2.4.1 Industrial Policies

Chinese government's foreign investment-related industrial policies are embodied in the Provisions on Guiding the Orientation of Foreign Investment (Amended in 2004), according to which projects with foreign investment fall into 4 categories, namely encouraged, permitted, restricted and prohibited ones. The projects with foreign investment that are encouraged, restricted and prohibited are listed in the Catalogue for the Guidance of Foreign Investment Industries. And those that don't fall into the categories of encouraged, restricted or prohibited projects are the permitted projects with foreign investment, which are not listed in the Catalogue for the Guidance of Foreign Investment Industries. Foreign investment projects falling into the encouraged and the restricted category in the Catalogue and involving technology transfer, imported equipment for self-use within the aggregate investment, excluding commodities listed in the Catalogue of Import Commodities for Foreign Investment Projects with no Tax Exemption, are exempted from the tariffs and import value-added tax. With respect to encouraged Foreign Investment Projects, the preferential treatment specified in the relevant laws and administrative regulations are offered. For those who engage in the construction or operation of a project involving energy, transportation and urban infrastructure (including coal, petroleum, natural gas, power, rails, roads, harbors, airports, urban roads, wastewater treatment, garbage disposal, etc..), wherein a large investment is made and a long term is required for recouping the capital outlay, the business scope thereof may also be expanded to cover the related items subject to approval. In 1999, with the implementation of China's Western Development Strategy, to encourage domestic and foreign enterprises to invest in the region, relevant government departments promulgated the Catalogue of Advantaged Industries for Foreign Investment in the Central-Western Region. The newly amended Catalogue of Advantaged Industries for Foreign Investment in the Central-Western Region was promulgated in 2013. Foreign-invested projects falling within the Catalogue herein may enjoy the preferential policies for foreign-invested projects under the encouraged category. As for the above two Catalogues, please refer to Part III of this guide.

According to the Announcement of State Administration of Taxation on Issues of Enterprise Income Tax Concerning In-depth Implementation of Western Development Strategy, for enterprises established in western China whose main business fall within the scope prescribed in the Catalogue of Encouraged Industries in Western China and which derive 70 percent or more of its total revenue from its main business, a reduced 15% enterprise income tax (EIT) rate shall be applied upon approval by the tax authority in charge, effective from 1 January 2011 to December 31, 2020.

(1) In accordance with the Provisions on Guiding the Orientation of Foreign Investment, those foreign investment projects under any of the following circumstances shall be listed as the encouraged projects :

A. Projects for new agricultural technology, comprehensive agricultural development, and for energy, transportation and key raw materials industries;
B. Projects for high and new technology, advanced applicable technology which can improve the product performance and increase the technology economic efficiency of the enterprises or produce new equipments and new material which the domestic production capacity fails to produce;
C. Projects which meet the market demands, improve the product quality, develop new markets or strengthen the international competitive capacity of the products;
D. Projects adopting new technologies and new equipments that can save energy and raw materials, comprehensively utilize resources and regenerate resources, and prevent environment pollutions;
E. Projects giving full play to manpower and resource advantages in the central- western region of the country and conforming to national industrial policies;
F. Other cases that are regulated by laws and administrative regulations.

(2) Foreign investment projects under any of the following circumstances shall be listed as the restricted projects:
A. Projects adopting backward technologies;
B. Projects adverse to saving resources and improving environment;
C. Projects for prospection and exploitation of the specific type of mineral resources to which the state applies protective exploitation;
D. Projects falling into the industries that the state opens step by step;
E. Other cases that are regulated by laws and administrative regulations.

(3) Those foreign investment projects under any of the following circumstances shall be listed as the prohibited projects:
A. Projects harming the state safety or impairing the social and public interests;
B. Projects polluting the environment, damaging natural resources or harming human health;
C. Projects occupying large amounts of arable land and being adverse to the protection and development of land resources;
D. Projects harming the safety and performance of military facilities;
E. Projects using the particular craftsmanship or technologies of China to produce products;
F. Other cases that are regulated by laws and administrative regulations.

