Laws of the People's Republic of China

    Article 1  These Rules are formulated in accordance with the provisions
of Article 17 of the Income Tax Law of the People's Republic of China for
Chinese-foreign Equity Joint Ventures (hereinafter referred to as the "Tax
Law").

    Article 2  "Income derived from production and business operations"
mentioned in Article 1 of the Tax Law means income derived from production
and business operations in the fields of industry, mining, communications,
transportation, agriculture, forestry, animal husbandry, fisheries, poultry
farming, commerce, tourism, catering, service trades and other fields of
production and business operations.

    "Other income" mentioned in Article 1 of the Tax Law means: income from
dividends, bonuses, interest and income from the leasing or transfer of
property, patent rights, proprietary technology, trade mark rights,
copyrights and other such property.

    Article 3  "The local income tax of 10% of the assessed income tax"
mentioned in Article 3 of the Tax Law means the local income tax computed and
imposed on the basis of the actual amount of the income tax paid by a joint
venture.

    A reduction or exemption from the local income tax because of special
reasons shall be decided by the people's government of the respective
provinces, autonomous regions or municipalities directly under the Central
Government in which the joint venture is located.

    Article 4  A foreign partner in a joint venture which remits its share of
profits obtained from the joint venture shall file a return with the local
tax authorities and the remitting agency shall withhold income tax of equal
10% of the amount remitted. Amounts not remitted shall not be subject to tax.

    Article 5  "The first profit-making year" mentioned in Article 5 of the
Tax Law means the year in which a joint venture begins to realize profits
after the losses, if any, of the initial stage of its operation have been set
off in accordance with the provisions of the Tax Law.

    Article 6  A foreign partner in a joint venture which reinvests its share
of profit obtained from the venture in the same venture or in other
Chinese-foreign equity joint ventures for a period of not less than 5
consecutive years may, on the basis of the certificate of enterprise receiving
such reinvestment, and upon examination, verification by and approval of the
tax authorities to which payment of tax was made, receive refund of 40% of the
income tax already paid on the amount reinvested.

    Article 7  The tax year of a joint venture refers to each year of the
Gregorian calendar commencing January 1 and ending December 31.

    Article 8  The taxable income shall be calculated according to the
following formulas:

    1. Industry:

    a. manufacturing cost for the period = direct materials consumed in
production for the period + direct labor + manufacturing expenses;

    b. cost of the products manufactured for the period = inventory of
semi-finished products and products in process at the beginning of the period
+ manufacturing cost of the period - inventory of semi-finished products and
products in process at the end of the period;

    c. cost of products sold = cost of the products manufactured for the
period + inventory the products at the beginning of the period - inventory of
the products at the end of the period;

    d. not sales = gross sales - (sales returns + sales discounts and
allowances);

    e. profit on sales = net sales - cost of products sold - tax on sales -
cost of sales - (selling expenses + overhead expenses);

    f. taxable income = profit on sales + profit from other operations +
non-operating income - non-operating expenses.

    2. Commerce:

    a. net sales = gross sales - (sales returns + sales discounts and
allowances);

    b. cost of sales = inventory of merchandise at the beginning of the
period + [purchases of merchandise during the period - (purchase returns +
purchase discounts and allowances) + purchase expenses] -inventory of
merchandise at the end of the period;

    c. profit on sales = net sales - tax on sales - cost of sales -
(selling expenses + overhead expenses);

    d. taxable income = profit on sales + profit from other operations +
non-operating income - non-business operating expenses.

    3. Service trades:

    a. net business income = gross business income - (tax on business income
+ operaing expenses + overhead expenses);

    b. taxable income = net business income + non-operating income -
non-operating expenses.

    4. Other lines of business: calculation shall be made with reference to
the above formulae.

    Article 9  The following items shall not be itemized as costs, expenses or
losses in the calculation of the taxable income:

    1. expenditures related to the acquisition or construction of  machinery,
equipment, buildings, facilities and other fixed assets;

    2. expenditures related to the acquisition of intangible assets;

    3. interest on equity capital;

    4. income tax payments and local surtax payments;

    5. fines for illegal business operations and losses caused by the
confiscation of property;

    6. penalties for the overdue payment of taxes and tax fines;

    7. the portion of losses caused by windstorms, floods, fires and other
such disasters, which is compensated by insurance proceeds;

    8. donations other than those for public welfare and relief purposes; and

    9. the portion of the business expenses incurred within the tax year in
excess of either 3 thousandths of gross sales of 10 thousandths of gross
business income and entertainment expenses not relevant to production and
business operations.

    Article 10   The depreciation on fixed assets used by a joint venture
shall be calculated on an annual basis. "Fixed assets of a joint venture"
means buildings, machinery, mechanical apparatuses, means of transport and
other such production equipment having a useful life of 1 year or more.
However, articles having a unit value of 500 yuan or less and a shorter
useful life may be itemized as expenses on the basis of actual consumption.

    Article 11  The valuation of fixed assets shall be based on the original
value.

    For fixed assets regarded as investments, the original value shall be the
price agreed upon by the parties at the time of investment.

    For fixed assets that have been purchased, the original value shall be the
purchase price plus transport expenses, installation expenses and related
expenses incurred prior to the use of the assets.

    For fixed assets that have been manufactured or constructed by the
venture, the original value shall be the actual expenses incurred for
manufacture or construction.

    Article 12  In calculating depreciation of fixed assets, the salvage value
shall be estimated and deducted from the original value; in principle, the
salvage value should be 10% of the original value. In the case of fixed assets
for which it is necessary to retain a lower or no salvage value, the matter
shall be reported to the local tax authorities for approval. Depreciation of
fixed assets shall generally be calculated using the straight-line method of
depreciation.

