Comparative advantages for investing in Liangjiang New Area Chongqing China

1. Gigantic opportunities in Western Development

Compared with Pudong and Binhai which are coastal open cities, Liangjiang New Area has switched its development orientation from the coast to the inland areas, with the aim of implementing China's western development strategy. Chongqing is one of the four municipalities directly under the central government and one of the five state central cities. It is fully committed to establishing itself into a modern metropolis covering an area of 1,000 square kilometers with a population of 10 million. Liangjiang New Area is expected to become an essential area for Chongqing's development and construction. By 2020, 60 percent of Chongqing's industrial land (171km2), 40 percent of its commercial land (125km2) and 60 percent of public land (108km2) will be located in Liangjiang New Area - which will also account for half of Chongqing’s population.

2. Policy environment oriented with domestic consumption

Pudong and Binhai are heavily dependent on international trade - which is their main source of revenue. By 2015, China's consumption will take up more than 14 percent of that worldwide. China will become the world's second largest consumption market with one fifth of the world population. Liangjiang New Area focuses on domestic consumption in its plans for development. The key industrial projects invested in Liangjiang Industrial Development Zone will benefit from the preferential policies and support in addition to the five major policies - China's western development policy, Innovative Balancing of the Urban and Rural Overall development policy, the State Council's No. 3 about import and export policy, inland bonded port areas policy, as well as the current policies in Pudong coast and the right to pilot implementation.

3. Relatively low elemental costs, with a focus on "6 lows"

1). Low construction costs with the cost of industrial land and construction tax significantly lower than in the country' eastern regions;

2). Low logistics costs, with convenient transportation enjoyed by Liangjiang New Area, especially its close linkage with 16 big cities through the "golden waterway" of the Yangtze River;

3). Low production costs with the comprehensive costs of industrial water, electricity, gas, land, labor etc. accounting for only 60 to 70 percent of the cost in the eastern regions, and especially cost of labor, as Chongqing has a total of 620,000 students in 61 colleges, 500,000 students in 248 secondary and vocational schools and 3,929 in vocational and technical training institutions - with 300,000 talents available for job placement and 8 million migrant workers;

4). Low financing costs due to a variety of financial institutions and new financial products in Liangjiang New Area which provide fast and convenient financing;

5). Low official business costs with a provincial review and approval system and administration authority - which lower the comprehensive costs of production and living in Liangjiang New Area - and they are thus significantly lower than in the eastern regions;

6). low tax costs with various preferential policies.

4. Opening model of inland openness

The two processing trade modes developed by Liangjiang New Area, i.e. "one end in and one end out" as well as "both ends in," elevate the utilization of foreign capital and attracts leader-type and core-type large-scale transnational enterprises to base their functional projects, such as regional headquarters, R & D institutions, merchandise distribution centers, purchasing centers, settlement centers, etc. in the Liangjiang New Area. In terms of service trade, the Liangjiang New Area has been active in developing offshore finance and transit trade, constructing its offshore financial center and the largest transit trade port in the western regions, and striving to create a national export base of automobiles and parts, a national innovation base of pharmaceutical exports, a national base of service outsourcing industry, and the largest bonded base of warehouse and logistics in inland China.

5. Ecological new area with reform

Liangjiang New Area is more than an industrial development zone, because of its bigger population and better ecological conditions. In terms of the mode of development, Liangjiang New Area adheres to the concepts of low carbon economy and independent innovation and works to strengthen resource conservation and environmental protection - in order to build a new area with a beautiful environment and good ecology. In terms of urban constructions, Liangjiang New Area continues to make plans based on global perspectives and high international standards. In terms of the industrial park development, Liangjiang New Area makes innovations in its management system, tax system, land system, social security system and environmental protection system so as to attract various kinds of enterprises and projects in the industrial park. Its exploration and practice in the mechanism of ideas, modes, channels, and systems, are set to allow Liangjiang New Area to become a site for the demonstration of scientific development.

