3.1 Industry Policy Attracting International Investors

According to “Industry Guidelines for Foreign Investment” revised in 2004,electronics/ telecommunication manufacturing are in the 30 product categories encouraged. The investment in these industries will enjoy the exemption of duty on the imported equipment and the import value-added taxes, including: digital TV sets, digital video cameras, digital video players, digital amplifier ； new flat display boards, monitor parts and components, hi-and middle new flat display parts, hi-resolving power color display tube and glass shell, large projector optical engine, project boards, hi-clarity projector tube and LCOS and the relate key apparatuses; digital audio/video decoding facility, digital broadcasting facility, digital cable TV facility, IC designing, and manufacturing for large scale; IC designing and large IC below 0.35 μm making ； large and medium computers, portable computers, hi-end servers, large disk drivers R&D and manufacturing; 3 dimensional CAD, CAT, CAM, and CAE systems and other application systems; software development and making, semi-conductor relate parts, materials R&D; special electronic equipment, testing instruments manufacturing and tool making; new electronic apparatuses and parts (slice apparatuses, sensitive apparatuses, sensor, frequency control and selection, mixed IC, power electricity, optical electronics, new machinery electronics); alkali battery, power nickel battery, lithium battery, hi-capacity full airproof maintenance-free lead acid storage battery, fuel battery, column zinc air battery and other Hi-Tech and environment-friendly batteries making; hi-density digital CD player key components and parts development and making; read-only disk copying and recordable-disk manufacturing ； civil satellite designing and manufacturing ( Chinese control the majority of shares); civil satellite parts making; civil satellite effect load manufacturing (Chinese control); civil carrier rocket designing and making (Chinese control); satellite communication facility making ； Satellite positioning receiver and key parts making (only in the form of joint-ventures and cooperation); optic fabric prefabricate stick making; 622mega/second and above digital microwave synchronical transmission facility making; 10kilomega/second and above optic synchronical transmission facility making; OXC making; ATM and IP data transmission system making; mobile communication system (GSM, ChengduMA, DCS1800, DECT, IMT2000); hand phone, base station, exchange facility, and digital grouping system facility making; hi-end router, kilo mega above network exchange development and making; air traffic controlling system facility making (only for joint ventures and co-production).

Investment under control: satellite receiving facility and key parts and components manufacturing.

According to state Ministry of Finance and state Taxation Administration, the exporting tax refund rate for some IT products, have been increased, starting from 2004. 11.1, to 17% from the original 13%. The products in this category include: IC, separator parts and apparatuses (some), mobile communication base station, Ethernet network exchange, router, hand (vehicle) radiophone, and other micro auto-digital processor, system micro-computer, fluid displayer, cathode ray displayer, hard disk driver, unnamed auto-digital processor equipment, other storage parts and components, and digital machine tool.

(1) Financing and Taxation

① According to the relate state policies and stipulations, the foreign investors will enjoy the exemption of duties and value-added import taxes on the advanced equipment and facility for their own use except those not to be exempted as the state stipulates.

② The R&D centers in Chengdu and Mianyang Hi-New Tech parks for the purposes of taking outsourcing projects from the international clients will enjoy the bond treatment for their imported equipment and facility for the real environment imitation.

③ In order to void exchange rate risks, firms that satisfy Item 4 may open the special accounts for their foreign currency from the after tax profits and to reinvested in China. Such accounts will be monitored by the foreign exchanges administrations.

(2) Financing

① The government encourages the foreign investments in IT industry following the relate stipulations. The relate departments will support the firms engaged in key IT projects to issue corporate bonds.

② The province will give priority considerations in applying for international commercial loans for those that import advanced technology and equipment.

③ To encourage the venture investments in IT industry, 60% of the corporate income taxes within 5 years, starting from the profitable year, will be refunded to subsidize the losses from the investment in the current and later years, if the venture capital consists of over 70% of the total project investment.

(3) Motivation Policies on Talents

The domestic and international software professionals are encouraged to form their software firms in Chengdu Hi-Tech Park and Mianyang Science-Tech. City . The registered capital requirement could be satisfied within a period of 3 years, with the condition that the 1 st year registration of capital should not be lower than 30% of the total.

3.2 Regional Policies on Foreign Investment

3.2.1 Policies under West China Development Umbrella

(1) According regulations stipulated in “Favorable Taxation Policies to Promote Western Development” (Caishui〔2001〕202) by the Ministry of Finance, State Taxation Administration., and State Custom Administration, the investors will enjoy a 15% of corporate income tax between 2001-2010; the investors in the autonomous regions will enjoy the reduction of or be exempted from the local corporate income taxes upon the approval by the provincial government.

(2) According to (Guobanfa〔2001〕73) by Western Development Office under the State Council, the foreign investments in the infrastructures and with advanced technology in West China will enjoy favorable treatments in commercial loans. For the joint ventures, the RMB loans could be up to 120% 0f the capital invested by the Chinese sides and 100% of the registered capital for the foreign investors fully owned firms.

(1) The foreign investments are encouraged to participate in reorganizing and reforming SOE assets. The firms with basically balanced assets and liabilities could be transferred on the base of 0 assets, with the condition that the legal obligations and responsibilities for the acquirers should be clearly defined and the acquirers should be accountable for the debts in purchased firms. The reorganized firms that engage in hi-new-tech renovation projects will enjoy, upon the confirmation by the Provincial Economic Commission and Science-Tech. Department, the preferential treatment of 59% of the corporate income taxes for 5 years starting from the confirmation date.

(2) 60% of the corporate income taxes within 5 years, starting from the profitable year, will be refunded to subsidize the losses from the investment in the current and later years, if the venture capital consists of over 70% of the total project investment.