1. Local Income tax

1) Any foreign-funded enterprise of a production nature scheduled to operate for a period of no less than 10 years shall, from the year profit making, be exempt from local income tax in the first to sixth years and allowed a 50 percent reduction in the seventh to 10th years; the enterprises scheduled to operate for a period of no less than 15 years or with its total investment exceeding US$30 millions shall, from the year of profit making, be exempt from local income tax in the first to eighth years and allowed a 50 percent reduction in the ninth to 15th years. Any foreign-funded enterprises of a production nature scheduled to operate for a period of less than 10 years or of a non-production nature scheduled to operate for a period of no less than 10 years shall, from the year of profit making, be exempt from local income tax in the first and second years and allowed a 50 percent reduction in the third to fifth years.

2) An foreign-funded enterprise of a production nature set up in the regions inhabited by ethnic minorities or in the remote underdeveloped areas defined by the State Council or the provincial government, or engaged in the prospecting and exploitation of mineral resources and scheduled to operate for a period of no less than 10 years may, upon approval by the tax authorities of an application filed by the enterprise, continue to be allowed a 50 percent reduction of the amount of local income tax payable following the expiration of the period for tax exemption and reduction; the enterprise scheduled to operate for a period of less than 10 years may, upon approval by the tax authorities of an application filed by the enterprise, continue to be allowed a 50 percent reduction of the amount of local income tax parable in the sixth to eighth years following the expiration of the period for tax exemption and reduction.

3) Any foreign-funded enterprise of a production nature may, when its annual export value exceeds 50 percent of the output value, be exempt from local income tax that year, after the specified period of tax reduction and exemption expires.

4) Any foreign-funded enterprise engaged in the exploration and comprehensive utilization of natural resources, in the construction of power station, airport, highway, bridge, harbor, wharf, waterworks (excluding pipe network), water conservancy and other infrastructure facilities, shall be exempt from local income tax.

5) Any foreign-funded enterprise engaged in the housing projects for the medium- and low-income urban residents shall, upon approval by the municipal government, be exempt from local income tax.

2. Enterprise Income Tax

1) The income tax on foreign-funded enterprises of a production nature shall be levied at the rate of 24 percent.

2) The income tax on foreign-funded enterprises established in economic and technological development zones or the hi-tech enterprises in the hi-tech development zones defined by the State Council shall be levied at the rate of 15 percent.

3) The income tax on foreign-funded enterprises in technology- and knowledge-intensive projects, in projects with investment over US$30 millions and with long time period for recovery of investment, in energy, transportation and harbor constructions shall, upon approval by the tax authorities, be levied at the rate of 15 percent.

4) Any foreign-funded enterprise of a production nature scheduled to operate for a period of no less than 10 years shall, from the year of making profit, be exempt from income tax in the first and second years and allowed 50 percent reduction of the amount of income tax payable in the third to fifth years.

5) Any foreign-funded enterprise that invests in advanced technology may enjoy a 50 percent reduction in income tax for another three years following the expiration of the prescribed period for tax exemption and reduction.

6) Any export-oriented foreign-funded enterprise shall, when its annual export value makes up more than 70 percent of its output value, upon approval by the tax authorities, be levied at the rate of 10 after the expiration of the period for tax exemption and reduction.

7) Any foreign-funded enterprise engaged in agricultural development, deep processing of agricultural products, and export-oriented agricultural products shall, upon approval by the tax authorities of an application filed by the enterprise, be allowed a 15-30 percent reduction of the amount of income tax payable for another five years following the expiration of the period for tax exemption and reduction.

8) Any foreign-funded enterprise established in the regions inhabited by ethnic minorities and in the remote underdeveloped areas defined by the State Council and the provincial government that engaging in agricultural development, in deep processing of agricultural products with new technology and in forestry development shall, upon approval by the tax authorities of an application filed by the enterprise, be allowed a 15-30 percent reduction of the amount of income tax payable for another 10 years following the expiration of the period for tax exemption and reduction.

