ccpitsc-Regulation

Japan-China Economic Association, headed by its chairman Cho Fujio, visited Sichuan Province

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　PREFERENTIAL POLICIES

Preferential Policies for the Western Region Development

Ⅰ Preferential Tax Policies
Ⅱ Preferential Land Policies
Ⅲ Preferential Policies toward Mineral Resources
Ⅳ Loosening the Conditions for Utilization of Foreign Capital

Preferential Policies for State-level Development Zones

Ⅰ Preferential Tax Policies for State-level Development Zones
Ⅱ Related Preferential Polices toward Export Processing Zones

Preferential Policies Specially Issued for the Whole Sichuan Province

Ⅰ Preferential Policies Toward Mineral Resources
Ⅱ Investment Protection and Other Preferential Policies

Preferential Policies for the Western Region Development

Ⅰ Preferential Tax Policies

1. Main Preferential Policy Provisions

The preferential taxation policy concerning Western Region Development mainly involves the enterprise income tax, the farmland use tax, the customs and the import value added tax. See Table 1 for details.

2. Comparison with the Middle and Eastern Areas

It can be seen from Table 1 that the business income tax of foreign-funded enterprises engaged in encouraged industries(See part 2 for catalog of industries) as well as basic industries involving traffic, power, water conservation, postal service, and broadcast in Western Region is 50% lower than that of enterprises in the middle and eastern areas. In addition, the reduction or exemption of enterprise income tax, farmland use tax, customs and the import value-added tax is more preferential than that of enterprises in middle and eastern areas.

Table 1 The Preferential Tax Policies Concerning the Western Region Development (See CAI SHUI No [2001] 202 for details.

Tax items		Conditions	Privileges enjoyed by the Western Region	Relative policies in the middle and eastern regions
Business Income tax	Tax rate	Enterprises of encouraged category industries(See part 2 for industry catalog)	2001-2010 year 15%	33% in General
	Reduction or exemption	Newly established enterprises Regarding traffic, power, water conservancy, post and broadcast television	Commencing from the beginning of Production and operation, the tax is exempted for the first two years, and half tax is exempted for 3rd year through the 5th year(The operation period of foreign enterprise should be over 10 years and the policy shall be implemented since the profit-making year)	Without this favor
	Reduction or exemption	Autonomous minority nationality area, approved By Sichuan provincial people’s government	The business income tax of domestic-fund-ed enterprises can be regularly reduced or remitted; The local income tax of foreign-funded enterprise can be reduced or remitted	The local income tax can be reduced or remitted
Farmland use tax		Highway construction, national high-way and provincial highway, use of land in construction	Exempt from taxation	Without this favor
Customs and import value-added tax		Encouraged domestic-funded industrial project, encouraged foreign-funded inhouse use equipment imported in the aggregate investment (See part 2 for industry catalog)	Exempt from taxation	The taxation for encouraged domestic-funded industrial project can be exempted. Meeting certain condition, the taxation for encouraged foreign-funded industrial project can be exempted

Notes:

1. The traffic enterprises limits to those enterprises engaged in highway, railroad, aviation, harbor. Wharf operation and the pipeline transportation; The power enterprises limits to those enterprises engaged in the electric power operation; The water conservation limits to those enterprises engaged in development of water conservation and the prevention of flood prevention, irrigation, the flood, the water resources conservation, water power generation, the conservation of water and soil, the channel dredging, construction of dikes for rivers and seas; The postal limits to those enterprises engaged in the postal service operation; The broadcast television limits to those enterprises engaged in the broadcast television operation. If the income of the abovementioned programs accounts foe over 70% of the enterprise’s gross, the enterprises can enjoy the preferential benefit.

2. For the foreign-funded traffic, power, water conservation production-oriented programs in the middle and eastern areas, the income tax can be reduced or exempted according to related stipulation or foreign-funded “production-oriented enterprise”(See table 3 for details).

3. Limits to the farmland occupied in the highway, and the ditches along the two sides of the highway.

4. Excluding commodities specified in the List of Imported Commodities not Subject to Tax Exemption for Foreign-funded Projects and the List of Imported Commodities not Subject to Tax Exemption for Domestic Investment Projects (2000 Rev.)

