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OFFICIAL REPLY OF THE STATE COUNCIL CONCERNING THE ABSORPTION OF FOREIGN INVESTMENT FOR THE DEVELOPMENT OF THE YANGPU AREA IN HAINAN PROVINCE

    People's Government of Hainan Province:

    The Report on the Project Proposal for the Foreign-Invested Development
and Management of Thirty Square Kilometers of Land in the Yangpu Development
Zone, submitted by your Province, has been received. An official reply is
hereby made as follows:

    1. We have agreed in principle with your Province to absorb foreign
investment for the development and management of about thirty kilometers of
land in the Yangpu area and build the area into the Yangpu Economic
Development Zone. You are allowed to negotiate with foreign investors
according to the provisions of the Interim Measures for the Administration of
the Foreign-Invested Development and Management of Tracts of Land.

    2. We have agreed in principle that your Province may assign to foreign
developers the right to the use of all about thirty square kilometers of land
in the Yangpu area at a time. You are allowed to negotiate with foreign
investors and conclude contracts for the assignment of land use rights under
the Interim Regulations of the People's Republic of China Concerning the
Assignment and Transfer of the Right to Use of State-Owned Land in the Urban
Areas. The contracts shall expressly provide detailed conditions and terms of
development and exploitation of land, assignment, lease and mortgage of land
use rights, and land-use fees. The contracts shall take effect with the
approval of the State Council.

    After the right to the use of State-owned land has been assigned, the
ownership of resources and objects buried thereunder shall be reserved by the
State. If it is necessary to exploit and utilize them, the relevant laws and
administrative regulations of the State shall apply. The exploitation of
underground water resources in the Yangpu area shall be planned and controlled
in a rational way.

    3. The development of land may be conducted by a single foreign investor,
or jointly by several foreign investors, or by a Sino-foreign joint venture.
For the purpose of the development and management of land, development
enterprises shall be established according to the laws. Under the jurisdiction
and protection of laws of the State, such enterprises must observe laws and
regulations of the State in engaging in any activity.

    4. The Yangpu Economic Development Zone should be built into an
export-oriented industrial area, with advanced technology industries as its
leading sector and with the third industry developed correspondingly.
Development enterprises shall, according to this principle, draw up their
overall planning for the development and construction in the Yangpu Economic
Development Zone, which shall specify the main targets of the development and
construction, and its respective targets in different stages, the details and
requirements for achieving the development target, as well as the plans for
using the developed land.

    5. The projects for the construction in the Yangpu Economic Development
Zone shall reflect the State industrial policies and meet the requirements for
economic development in Hainan, and shall be subject to the approval of the
Chinese Government. With regard to the authorities for examination and
approval of these projects, the relevant provisions of the Circular Concerning
the Summary of a Forum on Further Opening up and Quickening Economic
Development and Construction on Hainan Island, approved and transmitted by the
State Council in 1988, shall apply. Projects with foreign investment within
the Development Zone shall, if they don't depend on the domestic market in
terms of finance, energy resources, raw materials and the sale of products, be
subject to the examination and approval of your Province. However, for those
of them beyond the approved quota, the project proposals shall obtain the
consent of the State Planning Commission before you examine and approve them.
Projects for infrastructure constructed within the Development Zone according
to planning may be examined and approved by your Province.

    With the approval of the People's Bank of China, banks or other financial
institutions with foreign investment may be established within the Development
Zone.

    6. We have agreed in principle that the Yangpu Economic Development Zone
shall be administered as a closed or separate area. The detailed separation
and supervision measures shall be formulated by the General Customs
Administration and the Special Economic Zone Office under the State Council in
consultation with other relevant departments, and shall be enforced upon
approval.

    7. Subject to the effective separation and supervision measures, policies
for bonded areas shall apply in the Yangpu Economic Development Zone to the
import and export control, collection and exemption of import and export
duties, product tax and value-added tax levied on behalf of the tax
authorities, but not to the administration of consumer goods imported for
market supplies. Before the enforcement of such measures, policies and
measures described in the Circular Concerning the Summary of a Forum on
Further Opening up and Quickening Economic Development and Construction on
Hainan Island, approved and transmitted by the State Council in 1988, and the
Provisions of the State Council Concerning the Encouragement of Investment in
Developing Hainan Island in 1988, shall continue to apply in the Yangpu area.

    Other tax policies in the Yangpu Economic Development Zone shall refer in
principle to the tax policies of the Hainan Special Economic Zone laid down by
the State. The reduction and exemption of taxes under the central authorities
shall be subject to the approval of the Ministry of Finance and the State
Administration of Taxation. Taxes under the local authorities shall be
adjusted in the light of the actual situations in different industries and
nobody may reduce and exempt all of them at a time.

    8. We have agreed in principle to your Province's preliminary plan for
infrastructure construction with regard to facilities for water supply,
electricity supply, post and telecommunications, and means of transport in the
Yangpu Economic Development Zone. If the linking up of facilities and the
division of management work involves institutions outside the Development
Zone, you shall invite the institutions concerned to sign an agreement or a
contract with development enterprises so as to specify the detailed
requirements and measures. The issue on the building of a small-scale airstrip
in Yangpu shall be referred to the competent authority for special discussion.

    9. The overall planning for allocating shorelines for ports in Yangpu Bay
shall be drawn up by the traffic departments, in which consideration shall be
given to reserve the land extension in depth from shorelines according to the
actual needs for planned ports or piers. The contracts for the assignment of
land use rights and the overall planning for the development and construction
shall specify such consideration. Subject to the planning, Chinese and foreign
parties may jointly invest in the construction and management of ports and
piers, and foreign investors may build and operate piers for the use of
enterprises. Ports and navigation affairs shall be under the unified
administration of the traffic departments.

    10. We have agreed to your Province's guideline on environmental
protection and measures for controlling the total quantity of pollutants
charged in the Yangpu Economic Development Zone. You should lose no time in
completing the assessment of regional environmental impact and doing other
preparatory work before the development and construction of the land is
started. Construction projects shall be in strict conformity with the
requirements of environmental protection. Facilities for the prevention and
control of pollution shall be designed, built and put into operation
simultaneously with the main project.

    11. We have agreed in principle to your Province's conception about the
administrative organ to be set up in the Yangpu Economic Development Zone. You
must make the administrative staff simple and efficient, divide functions
among them clearly, and intensify the effective administration as a government
department.