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CIRCULAR OF THE STATE COUNCIL CONCERNING THE APPROVAL OF THE NATIONAL DEVELOPMENT ZONES FOR NEW AND HIGH TECHNOLOGY INDUSTRIES AND THE RELEVANT POLICIES AND PROVISIONS

    In pursuance of the Decision of the Central Committee of the Communist
Party of China on the Reform of the Science and Technology Management System,
a number of development zones for new and high technology industries have
been successively established in recent years in some large and mediumsized
technologyintensive cities and coastal areas, which have promoted the
development of new and high technology industries in our country. In order to
act in the spirit of further implementing the Torch Programme and managing
well the development zones for new and high technology, as advocated in the
Proposal of the Central Committee of the Communist Party of China on the
Formulation of the TenYear Programme and the Eighth FiveYear Plan for
National Economic and Social Development so as to expedite the development of
new and high technology industries, the State Council has decided to
designate another group of existing development zones for new and high
technology industries in various places as national development zones for new
and high technology industries, in addition to the Beijing Experimental Zone
for the Development of New Technology Industries approved by the State
Council in 1988, and to bestow them preferential policies accordingly. The
following are hereby notified:

    1. The State Council approves the designation, as examined and determined
by the State Science and Technology Commission, of the following 21
development zones as the national ones for new and high technology industries:

    Donghu New Technology Development Zone, Wuhan;

    Pukou ExportOriented Development Zone for New and High Technologies,
Nanjing;

    Nanhu Science and Technology Development Zone, Shenyang;

    Tianjin New Technology Industries Park;

    Xi'an Development Zone for New Technology Industries;

    Chengdu Development Zone for New and High Technology Industries;

    Weihai Torch Development Zone for High Technology Industries;

    Zhongshan Torch Development Zone for High Technology Industries;

    NanhuNanling New Technology Industries Park, Changchun;

    Harbin High Technology Development Zone;

    Changsha Experimental Zone for the Development of Science and Technology;

    Fuzhou Science and Technology Park;

    Tianhe Development Zone for New and High Technology Industries, Guangzhou;

    Hefei Science and Technology Industry Park;

    Chongqing Development Zone for New and High Technology Industries;

    Hangzhou Development Zone for New and High Technology Industries;

    Guilin Development Zone for New Technology Industries;

    Zhengzhou High Technology Development Zone;

    Ningwozhuang Experimental Zone for the Development of New Technology
Industries, Lanzhou;

    Shijiazhuang Development Zone for New and High Technology Industries; and

    Jinan Development Zone for High Technology Industries.

    2. In addition, the Caohejin Development Zone for NewlyEmerged
Technologies in Shanghai, Dalian New and High Technology Industries Park,
Shenzhen Science and Technology Industry Park, Xiamen Torch Development Zone
for High Technology Industries and Hainan International Science and
Technology Industry Park, which have been respectively set up in the economic
and technological development zones and in the special economic zones, are
also designated as the national development zones for new and high technology
industries.

    3. The State Council authorizes the State Science and Technology
Commission to be responsible for the examination and determination of the
bounds and the area of each national development zone for new and high
technology industries, and for the relevant management and specific guidance
of each zone.

    4. The State Council approves the Requirements and Measures for the
Acknowledgement and Determination of New and High Technology Enterprises in
the National Development Zones for New and High Technology Industries
(Annex I) and Interim Provisions on Policies for the National Development
Zones for New and High Technology Industries (Annex II) both formulated by
the State Science and Technology Commission, and Provisions on the Tax Policy
for the National Development Zones for New and High Technology Industries
(Annex III) formulated by the State Administration of Taxation, which should
all be observed and implemented.

    5. In the Beijing Experimental Zone for the Development of New Technology
Industries, all transactions of business should be conducted in accordance
with the Interim Regulations of the Beijing Experimental Zone for the
Development of New Technology Industries, except for the magnitude control of
investment in fixed assets and the reserved percentage of foreign exchange
earned through exportation, which should comply with the existing provisions.