5. “Certain condition” means the product’s entire direct export or technology transfer(See table 4 for details). The foreign-funded advantaged industry program in middle area can enjoy the custom reduction or exemption of encouraged foreign-funded industry programs(See table 4 for details).

Ⅱ Preferential Land Policies

1. Main Preferential Policy Provisions

As for those economic entities or individuals who apply in accordance with laws to use the state-owned unused land such as barren hill, uncultivated land, to carry on ecological construction such as afforestation and grass planting etc, the land leasing charge can be reduced or exempted, and the land-use right shall be invariable for 50 years; those reaching the investment amount defined in the purchase agreement and conforming to the condition of ecological construction, the land-use right may be transferred, leased or mortgaged legally; after the land-use right deadline is expired, it is possible to apply for renewing the contract.

2. Comparison with the Middle and Eastern Areas

The abovementioned preferential benefit is the special support policy for the Western Region, therefore such polices can not be enjoyed by middle and eastern areas.

Ⅲ Preferential Policies toward Mineral Resources

1. Main Preferential Policy Provisions

(1) It is possible to apply for reduction and exemption of charges for use of exploration right, mining concession if the investigation and exploitation of the mineral resources conforms to the following condition: investigation and development for such mineral resources as rich iron ores, high quality manganese ore, chromite, copper, sylvite, platinum family metal and ground water, as well as the investigation and development of the large and middle scale mines enterprise for seeking the substitute for current resources. The expenses can be exempted for the 1st year since the investigation or the mine was put into production, 50% expenses can be exempted from the 2nd to the 3rd year, and 255 expenses can be exempted from the 4th to the 7th year(As for exploitation of mines, it is possible to exempt from payment for the same year of pit closing).

(2) For the legal exploitation after ore prospecting, it is possible to put the charge of investigation on the deferred assets and conduct amortization during the mining stage.

(3) The foreign businessmen engaged in investigation and exploitation of non-oil/gas mineral resources can enjoy the preferential policy of exempting from one-year payment for using exploration right and mining concession, 2-year free from half of the payment for using exploration right and mining concession. The foreign businessmen engaged in the encouraged sort of exploitation of non-oil/gas mineral resources listed in the Catalog for the Guidance of Foreign Investment Industries can enjoy 5year exemption of mineral resource compensation charges.

2. Comparison with the Middle and Eastern Areas

Abovementioned preferential benefit is the special support policy for the Western Region, so such polices can not be enjoyed by middle and eastern areas.

Ⅳ Loosening the Conditions for Utilization of Foreign Capital

1. Main Preferential Policy Provisions

(1) Extend the pilot operations of foreign investment in banks, retail stores, and Sino-foreign trade companies to key cities of the Western Region(municipality directly under the central government and capital cities of provinces and autonomous regions). Certain preferential policies can be applied to foreign-banks’ RMB Yuan transactions, the establishment of foreign-funded insurance organization, the establishment of Sino-foreign joint ventures such as travel agency, accounting firm and the law office and so on (See Article 39 of GUO BAN FA [2001] No. 73).

(2) For foreign-funded commercial programs in the Western Region, the operation period can be expended to 40years; for foreign-funded foreign trade company program in the Western Region, the registered capital can be reduced to RMB 30million Yuan.

(3) If foreign businessmen invest in infrastructure and superior industry program in the Western Region, the proportion of financing provided by domestic banks in RMB yuan for foreign-creased. For Sino-foreign joint venture and cooperation project, it can be widen to 1.20 times of subscribed capital of Chinese Party. For exclusively foreign-owned programs, it can be expanded to 100% of the registered capital. Encouraged programs that meet certain condition(See part 2 and Article 43 of GUO BAN FA[2001]No. 73 for details)can be free from the limitation of the abovementioned proportion.

2. Comparison with the Middle and Eastern Areas

There have been pilots of foreign businessmen’s investment for banking and retailing in middle and eastern areas, the permission for corresponding pilot project in the Western Region is the measure for speeding up the pace of opening in the Western Region and catching up with the middle and eastern areas.