Preferential policies for foreign investment in Lianglu-Cuntan Bonded Area

China has implemented preferential policies which are formulated according to the laws and administrative regulations of Chongqing, with the aim of speeding up investment in the Lianglu-Cuntan Bonded Area of Chongqing (hereinafter referred to as the bonded port area) and to attract domestic and foreign enterprises, as well as to facilitate the development of an open economy in Chongqing and western China.

The application scope of preferential policies shall be defined within the boundary points in the State Council's Approval on Establishment of Lianglu-Cuntan Bonded Area of Chongqing (GH [2008] No 100).

Chapter 1 Import and Export Tax and Regulatory Policy

Article 1. Incoming international cargo arriving into the bonded port area is entitled to protective tariffs, except as otherwise provided in laws and administrative regulations.

Article 2. Cargo transactions between enterprises in the bonded port area are not subject to VAT or consumption tax. Cargo directly exported by enterprises in the bonded port area is exempt from VAT and consumption tax. The consumption of water, electricity and gas (steam) for production of exported cargo by enterprises within the bonded port area qualifies for VAT refund at the export rebate rate applicable according to current policies.

Article 3. Domestic cargo entering the bonded port area is viewed as export. The tax rebate is applicable at a rate conforming to the existing policies and regulations on exported cargo.

Article 4. Export tax rebate can be made by enterprises outside the bonded port area according to the statutory tax rate of VAT export tax rebate - with export declaration issued by the Customs and other related documents - when productive enterprises in the bonded port area purchase listed raw materials for the purpose of production of exported cargo in China, and when the raw materials do not qualify for the export tax rebate. The rate after adjustment shall prevail where the export tax rebate rate of listed raw materials has been adjusted, and productive enterprises in the bonded port area want to purchase them in China for processing and export.

Article 5. Customs clearance procedures shall be applied according to the actual state of taxed cargo, should the cargo in the bonded port area enter the domestic sales market.

Article 6. Except as provided otherwise in laws and administrative regulations, the following incoming cargo from overseas into the bonded port area are exempt from customs duties and import linkage taxes: machinery and equipment for productive infrastructure, materials needed for the infrastructure construction of production plants and storage facilities in the bonded port area; the machinery, equipment, molds and spare parts for maintenance for the production of enterprises in the bonded port area; and a reasonable amount of office supplies for personal use of enterprises and administrative bodies in the bonded port area.

Article 7. The import and export quota and license management is not implemented on the cargo between the bonded port area and overseas market, except as provided otherwise by laws, administrative regulations and rules.

Article 8. Incoming and outgoing cargo between the bonded port area and overseas market may go through the procedures of centralized declaration with the approval of the Customs. Enterprises shall fill in the declaration of inventory data and import and export declarations within a natural month and apply for centralized declaration to the specified customs offices within 2 months.

Article 9. Import and export taxes will not be imposed on the circulation of cargo between the bonded port area and special places under special supervision of Customs or bonded supervision areas.

Chapter 2 Entry-Exit Inspection and Quarantine Policy

Article 10. The policy concerning a one-time inspection and quarantine check shall be implemented on cargo that enters or exits the bonded port area.

Article 11. Export of live animals, live poultry, aquatic animals and inspection-free agricultural products is exempt from inspection and quarantine fees. The inspection and quarantine fees on other exported agricultural products are halved.

Article 12. The inspection and quarantine fees are 30 percent lower for cargo included in Chapter 61 (knit or crochet clothing and clothing accessories) and Chapter 62 (non-knit or crochet clothing and clothing accessories) in The Catalog of Entry-exit Inspection and Quarantine.

Chapter 3 Incentive Policy of Finance and Tax

Article 13. According to the central government's development policies for western China, a 15 percent preferential corporate income tax rate is applicable to new enterprises of industries encouraged by regulations concerning the bonded area.

Article 14. The municipal government grants a full refund of the locally retained portion of corporate income tax of new large enterprises engaged in warehousing, distribution, procurement and logistics, and enterprises identified as high-tech export processing and trade enterprises before 2012 in the bonded port area, in the first two years following the first profitable year, and a 50 percent refund from the third to the fifth year.