(4) The projects with foreign investment that don't fall into the above three categories shall be the permitted projects.

(5) The permitted projects with foreign investment of which the products are all directly exported shall be regarded as the encouraged projects; the restricted projects with foreign investment of which the export sales accounts for more than 70% of their total amount of sales shall be regarded as the permitted projects upon the approval of the people's governments of provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the state plan or the competent department under the State Council.

(6) The conditions can be eased for the permitted and restricted projects with foreign investment that really can bring the advantages of the central-western region into full play; among them, those listed in the Catalogue of Advantaged Industries for Foreign Investment in the Central-Western Region can enjoy the preferential policies for the encouraged projects with foreign investment.

2.4.2 Regional Policies

Since the reform and opening up, China has adopted a holistic strategy of proceeding in an orderly and step-by-step way from the coastal region to inland cities. Currently, the main economic areas are as follows:

China (Shanghai) Pilot Free Trade Zone: In order to promote the development of China (Shanghai) Pilot Free Trade Zone, the State Council and the Ministry of Culture, Ministry of Communications, China Securities Regulatory Commission, China Banking Regulatory Commission and other relevant departments have introduced relevant policies.

Special Economic Zones: Shenzhen, Zhuhai, Xiamen, Shantou, Hainan Island,Kashgar. SEZ is special economic zones which China adopts special policies and flexible measures to attract external funding, especially foreign funds for development and construction. In order to promote the development of SEZ, the state and the provinces which the special zones locate have provided preferential policies in funding, taxes, etc.

State-level New Area: Shanghai Pudong New Area, Tianjin Binhai New Area, Chongqing Liangjiang New Area, ZhouShan Islands New Area, Gansu Lanzhou New Area, Guangdong Nansha New Area, Zhengzhou Zhengdong New Area. The state-level new areas have features as the new national reform pilot areas and the new industrial areas. To speed up the development of corresponding area, and promote the development of the surrounding areas, China has provided greater support concerning policy and funding.

State-level Economic & Technological Development Zone, Border Economic Cooperation Zone, High-Tech Industrial Development Zone: By the end of 2013, there were a total of 210 state-level economic and technological development zones, 15 border economic cooperation zones and 105 national high-tech industrial development zones, being located in the provinces, municipalities and autonomous regions. The relevant policies like the Opinions on Promoting the Further Development of State- level Economic and Technological Development Zones ratified by the State Council and Management Methods on Financial Discount Interest Funds for Infrastructure Construction Loans in the State-level Economic & Technological Development Zones in Central and Western Regions published by the Ministry of Finance have provided support from the land planning, infrastructure facilities, project approval, financial policy, introduction of talents, etc.

The western development policies ： in accordance with the strategy of developing China's western region, investment including that from abroad is encouraged to put into inland China in the central and western region. Policies and measures relevant to the foreign investment are:

(1) Projects included in the Catalogue of Advantaged Industries for Foreign Investment in the Central-Western Region shall enjoy the same policies as encouraged projects.
(2) With regard to foreign businessmen investing in infrastructure and advantaged industry projects in the western region, the limit of the proportion of foreign investment shall be appropriately eased.
(3) Foreign businessmen are encouraged to invest in the western region in infrastructure construction and resource development like agriculture, water conservancy, ecology, transportation, energy, municipal works, environment protection, mineral resources, tourism, etc., and to establish technology research and development centers.
(4) Service and trade sectors of the western region opened to the outside world are expanded: the pilot projects of foreign investment in banks are extended to municipalities directly under the Central Government, capital cities of provinces and autonomous regions; banks with foreign investment of the western region are allowed to run RMB business step by step; foreign businessmen are allowed to invest in the western region in telecommunications, insurance, tourism, and to set up Chinese-foreign equity joint accounting firms, law firms, municipal public enterprises, and other enterprises of areas promised to open; experimental units of some fields opening to the outside are allowed to start in the western region before in other places.
(5) Channels of using foreign investment are expanded: BOT and TOT trials are permitted in the western region for foreign investors; foreign-invested projects are permitted to launch project financing which includes RMB; qualified foreign- invested enterprises in the west region are supported to list in domestic and overseas stock markets; enterprises of industries encouraged and permitted by the state in the western region are supported to attract foreign investment by transferring managerial authority, selling stock equity, merger and reorganization, etc..; ways of Chinese-foreign equity joint industry funds and risk investment funds are actively explored to attract foreign investment.
(6) The established enterprises with foreign investment in China are encouraged to reinvest in the western region; and reinvestment projects of which the foreign investment exceeds 25% shall enjoy the treatment of enterprises with foreign investment.