For foreign-funded commercial program in the Western Region, the operation period can be extended to 40 years, 10 years longer than that of eastern areas; for foreign-funded foreign trade companies in the Western Region, the registered capital can be reduced to RMB 30 million Yuan, 20 million Yuan lower than that of eastern areas.

Preferential Policies for State-level Development Zones

There are 5 State-level Development Zones in Sichuan Province, including 2 Hi-tech Industrial Development Zones, 1 Economic and Technological Development Zone and 2 Export Processing Zones. In addition, Cross-Strait Scientific Industry Development Park has been set up in Chengdu Hi-tech Industrial Development Zones are mainly about taxation. The preferential polices for export processing zones are embodied in each link from procurement, production to export.

I Preferential Tax Policies for State-level Development Zones

1. Foreign-funded Enterprises

(1) Principal Preferential Tax Policies

The foreign-funded enterprise in the state-level development zone may enjoy not only the preferential tax policies for the state-encouraged foreign investment, but also the preferential low tax rate or tax exemption for the state-level development zones. For these policies, see the Tables 2, 3, 4.(The titles of the laws and reference numbers of the documents where the provisions in the Tables 2, 3,4 are quoted have been indicated; for their details, see the full original texts please .)

Table 2 Preferential Business Income Tax Tate for Foreign-funded Enterprises

Policy items		General regulations (Universally applicable to all the foreign-funded enterprises in China)	State-level development zone
Policy items			Economic and technological development zone	Hi-tech industrial development zone
Business income tax rate	1. Production-oriented enterprises	30%(Income Tax Law1 )(24% for the enterpri-ses in Chengdu, applicable only to the income obtained by enterprises from production and business operations in Chengdu, GUO SHUI FA [1992] NO. 218)	15%(Applicable only to the income obtained by enterprises from production and business operations in the Zone, Decree No. 85 of the State Council)	/
	2.Productionoriented enterprises that is knowledge-/technology-intensive or the foreign investment in them is above US$ 30 million and the pay back period is long	30%(Income Tax Law)(15%applicable to the enterprises in Chengdu, subject to the approval by the State Administration of Taxation, GUO SHUI FA [1992] NO.218)	15%(Decree No. 85 of the State Council)	/
	3.Hign and new technology enterprises	30%(Income Tax Law)	/	15%(GUO FA [1991]NO.12)
	4.After the tax exemption period expiries according to relative regulations, the enterprises whose export value at the year account for above 70% of the total output value	15%(Decree NO.85 of the stale council)	10%(Decree No. 85 of the state council, GUO FA[1991]NO. 12)
	5.Financial institutions, the foreign-invested working capital is above US $10 million, and the operating period is above 10 years	30%(Income Tax Law)	15%,subject to the approval by the State Council (Decree No.85 of the State Council)
	6.Energy,transportation, ports, docks, and other projects encouraged by the State	15% for the Sino-foreign joint ventures engaged in port or bock construction (Decree No. 85 of the State Council );15% for the energy, transportation or port construction projects in Chengdu, subject to the approval by the State Administration of Taxation (Decree No. 85 of the SATATE Council, GUO SHUI FA[1992] NO. 218)
Income tax withholding rate	When the foreigners don’t have agencies or business places within China but have interests, dividends, rentals, royalties from China	10% (GUO FA[2000]NO.37)

Note: 1.The Income Tax Law refers to the Income Tax Law of The People’s Republic of China for Enterprises with Foreign Enterprises.

Table 3 Business Income Tax Reduction and Exemption for Foreign-funded Enterprises