9) Any foreign investor of an enterprise with foreign investment reinvests its share of profit obtained from the enterprise directly into the enterprise by increasing its registered capital, or uses the profit as capital investment to another business with an operation period of no less than five years shall, upon approval by the tax authorities, be refunded 40 percent of the income tax already paid on the reinvestment amount. The investor that reinvests the profit as capital investment in the enterprise producing for export or in technologically advanced enterprise scheduled to operate for at least five years shall be refunded all the income tax already paid on the reinvested amount.

10) Any foreign investor which has no establishment in China but derives profit, interest, rental, royalty and other incomes from sources in Chongqing shall, besides the exemption on income tax according to the law, be levied at the reduced rate of 10 percent on such income.

Where the funds, equipment is provided on favorable conditions, or technology supplied is advanced, more preferences on income tax reduction or exemption shall be decided by the municipal government.

11) The income tax on the profit from the tollage of the highways invested by foreign investors shall be levied by the Tax Bureau of Chongqing and be collected in Treasury of Chongqing Municipality, the share of which that belongs to the Treasury of Chongqing Municipality shall be wholly refunded to the investor before the foreign investment is recovered.

3. Refund of Tax on Export Products and Extra Tax Paid

1) The tax exemption, refunding and compensation to the export products by foreign-funded enterprises shall be dealt with promptly by the tax authorities according to the regulations of the state on tax refunding for export products by enterprises with foreign Investment.

2) The extra tax paid by foreign-funded enterprises established before December 31, 1997, shall, due to the application of taxes on value added, consumption and business turnover, upon approval by the tax authorities of an application filed by the enterprise, be refunded for a period of no more than five years within the approved term of operation.

4. Preferential Treatment on Other Taxes

1) The business tax from tollage on the highways built with foreign investment shall be levied by the local tax authorities and collected by the Treasury of Chongqing Municipality, and shall be refunded or reinvested on the construction of other highways before the investment of the foreign investor is recovered.

2) A foreign-funded enterprise of a production nature and a foreign-funded enterprise of a non-production nature scheduled to operate for at least 15 years shall be exempt from real estate tax (on newly constructed buildings) and license tax on vehicle and boats for 10 and three years respectively.

3) Foreign-funded enterprises shall, upon the verification by the tax authorities, be exempt from tax on housing and land and license tax on vehicle and boats within the operation period if they are engaged in the comprehensive agricultural exploration, deep processing of agricultural products with new technology, comprehensive exploration and utilization of natural resources, energy and energy-saving construction, transportation infrastructure, technical renovation in state-owned medium-sized and large enterprises, advanced technology, products for export, urban infrastructure, protection of environment and ecological equilibrium, development of tourism, middle and higher technical education.

4) Foreign-funded enterprises engaged in scientific agricultural exploration in waste hills and waste land shall, from the year of earning income, be exempt from tax on agriculture for five years.

5) Foreign-funded enterprises engaged in the development of special agricultural products in waste mountains, hills, land (uncultivated land) shall, from the year of earning income, be exempt from tax on special agricultural products for three years.

6) Foreign-funded enterprises engaged in the improvement of grassland, pasture, grass seeds and breed of domestic animals shall be taxed at a rate of 3 percent.

7) Foreign-funded enterprises of a production nature established in the regions inhabited by the ethnic minorities and in remote underdeveloped areas defined at the state and provincial level shall be exempt from tax on housing and land, and license tax on vehicle and boats.

B. BUSINESS REGISTRATION

5. Financial institutions overseas shall be encouraged to set up branches in Chongqing, and international consortiums and corporations shall be encouraged to set up joint ventures, cooperation ventures, wholly foreign-owned enterprises, and branches in Chongqing.

6. Foreign-funded enterprise shall be encouraged in the form of joint venture and cooperation venture in the projects of power station, airport, highway, bridge, harbor, wharf, of waterworks (not including the pipe network) water conservancy and other infrastructure facilities. Specific facilities from aforesaid projects can be run by foreign investors independently, upon the approval of the government. Foreign-funded enterprise can invest in other enterprises or service business related to the aforesaid projects according to the regulations of the state.

