(October 11, 1986)Article 1 These Provisions are formulated to improve the investment environment, to better facilitate the absorption of foreign investment, to introduce advanced technology, to improve product quality, to expand in order to generate foreign exchange and to develop the national economy.

Article 2 The State encourages foreign companies, enterprises and other economic entities or individuals (hereinafter referred to as "Foreign Investors" ) to establish Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign -owned enterprises (hereinafter referred to as "Enterprises with Foreign Investment " ) within the territory of China.

The State grants special preferences to the enterprises with foreign investment listed below:

(1) Production-type enterprises whose products are mainly export, which have a foreign exchange surplus after deducting from their total annual foreign exchange revenues the annual foreign expenditures incurred in production and operation and the foreign exchange needed for the remittance abroad of the profits earned by foreign investors (hereinafter referred to as "Products Export Enterprises")

(2) Production-type enterprises possessing advancedtechnology supplied by foreign investors which are engaged in developing new products, and upgrading and replacing products in order to increase foreign exchange generated by exports or for import substitution (hereinafter referred to as "Technologically Advanced Enterprises").

Article 3 Products Export Enterprises and Technologically Advanced Enterprises shall be exempt from payment to the State of all subsidies to staff and workers, except for the payment or allocation of funds for labor insurance welfare expenses and housing subsidies for Chinese staff and workers in accordance with the provisions of the State.

Article 4 The site use fees for Products Export Enterprises and technologically Advanced Enterprises, except for those located in busy urban sectors of large cities, shall be computed and charged according to the following standards:

(1) Five to twenty RMB yuan per square meter per year in areas where the development fee and the site use fee are computed and charged together;

(2) Not more than three RMB yuan per square meter per year in site areas where the development fee is computed and charged on a one-time basis or areas which are developed by above-mentioned enterprises themselves. Exemptions for specified periods of time from the fees provided in the foregoing provision may be granted at the discretion of local people's governments.

Article 5 Products Export Enterprises and Technologically Advanced Enterprises shall be given priority in obtaining water, electricity and transportation services and communication facilities needed for their production and operation. These fees shall be computed and charged in accordance with the standards for local enterprises.

Article 6 Products Export Enterprises and Technologically Advanced Enterprises, after examination by the Bank of China, shall be given priority in receiving loans for short-term working funds needed for production and distribution, as well as for other needed credit.

Article 7 When Foreign Investors in Products Export Enterprises and Technologically Advanced Enterprises remit abroad profits distributed to them by such enterprises, the amount remitted shall be exempt from income tax.

Article 8 After the expiration of the period for the reduction or exemption of enterprise income tax in accordance with the provisions of the State. Products Export Enterprises whose value of export products in that year amounts to 70% or more of the value of their products for that year, may pay enterprise income tax at one-half the rate of the present tax.

Products Export Enterprises in the special economic zones and in the economic and technological development zones and other Products Export Enterprises that have already paid enterprise income tax at a tax rate of 15% and that comply with the foregoing conditions, shall pay enterprise income tax at a rate of 10%.

Article 9 After the expiration of the period of reduction or exemption of enterprise income tax in accordance with the provisions of the State, Technologically Advanced Enterprises may extend for three years the payment of enterprise income tax at a rate reduced by one half.

Article 10 Foreign investors who reinvest the profits distributed to them by their enterprises in order to establish or expand Products Export Enterprises or Technologically Advanced Enterprises for a period of operation of not less than five years, after application to and approval by the tax authorities, shall be refunded the total amount of enterprise income tax already paid on the reinvested portion. If the investment is withdrawn before the period of operation reaches five years, the amount of enterprise income tax refunded shall be repaid.

Article 11 Export products of enterprises with foreign investment, except crude oil, oil products and other products subject to special State provisions, shall be exempt from the consolidated industrial and commercial tax.

Article 12 Enterprises with foreign investment may arrange the export of their products by themselves or may also export by consignment to agents in accordance with the State provisions. For products that require export licences, an application for export licences may be made every six months in accordance with the annual export plan of the enterprise.

