TNAG-1621-FCO40-2235-Relations-between-Hong-Kong-and-China-1987 — Page 121

G.F. 326

CONFIDENTIAL # 3

9

14.

In respect of foreign investment, China has recently introduced a number of measures in an attempt to

solve the problems facing foreign investors. In July, the People's Bank of China announced that foreign enterprises

could enjoy the same status as state enterprises in seeking loans for equity and working capital purposes. In

October, a set of provisions to encourage foreign investment was put into effect. According to these provisions, foreign enterprises which are export-oriented or which possess advanced technology will be exempt from

paying to the state all subsidies to workers, except

contributions to labour insurance funds. Further, for

these enterprises, charges for water, electricity and

other amentities will be the same as those for state

enterprises. In respect of tax incentives, after the expiry of the initial five year period in which a reduction in or exemption from enterprise income tax is enjoyed in accordance with State provisions

ventures or wholly foreign owned firms whose exports exceed 70% of their output in subsequent years can have their tax rate halved (7).

For projects involving

(6)

joint

(6) Under these provisions, all types of joint ventures

and wholly foreign owned enterprises enjoy a tax holiday of two years. For the following three years, they are only required to pay 50% of the normal tax liability.

(7)

Enterprises in the Special Economic Zones and

Economic and Technological Development Zones that comply with the above-mentioned conditions will have

their income tax rate reduced from 15% to 10%.

CONFIDENTIAL ##