IMPLEMENTING PROVISIONS FOR ENCOURAGING FOREIGN
INVESTMENT IN GUANGDONG PROVINCE

(promulgated by the People's Government of
Guangdong province on April 26, 1987 and
went into effect on the same day)

 

SUBJECT: ENTERPRISES WITH FOREIGN INVESTMENT

ISSUING-DEPT: GUANGDONG PROVINCE

ISSUE-DATE: 04/26/1987

IMPLEMENT-DATE: 04/26/1987

LENGTH: 3977 words

TEXT:

[Article 1] In accordance with the "Provisions of the State Council of the People's Republic of China for the Encouragement of Foreign Investment" and the actual conditions due to the implementation of special policies and measures by the province, the following provisions are formulated so that foreign investment enterprises can be more efficiently run in Guangdong province.

[Article 2] The foreign investment enterprise/enterprises referred to in this set of provisions include Sino-foreign equity joint venture enterprises, Sino-foreign non-equity joint venture enterprises and wholly foreign-owned enterprises that conform to the relevant regulations of the State Council.

[Article 3] Such matters as project negotiations, and signing and execution of contracts for projects involving foreign investment as well as those dealing with consultancy and complaints for foreign investments shall be under the purview of the foreign economic relations and trade commissions (bureaux) of respective levels and which are in charge of that particular line of trades.

On the other hand, matters concerning the production, management and administration of foreign investment enterprises shall be under the purview of the respective functionary government departments at various levels and which are in charge of that particular line of trades.0 Each department shall redouble its efforts to provde guidance, service, coordination and supervision to foreign investment enterprises belonging to the same line of trades that the departments are in charge of.0 For individual foreign investment enterprises, their direct superior departments in charge shall be even more concerned with the specific responsibility of seeing the realization of such mandates and taking the necessary steps to solve the actual production and management problems affecting the enterprises.

[Article 4] Efficiency on project examination and approval shall be improved.0 The examination and approval organs shall, on the basis of the authority already invested in them, process applications submitted by foreign investment enterprises.0 Project proposals, feasibility study reports, contracts and articles of association shall be examined and approved (or disapproved) within 30 days and the approval certificates shall be issued within 10 days.

The foreign economic relations and trade commissions at the municipal level and the prefectural level shall be the authorities to examine and approve applications of export oriented enterprises and technologically advanced enterprises and enterprises at the municipal or prefectural levels.0 Foreign investment enterprises at the provincial level shall be examined by the department in charge at the provincial level and the result shall be reported to the foreign economic relations and trade commission at the provincial level which is authorized to issue the approval certificates.0 Foreign investment enterprises in special economic zones, economic and technological development zones, cities whose development is incorporated in the annual State plans and the Hainan Administrative District shall be examined and approved by the departments in charge in their localities.0 After approval, the departments in charge shall report to the foreign economic relations and trade commission at the provincial level for the record.0 However, for those enterprises in the special economic zones and economic and technological development zones their approvals shall also be reported to the Provincial Special Economic Zone Office for the record.

[Article 5] Government offices and departments in charge at all levels shall guarantee foreign investment enterprises their autonomy in managing and administering their operations using international and scientific management methods.

Subject to the scope prescribed in the approved agreement (contract), foreign investment enterprises shall enjoy their autonomy in the financing and application of capital, production planning, materials purchase and products marketing.

Except those products whose prices and fixed by the State in a unified way, foreign investment enterprises shall enjoy their autonomy in the price-setting of products that they are allowed to sell in the domestic markets.

Subject to the relevant regulations, foreign investment enterprises shall enjoy their autonomy in the recruiting, appointment and removal, rewarding and dismissal of staff and workers.0 Foreign investment enterprises also enjoy autonomy in determining the standards and forms of wages for their employees and their bonus and subsidy system.0 Foreign investment enterprises are exempted from paying the bonus tax.

[Article 6] The foreign investment enterprise's board of directors and company management system must be brought into full play, and any disagreement between the partners of a foreign investment enterprise shall be correctly handled with reference to the "Regulations for the Implementation of the Law of the People's Republic of China on Joint Ventures Using Chinese and Foreign Investment".0 Any important matters on production and management of a foreign investment enterprise as well as its personnel arrangement shall be discussed and decided by its board of directors.0 Both Chinese and foreign managerial personnel shall enjoy autonomy in executing their authority as stated in the articles of association of the enterprise.0 The various local administrative organizations shall guarantee such autonomy.