Policy items	General regulations (Universally applicable to all the foreign-funded enterprises in China)	State-level development zone
		Economic and technological development zone	Hi-tech industrial development zone
1. Newly established sino-foreign joint ventures	/	/	Business income tax exemption applicable for the 1st and 2nd years commencing from the 1st profit-making year to the certificated high and new technology enterprises whose operating period is above 10 years(GUO FA[1991] NO. 12)
2.production-oriented enterprises (with the operating period above 10 years)	Commencing from the 1st profit-making year, business income tax exemption is applicable for the 1st and 2nd years, and 50% reduction in business income tax applicable for the 3rd year through the 5th year1 (Income Tax Law2 )
3.Non-productive enterprises	Any foreign financial institution in the State Council-approved zones, which has an investment above US$ 10 million and an operating period above 10 years, commencing from the 1st profit-making year, is entitled to business income tax exemption for the 1st year, and is entitled to a 50% reduction in business income tax for the 2nd and 3rd years (Decree No. 85 OF THE state Council).
4.Advanced technology enterprises	When its exemption period expires according to relative regulations, the enterprises which still retain the title of “Advanced Technology Enterprise” shall be entitled to a 50% reduction in business income tax for additional 3 years (Decree No. 85 of the State Council).
5.Newly established transport, electric power, water conservancy, postal service, broadcast and TV projects in the Western Region	Commencing from the 1st profit-making year, business income tax exemption is applicable for the 1st and 2nd years, and 50% reduction in business income tax applicable for the 3rd year through the 5th year (CAI SHUI [2001] No. 202)
6.Enterprises engaged in port or dock construction, with the operating period above 15 years	Commencing from the 1st profit-making year, business income tax exemption is applicable for the first 5 years, and 50% reduction in business income tax applicable for the 6th year through the 10th year (Decree No. 85 of the State Council)
7.Enterprises engaged in agriculture, forestry, animal husbandry and the enterprises in underdeveloped border areas	After the tax exemption period expires according to relative regulations, 15-30% reduction of the business income tax will be applicable for additional 10 years, subject to the competent taxation authorities (Income Tax Law)
8.Projects that have claimed additional investment	Any foreign enterprise or individual having invested in the encouraged projects specified in the Catalog for the Guidance of Foreign Investment Industries adds their investments up to the specified amount3, the income from the added investment may be accounted independently and entitled to business income tax exemption for the 1st and 2nd years and 505 reduction in business income tax from the 3rd year through the 5th year (CAI SHUI [2002] No. 56)
9.Investment in the technically reformed projects in conformity with the state’s industrial policies	Use 40% of the costs for the purchase of domestic equipment in the enterprise’s technical reform to set off the new income tax, the setoff being effective within 5 years (CAI SHUI ZI [1999] NO. 290)
10.Foreign-funded enterprises whose technology development expenses have increased by 105 or up over the previous year	50% of the actual expenses in technology development is allowed to set off the taxable income (GUI SHUI FA [1999] NO. 173)
11.The profits (dividends) reaped from foreign-funded enterprises by foreign investors	Income tax withholding exempted (Income Tax Law, GUO SHUI FA [1993] NO. 50)
12.Interests obtained by internafional institutions from loans made to Chinese government and Chinese national banks and interests obtained from China by foreign governments or their financial institutions	Income tax withholding exempted (Income Tax Law, GUO SHUI FA [1993] NO. 50)
13.The interests from the loans made to Chinese national banks by foreign banks on the basis of preferential interests	Income tax withholding exempted (Income Tax Law, GUO SHUI FA [1993] NO. 50)
14.The royalties from the proprietary technologies provided for scientific researches, energy development, transportation ,agriculture, forestry and animal husbandry	Income tax to be withheld may be reduced or exempted, subject to the approval by the competent authorities of the State Council (GUO SHUI FA [1993] NO. 50)

Notes:

1. Such resource exploitation projects as petroleum, natural gas, rare metals, precious metals, etc are subject to the regulations of the State Council.

2. The Income Tax Law refers to the Income Tax Law of The People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.

3.The specified amount refers to the amount to the original contract amount ,which brings the registered new capital up to or above US $ 60 million; or the amount added to the original contract, which brings the registered new capital up to or above US $ 15 million, and up to or exceed the 50% of the original registered capital. Such resource exploitation projects as petroleum, natural gas, rare metals, precious metals, etc are subject to the regulations of the State Council.

