Following the implementation of registration-based management for foreign debts under enterprises’ merchandise trade in early July, the State Administration of Foreign Exchange (SAFE) will, starting from the 15th of this month, also introduce registration-based management for its external claims. Experts believe that the primary objective of this policy is likely to be tighter monitoring of capital flows amid the financial crisis and a stronger crackdown on speculative capital.

The State Administration of Foreign Exchange recently issued a notice outlining specific arrangements for the registration and management of overseas receivables arising from enterprises’ merchandise trade. The notice states that the implementation of this system is primarily aimed at “establishing and improving a statistical monitoring and management system for overseas receivables, standardizing cross-border capital flows under trade transactions, and promoting balance in international payments.”

As required by the notice, enterprises’ advance payments for goods and deferred collections will be subject to registration management. Enterprises should log in to the Trade Credit Registration Management System on the State Administration of Foreign Exchange’s online service platform via the internet, or visit the local foreign exchange bureau, to complete the individual registration and cancellation procedures for advance payments and deferred collections.

People's Bank of China Third substantial interest rate cut in two months

October 29, 2008

The People's Bank of China has cut interest rates for the third time in two months. Starting October 30, 2008, the central bank lowered the benchmark interest rates for RMB deposits and loans for financial institutions. The benchmark interest rate for one-year deposits was reduced from the current 3.87% to 3.60%, a decrease of 0.27 percentage points; the benchmark interest rate for one-year loans was lowered from the current 6.93% to 6.66%, also a decrease of 0.27 percentage points. Benchmark interest rates for other deposit and loan terms were adjusted accordingly. The interest rate for personal housing provident fund loans remains unchanged.

This marks the third consecutive interest-rate cut by the central bank within just two months since the shift in monetary policy on September 16. Following this latest rate cut, the benchmark interest rate for one-year loans has fallen by 0.81%, approaching the level seen in May 2007—a reduction of such magnitude is truly unprecedented. Data released by the National Bureau of Statistics also indicate that inflationary pressures are easing somewhat, while China’s economy is facing growing risks of a slowdown. This underscores the urgent need to introduce additional regulatory measures to boost economic growth.

This move marks another instance of global central banks joining forces to cut interest rates, reflecting the Chinese government’s proactive stance toward addressing the current financial crisis. The previously tight monetary policy is officially giving way, and a more accommodative monetary policy is being steadily implemented. This will help the real economy withstand downward risks. It plays a positive role in preventing the domestic economy from sliding too rapidly and represents a relatively powerful tool for stimulating the economy. It will also have a positive impact on the securities market, helping to prevent an overly rapid decline and potentially providing support for a market rebound.

It is worth noting that the central bank’s latest interest-rate cut continues to follow a symmetrical approach. Among the three rate cuts this year, while the first cut only lowered the benchmark lending rate, the two most recent cuts both involved simultaneous reductions of equal magnitude in both deposit and lending benchmark rates. Industry insiders analyze that this move is aimed at safeguarding the profitability of the banking sector. At the same time, this rate cut will provide certain benefits to real estate enterprises.

The General Office of the State Council forwards the "Guiding Opinions on Promoting Employment through Entrepreneurship."

October 29, 2008

The General Office of the State Council has forwarded the “Guiding Opinions on Promoting Employment through Entrepreneurship,” issued jointly by the Ministry of Human Resources and Social Security, the National Development and Reform Commission, the Ministry of Education, the Ministry of Industry and Information Technology, the Ministry of Finance, the Ministry of Natural Resources, the Ministry of Housing and Urban-Rural Development, the Ministry of Commerce, the People’s Bank of China, the State Administration of Taxation, and the State Administration for Industry and Commerce. The full text is as follows:

? To implement the overall plan put forward at the 17th National Congress of the Communist Party of China—“to pursue a development strategy aimed at expanding employment and promoting employment through entrepreneurship”—and to fully enforce the relevant provisions of the Employment Promotion Law of the People’s Republic of China, we hereby issue the following guiding opinions on promoting employment through entrepreneurship:

? 1. Unify thinking and clarify goals and tasks.

(1) Unify understanding and awareness. Entrepreneurship is an important means by which workers achieve market-oriented employment by independently establishing production and service ventures, enterprises, or engaging in self-employment. Through entrepreneurship, workers not only secure their own employment but also help create jobs for more workers, thereby boosting overall social employment. At present and in the coming period, China’s employment situation remains challenging. Promoting employment through entrepreneurship can leverage the employment multiplier effect of entrepreneurship, making it highly significant in alleviating employment pressures. The work of driving employment through entrepreneurship is a key component of implementing the strategy for expanding employment and represents an important task in carrying out proactive employment policies in the new era. All regions and relevant departments should attach great importance to this initiative, optimize the entrepreneurial environment through policy support and service guarantees, and encourage and assist more workers to become entrepreneurs.

(2) Clarify the guiding ideology. All regions and relevant departments should thoroughly implement the Scientific Outlook on Development, in accordance with the overall requirements for building a harmonious socialist society. They should emancipate their minds, promote reform and innovation, and take a holistic view of economic and social development. Starting from fostering entrepreneurial awareness, enhancing entrepreneurial capabilities, and improving the entrepreneurial environment, they should gradually establish a new working pattern in which entrepreneurship drives employment. Adhering to the basic principles of government promotion, social support, market orientation, and independent entrepreneurship, we must strengthen entrepreneurial services and training, improve the entrepreneurial environment, and accelerate the establishment of a coordinated mechanism integrating policy support, entrepreneurial training, and entrepreneurial services. This will continuously inspire workers’ entrepreneurial enthusiasm, enhance their entrepreneurial awareness, and encourage more urban and rural workers to achieve employment through independent entrepreneurship.

(3) Highlight key areas of work. All regions and relevant departments should closely align with local advantageous industries and distinctive economic features, identify industry guidance catalogs that encourage entrepreneurship, and formulate supporting policies to encourage entrepreneurs to enter sectors and industries that the state and local governments prioritize and focus on developing—such as technology-based industries, industries that promote comprehensive resource utilization, labor-intensive industries, agro-product processing industries, trade promotion industries, community service industries, construction labor services, and information service industries. We should encourage and support the development of non-public-sector economies—including individual and private enterprises—and small and medium-sized enterprises, thereby expanding the scope of entrepreneurial activities. Special emphasis should be placed on guiding and promoting entrepreneurship among college graduates, unemployed individuals, and migrant workers returning to their hometowns. We should also actively adopt measures to foster entrepreneurship among demobilized military personnel, overseas-educated returnees, and other groups. Over the next three to five years, we aim to achieve a substantial increase in both the number of workers starting their own businesses and the number of people finding employment through entrepreneurship, essentially establishing a policy framework that promotes employment through entrepreneurship and enabling more workers who have both the desire and the capability to successfully launch their own ventures.