[Article 7] The economic efficiency and standards of financial management of foreign investment enterprises must be improved.0 Financial and tax departments at all levels shall encourage and assist registered and operating foreign investment enterprises to build their own complete accounting and financial systems and to submit their accounting reports to the relevant departments promptly.0 Overseas branches of a foreign investment enterprise in China shall report their financial income and expenditure to their parent company without delay and the parent company shall take the responsibility of overseeing the financial conditions of its overseas branches.

Financial departments at all levels shall supervise those public accounting agencies so that they will strengthen their work in auditing and checking the accounts of foreign investment enterprises.0 In addition, financial departments shall at appropriate intervals check whether partners to a foreign investment enterprise have contributed their capital in line with the relevant regulations of the State and the agreement (contract) between them.0 In case a violations is found, the departments shall set a specific time limit for the enterprise to take the necessary actions and solve the problems.

[Article 8] All departments in the province shall at once sort out and clear up all fees and charges levied on foreign investment enterprises according to the spirit of Document No 49 issued by the State Council (1986) and Document No 126 issued by the Guangdong provincial government (1986), Any fees and charges that are not in line with the spirit of the two documents shall be cancelled.0 Foreign investment enterprises have the right to refuse to pay any unreasonable fees or charges and appeal to the foreign economic relations and trade commissions (bureaux).

[Article 9] Foreign investment enterprises can export their products independently or entrust the foreign trade corporations which are authorized to do export businesses to export their products on a consignment or commission agency basis.0 Under such circumstances, the foreign investment enterprises enjoy full ownership of the foreign exchange income that is earned through their exports but shall also take full responsibility of their own profits and losses.0 They may sell their products to the foreign trade corporations and settle their accounts with the latter in local (Chinese) currency.0 Under this arrangement, the distribution of foreign exchange earnings between the foreign trade corporation and the foreign investment enterprise concerned shall entitle the latter to be treated as a Chinese enterprise.0 Foreign investment enterprise may accept processing and purchasing orders from Chinese foreign trade departments so as to expand their lines of export products.0 They may also accept orders from other producers to process or assemble imported materials and parts into products for export, given the advantage they enjoy in the areas of production conditions and marketing channels.

For individual foreign investment enterprises, their superior departments in charge shall, when these enterprises export their products, check the exports and submit a report to the local foreign economic relations and trade commission (bureau) and to the provincial foreign economic relations and trade commission for the record.0 The latter is responsible for administering the overall provincial foreign trade policies and export trade guidelines.

[Article 10] Foreign investment enterprises that are to apply for export licenses for exporting their products shall apply for their export licenses every six months according to the annual export plans included in their signed agreements (contracts).0 However, enterprises whose contracts are signed before institution of the export license system can export their products according to their original agreements (contracts).0 After promulgation of these provisions, enterprises which produce products that are under export license control or export quota restrictions shall be subject to approval by the provincial foreign economic relations and trade commission before the signing of the relevant agreements (contracts).

Subject to approval by the provincial foreign economic relations and trade commission, foreign investment enterprises shall enjoy priority in the allocation of export quotas provided the products they produce are apparently superior in terms of both quality and grades compared with similar products made by Chinese enterprises and they can help in boosting the export prices and earn more foreign exchange income for the State.

[Article 11] Chinese corporations authorized to do import and export businesses and producers which are engaged in both manufacture and 1/E businesses are encouraged to cooperate with foreign investment enterprises.0 These Chinese entities may enter into partnership with foreign investment enterprises or buy shares issued by operating foreign investment enterprises.0 Under such circumstances, these Chinese entities are entitled to the incentive that allows them to use the foreign exchange income thus earned through their investment to meet the export earnings quotas that they are assigned with.

[Article 12] Foreign investment enterprises are allowed to set up their own raw materials production bases in China.0 They can form cross-region cooperative production bases with other Chinese enterprises.0 They may settle their accounts partly in local (Chinese) currency and partly in foreign exchange with the suppliers.0 The foreign exchange thus paid shall be treated as production costs in foreign currency of the foreign investment enterprises.

[Article 13] Production acceptable as import-substitutes shall be encouraged.0 Chinese enterprise shall buy from foreign investment enterpirse if the latter's products have satisfied the following requirements: i) That their quality and specifications have reached the required international standards of similar import; ii) That their prices are competitive, and iii) That the foreign investment enterprise can deliver its products at the required time.0 Under such an arrangement, the production and sale by the foreign investment enterprise will be considered as having met its export obligations, and purchase by the Chinese enterprise, its import needs.