Article 15. For profits of international air freight companies established in the bonded port area before 2012, the municipal government grants a three-year full refund for the locally retained portion of corporate income tax.

Article 16. The government will grant preferential rates, based on a certain proportion of the business tax collected from new warehousing and logistics enterprises in the bonded area from 2010 to 2012, for profits from cargo transport, warehousing, loading and unloading operations.

Chapter 4 Foreign Exchange Policy

Article 17. Transactions of the cargo trade between enterprises in the bonded port area and domestic enterprises outside the bonded port area can implement RMB-denominated settlement or foreign currency-denominated settlement. Settlement currencies for incidental charges concerning cargo trade can follow commercial practices.

Article 18. Enterprises in the bonded port area that fail to provide relevant payment vouchers and commercial documents during the remittance can provide relevant materials to remittance banks within 90 days after the remittance. Write-off and endorsement and other procedures can be handled by remittance banks according to regulations.

Article 19. Enterprises in the bonded port area that directly import cargo from abroad, or purchase cargo of foreign enterprises inside the bonded port area or from domestic areas outside the bonded port area can make overseas payment through foreign exchange accounts by providing valid vouchers and commercial invoices to banks.

Article 20. Earnings from foreign liquidation can be used for domestic reinvestment or can be remitted abroad if liquidation involves enterprises with direct foreign investment from outside the bonded port area.

Chapter 5 Lease Incentives Policy of Warehouses and Factories

Article 21. Enterprises that lease factories, warehouses and yards in the bonded port area are entitled to lease incentives. Enterprises with leases starting in 2010 for a period exceeding 2 years are entitled to a full refund of six months month from the date of lease and discounts on the lease after six months.

Chapter 6 Others

Article 22. The preferential policies will come into force on date when the bonded port area is on the run.

Ten Preferential Policies for Liangjiang New Area

1. All enterprises in Liangjiang New Area, whether Chinese-funded or foreign-funded, which concern the industries that the central government aims to boost, will be taxed at a lower rate of 15 percent for business income tax, before 2020.

2. During the 12th Five-Year Plan period (2011-2015), all administrative charges and income, based on data for 2010, which concern the newly-added local income and construction projects in the new area - will be used as special development funds for enterprises to support advanced manufacturing and modern service industries in the area by means of investment and buying shares, fixed subsidies, issuance of cooperate bonds and discounted interest for loans, etc.

3. In the area, quota for planned land use for construction will be listed as an independent item with preferential policies. Priority will be given to land use for construction according to the development plan.

4. Chongqing Municipal Government will set up a special fund with 10 billion yuan for infrastructure construction in Liangjiang New Area.

5. The state-approved Chongqing Industrial Investment Foundation will be prioritized and used in infrastructure construction and development of key industries.

6. For industrial enterprises in the industrial development zone of Liangjiang New Area: income tax that local governments will retain will be completely subsidized by the area in the first two years, and 50 percent will be subsidized in the following three years.

7. Enterprises in high-tech or strategic and emerging industries - during the first three years after they become profit-making enterprises - are able to enjoy a pre-tax deduction policy on risk compensation subject to various regulations.

8. Flexible land and house leasing policies will be adopted in the area. Key industries will enjoy two preferential policies for land use, and enterprises, scientific research institutions - in addition to universities and colleges engaging in science and technical research and development - will be eligible for subsidies for residences.

9. Projects conforming to national industrial policies in the area will receive assistance concerning project approval, land use, loan financing, technical development and market access.

10. Recently arrived high-ranking executives of large enterprise headquarters in the area will enjoy financial support such as allowances when they locate to Liangjiang New Area. In addition, incentive mechanisms will be set up to encourage talent introduction.

Preferential policies for foreign investment in Chongqing

Overseas investors and domestic investors outside of Chongqing are free to invest in Chongqing, in accordance with the law.