    Article 13  In the calculation of depreciation, useful life of the various
categories of fixed assets shall be as follows:

    1. for houses and buildings, the minimum useful life shall be 20 years;

    2. for railway rolling stock, boats and machinery and other production
equipment the minimum useful life shall be 10 years; and

    3. for electronic equipment and means of transport other than railway
rolling stock and boats and ships, the minimum useful life shall be 5 years.

    Where, for special reasons, a joint venture needs to accelerate
depreciation or change the method of depreciation, an application may be
submitted to the local tax authorities for examination and then transmitted
level by level to the Ministry of Finance of the People's Republic of China
for approval.

    Article 14  Expenses incurred on technical innovation which result in an
increase in the value fixed assets in use shall not be itemized as expenses.

    No further depreciation shall be allowed for fixed assets which remain in
use after having been fully depreciated.

    Article 15  The balance of the proceeds realized by a joint venture from
the disposal of fixed assets at current prices shall, after deduction of the
undepreciated amount or the salvage value, be entered into the profit and loss
account for the current year.

    Article 16  Intangible assets such as proprietary technology, patent
rights, trade mark rights, copyrights, rights to the use of sites and other
special rights regarded as investments, shall be amortized starting with the
first year of use on the basis of the amount specified in the agreements or
contracts; intangible assets acquired at a fixed price shall be amortized
starting with the first year of use on the basis of actual cost.

    The above-mentioned intangible assets which have a specified period of use
shall be amortized according to the specified period; intangible assets
without a specified period of use may be amortized over a 10 year period.

    Article 17  Expenses incurred during the period of organization of a
joint venture shall be amortized after the commencement of production or
operation; the amount amortized each year shall not exceed 20% of such
expenses.

    Article 18  Inventory of merchandise, raw materials, products in process
of production, semi-finished products, finished products and by-products
shall be valued at cost. The joint ventures may choose one of the following
methods of calculation: first-in first-out; moving average; or weighted
average. Where a change in the method of calculation is necessary, the matter
shall be reported to the local tax authorities for approval.

    Article 19  Income tax to be paid in quarterly installments as stipulated
in Article 8 of the Tax Low may be calculated on the basis of one-fourth of
either the planned annual porfit for the current year or the actual income of
the preceding year.

    Article 20  Joint ventures, whether realizing profits or losses in a tax
year, shall file their income tax returns and final accounting statements with
the local tax authorities within the prescribed period and shall include the
audit statement of a certified public accountant registered in the People's
Republic of China.

    The accounting statements submitted by the domestic branches of a joint
venture their head offices shall be filed at the same time with the local tax
authorities for the record.

    Article 21  Joint ventures shall file tax returns within the time limit
set by the Tax Law. In case of failure to submit the tax returns within the
prescribed time limit owing to special reasons, application shall be submitted
to the local tax authorities within the said time limit, and the time limit
may be appropriately extended upon the latter's approval.

    The final day of the time limit for tax payment and that for filing tax
returns may be postponed to the next business day if it falls on a public
holiday.

    Article 22  Income earned by a joint venture in foreign currencies shall
be taxed on the equivalent amount converted into Renminbi according to the
foreign exchange rate quoted by the State General Administration of Exchange
Control on the day the receipt for payment of tax is issued.

    Article 23  In principle, joint ventures shall use the accrual method of
accounting to calculate income and expenditure. All accounting records shall
be accurate and complete and shall be supported by valid vouchers as the basis
for entries.

    Article 24  The financial and accounting procedures of a joint venture
shall be submitted to the local tax authorities for the record.

    Where the financial and procedures of a joint venture are inconsistent
with the provisions of the Tax Law, the tax liability shall be determined
according to the provisions of the Tax Law.

    Article 25  The accounting vouchers, books, statements and reports adopted
by joint ventures shall be kept in the Chinese language, or in both Chinese
and a foreign language.

    Accounting vouchers, books, statements and reports shall be retained for
at least 15 years.

    Article 26  Forms of sales invoices and business receipts used by a joint
venture shall be submitted to the local tax authorities for approval prior to
use.

    Article 27  Officials assigned by the tax authorities to conduct
investigation of the financial, accounting and tax affairs of a joint venture,
shall produce identification cards and undertake to maintain confidentiality.

    Article 28  The tax authorities may, according to the seriousness of the
case, impose a fine of 5,000 yuan or less on a joint venture which violates
the provisions of Article 9, 11 or 12 of the Tax Law.

    Article 29  The tax authorities may impose a fine of 5,000 yuan or less
on a joint venture which has violated the povisions of paragraph 2 of Article
25, or Article 26 of these Rules.

    Article 30  Notice of disposal of a violation shall be served in the cases
in which the tax authorities impose a fine in accordance with provisions of
the Tax Law and these Rules.

    Article 31  When a joint venture applies for reconsideration of a case
in accordance with the provisions of Article 15 of the Tax Law, the tax
authorities concerned shall decide upon the disposition of the case within
3 months after receipt of the application.

    Article 32  Income tax paid to foreign authorities by a joint venture or
its branches on their income received outside China may be credited against
the amount of income tax to be paid by their head office upon presenting the
foreign tax payment certificate. But the credit amount shall not exceed the
tax payable on the income received abroad computed according to the tax rate
prescribed by China's Tax Law.

    Article 33  Standardized income tax returns and tax payment receipt to be
used by joint ventures shall be printed by the General Taxation Bureau of the
Ministry of Finance of the People's Republic of China.

    Article 34  The right to interpret these Rules shall reside with the
Ministry of Finance of the People's Republic of China.

    Article 35  These Rules shall become effective on the same date of
promulgation and effective date of the Income Tax Law of the People's Republic
of China for Chinese-foreign Equity Joint Ventures.