2. Improve support policies and enhance the entrepreneurial environment.

(4) Relax market access. Accelerate the removal of various industry-specific, regional, and operational barriers that hinder entrepreneurship. All industries and sectors not prohibited by laws and regulations shall be open to all types of entrepreneurial entities. In industries and sectors subject to limited conditions and standards set by the state, all entrepreneurial entities shall be treated equally. Within the scope permitted by laws and regulations, reasonable entry requirements—such as capital and staffing—may be established for start-up enterprises based on industry characteristics, and phased payment of registered capital may be allowed. Entrepreneurs may use their family residences, rented housing, temporary commercial premises, and other suitable locations as business operating sites, provided such use complies with the conditions, procedures, and contractual agreements stipulated by laws and regulations. Expand the scope of government procurement and formulate preferential government procurement policies to promote the development of small businesses. Various regions and relevant departments may, according to actual circumstances, appropriately relax market access requirements for college graduates, unemployed individuals, and migrant workers returning to their hometowns who wish to start businesses. (5) Improve administrative management. Fully implement the system of publicizing fees and the system of enterprise fee registration cards. Prohibit any department, unit, or individual from interfering with the normal operations of entrepreneurial enterprises. Strictly curb arbitrary charges, arbitrary levies, arbitrary fines, arbitrary inspections, and arbitrary training activities. Further streamline and standardize administrative approval procedures related to entrepreneurship, simplify procedures for project initiation, approval, and licensing, publicly announce all administrative approval, ratification, and filing matters along with corresponding guidance manuals, and promote joint approvals, one-stop services, time-limited completion, and commitment-based services, thereby establishing a “green channel” for entrepreneurship. Legally protect entrepreneurs’ legitimate private property. Relevant authorities shall investigate and punish, in accordance with the law, any serious violations that infringe upon the lawful rights and interests of entrepreneurs or the entities they have founded. Government departments shall promptly accept, treat fairly, and respond within a specified time frame to administrative reconsideration applications submitted by entrepreneurs. Unemployed persons registered as jobless, persons with disabilities, retired soldiers, and ordinary college graduates within two years of graduation who engage in individual business activities shall, in accordance with applicable regulations, be exempted from administrative fees—including management fees, registration fees, and license fees—for a period of three years starting from the date of their initial registration with the industrial and commercial authorities.

(6) Strengthen policy support. Fully implement supportive policies—including tax incentives, small-amount guaranteed loans, financial subsidies, and venue arrangements—that are conducive to workers’ entrepreneurship, thereby promoting the development of small and medium-sized enterprises as well as the non-public sector, including individually-owned and private businesses, and providing robust support for workers’ entrepreneurial endeavors. Based on practical realities, establish and improve policy measures that encourage employment through entrepreneurship, and refine operational procedures accordingly. Mobilize and allocate funds through multiple channels to provide strong support for initiatives aimed at driving employment through entrepreneurship. In response to rising operating costs and changes in policy and market conditions, while taking into account both the stable development of industries and structural adjustments and upgrades, proactively adopt effective measures to support and protect the survival and growth of start-up enterprises, and encourage these enterprises to expand their employment capacity. For migrant workers returning to their hometowns to start businesses, regions that previously sent out labor should actively explore and refine relevant support policies.

(7) Broaden financing channels. Actively promote innovation in financial products and services, and support initiatives that leverage entrepreneurship to boost employment. Explore innovative approaches to collateral and guarantee mechanisms, and encourage financial institutions to proactively provide financing support for projects that comply with national policies and contribute to fostering entrepreneurship and job creation. Fully implement the micro-guaranteed loan policy, innovate management models, enhance the quality and efficiency of loan services, and further intensify support for eligible labor-intensive small enterprises. Encourage and support the development of diverse financial institutions with various ownership structures that are tailored to the specific needs of rural areas; innovate rural loan guarantee models; and actively provide financial services to migrant workers returning to their hometowns to start businesses. Establish and improve venture capital mechanisms, encourage the use of foreign investment and domestic social capital to invest in entrepreneurial enterprises, and, where conditions permit, set up various forms of venture capital guidance funds to guide and promote the establishment and development of venture capital firms.

III. Strengthen entrepreneurship training and enhance entrepreneurial capabilities.

(8) Intensify training efforts. Establish an entrepreneurship training system that meets the needs of all types of urban and rural workers who aspire to start their own businesses, expand the scope of entrepreneurship training, and gradually include all workers who have the desire and need for training in entrepreneurship programs. Strengthen the development of entrepreneurship courses and the allocation of qualified instructors in both general universities and vocational schools, and carry out both entrepreneurship training and practical entrepreneurship simulations. Implement the vocational training subsidy policy: entrepreneurs participating in entrepreneurship training will receive vocational training subsidies in accordance with relevant regulations. For individuals receiving unemployment insurance benefits who participate in entrepreneurship training, the vocational training subsidies they are entitled to under the regulations will be funded by the unemployment insurance fund.

(9) Enhance the quality of training. Continuously improve the quality of entrepreneurship training by standardizing training criteria, raising the qualifications of instructors, and refining training models. Regularly organize teacher training, professional development programs, and exchange seminars to strengthen the development and allocation of qualified instructors and elevate the overall educational level. Employ a variety of methods—including case analysis, knowledge lectures, and firsthand accounts from entrepreneurs—to enhance the relevance and practicality of entrepreneurship training. Develop and promote entrepreneurship training techniques tailored to the diverse needs of different target groups, thereby continuously boosting the success rate of entrepreneurial ventures.

(10) Establish incubation bases. People's governments at all local levels shall make overall arrangements for the production and operation spaces needed by entrepreneurs, improve infrastructure and supporting facilities, and give priority to ensuring adequate space for start-ups. Incubation bases can be established within the scope of urban construction land designated in the overall land-use plan, or by utilizing existing approved economic and technological development zones, industrial parks, high-tech parks, university science and technology parks, and small-business incubation parks. These incubation bases will provide newly established enterprises with effective training and guidance services as well as policy support for a specified period, thereby enhancing their business management capabilities, market competitiveness, and overall stability.