Liangjiang New Area especially welcomes foreign investment in prospecting and mining of non-oil/gas mineral resources. Foreign investors are permitted to establish sole proprietorship or to cooperate with Chinese counterparts in risk exploration of non-oil/gas mineral resources. Foreign investors are also permitted to purchase prospecting and mining rights of non-oil/gas mineral resources from large and medium-sized state-owned enterprises and can also transfer these rights.

Business registration

New corporate enterprises, established by joint venture or reinvestment from foreign-invested enterprises and domestic enterprises, can enjoy benefits as foreign-invested enterprises - should the proportion of foreign investment reach or surpass 25 percent.

For foreign investors that appraise their high and new technologies for registered capital, the appraised value can surpass 20 percent of the registered capital.

Tax

Corporate income tax rate of 24 percent applies to productive foreign-invested enterprises. Enterprises that have been operating for 10 years or more are exempt from the corporate income tax for two years following the enterprise’s first profitable year. From the third to the fifth year, the corporate income tax rate is 12 percent.

Corporate income tax rate of 15 percent applies to productive foreign-invested enterprises - engaged in technology- or knowledge-intensive projects, or with an investment of over US$30 million and on a long-term operation basis, or engaged in energy, transportation and harbor construction projects.

Corporate income tax rate of 15 percent applies to foreign-invested enterprises covered in the Encouraged category and Restricted Category B in the Catalogue for Guidance of Foreign Investment Industries.

Corporate income tax rate of 15 percent applies to productive foreign-invested enterprises in the Chongqing Economic and Technological Development Zone, Chongqing High and New Technology Industry Development Zone and Chongqing North New Zone. Foreign-invested high and new technology enterprises that have been operating for 10 years or more are exempt from the corporate income tax for two years following the enterprise's first profitable year.

Foreign-invested high and new technology enterprises in Chongqing High and New Technology Industry Development Zone - that still remain high and new technology enterprises after the tax exemption and tax reduction periods - can enjoy another three years of tax reduction during which income tax shall be halved. If the tax rate is lower than 10 percent after the reduction, the corporate income tax shall be 10 percent.

After expiration of tax reduction or exemption periods as regulated by the state, foreign-invested export enterprises can enjoy an income tax rate of 10 percent during the years when its exports output value [NOTE: PLEASE CHECK "EXPORTS OUTPUT VALUE"] account for over 70 percent of its total output value.

Construction projects of foreign-invested harbors and ports that have been operating for more than 15 years are exempt from corporate income tax from the first to the fifth year following their first profitable year, and the corporate income tax rate is halved from the sixth to the tenth year.

Recently established enterprises in Chongqing - in the fields of transportation, electricity, irrigation, postal services, broadcasting and television industry - are exempt from corporate income tax in the first two years and the tax is halved in the following three years.

Corporate income tax rate of 15 percent applies to foreign-invested financial institutions with an operational capital exceeding US$10 million - either by investment or appropriated by the head office - that have been operating for more than 10 years, and are exempt from corporate income tax for one year following the institution's first profitable year. Corporate income tax is halved from the second to the third year.

Corporate income tax rate of 10 percent applies to profits from dividends, interests, rents, royalties and other income in Chongqing of foreign enterprises without branches or sites in the Chinese territory, in addition to the income tax of enterprises with foreign investment.

Foreign-invested enterprises engaged in the development of agricultural science and technology and construction of eco-agriculture involving slopes and wasteland, are exempt from agricultural tax for five years following the first year that they are profitable.

Foreign-invested enterprises that develop special agricultural products in barren hills, slopes, barren lands and barren waters, are exempt from agricultural specialty tax for ten years following the first year that they are profitable.

Foreign-invested enterprises involved in agricultural development are entitled to a reduced income tax rate of 15 percent to 30 percent in the 10 years after the specified tax exemption period expires.

Foreign-invested enterprises that use undeveloped land with unascertained rights are exempt from agricultural tax for five years - or are exempt from agricultural specialty tax for eight years following the first year that it becomes profitable.

Foreign-invested projects covered in the Encouraged category and Restricted Category B in Catalogue for Guidance of Foreign Investment Industries, are exempt from tariffs and import VAT on self-used equipment within the total investment.