Table 4 Preferential Customs Duty, Import Value-added Tax, Sales Tax for Foreign-funded Enterprises

Policy items		General regulations (Universally applicable to all the foreign-funded enterprises in China)	State-level development zone
			Economic and technological development zone	Hi-tech industrial development zone
Customs duties and import value-added tax	1.Equipment import	①According to the regulations on the “all-for-export ” projects specified in the Catalog for the Guidance of Foreign Investment Industries, import duties and import value-added taxes shall be levied on the imported equipment first. When the “all-for-export” is verified to be true since the date of production, the tax paid will be refunded within 5 years (Announcement [2002] NO.25 of the Genera Administration of Customs) ②The customs duties and import value-added taxes shall be exempted for the imported equipment, which is a part of the total investment in the foreign-funded projects that transfers its(continued) technologies and is encouraged in the Catalogue for the Guidance of Foreign Investment Industries. The items listed in the Catalogue of Non-Tax-Free Imported Commodities of Foreign-funded Projects are excluded (GUO FA[1997] No.37)	/	If enterprises import instruments or equipment that cannot be produced at home for the purposes of development of new and high technologies in the Zone, the import duties or import value-added tax shall be exempted. The materials or parts needed to be imported to be imported for the production of export-oriented products shall be handled according to the relevant regulations on processing trade. (GUO FA[1999] NO. 12, Decree No. 26 of the General Customs Administration)
	2.Product export	No export duties shall be imposed on the export-oriented self-produced products, except for the controlled products or when relevant state regulation shall apply.	The export duties may be exempted by Customs, on the basis of the supporting documents, for the products made with domestic materials, parts or semi-finished goods, if the value of the products is added by above 20% in the zone. (SHUHUO ZI [1998] NO. 445)	/
Sales tax		①Subject to the approval by the State Administration of Taxation, sales taxes shall be exempted for the income from the technology transfer and development and related consultancy and services obtained by foreign-funded enterprises. Foreign-funded R&D, foreign enterprises or foreign individuals (CAI SHUI ZI [1999] NO. 273). ②For foreign-funded enterprises and foreign enterprises engaged in disposition of financial assets, no sales tax shall be imposed on the income from the disposition of creditor’s right replacement assets and equity replacement assets(including debt-to-equity swap)(GUO SHUI FA [203] NO. 3)

(2) Comparison with Enterprises outside the Zones

As is shown in above tables, the production-oriented enterprises in the State-level Economic and Technological Development Zone and the high and new technology enterprises in the State-level Hi-tech Industrial Development Zone may enjoy a preferential tax rate of 15%, which is only 505 of that of enterprises outside these Zones. And the enterprises in the said two total output value may enjoy a more preferential business income tax rate (10%) than the like enterprises outside these Zones. In addition, enterprises in these Zones will also enjoy more preferential policies than enterprises outside of the Zones in the income tax and customs duties exemption.

2. Oreferebtuak Tax Policies for Domestic-funded Enterprises

(1)Principal Regulations of Preferential Policies

① The high and new technology enterprises in the State-level Hi-tech Industrial Development Zones may enjoy a preferential business income tax rate of 15%; for those whose export value accounts for more than 70% of the total output value of the year, the business income tax rate may e reduced to 10% (GUO FA[1999] NO. 12).

② The high and new technology enterprises in the State-level Hi-tech Industrial Development Zone may be exempted from the income tax for 2 years commencing from the year of operation; if their annual income realized from technology transfer and technical consultancy, services, or training associated with their technology transfer is below 300,000RBM Yuan, the income tax may be exempted (GUO FA [1991] NO. 12).

③ The enterprises that import instruments of equipment that can not be produced at home to meet the needs of the high and new technology development within the State-level Hi-tech Industrial Development Zones shall be exempted from the import duties and import value-added taxes. The enterprises that import materials or parts to produce export-oriented products shall be handled according to the relevant regulations on processing trade. (GUO FA [1991] NO .12, Decree NO. 26 of the General Administration of Customs).

④ Unless otherwise specified by the State, the export-oriented products produced by the high and new technology enterprises in the State-level Hi-tech industrial Development Zones shall be exempted from export duties ,except the state-controlled products.(GUO FA[191] NO. 12).

(2)Comparison with Enterprises outside the Zones

Domestic-funded high and new technology enterprises in the State-level Hi-tech Industrial Development Zones may enjoy more preferential business income tax, customs duties and import value-added tax, as well as other preferential policies.