4. Improve the service system and provide high-quality services.

(11) Strengthen service organizations. Relying on the public employment service system, we will enhance entrepreneurship guidance service organizations, develop entrepreneurship guidance technologies, improve entrepreneurship service functions, and boost the efficiency of entrepreneurship services. We will assume responsibility for the organization, provision of services, and implementation of entrepreneurship-driven employment initiatives. We will fully leverage the roles of small- and medium-sized enterprise service agencies, career guidance institutions for college graduates, and various entrepreneurship consulting service providers to jointly promote entrepreneurship-driven employment efforts. We will actively advance the development of entrepreneurship consulting services and establish a team of entrepreneurship service experts composed of entrepreneurs, successful businesspeople, academic scholars, and government officials, gradually building a dedicated full-time and part-time workforce for entrepreneurship guidance services.

(12) Enhance service offerings. Based on the needs of entrepreneurs in urban and rural areas, organize and carry out “one-stop” entrepreneurship services covering project development, scheme design, risk assessment, start-up guidance, financing services, and ongoing support and follow-up assistance. Establish platforms for disseminating entrepreneurship information and policies, and build effective channels for entrepreneurs to exchange ideas and help each other. Develop an evaluation and promotion system for entrepreneurial projects that is supported and regulated by the government, developed by enterprises and individuals, and operated by the market. Create a database of entrepreneurial projects and establish a systematic approach for collecting and regularly publishing relevant information. Provide personalized and professional start-up guidance and consulting services to entrepreneurs through various delivery methods, including door-to-door services, centralized services, and telephone consultations. Set up an entrepreneur information management service system and establish a dedicated entrepreneurship hotline to receive inquiries and complaints from entrepreneurs, offer timely and effective follow-up services and ongoing guidance, and pay special attention to providing guidance and support to those who have experienced entrepreneurial failures, helping them regain confidence and launch new ventures.

(13) Provide employment services. Offer public employment services to entrepreneurs, newly established enterprises, and the employees they hire. Guide entrepreneurial enterprises to allocate funds for employee education in line with their production and operational needs, and ensure that pre-employment and on-the-job training are effectively carried out for employees. Organize various training institutions to conduct targeted and order-based training programs based on employment demands, thereby providing entrepreneurial enterprises with suitable talent. Eligible individuals who participate in vocational skills training will receive corresponding vocational training subsidies and vocational skills certification subsidies as stipulated. Promote reforms of the social security system and household registration system, strengthen the construction of a social integrity system and comprehensive social governance, and provide policy facilitations—including social security, personnel management, education and training, and professional title evaluation—to entrepreneurs and the workers they hire, thereby attracting talent to work in newly established enterprises and expanding the scale of employment driven by entrepreneurship.

5. Strengthen organizational leadership and promote the implementation of work.

(14) Strengthen government responsibilities. People's governments at all local levels should regard promoting entrepreneurship as an important task, place it prominently on the agenda of employment-related work, implement supporting policies, improve the entrepreneurial environment, disseminate exemplary practices, and actively promote the comprehensive implementation of entrepreneurship-driven employment initiatives. Special emphasis should be placed on guiding and supporting cities with a solid foundation and relatively mature conditions to, in accordance with the requirements of this opinion, put into practice entrepreneurship-driven employment support policies. These cities should proactively explore innovative approaches in areas such as organizational leadership, entrepreneurship training, entrepreneurial services, and social participation, take the lead in perfecting their policy frameworks for entrepreneurship-driven employment, and establish themselves as entrepreneurial cities that drive employment through entrepreneurship.

(15) Improve the working mechanism. All regions should leverage the role of their coordination mechanisms for promoting employment, establishing working groups composed of departments including human resources and social security, development and reform, small- and medium-sized enterprise administration, education, construction, land and resources, finance, commerce, banking, taxation, and industry and commerce. These groups should operate under a division-of-labor framework, with each department taking on specific responsibilities and working in close coordination. Together, they will study, formulate, and implement policies and action plans aimed at boosting employment through entrepreneurship. Key performance indicators for measuring the effectiveness of entrepreneurship-driven employment promotion—including optimizing the entrepreneurial environment, ensuring effective implementation of entrepreneurship policies, enhancing the effectiveness of entrepreneurship training, improving the quality of entrepreneurship services, increasing the initial success rate of startups, boosting the stability of new businesses, and raising the employment-generating capacity of entrepreneurship—should be incorporated as important components of local employment performance assessments. Fully harness the roles of the Federation of Industry and Commerce, trade unions, the Communist Youth League, the All-China Women's Federation, the China Disabled Persons' Federation, and other social organizations to jointly promote employment through entrepreneurship.

(16) Foster a positive atmosphere. Strengthen entrepreneurship education, raise entrepreneurial awareness, and cultivate an entrepreneurial culture, so that more workers will be eager and confident in starting their own businesses. Harness the positive role of all sectors of society in supporting and promoting entrepreneurship, thereby creating a social atmosphere conducive to nationwide entrepreneurship. Enhance public opinion guidance, promote the entrepreneurial spirit, and highlight exemplary entrepreneurs—especially those who, despite facing failure, persevered tenaciously and successfully launched new ventures. Together, we can foster a harmonious entrepreneurial environment characterized by respect for entrepreneurship, vigorous competition among entrepreneurs, recognition of entrepreneurial success, and tolerance for entrepreneurial failure. Units and individuals that achieve remarkable results in driving employment through entrepreneurship should be commended and recognized.

All regions and relevant departments should, based on actual conditions, study and formulate specific measures for implementing this opinion.

The National Development and Reform Commission, the Ministry of Industry and Information Technology, and the State Administration for Market Regulation released interpretations of the “Guiding Opinions on Promoting Employment through Entrepreneurship.”

Expand the scope of government procurement?? Increase the scale of special funds.
Recently, the government has swiftly introduced a series of policy measures aimed at stabilizing and boosting the development of small and medium-sized enterprises (SMEs). The "Guiding Opinions on Promoting Employment through Entrepreneurship" propose encouraging and supporting the development of non-public sectors such as individual and private businesses, as well as SMEs, and expanding the scope of entrepreneurial activities. Specifically, the "Opinions" call for broadening the scope of government procurement and formulating preferential procurement measures to promote the development of SMEs.

A relevant official from the National Development and Reform Commission pointed out that to further intensify support for small and medium-sized enterprises (SMEs), it is also necessary to explore ways to broaden their financing channels—for instance, by increasing loan scales, innovating SME loan guarantee and collateral mechanisms, and promptly launching a ChiNext-style market for SMEs. The "Opinions" propose expanding the scale of special funds allocated by the central government for SME development, with a particular focus on providing interest subsidies and tax incentives to SMEs that align with national industrial policies and have high employment potential, helping them in areas such as structural adjustment, energy conservation and emission reduction, technological innovation, and market expansion. At the same time, more favorable policies will be adopted to encourage private investment and fully harness the positive role of the non-state-owned economy in driving economic growth and job creation.