2.4.3 Tax Policies

1. Major Taxes

Taxes applied to foreign-invested enterprises, foreign enterprises and foreign individuals (including compatriots from Hong Kong, Macao and Taiwan) in China are: corporate income tax, individual income tax, turnover taxes (including value-added tax, consumption tax, and business tax), land value-added tax, stamp duty, vehicle and vessel usage license plate tax, urban real estate tax, etc.. Import and export goods shall pay tariff and import value- added tax in accordance with Customs' tariff regulations and relevant provisions.

(1) Enterprise Income Tax: Since the January of 2008, foreign-invested enterprises or foreign enterprises which have set up institutions or sites in China to engage in production or business operations shall pay corporate income tax in accordance with the amount of taxable income, and the tax is levied at the average rate of 25 percent; however, foreign enterprises that have not set up institutions or sites, in China but have gained profits(dividends), interest, rent, royalty, and other income from Chinese territory shall pay 20 percent income tax.

(2) Value-Added Tax: All entities and individuals engaged in selling goods or providing processing, repairs, replacement, labor services and the imported goods within the territory of the People's Republic of China are taxpayers of Value-Added Tax. The basic tax rate of VAT shall be 17% (for grain, edible vegetable oils, tap water, books, newspapers, magazines, feeds, chemical fertilizers, pesticides, agricultural machinery and some other goods, the tax rate shall be 13%).
In 2011, the Ministry of Finance, State Administration of Taxation jointly issued the pilot plan of levying value added tax in lieu of business tax. It prescribed that on top of the original VAT rates at 17% and 13%, two new rates at 11% and 6% were added. The VAT tax rate is 17% for the tangible property leasing services industry, 11% for the transportation industry and construction industry, and 6% in the remaining modern service industries.

(3) Business Tax: All entities and individuals engaged in providing transportation and communications, posts and telecommunications, finance and insurance, construction, culture and sports, entertainment, services, the transfer of intangible assets or selling immovable properties within the territory of the People's Republic of China are taxpayers of Business Tax. There are 3 different tax rates of Business Tax, from the lowest 3% (such as transportation and communications fee) to the highest 20% (such as entertainment).

In 2011, approved by the State Council, the Ministry of Finance and the State Administration of Taxation jointly issued the scheme on carrying out the pilot practice of levying value added tax in lieu of business tax on the transportation industry and some modern service industries in Shanghai since 1 January 2012. Till August 1, 2013, the pilot practice of “levying value added tax in lieu of business tax” had been promoted to the whole country.

(4) Stamp Duty: All entities and individuals engaged in the procession of purchase and sale, processing, contracting, property leasing, goods transportation, warehousing, loans, property insurance, technological contract, as well as documents for transfer of property rights, business account books, and certificate of authorization within the territory of the People's Republic of China shall pay Stamp Duty in accordance with regulations. The lowest tax rate of Stamp Duty is 0.05%o, and the highest is 1%o. Each certificate of authorization and business account book (excluding account book that records capital) must paste a stamp for 5 Yuan.

(5) Import and Export Tariff: At present, the average import tariff rate of China is 9.8%. Except for several important resource commodities, China imposes no export tariff on other commodities.

