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PROVISIONS OF THE STATE COUNCIL FOR THE ENCOURAGEMENT OF FOREIGN INVESTMENT

    Article 1  These Provisions are formulated in order to improve the
investment environment, facilitate the absorption of foreign investment,
introduce advanced technology, upgrade product quality, expand exports in
order to generate foreign exchange and develop the national economy.

    Article 2  The State encourages foreign companies, enterprises and other
economic organizations or individuals (hereinafter referred to as "foreign
investors") to establish Chinese-foreign equity joint ventures,
Chinese-foreign contractual joint ventures and foreign capital enterprises
(hereinafter referred to as "enterprises with foreign investment") within
the territory of China.

    The State grants special preferences to the enterprises with foreign
investment listed below:

    (1) Production enterprises whose products are mainly for export, which
have a foreign exchange surplus after deducting from their total annual
foreign exchange revenues the annual foreign exchange expenditures incurred
in production and operation and the foreign exchange needed for the remittance
abroad of the profits earned by foreign investors (hereinafter referred to as
"product-for-export enterprises").

    (2) Production enterprises possessing advanced technology supplied by
foreign investors which are engaged in developing new products, and upgrading
and replacing products in order to increase foreign exchange generated by
exports or for import substitution (hereinafter referred to as
"technologically advanced enterprises").

    Article 3  Product-for-export enterprises and technologically advanced
enterprises shall be exempt from payment of all subsidies to be granted by the
State to staff and workers, except for the payment of or allocation of funds
for labour insurance, welfare costs and housing subsidies for Chinese staff
and workers in accordance with the provisions of the state.

    Article 4  The site use fees for product-for-export enterprises and
technologically advanced enterprises, except for those located in busy urban
sectors of large cities, shall be computed and charged according to the
following standards:

    (1) five to twenty RMB yuan per square metre per year in areas where the
development fee and the site use fee are computed and charged together;

    (2) not more than three RMB yuan per square metre per year in site areas
where the development fee is computed and charged on a one-time basis or areas
which are developed by the above-mentioned enterprises themselves.

    Exemptions for specified periods of time from the fees provided in the
foregoing provision may be granted at the discretion of local people's
governments.

    Article 5  Product-for-export enterprises and technologically advanced
enterprises shall be given priority in obtaining water, electricity and
transportation services, and communication facilities needed for their
production and operation. Fees shall be computed and charged in accordance
with the standards for local state enterprises.

    Article 6  Product-for-export enterprises and technologically advanced
enterprises, after examination by the Bank of China, shall be given priority
in receiving loans for short term revolving funds needed for production and
distribution, as well as for other needed credit.

    Article 7  When foreign investors in product-for-export enrerprises and
technologically advanced enterprises remit abroad profits realized by them
from such enterprises, the amount remitted shall be exempt from income tax.

    Article 8  After the expiration of the period for the reduction or
exemption of enterprise income tax in accordance with the provisions of the
state, product-for-export enterprises whose value of export products in that
year amounts to 70 per cent or more of the value of their products for that
year, may pay enterprise income tax at a rate reduced by one half of the
current tax rate.

    PIoduct-for-export enterprises in the special economic zones and in the
economic and technological development zones and other product-for-export
enterprises that already pay enterprise income tax at a tax rate of 15 per
cent and that comply with the foregoing conditions, may pay enterprise income
tax at a reduced rate of 10 per cent.

    Article 9  After the expiration of the period of reduction or exemption of
enterprise income tax in accordance with the provisions of the state,
technologically advanced enterprises may extend for three years the payment of
enterprise income tax at a rate reduced by one half.

    Article 10  Foreign investors who reinvest their shares of profits from
their enterprises in order to establish or expand product-for-export
enterprises or technologically advanced enterprises for a period of operation
of not less than five years, after application to and approval by the tax
authorities, shall be refunded the total amount of enterprise income tax
already paid on the reinvested portion. If the investment is withdrawn before
the period of operation reaches five years, the amount of enterprise income
tax refunded shall be repaid.

    Article 11  Export products of enterprises with foreign investment,
except crude oil, finished oil and other products subject to special state
provisions, shall be exempt from the consolidated industrial and commercial
tax.

    Article 12  Enterprises with foreign investment may arrange the export of
their products directly or may also export by consignment to agents in
accordance with state provisions. For products that require an export license,
in accordance with the annual export plan of the enterprises, an application
for export licenses shall be made every six months.

