Laws of the People's Republic of China

    Article 1  All enterprises, other than foreign investment enterprises and
foreign enterprises, within the territory of the People's Republic of China,
shall pay Enterprises Income Tax ("Income Tax") on income derived from
production and business operations and other income in accordance with the
provisions of these Regulations. Income from production and business
operations and other income shall include income sourced both within and
outside the People's Republic of China.

    Article 2  The following enterprises or organizations, which independently
account for their respective financial results (hereinafter referred to as
Taxpayers) shall have an obligation to pay Income Tax:

    (1) State-owned enterprises;

    (2) Collective enterprises;

    (3) Private enterprises;

    (4) Joint venture enterprises;

    (5) Joint stock enterprises;

    (6) Any other organizations deriving income from production and business
operations and other income.

    Article 3  The Income Tax payable by a Taxpayer shall be computed at 33%
of its Taxable lncome.

    Article 4  The Taxable Income shall represent total income earned by the
Taxpayer in a tax year less Deductible Items for that tax year.

    Article 5  The total income of a Taxpayer shall include:

    (1) Income from production and business operations;

    (2) Income from the transfer of property;

    (3) Interest income;

    (4) Income from leasing;

    (5) Income from royalties and licence fees;

    (6) Dividend income;

    (7) Other income.

    Article 6  Deductible Items for the purposes of arriving at the Taxable
Income are costs, expenses and losses incurred by the Taxpayer in earning that
income.

    The following items shall be deductible based on the prescribed scopes and
criteria:

    (1) Interest expenses incurred by a Taxpayer on borrowings from financial
institutions during the course of production and business operations shall be
deductible on an actual basis. Interest expenses incurred on borrowings from
non-financial institutions shall be deductible to the extent that such
interest payments do not exceed those on similar borrowings provided by
finsncial institutions during the same period.

    (2) Salaries and wages paid to employees by a Taxpayer shall be deductible
based on the amount of tax salaries and wages. The people's governments of
provinces, autonomous regions and municipalities directly under the Central
Government shall determine, within the range set down by the Ministry of
Finance, the bases of calculating the tax salaries and wages and shall submit
them to the Ministry of Finance for records purposes.

    (3) Employees union's expenses, employees' welfare costs and employees'
educational expenses are deductible at 2%, l4% and 1.5% respectively of the
amount of tax salaries and wages.

    (4) Donations for community benefits and charitable donations by a
Taxpayer in a year are deductible up to 3% of the Taxable Income.

    Items other than above-listed shall be deducted in accordance with laws,
executive regulations and relevant tax rules promulgated by the State.

    Article 7  The following items shall not be deductible in calculating the
Taxable Income:

    (1) Expenditure of a capital nature;

    (2) Expenditure on acquisition or development of intangible assets;

    (3) Fines in relation to illegal business operations and losses incurred
on confiscation of property;

    (4) Surcharge on overdue tax payments, fines and penalties in relation to
various types of taxes;

    (5) That portion of losses incurred due to natural disasters or accidents,
which is covered by compensations receivable;

    (6) Donations for community benefits and charitable donations in excess of
the deductible amounts; and donations other than those for community benefits
or charitable donations;

    (7) Expenditure on any sponsorship;

    (8) Other items of expenditure that are not incurred in the earning of
income.

    Article 8  Tax incentives are available to the following Taxpayers:

    (1) Enterprises operating in autonomous regions requiring special
incentives and encouragement shall be given tax reductions or exemptions for a
specified period upon the approval of the provincial people's governments;

    (2) Enterprises given tax reductions or exemptions under the laws,
executive regulations and relevant provisions of the State Council shall be
granted such tax incentives accordingly.

    Aticle 9  In the calculation of Taxable lncome, where the financial and
accounting bases adopted by a Taxpayer contradict the relevant tax provisions,
Taxable Income shall be computed in accordance with those relevant tax
provisions.

    Article 10  Business transactions between a Taxpayer and its associated
enterprises shall be conducted in the same manner as those between independent
enterprises in respect of the amounts of receipts or payments. Where the
business transactions which give rise to the receipts or the payments are not
carried out on the same bases as those between independent enterprises and
result in a reduction of Taxable Income of the Taxpayer, the tax authorities
shall have the right to make reasonable adjustment.

    Article 11  Losses incurred in a tax year by a Taxpayer may be offset
against the income of the following tax year. Should the income of the
following tax year be insufficient to absorb the said losses, the balance may
be carried forward to be offset against the income of subsequent tax years.
However, losses may only be carried forward over a period not exceeding five
tax years.

    Article 12  A Taxpayer shall be allowed, when filing a Consolidated Income
Tax Return, to deduct from the amount of Income Tax payable the foreign income
tax already paid abroad in respect of the income derived from sources outside
the People's Republic of China. The deductible amount shall, however, not
exceed the amount of Income Tax otherwise payable under the provisions of
these Regulations.

    Article 13  When a Taxpayer is placed into liquidation in accordance with
the relevant legislation, Income Tax shall be payable on the net income upon
completion of liquidation in accordance with the provisions of these
Regulations.

    Article 14  Unless otherwise required by the State, a Taxpayer shall pay
Income Tax to the local tax authorities where the enterprise is situated.

    Article 15  Income Tax payable shall be calculated on an annual basis and
provisional tax payments shall be made on a monthly or quarterly basis. Such
provisional payments shall be made within 15 days from the end of each month
or quarter as applicable. The final settlement shall be made within four
months from the end of the tax year with any excess tax payment refunded or
any deficiency repaid.

    Article 16  A Taxpayer shall file accounting statements and provisional
Income Tax returns within 15 days from the end of each month or quarter as
applicable with the local tax authorities where it is located. The Taxpayer
shall also file the final accounting statements and Income Tax return with the
local tax authorities where it is located within 45 days from the end of the
tax year.

    Article 17  The administration for the collection of Income Tax shall be
conducted in accordance with the Tax Collection and Administration Law of the
People's Republic of China and the relevant provisions of these Regulations.

    Article 18  The payment of Income Tax by financial and insurance
enterprises shall be made in accordance with the relevant regulations.

    Article 19  The Ministry of Finance shall be responsible for the
interpretation of these Regulations. The rules for the implementation of these
Regulations shall be determined by the Ministry of Finance.

    Article 20  These Regulations shall come into effect on January 1, 1994.
As from this same date, the Draft Regulations of the People's Republic of
China on State-Owned Enterprise Income Tax and Measures of Collection of
State-Owned Enterprise Adjustment Tax published by the State Council on
September 1, 1984, the Provisional Regulations of the People's Repulic of
China on Collective Enterprise Income Tax published on April 11, 1985 and the
Provisional Regulations of the People's Republic of China on Private
Enterprise Income Tax published on June 25, 1988 shall all be abolished. The
measures of the State Council in connection with contracted payment of Income
Tax on State-owned enterprises shall also cease to be effective as from the
same date.