(6) Consumption Tax: All entities and individuals engaged in production, commissioned processing or import of consumer goods like tobacco, alcoholic drinks, alcohol, cosmetics, skin-care and hair-care products, precious jewelry and jade, firecrackers, fireworks, gasoline, diesel, automobile tires, motorcycles, and motor cars, within the territory of the People's Republic of China are taxpayers of Consumption Tax. There are 14 taxable items and 14 types of tax rates (tax amounts) of Consumption Tax, from the lowest 3% to the highest 45%. The computation of tax payable for Consumption Tax shall either determine the quota by the amount or fix the rate by the price.

(7) Deed Tax: All entities and individuals as the acceptors of the transfer of land or housing ownership within the territory of the People's Republic of China are taxpayers of Deed Tax. The transferring of land and housing ownership refers to: Remising national land-use rights, excluding the transferring of management rights of rural collective land contracting; Transferring of land-use rights, including selling, gifting and exchanging; House buying and selling; House gifting; House exchanging. The rate of Deed Tax ranges from 3% to 5%.

(8) Urban Real Estate Tax: The house property owned by foreign-invested enterprises or foreigners shall pay Urban Real Estate Tax. The computation shall follow either with the original value of house property after a one-off deduction of 10%-30%, and the annual tax rate is 1.2%; or with the rent of house property, and the tax rate is 12%. Urban Real Estate Tax takes one year as a unit, and is paid by stages.

(9) Vehicle and Vessel Tax: Vehicles and vessels owned by foreign-invested enterprises shall pay Vehicle and Vessel Tax in accordance with the Vehicle and Vessel Tax Law of the People's Republic of China and Schedule of Vehicle and Vessel Tax Items and Amounts.

(10) Individual Income Tax: An individual, who has a domicile within the territory of China or who has no domicile but has stayed within the territory of China for one year or more, shall pay individual income tax for his income obtained in and/or outside the territory of China according to the Law of the People's Republic of China on Individual Income Tax and its implementation regulations.

In accordance with the Regulations for the Implementation of the Individual Income Tax Law of the People's Republic of China, "an individual having domicile in China" refers to any individual habitually residing within the territory of China on account of family register, family ties or economic interests. In the case that an individual has no domicile but has resided within the territory of China for a period ranging from one year to five years and with income obtained outside the territory of China , upon approval by the tax authorities, he shall pay individual income tax on the part paid by companies, enterprises and other economic institutions or individuals established in China; and in the case of having resided in China for more than five years, he shall pay individual income tax on all of the income from overseas sources beginning from the sixth year. An individual, who has no domicile and does not stay within the territory of China or who has no domicile but has stayed within the territory of China for less than one year, shall pay individual income tax for his income obtained within the territory of China according to the provisions of this Law. An individual, who has no domicile within the territory of China but has resided in China for less than 90 days at a stretch or intermittently within a tax year, shall be exempted from individual income tax on that portion of income obtained in China but paid by an overseas employer and not borne by the institutions and other establishments in China of the overseas employer.

The income of wages and salaries obtained within the territory of China is subject to individual income tax. The progressive tax rate in excess of the specific amount is applicable to individual income tax and the rate ranges from the lowest 3 percent to the highest 45 percent. For the income of wages and salaries, the taxable income amount shall be the balance after deducting 3,500 Yuan from the monthly income. For a taxpayer who has no domicile within the territory of China but has obtained wage and salary income within the territory of China, or a taxpayer who has a domicile within the territory of China but has obtained wage and salary income abroad, an additional deduction of 1300 yuan for expenses can be determined in light of his average income level, living standards and the change of exchange rates. The scope and the standard for the additional deduction for expenses shall be formulated by the State Council.

Individual income from remuneration for labor services, income from remuneration for manuscripts, income from the use of royalties, and income of interests, dividends and bonuses shall be subject to individual income tax. For the income from remuneration for manuscripts, the flat tax rate is applicable and the tax rate is 20 percent, and a 30 percent tax deduction shall be applied to the amount of tax payable.

For the income from remuneration for labor services, the flat tax rate is applicable and the tax rate is 20 percent. The excessively high income refers to a single payment of remuneration for labor service with a taxable income higher than 20,000 yuan. The part of taxable income in excess of 20,000 to 50,000 yuan shall be levied an additional income tax of 50% in addition to the proper tax payable calculated according to the Tax Law, and the part in excess of 50,000 yuan shall be subject to an additional tax rate of 100%.

