To adapt to the machinery industry’s development and the new situation after China’s access into WTO, the Chinese government has successively abolished a number of laws and policies that do not meet the WTO rules;made modifications for them and formulated new ones.

3.1 State industrial policies of attracting foreign investment

3.1.1 Guidance for foreign investment industry

According to Catalogue for the Guidance of Foreign Investment Industries amended in 2004 by the Chinese government, foreign investment belongs to projects encouraged by the State which can enjoy exemption of imported equipment duty and value-added tax on imports. Machinery industries listed in encouraged ones inCatalogue for the Guidance of Foreign Investment Industries cover a wide range, basically involving five categories:

1.General machinery-building industry

2.Special equipment manufacturing

3.Communication and transportation equipment industry

4.Electric machinery and equipment manufacturing

5.Machinery industry for instrument & meter, culture and office

Over one hundred types of projects are listed in the above-mentioned 5 categoriesin the Catalogue. Investors may get further detailed information which they are interested in.

3.1.2 Encouraged hi-tech products for foreign investment

To attract and encourage more foreign investment in high-tech industries, Ministry of Science and Technology and Ministry of Commerce of the P. R. C. jointly compiled a Catalogue for Encouraged Hi-Tech Products for Foreign Investment (Catalogue for short hereinafter). Encouraged products concerning machinery industry for foreign investment listed in the Catalogue are classified into eight categories:

1)“Equipment for special process” concerning electronic information;

2)“Automatic machinery and equipment”, “key electromechanical elements” and “instrument, meter and system” concerning optical-mechanical electrical integration;

3)“New-type medical devices” concerning bio-pharmaceutical and medical devices;

4)“New-type energy and equipment” and “energy-efficient products” concerning new energy and energy efficiency;

5)“Equipment for air pollution prevention and control”, “equipment for water pollution prevention and control”, “equipment for solid wastes treatment” and “environmental monitoring instrument” concerning environmental conservation;

6)“Equipment for exploration and exploitation of energy and mineral resources”, “equipment for engineering survey and geophysical observation”, “exploration and inspection equipment for foundation stability of large project” and “marine monitoring instrument and equipment” concerning exploitation of the earth, space and oceans.

7) Equipment for nuclear application technology;

8) “Agricultural engineering facilities” and “equipment for storing and processing of farm & sideline products” concerning modern agriculture.

3.1.3 Preferential policies for encouraging foreign investment in West China

The Chinese government has formulated a series of policies and taken measures to encourage foreign investment in central and west regions. For example:

1.Foreign-invested productive enterprises dealing with energy and communication infrastructure construction is entitled to a reduced tax rate of 15% of income tax.

2.Foreign-invested productive enterprises scheduled to operate for a period of over 10 years can be exempt from enterprise income tax for the first and the second profit-making years, and is entitled to a 50% reduction of enterprise income tax for three years from the third year. Those involving in advanced technology can be exempt from income tax during the first two profit-making years and is entitled to a 50% reduction for six years from the third year. For those encouraged in Central and West China is entitled a reduced rate of 15% for further 3 years after the current preferential tax policy expires. Those in the mean time certified as technologically advanced or export-oriented enterprises with export value exceeds 70% of their total value in the year is entitled an additional 50% reduction of enterprise income tax, subject that the tax rate after reduction shall not less than 10%.

3.Encouraged foreign-invested enterprises in West China, after the current preferential tax policy expires, can pay the enterprise income tax at a reduced tax rate of 15% before 2001.

4.Foreign-invested enterprises in East China are encouraged to reinvest in the country’s central and west regions. Projects of which the foreign-funded proportion exceeds 25% are deemed as foreign-invested enterprises and are subject to equivalent treatment.

5.For soft loans from international organizations, especially those from international financial institutions, the state will allocate 70% to the central and west regions for upgrading and construction of infrastructure and key projects.

6.The state carries out a special land preferential policy to West China. For instance, land use of construction project can be exempt from land compensation when the land is owned by the State but is not exploited yet.