    It is of great significance for the readjustment of industrial structure,
the promotion of the traditional industries transformation, the improvement
of labour productivity and the enhancement of international competitiveness
to accelerate the commercialization and industrialization of the achievements
in high technology by relying on our own scientific and technical strength.
All localities and all relevant departments shall strengthen leadership over
and give effective support to the development zones for new and high
technology industries and, in accordance with the relevant provisions and
policies of the State, promote a sound development of new and high technology
industries of our country.
ANNEX I  Requirements and Measures for the Acknowledgement and
Determination of New and High Technology Enterprises in the National
Development Zones for New and High Technology Industries

    Article 1  These Measures are formulated for the implementation of the
relevant policies and provisions on the national development zones for new
and high technology industries approved by the State Council and the
promotion of the development of new and high technology industries in China.

    Article 2  New and high technology enterprises in the national
development zones for new and high technology industries (hereinafter
referred to as the development zones) shall be acknowledged and determined in
accordance with these Measures.

    Article 3  The science and technology commissions of provinces,
autonomous regions, municipalities directly under the Central Government and
cities separately listed in planning (hereinafter referred to as the
provincial or municipal science and technology commissions) shall be the
competent organs responsible for acknowledging and determining new and high
technology enterprises in the development zones and for supervising the
implementation of these Measures under the people's governments of provinces,
autonomous regions, municipalities directly under the Central Government and
cities separately listed in planning. The offices of the development zones
shall, under the leadership of the relevant people's governments and under
the guidance of the relevant provincial or municipal science and technology
commissions, handle the specific matters in examining and approving the
acknowledgement and determination of new and high technology enterprises.

    Article 4  In line with the current state of scientific and technical
development across the world, the scope of new and high technologies is
defined as follows:

    (1) microelectronics and electronic information technology;

    (2) space science and aero/space technology;

    (3) photoelectronics and photo-mechanic-electronic integration technology;

    (4) life science and bioengineering technology;

    (5) materials science and new-material technology;

    (6) energy science and new energy technology and efficient energy-saving
technology;

    (7) ecology science and environmental protection technology;

    (8) earth science and marine engineering technology;

    (9) science of fundamental matters and radiation technology;

    (10) medicine science and biomedical engineering;

    (11) other new processes and technologies applied on the basis of
traditional industries.

    This scope of new and high technologies will be supplemented and revised
in accordance with the continuous development of new and high technologies at
home and abroad, and the State Science and Technology Commission shall
announce the supplemented and revised scope.

    Article 5  A new and high technology enterprise shall be an
intellect-intensive and technology-intensive economic entity. The new and
high technology enterprise in a development zone shall meet the following
requirements:

    (1) being engaged in the research, development, production and business
operations of one or several high technologies and related products as
specified in Article 4 of these Measures, excluding purely commercial
business operations;

    (2) being independent in accounting and management, and responsible for
its own profits and losses;

    (3) being headed by scientific and technical personnel who are familiar
with the research, development, production and business operations of the
enterprise's products, and are full-time employees of the enterprise;

    (4) having scientific and technical personnel with the educational
qualification at or above the level of higher learning who shall account for
at least 30 percent of the enterprise's total staffs and workers; among them
at least 10 percent being engaged in research and development of new and high
technology products;

    As for the labour-intensive new and high technology enterprises which are
engaged in the production of new and high technology products or service, the
scientific and technical personnel with educational qualifications at or
above the level of higher learning shall account for at least 20 percent of
their total staffs and workers;

    (5) possessing a capital amounting to or exceeding one hundred thousand
yuan (RMB), as well as premises and facilities commensurate with the scale of
the business operation;

    (6) spending at least 3 percent of the enterprise's annual gross income
on the research and development of new and high technology and related
products;

    (7) realizing a total of the technological income and output value of new
and high technologies exceeding 50 percent of the annual gross income of the
new and high technology enterprise that generally comprises the technological
income, output value of products from new and high technologies, output value
of products from conventional technologies, and technologically interrelated
trade;

    The technological income refers to earnings from technology consultancy
and transfer, the investment in the form of technologies in businesses,
technological service, training, project and contracting, the export of
technologies, the assimilation of imported technologies, and pilotplant
products that are performed by the new and high technology enterprise;

    (8) having explicit articles of association and strict technical and
financial management system;

    (9) having fixed a business duration of 10 years or longer.