Foreign-invested agricultural enterprises are exempt from tariffs and import VAT on imported equipments for tillage, planting, breeding and processing, and on a reasonable amount of imported household articles and personal belongings by its foreign permanent personnel in China with permanent residence certificates.

Productive foreign-invested enterprises are exempt from local income tax, and non-productive foreign-invested enterprises that have been operating for more than 10 years are exempt from local income tax for two years following their first profitable year - and the income tax is halved from the third to the fifth year.

Land and real estate

Foreign-invested enterprises that cultivate state-owned barren hills, barren lands and wastelands for farming, forestry, animal husbandry, fishery production and quality agricultural products can acquire land-use rights by leasing land through auction.

Foreign investors who invest in agricultural development, power stations, airports, roads, bridges, ports, docks, water plants (excluding pipe networks), irrigation, urban sewage and garbage treatment and other infrastructures - and who have paid a land-use fee - are entitled to the lowest executable land price and may take 50 percent of the land revenue as unpaid debts which shall be cleared within six years following the date of approval.

Foreign-invested enterprises engaged in construction and operation of highways, ports and docks have priority to acquire land-use rights along highways for real estate development, service projects, and highway and waterway transportation.

The transfer fee for land-use rights of productive enterprises - established by a form of joint venture or cooperation from foreign-invested enterprises - can be injected into the company as state-owned shares.

Site use fees for foreign-invested enterprises that acquire land-use rights through administrative allocation shall be halved. Foreign-invested enterprises engaged in agriculture, forestry, animal husbandry and fishery production - as well as science and technology, education, healthcare, power stations, airports, roads, bridges, ports, docks, water plants (excluding pipe networks), irrigation, environmental protection and other infrastructure - are exempt from the site use fee.

Foreign-invested enterprises authorized to export their products - or technologically advanced enterprises - are exempt from the site use fee for three years from the date the land-use rights were acquired.

Foreign-invested enterprises that invest in ethnic-minority areas, or national or municipal poverty-stricken areas, are exempt from the site use fee.

Foreign-invested enterprises engaged in merger and transformation of bankrupt enterprises or enterprises in difficulty, are exempt from the registration fee for transferring house ownership and land-use rights.

Foreign-invested enterprises engaged in merger and transformation of bankrupt enterprises or enterprises in difficulty - and accepting full settlement of the enterprise's staff - are exempt from the land use fee.

Foreign exchange management and credit

Foreign-invested enterprises can open foreign exchange accounts under a bank dealing with foreign exchange businesses and other financial institutions.

A foreign legal or natural person may apply for a temporary foreign exchange account in order to build a foreign-invested enterprise.

The profits, dividends and bonuses of foreign investors of foreign-invested enterprises - and salaries for staff from Hong Kong, Macao and Taiwan and overseas, as well as other legitimate income - can be freely remitted.

The investment of RMB profits by foreign-invested enterprises shall be treated as foreign investment. The investment of RMB profits in China from the liquidation, equity transfer and other means shall also be treated as foreign investment.

Foreign-invested enterprises can obtain RMB loans from domestic Chinese banks through pledge of foreign exchange. Foreign-invested enterprises can also apply for RMB loans guaranteed by foreign banks from domestic Chinese banks.

Import and export

Foreign-invested enterprises engaged in the production of export products can establish bonded warehouses or bonded factories.

Inspection fees for imported equipment of foreign-invested enterprises are 50 percent of the national standards. The fees shall be cut off by 20 percent if the inspection costs exceed 5,000 yuan.

The appraisal fee of properties within the total amount of investment of foreign-invested enterprises shall be charged at a rate of 2.5 ‰ for properties worth between US$1 million and US$5 million; 2.0 ‰ for properties worth between US$5 million to US$10 million; and 1.0 ‰ for properties worth between US$10 million to US$100 million. The appraisal fee rate may be reduced by 20 percent should the one-time inspection cost more than 5,000 yuan.

Others

Foreign nationals working in foreign-invested enterprises in China can apply for a long-term residence permit.