    Article 13  Machinery and equipment, vehicles used in production, raw
materials, fuel, bulk parts, spare parts, machine component parts and fittings
(including imports restricted by the state), which enterprises with foreign
investment need to import in order to carry out their export contracts do not
require further applications for examination and approval and are exempt from
the requirement for import licenses. The Customs shall exercise supervision
and control, and shall inspect and release such imports on the basis of the
enterprise contracts or the import-export contracts.

    The imported materials and items mentioned above are restricted to use by
the enterprise itself and may not be sold on the home market. If they are used
as products to be sold on the domestic market, import procedures shall be gone
through in accordance with relevant provisions and duties shall be paid
according to relevant regulations.

    Article 14  Under the supervision of the foreign exchange control
departments, enterprises with foreign investment may mutually adjust their
foreign exchange surpluses and deficiencies among themselves.

    The Bank of China and other banks designated by the People's Bank of China
may provide cash security services and may grant loans in Renminbi to
enterprises with foreign investment.

    Article 15 (Note 1.)  The people's governments at various levels and
relevant departments in charge shall guarantee the right of autonomy of
enterprises with foreign investment and shall support enterprises with foreign
investment in managing themselves in accordance with internationally advanced
scientific methods.

    Within the scope of their approved contracts, enterprises with foreign
investment have the right to draw up, of their own accord, production and
operation plans, to raise funds, to use funds, to purchase production
materials and to sell products; and to determine by themselves the wage
levels, the forms of wages and the bonus and allowance system.

    Enterprises with foreign investment may, in accordance with their
production and operation requirements, determine by themselves their
organizational structure and personnel system, employ or dismiss senior
management personnel, increase or dismiss staff and workers. They may recruit
and employ technical personnel, managerial personnel and workers in their
locality. The units to which such employed personnel belong should back the
employment and permit the transfer. Staff and workers who violate the rules
and regulations, and thereby cause certain bad consequences may, in accordance
with the seriousness of the case, be given varying sanctions, up to that of
discharge.

    Enterprises with foreign investment that recruit, employ, dismiss or
discharge staff and workers, shall file a report with the local labour and
personnel department for the record.

    Article 16  All regions and departments must implement the "Circular of
the State Council Concerning Firmly Curbing the Indiscriminate Levy of Charges
on Enterprises", The people's governments at the provincial level shall
formulate specific measures and strengthen supervision and administration in
this regard.

    Enterprises with foreign investment may refuse to pay indiscriminately
apportioned charges if such cases occur and may also appeal to the local
economic committees up to the State Economic Commission.

    Article 17  The people's governments at various levels and relevant
departments in charge shall strengthen the co-ordination of their work,
improve efficiency in handling matters and shall promptly examine and approve
matters reported by enterprises with foreign investment that require response
and resolution. For the agreements, contracts and articles of association of
enterprises with foreign investment to be examined and approved by the
departments in charge under the State Council, the relevant examination and
approval authorities must, within three months from the date of receipt of all
documents, decide to approve or not to approve them.

    Article 18  Product-for-export enterprises and technologically advanced
enterprises mentioned in these Provisions shall be confirmed as such by the
foreign economic relations and trade departments where such enterprises are
located in conjunction with the other relevant departments in accordance with
the enterprise contract, and certificates of confirmation shall be issued.

    If the actual results of the annual exports of a product-for-export
enterprise are unable to hit the target of a surplus in the foreign exchange
balance as set in the enterprise contract, the taxes and fees which have
already been reduced or exempted in the previous year shall be paid in the
following year.

    Article 19  These Provisions, except for those articles that are
specifically applicable to product-for-export enterprises, shall be applicable
to all enterprises with foreign investment. These Provisions apply, from the
date of entry into effect, to those enterprises with foreign investment that
obtained approval for establishment before the date of entry into effect of
these Provisions and that qualify for the preferential terms of these
Provisions.

    Article 20  For enterprises established with investment by companies,
enterprises and other economic organization or individuals from Hong Kong,
Macao, or Taiwan, matters shall be handled by reference to these Provisions.

    Article 21  The Ministry of Foreign Economic Relations and Trade shall be
responsible for interpreting these Provisions.

    Article 22  These Provisions shall enter into effect as of the date of
promulgation.

Note:

    Note 1. New provisions have been formulated with regard to this Article
which shall thus be implemented in accordance with the provisions in Opinions
Concerning Further Confirming the Autonomy of Enterprises with Foreign
Investment in the Employment of Their Personnel, formulated by the Ministry of
Labour and Personnel and transmitted by the General Office of the State
Council. - The Editor?