For the income from royalties, income from interests, dividends and bonuses, income from the lease of properties, income from the transfer of properties, occasional income and other incomes, the flat tax rate is applicable and the tax rate is 20 percent.

For the income from remuneration for labor services, the income from remuneration for manuscripts, the income from royalties and the income from the lease of properties, the taxable income amount shall be the balance after deducting 800 yuan if a single payment does not exceed 4,000 yuan, and be the balance after deducting 20 percent of expenses if a single payment exceeds 4,000 yuan.

For a taxpayer who has obtained incomes outside the territory of China, the amount of individual income tax already paid outside China can be deducted from the payable tax amount. Nevertheless, the deducted amount cannot exceed the payable tax amount for the taxpayer's incomes from abroad as calculated according to the provisions of this Law.

2. Preferential Tax Policies

Since the January of 2008, the Chinese government has started implementing the new Enterprise Income Tax Law, unifying the preferential tax policies and adopting a new tax preference regime which takes industrial preference as principal and regional preference as supplementary.
For enterprises engaged in industries of high and new technology, infrastructure, agriculture, forestry, animal husbandry and fishery, environmental protection, safety production, etc.. , preferential tax policies are implemented, including those policies mentioned below: High-tech enterprises shall enjoy the preferential tax rate of 15%; small thin-profit enterprises shall enjoy the preferential tax rate of 20%; foreign-invested enterprises located in the western region that are engaged in the encouraged industries of the state shall enjoy the preferential tax rate of 15%; for the incomes generated from investment in and business operations of the important public infrastructure projects supported by the State, from the tax year they obtain their first income of production and operation, enterprises shall enjoy the treatment of three-year tax reduction and two-year tax exemption; enterprises engaged in agriculture, forestry, animal husbandry and fishery industries can enjoy the reduction of or exemption from corporate income tax; enterprises' equipment procurement and investment in environmental protection, energy and water conservation and safe production, can be deducted from the taxable income; enterprises' expenditures for research and development shall enjoy an additional deduction of 50% of the R & D expenditures in accordance with the provisions on the basis of the actual deductions, whereas intangible assets have been capitalized, they shall be amortized at 150% of the cost of the intangible assets; the portion of taxable income not exceeding 5 million yuan earned by an enterprise from technological transfer in a tax year shall be exempted from corporate income tax, and the portion in excess of 5 million yuan shall be taxed at a 50% reduced rate; the newly established high-tech enterprises in the five Special Economic Zones and Shanghai Pudong New Area shall, from the tax year they obtain their first income of production and operation, enjoy the three-year tax reduction and two-year tax exemption treatment; venture investment enterprises engaging in venture investments may deduct a certain proportion of the investment from the taxable income. If an enterprise has already been set up and enjoyed low tax rates upon approval before the promulgation of the present Law, it can gradually transfer to the tax rate as prescribed in the present Law within five years as of the promulgation of the present Law; if an enterprise enjoys the preferential treatment of tax exemption for a fixed term, after the promulgation of the new Law, it can continue to enjoy such treatment until the fixed term expires.