Ⅱ Related Preferential Polices toward Export Processing Zones

Export Processing Zones enjoy particularly preferential policies concerning imports and exports besides of policies toward Hi-tech Industrial Development Zones. Therefore, enterprises in the Zones can enjoy such special treatments as permit exemption, tax exemption, protective tariff, “one-time declaration, one-time verification and one-time checking”, and so on. The comparison between the policies for enterprises in the Zones and that for enterprises outside the Zones is shown in Table 5.

Table 5 Preferential Polices for Enterprises in the export Processing Zone V. Those for Enterprises outside the export Processing Zone

Compared items	Enterprises in the export processing zone	Enterprises outside the export processing zone
Imports of Machines, equipment molds needed in the production; parts needed in maintenance; machines and equipment needed in the productive infrastructure construction projects; goods needed in the capital construction of production plants, warehouse facilities; reasonable amount of self-needed office articles and others	Exempted from customs duties and import value-added tax	For encouraged projects, the customs duties and import value-added taxes shall be exempted for the equipment which the said project need to import for its own use, and exempted for technology imported together with the equipment according to the Contract, as well as for reasonable amount of spare parts. (For foreign-funded projects and projects funded by Governments’ loans or foreign financial institutions’ loans, the items specified in the List of Imported Commodities not Subject to Tax Exemption for Foreign-funded Projects are excluded; for domestic-funded projects, the items specified in list of imported Commodities not for Domestic Investment Projects(2000 Rev.)are excluded
Customs clearance	Direct passing or trans-customs transport, customs receiving pre-claiming around-the-clock for customs clearance	Through or transfer clearance; containers may clear at the through clearance point, bulk cargo shall be declared at the customs
Imports of materials and parts for the processing trade	For the bonded materials or parts, the record book and band deposit account systems are canceled, recording system is practiced and electronic account book system is applied	Record books and band deposit account system and customs declaration system shall be practiced for the bonded materials and parts (no bank deposit account system shall be practiced for the customs-appraised Category-A processing trade), approval being carried out item by item, documents being reviewed electronically or by human, record book being settled one by one.
Quota and license and ministration	Unless otherwise specified by the state, they are not applicable to the import	Normal Quota and License Administration
Inspection and quarantine	Any domestic goods entering the Zone shall be exempted from inspection. The goods leaving or entering the Processing Zone that should be inspected or quarantined shall be inspected and quarantined within the Processing Zone	Subject to inspection and quarantine according to the state regulation
Purchase at home	Goods entering the Zone shall be deemed as exported by the enterprises outside the Zone, the enterprises in the Zone may defray with foreign currency	Value-added taxes apply to the general sales at home; goods entering the Zone shall be deemed as exported by enterprises outside the Zone and export declaration is required to enjoy the export rebates.
Assignment of bonded materials and parts	The semi-finished products and materials may be allocated or assigned between the enterprises within the Zone or between the Zones, subject to the approval by the Customs	Tax shall be paid for the bonded materials and parts sold at home
Export after processed	Value-added tax and excise tax shall be exempted	Value-added tax shall levied first and then be refunded
Verification and writing-off of the materials and parts	Rolling verification and writing-off	Verification and writing-off of every record book
Verification and writing-off management of export proceeds and verification management or import-related foreign exchange payment	If the goods are transported or sold from the Zone to foreign countries, the agencies within the Zone need not to go through the export proceeds verification and writing-off formalities; if the agencies within the Zone make payment for the imported goods, no payment verification formalities are needed	Proceeds from export and payment for imports shall go through verification and writing-off formalities
Income tax exemption	Enjoy the preferential income tax policies for the Hi-tech industrial development zone	None or preferential term is short
Water, electricity and gas consumed in the production	For the water, electricity and gas consumed by the enterprise within the zone for the production of export-oriented enterprises, the value-added taxes contained therein are allowed to be refunded; refund rate:13%	No tax refund

Preferential Policies Specially Issued for the Whole Sichuan Province

I Preferential Policies Toward Mineral Resources

1. Main Preferential Policy Provisions

Any legal person or non-legal person having registered with the Administration of Industry and Commerce, including foreign-invested enterprises, administrative bodies and representative offices of foreign investors engaged in exploration or mining in Sichuan province are allowed to enjoy the following preferential policies according to the related stipulations：

（1） The exploration right and mining right fees shall be exempted for the first two years and reduced by half for the 3rd year to the 5th year in the minority autonomous regions.