Article 13 Machinery and equipment vehicles used in production, raw materials, fuel, bulk parts, spare parts and components, machine component parts and fittings (including imports restricted by the State),which enterprises with foreign investment need to import in order to carry out their export contracts, are not required to apply for examination and approval and are exempt from the requirement for import licenses. The Customs shall exercise supervision and control, and shall inspect and release such imports on the strength of the enterprise contract or the import and export contract.

The imported materials and items mentioned above are restricted to be used by the enterprise itself only and may not be sold on the domestic marker. If they are used in products to be sold domestically, then they are required to go through the import procedures retroactively in accordance with the provisions and the taxes shall be made up according to the governing stipulations.

Article 14 Under the supervision of the foreign exchange control departments, enterprises with foreign investment may mutually adjust their foreign exchange surpluses and deficiencies among themselves.The Bank of China and other banks designated by the People's Bank of China may provide cash security services and may grant loans in Renminbi to Enterprises with Foreign investment.

Article 15 the people's governments at all levels and relevant departments in charge shall guarantee the autonomy of Enterprises with Foreign Investment and-shall support enterprises with foreign investment in managing their enterprises in accordance with international advanced scientific methods.

Within the scope of their approved contracts, enterprises with foreign investment have the right by themselves to determine production and operation plans, to raise funds, to use funds, to determine by themselves the wage levels, the forms of wages and bonuses and the allowance system.

Enterprises with foreign investment may, in accordance with their production and operation requirements, determine by themselves their organizational structure and personnel system, employ or dismiss senior management personnel, increase or dismiss staff and workers. They may recruit and employ technical personnel, managerial personnel and workers in their locality. The unit to which such employed personnel belong shall provide its support and shall permit their transfer. Staff and workers who violate the rules and regulations, and thereby cause certain bad consequences may, in accordance with the seriousness of the case, by given differing sanctions, up to that of discharge. Enterprises with foreign investment that recruit, employ, dismiss or discharge staff and workers, shall file a report with the local labor and personnel department.

Article 16 All districts and departments must implement the "Circular of the State Council Concerning Firmly Curbing the Indiscriminate Levy of Charges on Enterprises". The people's governments at the provincial level shall formulate specific methods and strengthen supervision and administration.

Enterprises with Foreign Investment that encounter unreasonable charges may refuse to pay and may also appeal to the local economic committees up to the State Economic Commission.

Article 17 The people's governments at all levels and relevant departments in charge shall strengthen the coordination of their work, improve efficiency in handling matters and shall promptly examine and approve matters reported by enterprises with foreign investment that require response and resolution. The agreement, contract and articles of association of an Enterprise with Foreign Investment shall be examined and approved by the departments in charge under the State Council. The examination and approval authoity must, within three months from the date of receipt of all the documents, decide to approve or not to approve.

Article 18 Products Export Enterprises and Technologically Advanced Enterprises mentioned in these Provisions shall be confirmed jointly as such by the foreign economic relations and trade departments where such enterprises are located and the relevant departments in accordance with the enterprise contract, and certification shall be issued.
If the actual results of the annual exports of a products export enterprise are unable to realize the goal of surplus in the foreign exchange balance that is stipulated in the enterprise contract, the taxes and fees which have already been reduced or exempted in the previous year shall be made up in the following year.

Article 19 Except where these Provisions expressly provide that they are to be applicable to Products Export Enterprises or Technologically Advanced Enterprises, other articles shall be applicable to all Enterprises with Foreign Investment.
These Provisions apply from the date of implementation to all those Enterprises with Foreign Investment that have obtained approval for establishment before the date of the implementation of these Provisions and conform to the preferential terms of these Provisions.

Article 20 For enterprises invested in and established by companies, enterprises and other economic organizations or individuals from HongKong, Macao, or Taiwan, matters shall be handled by reference to these Provisions.

Article 21 The Ministry of Foreign Economic Relations and Trade shall be responsible for interpreting these Provisions.

Article 22 These Provisions shall go into effect on the date of promulgation.