7. Foreign-funded enterprise shall be encouraged to become a shareholder, to purchase, merge or contract, lease the domestic enterprises of Chongqing.

8. Units with legal personality of colleges, universities and research institutes, private enterprises shall be encouraged to set up joint venture and cooperation venture with foreign businessmen. Overseas Chinese students shall be encouraged to set up enterprises with investment in the name of the company they are working, the enterprises set up in this way shall be regarded as foreign-funded enterprises.

9. Development of Foreign-funded enterprises and rational flow of assets are encouraged

1) Foreign-funded enterprise with good supply of funds or with good markets for their products shall be encouraged to set up constituent companies. They are also encouraged to cooperate with domestic enterprises to set up new businesses.

2) The transfer between foreign and domestic capital shall be encouraged for the rearrangement of such fund. The transfer shall be regarded as change of registration, and no registration fee shall be charged.

3) Foreign-funded enterprise shall be encouraged to set up market for means of production, market for essentials of production and other new types of market with the purpose of reviving assets, particularly the housing and land resources.

10. Foreign-funded enterprise engaged in major projects or other projects with registered capital over US$2 million can adopt a name with the category of its trade. When overseas investors purchase of merge domestic enterprises, they can either apply for a new name or keep the original name for the new enterprise.

C. FOREIGN CURRENCY CONTROL & CREDIT

11. Any foreign-funded enterprise can open foreign currency accounts in any banks or financial institutions in Chongqing which have the right in foreign currency business. If there is special needs, the said enterprise can open foreign currency accounts at banks (including foreign banks) in any other cities, which have the right in foreign currency business. Any foreign-funded enterprise can open one or two balance accounts according to its needs, or more than two balance accounts if there is special needs.

12. Foreign-funded enterprises may get loans from financial institutions, enterprises and individuals abroad, or from foreign financial institutions in China, and they are not subject to a loan quota. The foreign currency borrowed can be converted into renminbi for the purchase of raw materials and equipment in China. Foreign currency can be bought by renminbi for the payment of loans.

13. The profit in foreign currency derived legally from one’s investment can be freely remitted abroad. With agreement from the board of directors and duty paid proof, one’s profit in renminbi can be changed into foreign currency in the bank appointed by the foreign exchange control administration, and the foreign currency can be remitted abroad or used as capital investment in China.

14. With an investment agreement a foreign-funded enterprise can open a three-month temporary foreign currency account for its investment credit, the account can be extended if there is special needs.

15. Foreign currency in cash from exports can be deposited into foreign currency liquidating account or used for the payment of loans, or be converted into renminbi at a foreign exchange bank or foreign exchange center.

16. Foreign-funded enterprises shall have the same credit support the Chinese export-oriented enterprise has from the banks in Chongqing when there is shortage of working fund for producing goods for export.

D. LAND AND HOUSING

17. Any foreign-funded enterprise which obtains the right to the use of land from the administrative authorities, and the land is for business use, pays site use fee (including development fee and land use fee) at a reduced rate of 50 percent according to the standard decided by Chongqing People’s Government; independent developer pays at the reduced rate of 50 percent of land use fee according to the standard decided by Chongqing People’s Government.

Any foreign-funded enterprise which obtains the right to the use of land from the administrative authorities shall be exempt from the land use fee when the land is used for agriculture, animal husbandry, forestry and fishing production; for scientific, educational and public health purposes as well as for the construction of power station, airport, highway, bridge, harbor, wharf, and waterworks (excluding the pipe network), water conservancy facilities and other infrastructure facilities.

18. Any foreign enterprise engaging in export-oriented production project or hi-tech projects shall be exempt from site use fee or land use fee for a period of three years following the operation day, and enjoy a 50 percent reduction of the prescribed fees decided by The municipal government from the fourth year. The enterprise scheduled to operate for a period of more than 10 years shall be exempt from land use fee for five years.

19. Any foreign enterprise uses land temporarily for prospecting mineral resources shall be exempt from the land use fee for a period of no more than six months, and enjoy a 50 percent reduction of the land use fee fixed by the municipal government from the seventh months.