（2） If the mineral resources mined by foreign investors are listed in the encouraged category of catalog for the guidance of Foreign Investment Industries, the mineral resources compensation fees shall be exempted for five years. If the mineral resources are developed with comprehensive utilization of paragenetic or associated mineral resources, the compensation fees for the paragenetic mineral resources products or associated mineral resources products shall be reduced by half. The compensation fees for production fees for products retrieved from the tailing shall be exempted.

（3） If advanced technologies are adopted to develop those mineral resources difficult to utilize with the technologies currently adopted home in a comprehensive way and make the mining recovery rate, ore-dressing recovery rate, and comprehensive utilization rate higher than average level of the domestic enterprises of the same kind, the mineral resources compensation fees shall be reduced by half for the first three years. The mineral resources compensation fees for the excess of products over the average level of the domestic enterprise shall be exempted.

（4） If having suffered annual deficit caused by the force majeure, foreign-funded mining enterprises may apply for 50% of the year or postponement of paying the mineral resources compensation fees of the year.

（5） Within the prescribed exploration areas, the geological exploration expense of proven economic mineral resources reserves can be amortized as deferred assets during the mining period beginning from the first year of commercial mining.

（6） During commercial mining, foreign-funded mining enterprises can adopt accelerated depreciation of fixed asset with the approval of the taxation office.

（7） Free temporary working places for exploration can be provided.

2. Comparison with Other Provinces

The abovementioned preferential policies for encouragement of foreign investment in geologic exploration and development of mineral resources have been approved by Sichuan Provincial People’s Congress and listed in Ordinance of Sichuan Province for Encouragement of Foreign Investment in Geologic Exploration and Development of Mineral Resources promulgated in 2001. At present this kind of statutory preferential policy for geologic exploration and development of mineral resources is still seldom seen in China.

Ⅱ Investment Protection and Other Preferential Policies

1. In February 1999, Sichuan Province drew up “Itemized Card for Fee-Charging Item involving Foreign-Invested Enterprise”(hereinafter called “the Fee-Charging Card”), itemizing the fee-charging items and standards for foreign-invested enterprises. Without prior authorization, additional fee-charging items excluded in the Fee-Charging Card shall not be set up, and the fee-charging scope shall not be enlarged., as well as the fee-charging standard shall not be increased. After China’ entry into WTO, Sichuan Province has further regulated fee-charging actions involving foreign investment. Sichuan Provincial Finance Department and Sichuan Provincial Price Bureau announce the Catalog of Fee-charging Items Involving Enterprises every year. Citizens, legal persons and other organizations have the right to refuse to pay for any fee-charging item not included in the Catalog.

2. Responsibility investigate system has been set up for action harmful to the economical development environment. Any person who does not abide by laws, or not create administrative achievements, or create chaotic administrative results in implementation of administration work shall receive disciplinary punishments, and any person who is suspected of being involved in crime shall be transferred to the judicial organ for further punishment by laws. Sichuan has also established “Outside-funded Enterprises complaint Center of Sichuan Province” and “Taiwanese Investor Complaint Center of Sichuan Province”, responsible for treating complaints made by investors and defending the investors’ legal rights and interests (Refer to Appendix 2 for telephone numbers).

3. For any production-oriented project with the gross investment of over US $ 5 million by Taiwanese Investors in Sichuan Province, the proportion of registered aster to the total investment can be reduced upon the authorization.

4. In order to expand the infrastructure construction, Sichuan Province has also offered preferential taxation policy of “Exemption of Farmland Use Tax on Construction Land Used for Sichuan’s key Roads, Waterways, Docks, Railway Stations” (Refer to CHUAN FU FA [2001]No.18 for details).