7.For foreign-funded infrastructure and projects of competitive industries in West China, limitations on shareholding ratio of foreign investment can be properly relaxed depending on the nature of industries. Furthermore, the RMB loan proportion for fixed assets investment from domestic banks can be increased properly, which indicates that the loan for projects of Sino-foreign joint ventures and cooperative businesses can be increased up to 120% of capital contribution from the Chinese cooperator, and that for the exclusively foreign-owned projects can be up to 100% of the registered capital of the foreign cooperator. For encouraged projects listed in Catalogue for the Guidance of Foreign Investment Industries and Catalogue of Priority Industries for Foreign Investment in the Central-Western Regions, and when the foreign investor is of high reputation and the loans are intended for purchasing required equipment and materials made in China and for domestic engineering contracting payment, the RMB loans of fixed assets investment from domestic banks can be free of the above ratio limitations. Instead, the banks may make evaluations and decisions on their own. Foreign-invested projects are allowed to do their financing, including Renminbi.

3.2 Local policies for attracting foreign investment in Sichuan

To introduce more foreign investment in the west region, local governments of various levels all grant investors special favor in addition to the current encouragement policy for inviting investment.

3.2.1 Local industrial policy

In order to promote the development of machinery industry, especially the major technical equipment manufacturing, the Sichuan provincial government formulated several supportive policies like Suggestions on Accelerating the Pillar Industry Development of Mechanical Metallurgy (CWF[2001]No.15), Suggestions on Accelerating the Development of Major Technical Equipment Manufacturing (CFF[2003]No.10).Governments of prefectures and municipalities in the province also instituted their own specific preferential policies for foreign investment.

The Sichuan government formulated Policies and Provisions for Encouraging Foreign Investment in 2000, which constituted detailed provisions on tax preference, land use, approval procedures and investment guarantee. Foreign investors and foreign-invested enterprises were specially encouraged to participate in assets reorganization and restructuring of state-owned enterprises. Preference are made as follows:

1)Zero-assets transfer can be adopted for those enterprises achieving a balance of assets/liabilities, but the acquiring company’s legal liabilities shall be clearly defined and it shall assume the credits and debts of its counterpart.

2)Where the exports value account for more than 50% of the enterprise’s output value after reorganization, the enterprise income tax can be refunded in full in the current year.

3)For reorganized enterprises whose technological transformation and development projects are certified as hi-tech by the provincial Economic & Trade Commission and Science and Technology Bureau, 50% of the income tax will be refunded for 5 years beginning from the date of certification.

4)Term of trusteeship, lease and contract of enterprises with heavy losses shall not be less than 5 years. During the operation period, the enterprise income tax will be returned in full for 3 years, and a half for 2 years.

The Sichuan government also encourages foreign investors and foreign-invested enterprises to acquire property right or assets of enterprises with lump-sum payment. And the acquiring enterprises with lump-sum payment are entitled a 20% discount. Those finding it difficult in lump-sum payment for a large sum may select installment payment within 3 years. The sum of first installment usually shall not be less than 30% of the total, and the rest shall be paid off in subsequent years at the loan rate determined by the People’s Bank of China.

3.2.2 Other local policies

Investment guarantee policy

1)Foreign investors are encouraged to invest in Sichuan and do their own business according to law. Except exclusive stipulations by the State, for joint ventures, cooperative businesses and wholly foreign-owned enterprises initiated by foreign investors, limits shall not be imposed in terms of trades, categories, shareholding ratio, ownership, domestic sales/exports ratio or term of operation.

2)Taiwan investors, whose productive projects with a total investment exceed 5 million US dollars in Sichuan, can be approved of a lower ratio of registered assets to total investment and priority can be given to land use for their residential facilities.

3)The Sichuan government annually publicizes a charge catalogue for foreign-invested enterprises. For charge items not listed in the catalogue, any citizen, legal person or other organization has the right to refuse the charge.

4)The Sichuan government has established a Sichuan Complaint Center for Foreign Investors and Sichuan Complaint Center for Taiwan Investors dedicated for coordinating complaints from foreign investors and protecting their legal rights and interests.

Other preferential policies

1) Productive foreign-invested enterprises are exempt from local income tax.

2) Foreign-invested enterprises can establish a foreign exchange account at banks that are entitled to such business or at other financial institutions.

3) Foreign-invested enterprises can raise foreign exchange funds from foreign financial institutions, enterprises and individuals without limit to loan scale.

4) Banks of various levels in Sichuan shall give credit supports to the circulating funds for exports by foreign-invested enterprises while grant them equivalent treatment as domestic non-foreign-invested enterprises.

Besides, the Sichuan government established a Sichuan Government Affairs Service Center, which incorporates all society-oriented administrative approval items of provincial departments and provides “one-stop” service so as to build a standardized service-oriented government.