20. Any foreign enterprise established in the regions inhabited by the ethnic minorities nationalities or in remote underdeveloped area defined by the State Council or the provincial government shall be exempt from land use fee.

Any foreign-funded enterprise which purchases the right to the use of land for the construction of power station, airport, highway, bridge, harbor, wharf, waterworks (excluding the pipe network), water conservancy, and other infrastructure facilities shall, upon approval of the authorized government, be allowed the lowest land price, the purchase payment can be entered as suspense debit and be paid by installments within 10 years after the projects go into operation.

The site use fee or land use fee payable by foreign-funded enterprise is calculated from the date of operation. It shall be paid for six months if the period of business operation is more than six months but less than 12 months, and it shall be exempt if the period is less than six months.

The standard of site use fee or land use fee payable by a foreign-funded enterprise may, under circumstances, be subject to adjustment every five years. Where those enterprises pay up all the fee for 15 years, the standard shall remain unadjusted.

22. Any foreign-funded enterprise of a production nature established in the form of joint venture, cooperation venture, technology investment, or other form shall, provided that the Chinese partner’s controlling position remains unchanged, be exempt from the payment for the right of using the land.

Where the Chinese partner uses the allocated land as contributions in the joint venture or cooperation venture, and its controlling position is changed, the foreign-funded enterprise can, upon application, obtains the right of using the land at the rate of 20 percent of the price. If the Chinese partner still has difficulty in meeting the specified investment proportion, the enterprise can apply for even lower price for the right of using the land or apply for a five-year delay payment.

23. Any foreign-funded enterprise in hi-tech industry, urban infrastructure facilities, public welfare, power station, airport, highway, bridge, wharf, waterworks (excluding pipe network), water conservancy facilities, the housing projects for the medium- and low- income urban citizens and the housing projects for teachers, shall, upon approval by the municipal government, be exempt from the additional charge for road construction and vegetable plots funds when rural land of collective ownership is needed.

Any foreign-funded enterprise engaged in the construction of highway, harbor and wharf shall, along the highway and in the harbor district, have priority in housing and land development projects, in service facilities, in road and water transportation. The foreign enterprise can obtain land for its development and use at a favored price in the neighboring towns.

24. When the ownership or management right of the Chinese partner is leased to body corporate abroad and the legal personality of the Chinese partner is cancelled, the right of using the land shall be claimed back by the county government, and then be transferred or leased out to the leasee enterprise for its use, the leasee shall pay the price for the right of using the land or land use fee according to the regulations of the government.

When the Chinese enterprise (except its legal personality) is leased out or only the management right is leased out, the right of using the land can either be dealt with according to the aforesaid provision or, upon the approval of the land administration of The municipal government, be leased out to the leasee by the Chinese enterprise, the leasor (or the party stipulated by the lease contract) pays the land use fee.

25. Any foreign-funded enterprise engaged in the housing projects for the medium- and low-income urban residents shall be allowed the preference stipulated in the Regulations on the Management of the Housing Projects for the Medium- and Low-Income Urban Residents by Chongqing People’s Government, the land shall be granted by the administrative authorities, and the project shall pay less of or be exempt from fees for trading establishments, the construction of civil air defense, the post and telecommunication facilities, fire-fighting facilities, as well as the funds for the renovation of hazardous school buildings, and the funds for water and electricity. The apartment houses for the medium- and low-income urban residents is to be sold at parity price or at low profit first and then to be rented.

26. Only registration fee is charged when foreign-funded enterprise registers for the right to the use of land. And only the cost is charged for the land appraisal to foreign-funded enterprise engaged in high-tech industry, export-oriented production, basic industry, public utilities, the housing projects for the medium- and low-income urban residents, the housing projects for teachers, the transformation of the enterprises in difficulty or the old enterprises.

27. Any foreign-funded enterprise which needs land owned by the rural collectives for its projects, the land administration shall represent the government of the same level to make plans on the supply of land, and sign a contract with the foreign-funded enterprise.