Simplify procedures and remove barriers. ?? Continuously lower the barriers to entrepreneurship.

A favorable and equitable policy environment is the fertile ground for fostering the development of small and medium-sized enterprises. The “Opinions” further clarify that we should accelerate the removal of various industry-specific, regional, and operational barriers that hinder entrepreneurship, streamline procedures for starting a business, and establish “green channels” for entrepreneurship. At the same time, all forms of arbitrary charges, levies, fines, inspections, and training are strictly prohibited, and transparent fee collection will be vigorously promoted. We will also continue to streamline and standardize administrative approval procedures related to entrepreneurship, simplify relevant formalities, and establish green channels for startups. A responsible official from the State Administration for Market Regulation believes that these policies will effectively reduce the operating costs for SMEs and encourage entrepreneurial enthusiasm.

The threshold for starting a business is also continuously lowering. The "Opinions" stipulate that, within the scope permitted by laws and regulations, reasonable entry requirements—such as capital and staffing levels—may be set for start-up enterprises based on industry characteristics, and phased payment of registered capital is allowed. Entrepreneurs are also permitted to use their family residences, rented apartments, or temporary commercial premises as business operating locations. Moreover, various regions and relevant departments may, according to actual conditions, appropriately relax market-entry requirements for college graduates, unemployed individuals, and migrant workers returning to their hometowns who wish to start businesses. A responsible official from the Small and Medium-sized Enterprises Division of the Ministry of Industry and Information Technology believes that these measures will enable newly established SMEs and projects to achieve stable development, reduce entrepreneurial risks, and increase the success rate of entrepreneurship.

Expand guarantee financing services ? Coordinated arrangement of entrepreneurial spaces

The entrepreneurship service system is a network that provides multi-level, comprehensive, and socially-oriented services to support entrepreneurs and the establishment and development of small and medium-sized enterprises. For SMEs, the most urgently needed entrepreneurial services are those that address the challenges of obtaining financing and securing guarantees.

It is understood that, nationwide, there are currently 3,729 various types of guarantee institutions for small and medium-sized enterprises (SMEs). Over the past five years, these institutions have cumulatively provided guarantee services to nearly 600,000 SMEs, with a total guaranteed loan amount exceeding 800 billion yuan, thereby significantly boosting the development of SMEs. The "Opinions" further clarify the need to strengthen the capabilities of SME credit guarantee institutions and expand their guarantee and financing services.

Entrepreneurial spaces serve as crucial platforms for the production and operation of small and medium-sized enterprises. The "Opinions" call upon local governments at all levels to make coordinated arrangements for providing entrepreneurs with suitable production and operational spaces, to improve infrastructure and supporting facilities, and to prioritize ensuring the availability of such spaces. The construction of entrepreneurial bases should be tailored to local conditions; they may be established within urban development areas designated in the overall land-use planning, or by making use of previously approved economic and technological development zones, industrial parks, high-tech parks, university science and technology parks, or small-business incubators.

A relevant official from the National Development and Reform Commission believes that by building entrepreneurship bases, small enterprises entering these bases can receive effective entrepreneurial services and policy support for a specified period, thereby reducing startup costs and enhancing the stability of new ventures.

State Council Approve investment in a batch of infrastructure construction projects.

October 24, 2008

On October 21, Premier Wen Jiabao, President of the State Council, chaired a regular executive meeting of the State Council and approved a batch of infrastructure construction projects. The meeting discussed ways to strengthen infrastructure development and approved a number of projects, including highways, airports, nuclear power plants, and pumped-storage hydropower stations. It was also decided to accelerate the progress of the first-phase construction of the South-to-North Water Diversion Project’s central and eastern routes.

Accordingly, the country’s “11th Five-Year Plan” proposed increasing the railway operating mileage from 70,000 kilometers in 2005 to 90,000 kilometers by 2010, and reaching 100,000 kilometers by 2010. Before 2010, 7,000 kilometers of dedicated passenger lines were to be newly constructed; by 2020, 12,000 kilometers of such dedicated passenger lines were to be completed, thereby achieving separation of passenger and freight traffic on main railway lines.
The railway investment approved by the State Council has already reached 2 trillion yuan, with the investment in ongoing projects exceeding 1.2 trillion yuan.

The launch of new railway projects—being a key highlight in boosting economic growth—signals the government’s intensified macroeconomic regulation efforts aimed at expanding domestic demand.

The recovery of the construction industry
The anticipated clarity in the railway industry is directly boosting the construction sector. From the perspective of total market capitalization, the residential building construction sub-sector accounts for only 2% of the A-share construction industry’s weight; by far the largest share goes to railway engineering, at 67%, followed by municipal and water conservancy projects at 18%, and offshore oil and gas engineering at 13%. Furthermore, on October 17, Premier Wen Jiabao chaired a State Council work conference to analyze the current economic situation, outline and deploy economic tasks for the fourth quarter, and released a series of guiding policies. Among these policies, it was emphasized that investment efforts should be stepped up, reconstruction and recovery in earthquake-hit areas should be accelerated, and major infrastructure and livelihood projects in agriculture, water conservancy, energy, transportation, urban development, and other key areas should be expedited, while maintaining a reasonably scaled level of investment. Industry insiders pointed out that these measures provide valuable insights into the direction the construction sector will take in the second half of the year.
The construction industry possesses characteristics of a quasi-public good. Coupled with the government—as the primary client—continuously making large-scale purchases, the construction sector exhibits virtually no cyclical fluctuations. At present, China’s infrastructure sector faces significant gaps, prompting the Chinese government to undertake substantial and sustained procurement of construction products in order to stimulate overall economic development. The steady and rapid growth of basic construction investment will be ensured by fiscal expenditures at both central and local levels, as well as by the government’s strong creditworthiness.

Hydropower infrastructure construction is ushering in new opportunities.
To boost domestic demand, China will adopt large-scale fiscal policies aimed at stimulating the economy in the coming period. As an important component of infrastructure investment, grid investment is bound to accelerate, and equipment manufacturers in this sector will benefit the most. From a cost perspective, steel accounts for a relatively high proportion in the power equipment industry—particularly in power-generation equipment. Specifically, steel makes up about 60% of the cost of generators and roughly 70% to 80% of the cost of steam turbines and boilers, significantly impacting gross profit margins.
    ?
Since 2007, China's steel prices have risen along with increases in the prices of iron ore, freight rates, and coking coal. From January to July 2008 alone, the average price of steel rose by more than 30%. Given that upstream component suppliers enjoy strong bargaining power over original equipment manufacturers (OEMs), the cost pressures resulting from rising steel prices have largely been passed on to OEMs. Meanwhile, power-generation equipment manufacturers, facing powerful downstream power-generation group customers, lack sufficient negotiating power, and their product sales are largely based on closed-loop orders. Consequently, the sharp rise in steel prices has had a significant impact on the power equipment industry, especially the power-generation equipment sector.

