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China has recently promulgated a package of new policies to further encourage foreign investment.
These policies, together with those issued in the past have formed a new frame of policies concerning foreign investment, covering a full spectrum of areas, such as financial, taxation and foreign exchange control, additional preferential treatment specially for foreign investment in the central and western parts of the country.
Finance:
1) If foreign-funded enterprises seek financing within the territory, Chinese capital commercial banks are permitted to accept guarantee by shareholders of the foreign side; Foreign-funded enterprises are permitted to apply for Renminbi loans from Chinese capital foreign exchange banks in the Chinese territory with foreign exchange as hypothecation.
2) In order to ease capital inadequacy of the Chinese side when Sino-foreign joint ventures expand capital, special industrial investment funds will be set up, and Chinese capital banks within the territory are permitted to grant loans for share capital to the Chinese side.
3) Foreign-funded enterprises in China are permitted to apply for loans from Chinese capital banks with overseas assets of their foreign partners as mortgages.
4) Foreign-funded enterprises are permitted to apply for A- or B-stock issues.
5) Insurance services may be provided to foreign investments in some fields.
Taxation:
1) Income tax may be levied at a concessional rate of 15% or 24%.
2) The income tax rate may be reduced for special industrial projects in some regions.
3) Regular preferential treatment will continue to be implemented, such as exemption (of enterprise income tax) for the first three years of operation and 50% reduction for another two years".
4) Foreign investors are encouraged to launch enterprises that are export-oriented and use advanced technology, transfer advanced technologies, and expand investment. There are lots of preferential treatment, such as tax reduction, exemption and refunding, in this aspect.
5) The newly promulgated policies provide that turnover tax may be exempt on technology transfer from foreign enterprises to domestic units, and if the technology is advanced or the terms are preferential, the enterprise income tax may, after approval, be exempted. Under given conditions, foreign-funded enterprises that buy domestic equipment may be exempted from the income tax or have the value added tax paid refunded.
6) The new policies greatly expand the scope in which import duty and import link tax are exempted on imported equipment.
Foreign exchange administration:
1) Foreign-funded enterprises were included in the bank settlement system in the buying and selling of foreign exchange in 1996, and in December of the same year, Renminbi became convertible under current account.
2) In 1999 the foreign exchange for mortgage purpose of foreign invested enterprises is extended to capital funds and foreign exchange income under current account, from being limited to foreign exchange under foreign debt account only formerly.
3) In 1999 the registration for the record of foreign exchange income settlement under capital account was abolished. There are also policies specially to encourage foreign investment in the central and western areas in China?¡¥s foreign investment policies.
They cover four aspects:
a.) Each province, municipality or autonomous region in central and western China is permitted to select one already established development zone in its provincial capital as a candidate for state-class economic and technological development zone in which such preferential taxation treatment as 15% income tax rate and three years?¡¥s tax exemption and two years' tax reduction is enjoyed.
b.) Foreign-funded enterprises that are encouraged in central and western China may enjoy the concessional 15% income tax rate within three years after the general preferential policies are implemented.
c.) Catalogues of advantageous industries and projects using foreign investment formulated by the provinces, municipalities and autonomous regions in central and western China shall be implemented after approval by the state. The projects within such catalogues may enjoy the state policies granted to projects encouraged by the state, and the equipment and supporting technologies, parts and fittings imported by foreign-funded enterprises in the projects within the investment catalogues for their own use, if they are unable to be produced domestically or the function of the domestically produced ones is unable to satisfy the demand, are exempted from import duty and import link tax.
d.) When a foreign-funded enterprise re-invests in central and western China, if the proportion of foreign capital is above 25%, it may enjoy the treatment granted to foreign-funded enterprises. Foreign-funded enterprises in the coastal areas are permitted to contract for operation and management of foreign-funded enterprises and domestic enterprises in central and western China. The fields for absorbing foreign investment and the conditions for setting up foreign-funded enterprises in central and western China are eased.
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Last modified: July 4,
2000