28. Any foreign-funded enterprise engaged in public welfare, the scientific and educational programs supported by the state the construction of power station, airport, highway, bridge, wharf, waterworks (excluding the pipe network), the housing projects for the medium- and low-income urban residents and the housing projects for teachers, and other non-commercial enterprises, the land for the projects shall be granted by the government at or above the county level. Foreign enterprise engaged in production, services, real estate, tourism and other profitable industries, the land for the projects shall be acquired by means of purchase, transfer and lease.

The right to the use of land acquired by the means of lease by foreign-funded enterprise can, upon approval and within the term of the lease contract, be subleased and inherited, but can not be mortgaged.

29. The land use fee or site use fee shall be collected by the land administration of district, city or county.

30. When the right to the use of land is acquired by foreign-funded enterprises from the administrative authorities, or the ownership of real estate is transferred to foreign-funded enterprises, the actions should be ratified by the authorized government according to the regulations of State Council. When the authorized government decides not to ratify such actions, the transferor should hand in the land earning from the transfer to the Treasury according to the regulations of State Council.

31. Any foreign-funded enterprises established in regions inhabited by ethnic minorities and in the remote underdeveloped areas defined by the State Council and the provincial government shall, upon approval by the municipal government, be given more favorable policies after separate negotiation.

32. Where requisition of the land owned by the rural collectives is made by a foreign-funded enterprise, the land shall be first purchased by the local government, and then be leased to the said foreign-funded enterprise according to the law. When the rural collective economic entity uses the original site as contributions or as the condition for cooperation, or use other land in the joint venture with the foreign-funded enterprise in agriculture, forestry, animal husbandry, fishing development, the site or land shall, upon approval by the land administration and recordation with the Chongqing People’s Government, The land ownership can not be changed and the land can not be transferred within the term of the contract.

33. When appraisal in real estate of foreign-funded enterprise is entrusted, only half appraisal fee of the standard shall be charged.

E. BUSINESS OPERATION

34. Foreign-funded enterprises shall be able to decide by themselves the ratio of their products for overseas market to for domestic market without restrictions, except for those products on which the state has special regulations.

35. Where a foreign-funded enterprise invests in the construction and operation of highway, the standard of tollage it charges can be adjusted according to price inflation index, upon the approval of the municipal bureau of finance, price administration, and communication.

36. In a Chinese-foreign cooperation enterprise engaged in the construction and operation of airport, highway, bridge, harbor, wharf, waterworks (excluding the pipe network) and water conservancy projects, the foreign partner shall have priority in the allotment of earnings from the above projects during the cooperation period.

F. MATERIAL IMPORT & EXPORT

37. Any foreign-funded enterprise producing products for export can, upon approval by the customs of an application filled by the enterprise, set up bonded warehouses or bonded factories according to its needs.

38. Where a foreign-funded enterprise needs to get a license for importing goods to produce for domestic market or to export its own products, it should apply to the municipal commission of foreign trade and economy according to the state regulations on the management of import licenses. Where the license is not required, the customs gives pass permit after examination of the related documents.

39. For any foreign-funded enterprise established in the period from October 1, 1995 to March 31, 1996, with its total investment being less than US$30 million, the deadline for the arrival of imported good shall be prolonged for six months to June 30, 1997, or with its total investment being over US$30 million (including US$30 millions), the date of arrival of imported goods is before June 30, 1998. If the imported goods arrived before these two deadlines, the said foreign-funded enterprise shall enjoy preferential treatment on taxation according to existing regulations.

If the signed import contract of above foreign-funded enterprises cannot be completed during the period of grace, the period can be extended again according to the regulations of the state.

Tax exemption and reduction on import of special vehicles and boats within the scope of business of a foreign-funded enterprise shall be approved by the General Administration of Customs.