    Article 6  For the setting up of a new and high technology enterprise, an
application shall be submitted to the office of the development zone
concerned for examination and acknowledgement, and then to a provincial or
municipal science and technology commission for approval, and a certificate
of new and high technology enterprise shall be issued by the approving
commission.

    Article 7  The offices of the development zones shall, in accordance with
requirements specified in Article 5 of these Measures, make regular
inspections on new and high technology enterprises. Enterprises which fail to
meet the aforesaid requirements may not enjoy the treatment provided for by
different policies for the national development zones for new and high
technology industries.

    Article 8  The time limit for the products to be listed as new and high
technology ones shall usually be no longer than five years. The time limit
may be extended to seven years after approval for new and high technology
products that need a longer technical cycle.

    Article 9  Any change in the scope of business operation, amalgamation or
breakup, divertion in trade, removal to a new site or close-down of new and
high technology enterprises shall be approved beforehand by the office of the
development zone concerned. The enterprises shall register such changes with
the relevant departments in charge of industry, commerce and taxation.

    Article 10  Any State-owned scientific and technological research unit
located in a development zone which has become a financially independent unit
after the reduction of its Statefunded administration and undertaking
expenses according to the provisions of the State and which meets the
requirements specified in Article 5 of these Measures may be acknowledged as
a new and high technology enterprise upon verification by the office of the
development zone concerned.

    Article 11  These Measures shall replace the Interim Provisions on the
Requirements and Standards for the Acknowledgement and Determination of New
and High  Technology Enterprises promulgated earlier by the State Science and
Technology Commission.

    Article 12  The provincial and municipal science and technology
commissions shall work out detailed rules for the implementation of these
Measures. Any discrepancy found in the original detailed rules for the
implementation shall be revised in accordance with these Measures.

    Article 13  The State Science and Technology Commission shall be
responsible for the interpretation and revision of these Measures.

    Article 14  These Measures shall be put into effect as of the date of
approval by the State Council.
ANNEX II  Interim Provisions on Policies for the National Development
Zones for New and High Technology Industries

    Article 1  These Provisions are formulated to foster the establishment of
new and high technology industries development zones in our country and
promote the development of new and high technology industries.

    Article 2  These Provisions shall apply to new and high technology
enterprises in the national development zones for new and high technology
industries acknowledged and determined in line with the "Requirements and
Measures for the Acknowledgement and Determination of New and High Technology
Enterprises in the National Development Zones for New and High Technology
Industries" formulated by the State Science and Technology Commission.

    Article 3  These Provisions cover all preferential policies except for
tax policy.

    Article 4  Matters concerning preferential tariffs and duties on imports
and exports shall be dealt with in accordance with the following stipulations:

    (1) For importing raw materials and component parts destined for
processing export products by new and high technology enterprises in the new
and high technology industries development zones, import license shall be
exempted. The Customs in charge shall check and release the above-mentioned
raw materials and parts against the export contracts and approval papers
issued by the new and high technology industries development zones.

    (2) Subject to the approval by the Customs, new and high technology
enterprises may set up in the new and high technology industries development
zones bonded warehouses or bonded factories. The Customs shall exempt import
duties, tax for the import products and tax on the added value of products in
accordance with the provisions on processing imported raw materials and parts
and the real export volume of the processed products.

    (3) The export products of new and high technology enterprises, except
for those restricted by the State or those otherwise stipulated, shall be
exempted from export duties.

    (4) Bonded export products shall not be marketed at home unless approved
by the original examination and approval authorities and the Customs, and
duties shall be levied according to the regulations. Of these products, those
that are specifically rationed by the State or require import license shall
go through the procedures for approving the import or for applying for the
import license according to the relevant provisions of the State.

    (5) The import of apparatus and equipment to be used by new and high
technology enterprises for the development of new and high technology and
which cannot be made at home shall be exempted from import duties against the
approval papers issued by the examination and approval authorities and after
the verification by the Customs.

    The Customs may, when deeming it necessary, set up agencies or station
supervisory groups in the new and high technology industries development
zones to supervise and control the imports and exports.

    Article 5  As regards import and export business, it is stipulated as
follows:

    (1) With the approval of the Ministry of Foreign Economic Relations and
Trade, technology import and export corporations may be set up in the new and
high technology industries development zones to promote the access of new and
high technology products to international  markets.

