TNAG-1458-FCO40-1982-Relations-between-Hong-Kong-and-China-1986 — Page 14

enterprises and which cannot be readily obtained in China.

(3) Foreign investors who set up technology-and knowledge-intensive production projects, energy and communication projects or projects involving an investment of more than US $30 million, will pay only 15 per cent income tax. Other foreign investors whose projects do not qualify them for this rate of income tax may qualify for a reduction of the normal income tax if their projects fall into certain other categories. The 15 per cent rate of income tax is applicable to all foreign investors who establish enterprises in the economic and technological development zones developed outside of the old urban districts as provided for in the coastal cities policy.

(4) Customs duties and import taxes are exempted on production and management equipment and building materials imported by joint ventures, cooperative enterprises and wholly-owned foreign enterprises.

DIFFERENCES BETWEEN THE COASTAL CITIES AND THE SEZS

20.

The 14 cities are different in character to the 4 SEZs. With the exception of Xiamen, the towns upon which the latter were based were undeveloped, while the 14 cities are better prepared to accept foreign investment. The 14 cities, all of which were formerly treaty ports, produced 23 per cent of China's industrial output value and accounted for 40 per cent of Chinese exports in 1984. Their labour productivity is 66 per cent higher than China's average. This difference is reflected in the terms offered to foreign investors by the SEZs and the open cities. The two main differences are:

(1) In the SEZs, foreign investors may invest in a wide range of activities, from industry to tourism, and from agriculture to property development. In the coastal cities foreign investment is encouraged particularly in new industrial developments and in updating existing industrial enterprises;

(2) In the SEZS, all foreign investors and enterprises pay 15 per cent income tax. In the coastal cities, only productive enterprises enjoy this preferential tax treatment. In the SEZS, customs duties are exempted from imported capital goods and consumer goods whereas in the coastal cities only imported capital goods are exempted.

OTHER SPECIAL ZONES

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21. In 1985 3 open coastal regions were set up: in the Yangtze Delta (area 50,000 sq km), the Pearl River Delta (11,000 sq km) and in south Fujian Province (covering the cities of Zhangzhou, Quanzhou and Xiamen). These are to be foreign trade orientated, gearing their economies, especially the agricultural sector, to meet foreign demand. Other open coastal regions are planned for the Liaodong_and Shandong peninsulas, thus eventually forming a continuous coastal belt from Dalian in the north to Beihai in the south.

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