40. Where the foreign investment in technical innovation projects which are included in the technical innovation plan of the state or Chongqing before April 1, 1996, totals at least 50 million yuan in the fields of energy, transportation and metallurgy projects, and totals at least 30 millions yuan in light industry, textiles, electronics, the equipment imported before December 31, 1997 shall be allowed a 50 percent reduction on taxes. Where the investment in aforesaid two categories of projects is less than 50 millions yuan and 30 millions yuan respectively, the equipment import before December 31,1996 still enjoys a 50 percent reduction on taxes. If the import contract cannot be completed before the date, the foreign-funded enterprise can apply to the State Economic and Trade Commission for the extension of the period of grace. The Ministry of Finance and related department shall provide their opinions about such application, which shall be submitted to the State Council for approval.

41. Import of equipment and articles for science and educational purposes by colleges, universities and research institutes continue to enjoy tax immunity.

42. Import of goods specially designed for the handicapped continue to enjoy the tax preference. The tax preference on goods donated by foreign governments and international organizations shall still be valid. The tax immunity is to be approved by the customs.

43. The regulations ratified by the State Council concerning the association of the variable levy system on cars, other vehicle (e.g. light truck) and video cameras with their localization rates remain valid during the 1996-2000 period.

44. The regulations on reducing added value tax on import of airplanes by the civil aviation departments shall continue to be implemented during the 1996-2000 period. The materials and goods imported by the aircraft industry corporation for the production of mainline airplanes shall, within the import quota approved by the State Council, be exempt from customs duty and duty on value added.

45. Special equipment for communication, harbor, railway , highway and airport imported with the approval of Ministry of Communication and other competent industrial departments continue to enjoy a 50 percent reduction on taxes.

46. The customs shall give priority and simplified procedures to the credible enterprises for their import and export of major agricultural projects, major engineering products and high-tech products.

47. Inspection and testing of imported equipment by foreign-funded enterprises shall be conducted jointly by the commodity inspection and testing office and the technical personnel of the enterprises concerned. For foreign-funded enterprises engaged in the exploration of natural resources, power station, airport, highway, bridge, harbor, wharf, high-tech enterprise, or for an enterprise whose export value exceeding 50 percent of its total annual production value, the inspection and testing fees shall be charged at 50 percent of the prescribed rate. Where such fees exceed 5,000 yuan, the extra part shall be collected at a 80-percent rate.

48. Commodity inspection and testing offices shall actively help those foreign-funded enterprises which are qualified for a certificate of origin enjoying the general preferential system (GPS) understand and make use of the system, and offer to provide GPS visa to every shipment of goods to the country offering the preference.

49. The machinery, equipment or spare parts imported as a foreign investor’s investment to the foreign-funded enterprises, or imported on the commission of the foreign investor shall be subject to the appraisal by the commodity inspection and testing office, which shall render a quick, efficient and fair appraisal.

50. In order to enhance the competitiveness of the products of foreign-funded enterprises at both international and domestic markets, the commodity inspection and testing office shall make full use of its advantages in technology and personnel to help enterprises strengthen quality control, improve product quality, and implement ISO9000 systems.

G. PERSONNEL AND LABOUR MANAGEMENT

51. Where employees with a unit of public ownership moves to work for foreign-funded enterprises, with the exception of those who are under the special restriction of the state, they shall be allowed the moves and shall be regarded as moves to the work units of public ownership. The government personnel management departments should actively deal with necessary formalities for them. The managerial and technical personnel already working with foreign-funded enterprises who intend to make a move shall strictly abide by the labor contract signed with their employers. No one shall sign a new labor contract before the termination of the existing one.

52. The returned personnel from abroad and the university and technical secondary school graduates who go to work for foreign-funded enterprises retain their own status identified according to state regulations, and their status shall be acknowledged in future moves between jobs. The personal files of the professional and managerial personnel, postgraduates with master degree, university and technical secondary school graduates who are employed by foreign-funded enterprises shall be shifted by the personnel departments of local governments to the management of personnel exchange agencies.

53. Where the professional and technical personnel working for foreign-funded enterprises apply for the professional or technical qualifications, or participate in the examinations conducted by the state for professional and business qualifications, the personnel exchange agencies where their personal files are kept shall deal wit the matter according to the regulations formulated by the municipal working group on the reform of academic and technical titles.

54. Foreign-funded enterprises can, according to their needs, employ personnel belonging to work units of different ownership.