[Article 14] If, due to poor company management, a foreign investment enterprise is found to be not performing its export obligations and earning the foreign exchange income as the case should be, its superior department in charge shall see to it that the enterprise works out the necessary measures to solve its management problem within a certain time limit.0 Foreign investment enterprises which are engaged in energy, transportation, telecommunications and medical projects shall strive to balance their foreign exchange income and expenditure accounts.0 For those that would need help from the responsible departments or local authorities concerned in balancing their foreign exchange income and expenditure accounts, their establishment shall be subject to a special screening process prior to their signing of the contracts.

[Article 15] Under the supervision of foreign exchange control departments, foreign investment enterprises can adjust their foreign exchange needs among themselves, that is, those in need buying from those who have a surplus.

[Article 16] Under the premises of not affecting the export plans of both the State (central government) and the province (Guangdong), projects that have imported hi-tech using capital from foreign sources and those foreign investment projects engaged in energy, transportation, and telecommunications infrastructural construction may practice comprehensive compensation trade when they face foreign exchange difficulties.0 However, under such an arrangement, their exports list is subject to approval by the Guangdong Provincial Foreign Economic Relations and Trade Commission.0 If approval is granted, they may use renminbi to buy Chinamade goods and export them through their own marketing channels.

[Article 17] Export-oriented enterprises and technologically advanced enterprises shall be exempt from the local income tax during the period that they are exempt from or are enjoying reduction of their corporate income tax according to State regulations.0 After that period expires, technologically advanced enterprises which, according to the State Council's 22-article provisions, are eligible for the three-year extension period during which they pay their corporate income tax at a reduced rate that is half the normal rate shall enjoy 50% reduction of their local income tax in the same three-year period.0 On the other hand, export-oriented enterprises whose exports in value terms reach 70% of their production in a given year, apart from being eligible for 50% reduction of their corporate income tax for that year, shall also enjoy 50% reduction of their local income tax for the same year.

[Article 18] Foreign investment enterprises set up in mountainous districts or counties are exempted from local income tax.0 Apart from being eligible for the two-year exemption and three-year reduction (half the normal income tax rate) income tax incentive provided in State regulations, those foreign investment enterprises set up in the mountainous districts or counties and have a contract life of over ten years are also entitled to an additional 30% discount of income tax for the ten following years.0 As for Sino-foreign non-equity joint venture enterprises set up in mountainous districts or counties their local income tax shall be determined according to the "Opinion on Exemption from and Reduction of Local Income Tax Given to Wholly Foreign-owned Enterprises in Guangdong Province" (Guangdong province: Document No. 157. 1985) and with reference to the preferential treatment provisions that sino-foreign equity joint venture enterprises are subject to.

Within the scope permitted by the State, exports produced by Sino-foreign equity and Sino-foreign non-equity joint venture enterprises set up in mountainous districts or counties are exempted from the industrial and commercial consolidated tax.0 Any such enterprises which have a contract life of more than ten years, except those producing sugar, cigarettes, spirit, wrist watches, TV sets and radio and cassette recorders for domestic sales, are exempted from the industrial and commercial consolidated tax for two years starting from their first year of operation, subject to approval by the tax authorities.0 They may extend their exemption and reduction of the industrial and commercial consolidated tax for a certain period of time if they have financial difficulties.

[Article 19] Export-oriented enterprises, except those producing crude oil and oil products or any other goods the export of which is under the purview of the State, shall be exempted from the industrial and commercial consolidated tax.

[Article 20] Except those located in busy urban sectors of large and medium-sized cities and with reference to the actual conditions of the localities, export-oriented enterprises and technologically advanced enterprises shall be exempt from the site use fee for one year.0 After the exemption period expires, they shall pay their site use fee at a rate no more than Rmb3 per sq meter per year.

[Article 21] Export-oriented enterprises and technologically advanced enterprises which need short-term circulating funds in their production or other credits or funds can apply to the bank with which they have opened their bank accounts (or other financial institutions) for loans.0 Subject to examination and approval, they shall enjoy priority in loan extension.

The Guangzhou Branch of the Bank of China can apply to the Bank of China group in Hongkong or any other overseas financial institutions for inter-bank loans or through some syndication arrangement of raise funds so that it can extend foreign exchange loans to foreign investment enterprises in the province.