However, since the end of July 2008, the price of steel—the primary raw material for power equipment—has fallen sharply, dropping by more than 25% within just two months and essentially returning to the levels seen at the end of 2007. This decline in steel prices undoubtedly eases cost pressures on enterprises, helping to reduce operational cost burdens across various sectors of the power equipment industry and improving companies’ profitability.

People's Bank of China Further increase credit support for small and medium-sized enterprises.

October 21, 2008

On October 20 and 21, the People's Bank of China convened a special working conference for major banking financial institutions and their branches to analyze the current situation, summarize experiences, and make specific arrangements for the next phase of monetary and credit policies, particularly in terms of providing credit support to small and medium-sized enterprises.

First, we will continue to foster and develop a financial services system tailored to small and medium-sized enterprises (SMEs), vigorously promoting the development of new financial institutions such as rural commercial banks, microfinance companies, loan companies, and rural mutual aid funds. Second, we will strongly encourage financial innovation, urging commercial banks to develop and innovate trade finance instruments and credit products specifically designed for SMEs. Third, we will accelerate the establishment of a credit collection system, a rating and publication mechanism, and an information-sharing system that are well-suited to the characteristics of SMEs. In the next step, the fiscal authorities will further intensify their support in areas such as guarantees and interest subsidies, thereby improving the overall environment for SME lending.
     ?
Since the second half of this year, in response to new developments and changes in both domestic and international economic conditions, the People’s Bank of China has enhanced the targeted nature and flexibility of its regulatory measures. On the one hand, it has timely increased the overall credit volume; on the other hand, it has continued to adopt a differentiated approach, maintaining both support and restraint as appropriate, and integrating the increase in overall credit volume with structural optimization. This has enabled the bank to direct credit resources toward key areas and weak links, such as agriculture, rural areas, and farmers (“the Three Rural Issues”), small and medium-sized enterprises, and the recovery and reconstruction efforts in disaster-stricken regions. To encourage and guide credit guarantee institutions to provide loan guarantees for SMEs, the central government’s financial allocation for supporting SME credit guarantee services more than doubled in 2008.

At first glance, these measures have achieved certain positive results. In the first three quarters, RMB loans extended by financial institutions increased by 3.5 trillion yuan, an increase of 120.1 billion yuan over the same period last year. Moreover, the distribution of loans across quarters has become more balanced and reasonable. Financial institutions are placing greater emphasis on credit services for small and medium-sized enterprises (SMEs), continuously refining credit models that better suit the characteristics of SMEs. Some financial institutions have even established specialized SME lending departments and dedicated institutions, and a growing array of diversified, innovative products tailored specifically for SMEs is continually being developed.

The National Development and Reform Commission and the Ministry of Industry and Information Technology strongly support the re-guarantee system to address the financing difficulties faced by small and medium-sized enterprises.

October 21, 2008

On October 23, the National Development and Reform Commission issued a document stating that developing and improving the re-guarantee system is an excellent option for addressing the financing difficulties faced by small and medium-sized enterprises. On the 14th, the Ministry of Industry and Information Technology also publicly announced a list of re-guarantee institutions. In an interview with China Securities Journal, industry insiders predicted that re-guarantee institutions are expected to receive more policy support in the short term, and applications from local governments to establish such institutions will also become easier to approve.
According to the website of the National Development and Reform Commission, establishing regional credit re-guarantee companies as financing platforms for small and medium-sized enterprises can fully leverage government credit to guide market resources, streamline and strengthen the close cooperation between the guarantee system and the commercial banking system, thereby promoting the economic and social development and comprehensive revitalization of the respective regions. Earlier, on the 14th, the Ministry of Industry and Information Technology released a batch of lists of guarantee and re-guarantee institutions in a coordinated manner. According to spokespersons from both ministries, the funding will primarily come from municipal fiscal allocations, while also attracting equity participation from certain state-owned enterprises in Beijing.
According to the announcement, Beijing Credit Reinsurance Co., Ltd., as a sample enterprise participating in equity investment, has established a capital base of 500 million RMB.
As the survival situation for small and medium-sized enterprises (SMEs) continues to grow increasingly challenging, the State Council’s executive meeting held on the 17th explicitly stated that relevant departments should take measures in the fourth quarter to promote the development of SMEs. Currently, Shenzhen, Guangdong Province, and other regions are also preparing to establish re-guarantee institutions. Although the specific approaches vary, they all share one common feature: the funding sources are fully funded or controlled by the government, thereby endowing these re-guarantee institutions with government credit and enhancing their credibility.
Judging from the level of importance attached to this by the two departments, in order to achieve the goal of "ensuring growth," re-guarantee institutions will receive more policy support in the short term, and applications from local governments to establish re-guarantee institutions will also become easier to approve.

Ministry of Finance, State Administration of Taxation Issued the “Notice on Raising the Export Tax Refund Rates for Certain Commodities”

October 21, 2008

With the approval of the State Council, the Ministry of Finance and the State Administration of Taxation announced on October 21 that, effective November 1, 2008, the export tax rebate rates for certain labor-intensive products as well as high-tech, high-value-added goods would be appropriately raised.

According to the “Notice on Raising Export Tax Rebate Rates for Certain Commodities” issued by two government departments, this adjustment to export tax rebate rates covers a wide range of products—totaling 3,486 items, which account for approximately 25.8% of the total number of commodities listed in the Customs Tariff. The adjustment primarily involves two key aspects: First, the export tax rebate rates for labor-intensive products such as textiles, garments, and toys will be appropriately increased. Second, the export tax rebate rates for high-tech and high-value-added products will also be raised. Following this adjustment, China’s export tax rebate rates will be divided into six tiers: 5%, 9%, 11%, 13%, 14%, and 17%.

The specific adjustments to the tax refund rates include: raising the export tax refund rate for certain textiles, garments, and toys to 14%; increasing the export tax refund rate for daily-use and artistic ceramics to 11%; boosting the export tax refund rate for certain plastic products to 9%; raising the export tax refund rates for certain furniture items to 11% and 13%, respectively; and increasing the export tax refund rates for tempered safety glass, tantalum wire for capacitors, marine anchor chains, sewing machines, fans, and cemented carbide tools for CNC machine tools to 9%, 11%, and 13%, respectively.