In the Framework Plan for the China (Shanghai) Pilot Free Trade Zone issued by the State Council in 2013 it is prescribes that: (1) Implement tax policies to boost investment. For enterprises or individual shareholders registered in the China (Shanghai) Pilot Free Trade Zone that carry out investment using non-monetary assets, the income tax payable due to the increase in asset valuation can be paid by installments within a five-year period. Where enterprises within the China (Shanghai) Pilot Free Trade Zone award highly-skilled employees or employees in short supply by means of shares or capital contributions, the relevant individual income tax may be paid by installments as same as the policies piloted in Zhongguancun. (2) Implement tax policies to promote trade. Financial leasing companies registered or project companies set up by financial leasing companies with registration in the China (Shanghai) Pilot Free Trade Zone may enjoy the pilot policies of export tax refund for qualified financial leasing business. A domestic leasing company registered or its project companies with registration in the Pilot Free Trade Zone may enjoy reduced import VAT on an aircraft with empty weight no less than 25 tons, provided that such aircraft is to be leased to a domestic airline with approval from competent authorities. Import VAT and consumption taxes will be applicable in accordance with relevant laws and regulations, on the products manufactured or processed by a company within the China (Shanghai) Pilot Free Trade Zone but sold to the Mainland China outside of the China (Shanghai) Pilot Free Trade Zone. Enterprises will be provided with the option of calculating import duty according to the duty rates applicable to the finished goods or the imported parts. Currently, the imported machines, equipment and other goods required by manufacturing enterprises as well as manufacturing service companies that are set up in the China (Shanghai) Pilot Free Trade Zone, may be exempt from import taxes, other than those imported by consumer services companies or those which cannot enjoy import taxes exemption as stipulated in laws and regulations. Tax refund policies on the port-of-departure will be improved, and the expansion on pilot scope (e.g. departure ports, carriers and means of transport) will be studied.

2.4.4 Finance and Foreign Exchange Management

Currently the finance organizations in China are in a pattern that state-owned commercial banks dominate with diverse financial institutions developing side by side. The government is enforcing a system of separate operation and separate supervision and regulation of respective industries such as banks, securities, insurance and trust. The state is enforcing its supervision and regulation on the financial market through the monetary control and management measures of the Central Bank. China establishes a managed floating exchange rate regime based on market demand and supply with reference to a basket of currencies. Strict management is still enforced upon RMB free exchange under current account and foreign exchange under capital account. The revenue and spending of the foreign exchange has adopted an exchange settlement and sales system of the bank to conduct cancel after verification for the import and export.

Foreign Exchange Registration: Foreign-invested enterprises shall take a copy of the Certificate of Approval of Foreign-Invested Enterprise and that of the Business License, within 30 days after the issuing of the Business License, to the foreign exchange administration to take the Foreign Exchange Certificate of Foreign-Invested Enterprises and fill the Form of Basic Information of the Foreign-Invested Enterprise, with which to open an account in the designated bank for foreign exchange. To open an account in a different place or abroad, an approval should be acquired from local foreign exchange administration first.

The Exchange Settlement and Sales System of the Bank: The income of foreign exchange of an enterprise should open an account in the designated foreign exchange bank or sell to it; and the payment in foreign exchange by the enterprise should, with valid proof or upon approval of the foreign exchange administration, be paid with by its foreign exchange account or transacted in the designated foreign exchanged bank. All cases of purchase and sales of foreign exchange in places other than where are authorized by the state are illegal.

Free Exchange of RMB under current account: Institutions within the Chinese territory (including foreign-invested enterprises), when in need of foreign exchange under current account, with valid proofs, shall buy foreign exchange with RMB from the designated bank for foreign exchange or pay with their foreign exchange accounts. Advance payment and commissions, when exceeding certain proportion or amount, can get converted into foreign currencies at designated banks upon approval of the authenticity by the foreign exchange administration.

Government's Management of Balance of Income and Payment of Foreign Exchanges Under Capital Account: first, foreign exchange income under current account must be transferred back except for stipulations of the State Council otherwise; second, foreign exchange income under capital account must be kept at special foreign exchange account opened in designed banks; approval of the foreign exchange administration is required if it is sold to designated banks; third, purchase or payment of foreign exchange under capital account must, upon approval of the administration of foreign exchange, get converted into foreign currencies at designated banks upon presentation of the approval.

External Debt Management: The Chinese government adopts the system of registration upon external debt. Foreign-invested enterprises can directly borrow foreign capital from banks or enterprises outside the Chinese territory, but the accumulated medium and long-term debt from abroad cannot exceed the difference between the total investment and registered capital as stipulated in the contract or agreement. Enterprises must, after signing the contract of loan, register the external debt in the administration on a regular or case-by-case basis timely. The enterprises must use the foreign capital after approval and give feedback to the administration after actually using the foreign capital. All payment of the loan or the interest should get the approval of the administration (except for the bank).