    (2) According to the relevant provisions of the State new and high
technology enterprises with good results in export business may be granted
the right to handle foreign trade transactions. New and high technology
enterprises may, with approval by relevant departments, set up branches
overseas according to business needs.

    Article 6  As regards capital and credits, it is stipulated as follows:

    (1) Banks shall give an active support to new and high technology
enterprises and do their best to provide enterprises with funds needed for
their development, production and construction.

    (2) Banks may arrange the issue of long-term bonds in definite sums for
the new and high technology industries development zones so as to raise funds
from the society to help the development of new and high technology
industries.

    (3) Departments concerned may establish venture investment funds in the
new and high technology industries development zones for the development of
new and high technology products with greater risks. Venture investment
companies may be set up in the new and high technology industries development
zones where conditions are available.

    Article 7  The capital construction projects for production and sales of
new and high technology enterprises shall be carried out according to the
overall plan, and be given priority to be brought into the local fixed
capital investment programmes.

    Article 8  Approved by the local people's governments, new and high
technology enterprises may be exempted from subscribing for State key
construction bonds.

    Article 9  The new and high technology products developed by new and high
technology enterprises which have met qualifications of the import products
of the same kind in all quality standards and with a certain production scale
shall, after being examined and approved by the State Science and Technology
Commission jointly with other departments concerned, be listed in the
catalogue of the Staterestricted import commodities, and imports of such
products shall be restricted according to the existing regulations on import
control.

    Article 10  Prices of new products developed by new and high technology
enterprises involving Statecontrolled prices (including State-set and
State-guided prices), except for those of specific varieties that shall be
fixed by departments in charge of price control, may be fixed by the
enterprises themselves during a definite period of trial sale of the products
but shall report to departments in charge of the enterprises and price
control for record. Prices of new and high technology products which are not
under the State price control may be fixed by the enterprises themselves.

    Article 11  New and high technology enterprises may apply accelerated
depreciation of their apparatus and equipments used for development of new
and high technologies and production of their products.

    Article 12  All tax payments from new and high technology enterprises in
the new and high technology industries development zones, if not affecting
the portion to be handed over to the central financial department and with
the approval of the local people's governments, shall be based on the level
of such payments levied in 1990, and the amount of taxes collected in excess
thereof shall be returned, for a period of up to five successive years, to
the new and high technology industries development zones for their further
construction.

    Article 13  Matter related to overseas trips more than once in a year
made by business and technical personnel of new and high technology
enterprises shall be dealt with in accordance with the Circular of the
General Office and the State Council Concerning the Transmission of the
Request for Instructions Submitted by the State Science and Technology
Commission to Simplify the Examining and Approving Procedures for Certain
People of New and High Technology Enterprises with Respect to  Their Multiple
Exit from the Country.

    Article 14  All localities and departments shall, when planning
employment and recruiting staffs and workers, give priority to needs of new
and high technology enterprises for recruiting university graduates and
postgraduates, as well as returned students and experts.

    Article 15  People's governments of provinces, autonomous regions,
municipalities directly under the Central Government or cities separately
listed in plan where the new and high technology industries development zones
approved by the State are located may work out measures for implementation in
line with these Provisions.

    Article 16  The State Science and Technology Commission shall, jointly
with other departments concerned, inspect at regular intervals the new and
high technology industries development zones. The implementation of
preferential policies shall be suspended in those zones poorly managed or
showing slow progress, even to the degree of cancellation of their
qualifications as the national new and high technology industries development
zones.

    Article 17  The State Science and Technology Commission and other
departments concerned shall be responsible for the interpretation of these
Provisions.

    Article 18  These Provisions shall be put into effect as of the date of
approval by the State Council.
ANNEX III  Provisions on the Tax Policy for the National Development
Zones for New and High Technology Industries

    Article 1  These Provisions are formulated in order to accelerate the
healthy development of new and high technology industries of our country and
to further promote the establishment of the new and high technology
industries development zones.

    Article 2  These Provisions shall apply only to the acknowledged and
determined new and high technology enterprises (hereinafter referred to as
development zone enterprises) in the new and high technology industries
development zones (hereinafter referred to as development zones) approved by
the State Council.