State Council New economic policies are being introduced to ensure the stability of the capital market.

October 17, 2008

On the 17th, Chinese State Council Premier Wen Jiabao presided over an executive meeting of the State Council to analyze the current economic situation and make arrangements for economic work in the fourth quarter.

The meeting noted that, since the beginning of this year, China’s economic and social development has faced severe challenges on multiple fronts. Under the leadership of the CPC Central Committee and the State Council, the Chinese people of all ethnic groups have overcome the shocks caused by major natural disasters and the rapid changes in the global economic and financial landscape, thereby maintaining steady and relatively fast growth of the national economy and ensuring social harmony and stability. The overall price level increase has been brought under control, employment has continued to rise, grain production has increased for five consecutive years, positive results have been achieved in adjusting the economic structure and promoting energy conservation and emission reduction, reform and opening-up have continued to deepen, and social development—with a focus on improving people’s livelihoods—has been further strengthened. Overall, despite the adverse international factors and severe domestic natural disasters, the fundamental trend of China’s economic development remains unchanged. China’s economy possesses both the resilience to withstand risks and strong vitality.

The meeting pointed out that the global financial markets are currently experiencing sharp turmoil, world economic growth has noticeably slowed down, and unstable factors in the international economic environment have significantly increased. The impact on China is gradually becoming apparent, and new developments and challenges have emerged in the domestic economy. Specifically, the trend of slowing economic growth has become evident; corporate profits and fiscal revenues are growing at a slower pace; and capital markets continue to be volatile and sluggish. We must not only fully appreciate the complexity and severity of the international environment, deeply recognize the importance and arduousness of maintaining steady and relatively rapid development of China’s economy, and strengthen our sense of potential risks and challenges. At the same time, we must correctly identify our favorable conditions and positive factors, remain confident, keep a calm and objective outlook, adopt a multi-pronged approach, respond effectively, and strive to consolidate and further develop the current favorable situation.

The meeting emphasized that doing a good job in the fourth-quarter economic work is particularly important for fully accomplishing this year’s tasks and laying a solid foundation for next year’s development. We must, in accordance with the requirements of the Scientific Outlook on Development, adopt flexible and prudent macroeconomic policies, promptly introduce targeted fiscal, tax, credit, and foreign trade policies, and continue to maintain steady and relatively rapid economic growth. At the same time, we should advance structural adjustments and transform our development model. (1) Seriously implement the arrangements made at the Third Plenary Session of the 17th CPC Central Committee and intensify policies aimed at strengthening agriculture and benefiting farmers. Significantly raise the minimum procurement price for grain, formulate and release plans to increase various agricultural subsidies, expand the scope of subsidies, and raise subsidy standards. Do a good job in the procurement of grain and cotton, promptly introduce policies to revitalize the dairy industry and stabilize pig production, and effectively control major animal diseases. (2) Promote the development of small and medium-sized enterprises. Improve the SME guarantee system, encourage financial institutions to increase loans to SMEs, broaden direct financing channels for SMEs, and step up fiscal support for technological innovation by SMEs. (3) Maintain stable growth in imports and exports. Raise the export tax rebate rates for labor-intensive products such as clothing and textiles, as well as high-value-added electromechanical products; support the export of leading enterprises and products; increase imports of goods needed domestically; and promote basic balance in the international balance of payments. (4) Increase investment efforts. Accelerate the recovery and reconstruction of earthquake-stricken areas, expedite the construction of major projects in infrastructure and people’s livelihood sectors—including agriculture, water conservancy, energy, transportation, and urban development—and maintain a reasonable scale of investment. (5) Continue to curb price increases. Improve the supply-demand relationship for key agricultural products and energy resources, and intensify price supervision and inspection. Actively and steadily advance price reforms, and promptly rationalize price relationships for important energy and resource products. (6) Solidly promote energy conservation and emission reduction. Fully implement the responsibility system for energy-saving, consumption-reducing, and pollution-reducing targets, strengthen supervision and administrative law enforcement in energy conservation and emission reduction, urge local governments and enterprises to eliminate outdated production capacity, strictly enforce environmental monitoring, and reinforce oversight of key pollution sources. (7) Focus on increasing revenue and reducing expenditures in fiscal affairs. Strengthen tax collection and management, standardize the administration of non-tax revenues, ensure timely and full allocation of funds earmarked for addressing people’s livelihood issues, strictly control general expenditures—especially preventing last-minute spending sprees at year-end—and firmly put an end to all forms of extravagance and waste. (8) Strengthen financial regulation and prevent financial risks. Continue to enhance the foundational institutional framework of the capital market and strive to maintain its stability and healthy development. (9) Diligently carry out food safety and safe production work. Speedily implement the “Regulations on the Supervision and Administration of Dairy Product Quality and Safety,” and accelerate the formulation of supporting regulations and work plans. Intensify inspections for safety hazards in key industries and critical areas, and ensure safe production. (10) Make every effort to address issues related to people’s livelihoods. Issue and implement policies and measures to safeguard the basic living standards of low-income groups and special vulnerable populations. Provide temporary food allowances to college students from economically disadvantaged families, and offer special financial assistance to high school and higher education students from economically disadvantaged families in the severely affected areas of the Wenchuan earthquake. Raise the standards for pensions and living allowances for entitled beneficiaries and other eligible groups. Expand the scale of affordable housing construction, reduce taxes and fees on housing transactions, and support residents’ home purchases. Continue to provide employment assistance to those in need, especially ensuring social security for workers in disaster-stricken areas who have lost their jobs or been forced to switch careers. Accelerate the construction of public facilities in disaster areas and ensure that residents can safely get through the winter.

Securities Regulatory Commission The pilot program for securities firms’ margin trading and short selling business will be launched.

October 5, 2008

On October 5, with the approval of the State Council, the CSRC will soon launch a pilot program for securities firms’ margin trading and short selling business.

Relevant officials said that the margin trading and short selling business will be rolled out in a phased manner, starting with pilot programs and gradually expanding to more firms. The first batch of pilot companies will be selected based on their net capital size, compliance status, risk control indicators, and readiness of their pilot plans. Subsequently, the scope will be gradually expanded according to the outcomes of the pilot programs.

The pilot program will cover securities firms of various types and from different regions. During the pilot phase, securities firms will be permitted to engage in margin trading and short selling only by using their own funds and securities. Meanwhile, the CSRC will expedite the design and preparation for the stock-lending and borrowing business. Once the pilot program proves successful, margin trading and short selling will become a regular part of the operations for Chinese securities firms.