Report of Foreign Exchange Balance: The report is in a term of a half-year. The first half-year report with textual description must be submitted to relevant departments before July 10th of the year and the second half-year report before March 10th of the next year.

Year-End Financial Statement: The year-end financial statement of the previous year must be submitted to relevant departments before March 31 and an audit report by certified public accountants registered in the People's Republic of China must be attached.

2.4.5 Purchase of the Land Use Right

In China, urban land is state property. Land in rural and suburban areas are collective property except those legalized as state property. The state has the right to implement a practice of land use purchase in addition to grant state-owned land use right in accordance with the law. Foreign-invested enterprises are permitted to purchase the land use right for a certain period.

As stated in the Land Administration Law of the People's Republic of China and the Interim Regulations of the People's Republic of China Concerning the Assignment and Transfer of the Right to the Use of State-owned Land in Urban Areas, the purchase of the land use right indicates the practice of local governments allowing the state-owned land to be developed and operated under the conditions of land size, term for land use and functions by the assignee after paying the land use right granting fee and the rent. The transfer of the land use right indicates the practice of the assignee's subleasing the land use right. During the time of such transferring practice, the land remains the state property. The purchase of the land use right excludes all the underground natural resources, buried and hidden properties.

Foreign-invested enterprises acquire the land use right through requested application procedures and fulfillment of payment. The land use right can be purchased by one of the three means: contract, bidding and auction. Any land purchased by such means can be transferred, subleased and secured as agreed in the contract on condition that all the required application, permission, registration and taxation are completed by the competent authorities according to the law.

The current regulation prescribes a maximum land use duration of 70 year for residential purpose; 50 years for industry, education, technology, culture, hygiene and sports; 40 years for commerce, tourism and entertainment; and 50 years for a comprehensive functions or other uses. When the land use right expires, the assignee can apply for renewal except that it is otherwise conditioned in the contract or it is in conflict with the city planning. Foreign-invested enterprises can also legally obtain land use right through methods such as transfer and lease.

2.4.6 Employee Recruitment, Salary, Insurance, Welfare and the Working Hour System

Employee Recruitment: As stated in the Labor Law of the People's Republic of China and other relevant laws and regulations, foreign-invested enterprises have the right to decide for their company structures and staffing as necessary for their production and operation. They also have the right to recruit their own employees in a variety of channels, including entrusting the talent market and intermediaries recognized by the local labor department; direct recruitment through various human resource exchanges; and publishing or broadcasting Recruitment Advertising (Notices) on various media. The recruitment of employees from foreign countries, Hong Kong, Taiwan and Macao shall be approved by the local labor department; and related procedures like the employment permits shall be carried out in accordance with relevant regulations of the state.
Salary: In accordance with the provisions the Labor Law of the People's Republic of China, the distribution of wages shall follow the principle of distribution according to work and equal pay for equal work. Foreign-invested enterprises shall be in line with the national and local minimum salary standards. The increase of the average salary of the employees is based on the development of the enterprise. Based on the company's annual return, labor productivity, as well as the local urban consumer price index and wage guidelines, the payroll are determined by the board of directors or through collective negotiation of the enterprise.

Insurance and Welfare: Foreign-invested enterprises are supposed to participate in the social insurance systems of pension, unemployment, medical care, work injury and childbirth through regular and adequate payment to the insurance agencies in accordance with the standards prescribed by the local government as required by relevant regulations. Insurance premiums should be expensed in accordance with state regulations. And also employees should pay the required amount for their pension, medical care and unemployment insurances in accordance with relevant regulations. In addition to the insurances above, there are other welfare like housing fund, professional training, stipends and statutory holidays.

Working Hour System: Foreign-invested enterprises implement China's current working hour system— no more than 8 hours per day and on average no more than 40 hours per week. Upon approval by the labor department, if the enterprises cannot operate on the standard working hours due to the characteristics of their production, the enterprises can operate on a non-standard working hour system, e.g. irregular working hours and comprehensive working hours scheme.