[Article 22] Sino-foreign equity joint venture and cooperative enterprises, subject to approval of their superior departments in charge and the People's Bank of China Guangdong Branch, may issue shares and bonds.0 Procedural matters shall follow the "Provisional Rules of Guangdong Province on the Management of Shares and Bonds" issued by the People's Government of Guangdong province.

The Bank of China and other financial institutions are allowed to provide foreign investment enterprises Chinese currency (renminbi) loans by accepting the applicants' foreign exchange deposits or property as collateral.0 They may follow other international banking practices (eg syndication loan arrangement) to provide financial services to foreign investment enterprises.

[Article 23] To improve the supply of goods and materials to foreign investment enterprises, service centers and materials exchange markets can be set up in cities where foreign investment enterprises are relatively more concentrated.0 Such establishments shall help coordinate the materials exchange (flow) among those production, foreign trade, commercial and materials supply departments.0 Their business scope covers: China-made goods and materials, imported goods and materials and those locally-made import substitutes.0 Buyers shall only pay customs duties on goods and materials after they have bought them from the centers or markets as bonded goods or materials under the supervision of the Customs.0 The rate charged shall depend on individual cases and the special circumstances prevailing, they may enjoy reduction or exemption of the customs duties.

[Article 24] Materials supply departments and commercial departments at all levels shall treat foreign investment enterprises on the same equal footing enjoyed by State-owned enterprises when providing them services.0 Foreign investment enterprises shall pay the same prices as applies to State-owned enterprises.0 Prices for imported goods and materials shall be the import cost plus a reasonable amount of service charge.

Power and fuel departments and responsible industrial departments at all levels and places shall adopt effective measures to improve energy supply to foreign investment enterprises.0 Charges for water, electricity, transport facilities and telecommunications services for their production and business activities shall be the same as is applied to State-owned enterprises.0 Foreign investment enterprises are exempt from having to report to their superior departments in charge and from import license application when they import fuel to generate electricity to produce their export products.0 Customs shall release such imports by referring to their establishment contracts or their import-export contracts.

[Article 25] Apart from being familiar with company business and possess the management capability, the managerial personnel assigned by the Chinese partners to a foreign investment enterprise shall also have a thorough understanding of Chinese laws and the State's policies.0 They shall cooperate with their counterparts assigned by the foreign investors.0 Without special permission, they are not allowed to engage in other business activities concurrently.0 They shall be governed by the evaluation scheme of the enterprise and their terms of employment shall also be determined by the enterprise.0 Subject to evaluation, Chinese managerial personnel may continue their employment if their performance is proven satisfactory to the enterprise and those who failed will be dismissed.

[Article 26] Departments in charge of foreign investment enterprises shall strengthen their work in recruiting, examining, promoting and rewarding those Chinese managerial personnel assigned to work in foreign investment enterprises.0 In places where foreign investment enterprises are relatively more concentrated, they shall either set up special administrative organs to manage those Chinese cadres or to appoint certain persons for such matters.0 Specific rules on this subject shall be formulated separately in a unified way.

[Article 27] The Foreign Economic Relations and Trade Personnel Training Center of the Guangdong Provincial Foreign Economic Relations and Trade Commission shall take into consideration the special conditions of foreign investment enterprises and train personnel specialized in administration, marketing and financial management.0 All local authorities, departments and bureaux concerned, regardless of their lines of business, shall undertake similar activities.

[Article 28] Adhering to the guidelines set down in the "Provisions of the People's Republic of China for Labor Management in Joint Ventures Using Chinese and Foreign Investment", labor departments at all levels shall strengthen their work in administering foreign investment enterprises.0 They shall respect and honor the foreign investment enterprises enjoy in recruiting and hiring of labors.0 In addition, they shall also assist enterprises in those areas.0 If the foreign investment enterprise cannot successfully recruit the technical personnel in the locality where the enterprise is located, it can look for suitable candidates outside their locality subject to approval for both the labor departments at where the enterprise is located and where the suitable candidates belong.0 Provincial labor department's approval would be required if such recruitment is made outside the province.0 If any disputes arise after such personnel have been transferred to where the enterprise is located, the labor department in that locality shall have the authority to settel such disputes (provided the labor department at where the personnel originally belonged has granted their approval for transfer in the first place).

[Article 29] For enterprises invested and established by companies, enterprises and other economic organizations or individuals from Hongkong, Macao or Taiwan, matters shall be handled by reference to these provisions.

[Article 30] These provisions shall go into effect on its date of promulgation.