H. EXPLORATION OF MINERAL RESOURCES

55. Foreign-funded enterprises engaged in the exploration of mineral resources shall have enjoy following preferential treatment besides those provided by the state:

1) The fee to the prospecting in the specified district can be paid by installments before tax in the first to fifth years following the commercial exploitation of ore deposits, or paid by installments before tax in two years where the term of the license for mineral exploitation is less than 10 years.

2) The regulations of the state on the acceleration of depreciation for fixed assets shall be applicable during the phase of commercial exploitation.

3) A reduced rate for mineral resources compensation shall be taken into consideration where the exploitation are conducted in the regions inhabited by ethnic minorities and in remote underdeveloped areas defined by the State Council and the provincial government.

4) A reduced rate or exemption from mineral resources compensation shall be taken into consideration where internationally advanced technology is used in the exploitation of low-grade ores or ores difficult for dressing and smelting.

5) Foreign-funded enterprises which operate at a loss due to force majeure can be allowed a maximum of 50 percent reduction of the mineral resources compensation or delayed payment for the deficit year.

6) For the comprehensive exploitation of associated minerals in the specified district, the mineral resources compensation shall be levied at the reduced rate of less than 50 percent. Where the kinds of ores are under the restrictions of the state, the mining shall be reported to the municipal administration of geology and mineral resources for recordation. The ores of which the purchase is monopolized by the state shall be purchased by the departments appointed by the state.

7. Where the mineral products mined are to be smelted and processed locally, the concerned departments shall facilitate the smelting, processing and transportation of these products.

I. LOCAL FEES

56. Foreign staff of a foreign-funded enterprise may pay, in renminbi, for accommodation in hotels and medical cares in hospitals in Chongqing with a special ID card for them. They shall enjoy national treatment.

57. Water, electricity and gas supply for foreign-funded enterprises shall be included in the local supply program. Foreign-funded enterprises and domestic enterprises shall be treated equally and be charged with the same standards of price.

58. Foreign-funded enterprises pay as much the road toll for the cars of their own use or the cars brought in from abroad by themselves as domestic enterprises do. The original standard of double charges shall be cancelled.

59. Foreign-funded enterprises have the right to refuse any administrative and institutional fees which breach the regulations of the State Council, the ministries and commissions, or the local government.

J. OTHER MATTERS

60. Foreign-funded enterprises which invest in transforming bankrupt enterprises and enterprises in difficulty, responsible for rearranging the whole staff of the original enterprises shall be exempt from the land use fee, and shall enjoy other preferential policy.

61. Where state-owned enterprises use part of their assets as contributions in Chinese-foreign joint ventures and cooperation ventures, the assets valuation can be determined by medium-sized enterprises within a range of 10 percent, and by small enterprises within a range of 20 percent.

62. These preferential measures also apply to companies, enterprises, economic organizations or individual investors from Hong Kong, Macao and Taiwan.

63. These preferential measures shall be in force in January 1, 1997.

Supplementary Provisions of Preferential Policies on Encouraging Foreign Investment by Chongqing Municipality

In order to further improve investment environment, encourage foreign investment and promote economic growth in Chongqing, the government of Chongqing, while continue to implement the above preferential policies adopted in 1997, has adopted following supplementary provisions in accordance with relevant state laws, codes and polices.

A. Scope of investment

1. Foreign investors (including investors from Hong Kong, Taiwan and Macao) can invest freely and run their business independently within the jurisdiction of Chongqing, disregarding the restrictions on trade, share holding percentage, way of investment, line of business, and length of operation period, unless otherwise specified by the state laws and codes.

B. Authority of Approval

2. Exclusively foreign-funded enterprises with its investment being less than US$30 million and joint ventures between foreign investors and non-state-owned economic sector, which do not need the government to balance the fund, are only required to submit their project proposals and feasibility study reports for recordation.

C. Taxes

3. Income Tax

1) The Sino-foreign joint ventures in port and dock construction with operation period over 15 years, upon their requests and subject to approval by the tax authorities, can be exempt from income tax for the first five year as of the profit-making year, and allowed a 50 percent reduction of the income tax from sixth to 10th years.