In addition, the Shanghai and Shenzhen Stock Exchanges will promptly announce the scope and names of the securities eligible for the margin trading and short selling pilot program. During the pilot period, the CSRC will provide window guidance to the pilot securities firms. Based on their own specific circumstances, these pilot firms will adopt prudent measures—such as appropriately raising the qualification requirements and asset thresholds for margin trading and short selling clients—to mitigate business risks and ensure orderly competition within the industry.

It is understood that, while launching the margin trading and short selling pilot program, the CSRC will also intensify its crackdown on illegal financing activities. Any institution or individual engaging in margin trading and short selling without prior approval will be prohibited, and all forms of illegal margin trading and short selling activities will be rigorously investigated and dealt with. This is aimed at protecting investors’ interests and ensuring the orderly and compliant development of the margin trading and short selling business.

The central bank has resumed issuing medium-term notes to support listed companies in repurchasing their own shares.

October 5, 2008

Yesterday, the People's Bank of China announced that, in response to the prominent contradictions currently emerging in economic and financial operations, it has agreed to allow the National Association of Financial Market Institutional Investors to continue accepting registrations for medium-term notes issued by non-financial enterprises starting October 6.

The central bank stated that enterprises that have already registered but have not yet issued bonds, or those that have partially issued bonds but still have remaining registered quotas within the validity period of their issuance registration, may resume issuing medium-term notes. Listed companies will be accepted, with priority given to registration reports submitted by large-cap, heavily weighted listed companies for issuing medium-term notes. Funds raised by listed companies through the issuance of medium-term notes may, in accordance with relevant national regulations, be used for the repurchase of the company’s own shares. Priority will also be given to registration reports submitted by major enterprises in key sectors of the national economy, such as coal, power, oil, and transportation.

Medium-term notes are an innovative debt financing instrument in the interbank bond market. The central bank launched the issuance of medium-term notes in mid-April, and within two months, the total issuance reached 73.5 billion yuan. At the end of June, the issuance of medium-term notes was temporarily suspended.

Expert Analysis: To Prevent China’s Economy from Slowing Down, the Central Bank Resumes Issuing Medium-Term Notes.

Guo Tianyong, director of the China Banking Research Center at the Central University of Finance and Economics, said in an interview with reporters yesterday that the central bank’s approval for non-financial enterprises to resume issuing medium-term notes stems from two main considerations: First, to prevent the economy from sliding downward. Currently, many enterprises are facing tight liquidity, and easing their financial pressures would play a positive role in averting an economic downturn. Second, allowing the funds raised to be used for repurchasing the company’s own shares is aimed at stabilizing the stock market. At present, for many listed companies, a significant number lack sufficient funds to carry out share buybacks.

　　Chen Daofu, deputy director of the Comprehensive Research Office at the Institute of Finance of the China National Research Center, told reporters yesterday that the central bank’s resumption of medium-term note issuance is, more importantly, aimed at developing the direct financing market. He said that funds raised by listed companies through the issuance of medium-term notes can be used either to repurchase their own shares or allocated to other purposes. Moreover, in the current macroeconomic environment, restarting the issuance of medium-term notes also serves to address the financing difficulties faced by enterprises amid the economic downturn.

　　 There will be no quantity limit on the issuance quota.
Shi Lei said that compared to corporate bonds and enterprise bonds, medium-term notes have several advantages. Medium-term notes are subject to a filing system, with relatively flexible issuance quotas—companies can use up their allocated quota within two years. There is no quantitative limit on the amount of medium-term notes that can be issued; instead, the issuance volume largely depends on market acceptance. Medium-term notes are issued through a bidding process, and their costs are determined by market conditions. Moreover, from the time of application to approval, medium-term notes take only one month—a significant reduction compared to the one-year approval period for corporate bonds and enterprise bonds—thus greatly enhancing the efficiency of medium-term note issuance.

　　Guo Tianyong also believes that the scale of medium-term note issuance should take into account the market’s capacity to absorb such issues. Judging from the current situation, the interbank bond market is relatively large, with numerous major financial institutions participating. Moreover, looking ahead at the development of China’s financial markets, we should place less emphasis on the size of issuance.

　　 Both positive and negative for the banking sector.

　　“The issuance of medium-term notes is beneficial for the banking sector,” said Shi Lei, because medium-term notes are traded in the interbank market, and banks serve as underwriters for these notes. As a result, medium-term notes have boosted banks’ income from intermediary services. However, Shi Lei believes that this revenue won’t be very high—after all, if the total volume of medium-term notes reaches 200 billion yuan and banks charge an intermediary fee of just 0.05%, their revenue would still amount to only over 100 million yuan.

　　Guo Tianyong also told reporters yesterday that, on the one hand, banks’ issuance of medium-term notes boosts their revenue from intermediary services, which is positive for them. On the other hand, however, companies are bypassing banks to raise funds directly, thereby poaching banks’ customer base and impacting banks’ lending activities and related commissions—thus constituting a negative factor for banks.

Issued by the Ministry of Finance and the State Administration of Taxation Notice on Issues Concerning the Collection of Enterprise Income Tax from Non-resident Enterprises

September 25, 2008

On September 23, the State Administration of Taxation clarified once again the relevant issues concerning the collection of enterprise income tax from non-resident enterprises. In accordance with Article 19 of the Enterprise Income Tax Law of the People’s Republic of China and Article 103 of the Implementation Regulations of the Enterprise Income Tax Law of the People’s Republic of China, when calculating and collecting enterprise income tax on income earned by non-resident enterprises as stipulated in Paragraph 3 of Article 3 of the Enterprise Income Tax Law of the People’s Republic of China, no other tax and fee expenses beyond those specifically provided for in the aforementioned articles may be deducted.

The National Development and Reform Commission, the Ministry of Finance, and the State Administration of Taxation have released the Catalog of Enterprise Income Tax Preferences for Specialized Equipment Used in Environmental Protection, Energy Conservation, Water Saving, and Safe Production.

