent of its annual sales value.

   Article 42 After introduction of a manufacturing technology from overseas, an automobile enterprise must start its effort to localize the products therewith. The State takes the progress of localization of the import technology products as one of the conditions to support the enterprise to develop the second model.

   Article 43 An automobile enterprise shall not engage in assembly through import of semi-knock-downs (SKD) or completely knock-downs (CKD).

   Article 44 The State formulates preferential import tariff rates in accordance with the localization rate of automobile products. Those firms that reach the following localization standards may enjoy the different preferential tariff rates.

1. The localization rate reaches 40 percent, 60 percent or 80 percent in the products manufactured with the import technology for complete automobiles in Class M;

2. The localization rate reaches 50 percent, 70 percent or 90 percent in the products manufactured with the import technology for complete automobiles and motorcycles in Classes N and L; and

3. The localization rate reaches 50 percent, 70 percent or 90 percent in the products manufactured with import technology for unit assemblages or key parts and components.

CHAPTER X CONSUMPTION AND PRICING POLICY

   Article 45 The State encourages the use of energy saving and low- pollution automobiles.

   Article 46 It is necessary to change gradually the consumption pattern of the administrative departments, organizations, institutions and State-owned enterprises being the main purchasers and users of sedans.

   Article 47 The State encourages individuals to purchase automobiles and will formulate specific policies in accordance with the development of the automotive industry and the change of the market consumption pattern.

   Article 48 Neither locality nor department shall interfere, with administration and economic means, in individuals, purchase and use of automobiles from legal source. It is necessary to adopt active measures to provide support and guarantee in facilities and system such as license management, parking lots, filling stations and driver training schools.

   Article 49 The automobile enterprises shall determine the price of their civil automobiles independently in accordance with the market demand. But, the State-guided pricing will be adopted on sedans for the time being.

   Article 50 The automobile enterprises are encouraged to establish their own marketing systems and after-sale service systems in accordance with the international conventional principles and models.

CHAPTER XI RELEVANT INDUSTRIAL AND SOCIAL SECURITY POLICY

   Article 51 In accordance with the demand of the 2000 development program of the automotive industry, the metallurgical, petrochemical, machine- building, electronic, light industrial, textile and building materials departments shall work out overall plans in full supply of metal materials, machinery and equipment, auto electronics, rubber, engineering plastics, textiles and glass to support development of the automotive industry.

   Article 52 Railways, transport, posts and telecommunications, power and environment protection departments shall adopt effective measures to keep close ties with automobile enterprises in a bit to provide them with auxiliary services to support development of the pillar automotive industry.

   Article 53 Provision of sufficient parking lots must be considered in plans for construction and redevelopment of residential quarters, commercial blocks, hotels, office buildings, public facilities and cultural and recreational places.

   Article 54 It is necessary to plan the layout of filling stations and build them gradually in accordance with the local growth trend of automobiles; the renovation and expansion of urban roads should be taken as an important task in the urban planning and implemented timely.

   Article 55 From 1995 school year, primary schools shall list education in traffic knowledge in their teaching programs and enhance the traffic sense.

CHAPTER XII INDUSTRIAL POLICIES, PROGRAM AND PROJECT MANAGEMENT

   Article 56 The State guides development of the automotive industry through the automotive industry policy and program. All the localities and departments should support development of the automotive industry in accordance with the automotive industry policy and program promulgated by the State Council.

   Article 57 The automotive industry policy and development program are formulated and revised by the State Planning Commission, the State Economic and Trade Commission, the Ministry of Machine-Building Industry and other relevant departments and implemented after approval of the State Council.

   Article 58 The firms undertaking construction, expansion, renovation of, and Sino foreign joint equity or cooperative ventures and import technology projects of sedans, light-duty automobiles and engines must be the State supported enterprises meeting the requirements of Article 10 of the present policy. Any project in this sector, either under or above the limitations, shall be examined and approved by the State before it is established. Other complete automobile and engine projects shall be examined and approved in accordance with the procedures stipulated by the relevant State provisions on the examination and approval limitations. All the projects examined and approved by localities and departments shall be reported to the State Planning Commission, the State Economic and Trade Commission and the Ministry of Machine-Building Industry for record. Before the end of 1995, the State will not approve new sedan and light-duty automobile assembly projects.

   Article 59 The auto part projects complying with the State industrial policies and program, when they can ascertain sales market and construction funds independently and balance production conditions by themselves, may be examined and approved by localities and departments and reported to the State Planning Commission, the State Economic and Trade Commission and the Ministry of Machine-Building Industry for record.

   Article 60 The automotive industry management department, following the requirements of the present policy shall cooperate with relevant departments to formulate the relevant technical regulations, management decrees and system governing safety of automobile products, pollution control and energy saving so as to promote implementation of these industrial policies.

   Article 61 The context of the present policy shall come into effect on the day of its promulgation and the right of its interpretation resides in the State Planning Commission.

Notes: 1. According to the State motor vehicle classification standards [QC/T59-93] promulgated by the State Bureau of Technological Supervision, Class M means passenger automobiles, Class N means trucks and Class L means motorcycles.

2. "Localization" here means the making of products within the People's Republic of China.