2) Foreign financial institutions with working capital over US$10 million contributed by foreign investors or allocated by their head offices, and scheduled to operate over 10 years, upon their request and subject to approval by the tax authorities, may only pay 15% income tax. Starting from profit-making year, they can be exempt from income tax for the first year, and allowed 50 percent reduction for the second and third year.

3) Foreign-funded enterprises of a production nature shall be exempt from local income tax.

4. Foreign-funded enterprises engaged in infrastructure construction, hi-tech industries, agricultural industrialization, pillar industries and transformation of sunset industries, subject to approval by the municipal government, shall enjoy the local income tax refund which belongs to municipal financial revenue within 10 years.

D. Registration with Industrial and Commercial Administration

5. To invest in industries encouraged according to the state and municipal policies, with registered capital under US$2 million (excluding US$2 million), the investors may first register with the industrial and commercial administration, and then apply for approval and complete relevant procedures.

6. To establish real estate development enterprises, foreign investors can first register with the industrial and commercial administration, and then apply for class certificate of real estate development enterprise.

7. Foreign-funded enterprises with heavy investment and good capital input are allowed equity participation in other enterprises or establishment of an enterprise group on condition that enterprise group qualifications are satisfied.

8. Foreign investment in existing Chinese enterprises through forms of contracting, leasing or equity participation, or a new corporation jointly funded by foreign-funded enterprises and Chinese enterprises, shall be treated as foreign-funded enterprises and enjoy the preferential policies thereof provided that the contribution of foreign investors is over 25 percent (including 25 percent ),.

9. The restrictions on investment through invisible asset, such as intelligent proprietary, shall be relaxed. The contribution of foreign investors in the registered capital shall be more flexible if such contribution involves industrial property, non-patented technology, or new and high technological achievement.

10. Only half of the specified registration fee shall be charged for establishing foreign-funded enterprise. Foreign investment in hi-tech enterprises or enterprises established by any of global top 500 enterprises are charged only 25% of the specified registration fee.

E. Foreign Exchange Control and Credit

11. Foreign-funded enterprises can borrow money from abroad according to operation demand upon approval; and the borrowed money can be converted into renminbi.

12. Foreign-funded enterprises can apply for RMB loan from Chinese banks with foreign exchange draft, cashier cheque, cheque and securities as a pledge, but must be subject to approval.

F. Land and Real Estate

13. After acquiring land use right, foreign-funded enterprise shall only pay half of the site use fee and land use fee.

14. For land used by foreign investors for agricultural industrialization, hi-tech industries, key industries and for transforming old factories, only acquisition cost and the land transfer fee which are to be handed over to the central government shall be charged. Upon approval by the municipal government, the payable land transfer fee may be discounted or exempted.

Foreign-funded enterprise may rent state-owned land from the land use right holder, and the site use fee levied by the municipal government could be refunded to the foreign investors according to their contribution; or after the land use right is handed over to the municipal government, the land can be preferentially leased to foreign investors.

15. Foreign-funded enterprises which merge and transform Chinese enterprises on the verge of going bankrupt or operating in difficulties shall be exempt from all other fees than the certificate cost when the building ownership is registered.

G. Production and Operation

16. Foreign-funded enterprises shall be exempt from the price subsidy for Chinese employees.

17. Foreign-funded enterprises exporting their own products shall pay tax first and then have tax refund. In case of export product cost lower than export price, every increase of US$1.00 based on 1998 export volume can have an incentive of 0.10 yuan.

18. If the domestic freight of the products manufactured by foreign-funded enterprise is higher than that in coastal areas, the exceeded amount can be properly subsidized by the Chinese side with the profit shared from the foreign invested enterprise. The amount of subsidy shall be specified by the signatory parties in the contract.

19. Foreign-funded enterprises are not subject to group purchasing restrictions.

20. Foreign-funded enterprises have the right to turn down the fees other than those in the list of fees promulgated by the state council and the municipal government.