    Article 3  The acknowledgement requirements and standards for the
development zones and development zone enterprises as well as the scope of
new and high technologies and the products thereof shall be dealt with
according to the unified provisions formulated by the State Science and
Technology Commission.

    Article 4  The income tax of development zone enterprises shall be levied
at a reduced rate of 15 percent from the date of their acknowledgement and
determination.

    Article 5  When the output value of export of a development zone
enterprise exceeds 70 percent of its total annual output value, the income
tax shall be levied at a reduced rate of 10 percent after being verified by
the taxation authorities.

    Article 6  A newly-established development zone enterprise may, upon
approval by the taxation authorities of an application filed by the
enterprise, be exempted from income tax in the first two operation years.

    A Chinese-foreign equity joint venture newly-established as a development
zone enterprise and scheduled to operate jointly for a period of 10 years or
more may, upon approval by the taxation authorities of an application filed
by the enterprise, be exempted from income tax in the first two years after
it has begun to make a profit.

    Development zone enterprises using foreign investments within the special
economic zones and economic and technological development zones shall be
subject to the administration of relevant tax policy of the special zones or
economic and technological development zones, and shall not be restricted by
the provisions of the above two paragraphs of this Article.

    On the expiration of the tax-free period, considerations of appropriate
tax reductions or exemptions for a definite period of time may, upon
approval, be given to the enterprises which still have real difficulties in
tax payment.

    Article 7  Development zone enterprises using domestic investments with
an annual net income not exceeding 300,000 yuan (RMB) from technological
transfer and consultation, services and trainings related to this transfer
shall be temporarily exempted from income tax for the above-mentioned amount;
for the portion exceeding 300,000 yuan (RMB), income tax shall be levied
according to the appropriate tax rate. For all new and high technology
products developed under the "Torch Programme", and conforming to exemption
and reduction conditions for new products, the amount derived from tax
exemption or reduction on products and on the added value of products shall
be used specially for the technical development and shall be exempted from
income tax.

    Article 8  The amount derived from tax exemption or reduction for
development zone enterprises using domestic investments shall be regarded as
national support funds managed under an independent accounting system, and
shall be specially used for the development of new and high technologies and
their products under the supervision of relevant departments.

    Article 9  For a development zone enterprise jointly run with another
investing party, the party shall, according to its own enterprise financial
system, pay  retroactively the income tax or the portion to be handed over to
its superior department from the profit distributed to it after deducting the
tax levied in the development zone.

    Article 10  For development zone enterprises using domestic investments,
the bonus tax shall be collected according to the existing provisions of the
State. However, the bonus tax may be exempted for the following individual
items:

    (1) the portion not exceeding 15 percent of the bonus taken from the
retained net income from technology transfer, technical consultancy,
technical services and technical trainings;

    (2) for enterprises exporting new and high technology products, the
portion of bonus awarded to staffs and workers not exceeding the amount
equivalent to one and half monthly standard salaries and taken from export
bonus fund according to the State provisions;

    (3) other individual tax-free bonuses which comply with the State
provisions.

    Concerning the amount of annual per capita tax-free bonus, if the total
amount of Items (1) and (2) does not exceed two and half standard monthly
salaries, the bonus tax shall be levied after the above amount is deducted
from the annual bonus. If the amount exceeds two and half standard monthly
salaries, the bonus tax shall be levied after the actual tax-free bonus is
deducted from the annual total bonus.

    Article 11  Newly constructed buildings for technology development and
production and business operations built with self-raised funds by
development zone enterprises established with domestic investments shall be
subject to or exempted from construction tax (or investment direction
regulatory tax) according to the industrial policies of the State.

    Article 12  All loans of development zone enterprises shall be reimbursed
after the income tax is levied.

    Article 13  Non-development zone enterprises in the development zones
shall act on the existing tax policy of the State instead of these
Provisions. For enterprises previously acknowledged and determined as
development ones, which have undergone changes and no longer conform to the
requirements and standards for development zone enterprises, these Provisions
shall no longer apply.

    Article 14  Previously enacted tax policies which contravene these
Provisions shall, without exception, be abolished and superseded by these
Provisions.

    Article 15  The State Tax Bureau shall be responsible for the
interpretation of these Provisions.

    Article 16  These Provisions shall be put into effect as of the date of
approval by the State Council.