September 23, 2008

In accordance with the relevant provisions of the Enterprise Income Tax Law of the People’s Republic of China (hereinafter referred to as the “Enterprise Income Tax Law”) and the Implementation Regulations of the Enterprise Income Tax Law of the People’s Republic of China (Decree No. 512 of the State Council), with the approval of the State Council, the Ministry of Finance, the State Administration of Taxation, and the National Development and Reform Commission have published the “Catalog of Enterprise Income Tax Preferences for Specialized Equipment for Environmental Protection” and the “Catalog of Enterprise Income Tax Preferences for Specialized Equipment for Energy Conservation and Water Saving.” Meanwhile, the Ministry of Finance, the State Administration of Taxation, and the State Administration of Work Safety have published the “Catalog of Enterprise Income Tax Preferences for Specialized Equipment for Safe Production” (hereinafter collectively referred to as the “Catalog”). We hereby notify you of the following matters concerning the implementation of the “Catalog”:

1. Starting from January 1, 2008, enterprises that purchase and actually use specialized equipment listed in the “Catalog” for environmental protection, energy conservation, water saving, and safe production may offset 10% of their current-year enterprise income tax payable against the investment amount of such specialized equipment. If the enterprise’s current-year tax liability is insufficient to cover the full offset, the remaining amount may be carried forward to subsequent years, but the carryforward period shall not exceed five tax years.

2. The investment amount for specialized equipment refers to the total price shown on the invoice for the purchase of specialized equipment, including tax but excluding the value-added tax refund granted in accordance with relevant regulations, as well as expenses related to equipment transportation, installation, and commissioning.

3. The tax payable for the year refers to the enterprise’s taxable income for the year multiplied by the applicable tax rate, less any amounts reduced or exempted in accordance with the Corporate Income Tax Law, relevant tax incentive provisions of the State Council, and transitional tax incentive provisions.

4. The investment amount spent by enterprises on purchasing specialized equipment using their own funds and bank loans may be credited against the enterprise income tax payable in accordance with the provisions of the Enterprise Income Tax Law. However, the investment amount spent by enterprises on purchasing specialized equipment using fiscal appropriations shall not be credited against the enterprise income tax payable.

　　V. If an enterprise purchases and puts into actual use specialized equipment that is eligible for tax incentives and has already begun enjoying such incentives, and if the equipment is transferred or leased within five tax years from the date of purchase, the enterprise shall cease enjoying the corporate income tax incentives in the month when the specialized equipment is no longer in use and shall make up for any corporate income tax that has already been credited. The transferee of the equipment may offset 10% of the investment amount of the specialized equipment against its corporate income tax payable for the current year; if the tax payable for the current year is insufficient to cover the full offset, the remaining amount may be carried forward and offset over the subsequent five tax years.
6. Based on the needs of economic and social development and the implementation status of preferential corporate income tax policies, the financial and tax authorities under the State Council, in coordination with relevant departments such as the National Development and Reform Commission and the State Administration of Work Safety, will, at appropriate times, adjust and revise the projects listed in the “Catalog,” and after obtaining approval from the State Council, update the “Catalog.”

The Ministry of Finance and the State Administration of Taxation have issued the "Notice on Issues Concerning the Implementation of the Catalog of Preferential Corporate Income Tax Treatments for Public Infrastructure Projects."

September 23, 2008

In accordance with the relevant provisions of the Enterprise Income Tax Law of the People’s Republic of China (hereinafter referred to as the “Enterprise Income Tax Law”) and the Implementation Regulations of the Enterprise Income Tax Law of the People’s Republic of China (Decree No. 512 of the State Council), with the approval of the State Council, the Ministry of Finance, the State Administration of Taxation, and the National Development and Reform Commission have announced the “Catalog of Enterprise Income Tax Preferences for Public Infrastructure Projects” (hereinafter referred to as the “Catalog”). We hereby notify you of the following matters concerning the implementation of the “Catalog”:
1. For public infrastructure projects listed in the Catalog that meet the relevant conditions and technical standards and comply with national investment management regulations, and which were approved after January 1, 2008, the income derived from their investment and operation shall be exempt from corporate income tax for the first three tax years starting from the tax year in which the project generates its first production and operating income; for the fourth to sixth tax years, the corporate income tax shall be levied at a reduced rate of 50%.
The first operating and production revenue refers to the very first revenue generated after a public infrastructure project has been completed and put into operation.
II. Income earned by an enterprise from projects not listed in the “Catalog” shall be accounted for separately from income derived from public infrastructure projects eligible for preferential treatment, and period costs shall be allocated reasonably. If such separate accounting is not performed, the enterprise shall not be entitled to the aforementioned corporate income tax preferential policies.
3. Enterprise-contracted operations, contracted construction projects, and internally-built public infrastructure projects for self-use shall not be eligible for the aforementioned corporate income tax incentives.
4. Based on the needs of economic and social development and the implementation status of preferential corporate income tax policies, the financial and tax authorities under the State Council, in coordination with relevant departments such as the National Development and Reform Commission, will timely adjust and revise the projects listed in the “Catalog,” and update the “Catalog” after obtaining approval from the State Council. Regarding the implementation of the corporate income tax policy for enterprises engaged in comprehensive utilization of resources...
September 23 — Notice on Issues Relating to the Preferential Catalogue, Cai Shui [2008] No. 47
Finance Departments (Bureaus) of Provinces, Autonomous Regions, Directly-Administered Municipalities, and Cities under Separate Planning; State Administration of Taxation; Local Tax Bureaus; and the Finance Bureau of the Xinjiang Production and Construction Corps:
In accordance with the relevant provisions of the Enterprise Income Tax Law of the People’s Republic of China and the Implementation Regulations of the Enterprise Income Tax Law of the People’s Republic of China (Decree No. 512 of the State Council, hereinafter referred to as the “Implementation Regulations”), and with the approval of the State Council, the Ministry of Finance, the State Administration of Taxation, and the National Development and Reform Commission have announced the “Catalog of Preferential Enterprise Income Tax Treatments for Enterprises Engaged in Comprehensive Resource Utilization” (hereinafter referred to as the “Catalog”). The following notice is hereby given regarding the implementation of the “Catalog”:
1. Starting from January 1, 2008, for income derived by enterprises from the production of products listed in the “Catalog” that use the resources specified in the “Catalog” as their primary raw materials and comply with relevant national or industry standards, such income shall be included in the total annual income at a reduced rate of 90% when calculating taxable income. When enjoying the above-mentioned tax benefits, the proportion of resources listed in the “Catalog” used as raw materials in the products must meet the technical standards stipulated in the “Catalog.”
II. Non-renewable resource utilization income earned by enterprises from engaging in other projects simultaneously shall be accounted for separately from renewable resource utilization income. If such separate accounting is not maintained, the enterprise will not be eligible for preferential policies.
3. Enterprises engaging in projects that do not comply with the scope, conditions, and technical standards stipulated in the Implementation Regulations and the Catalog shall not be eligible for the corporate income tax preferential policies for enterprises engaged in comprehensive resource utilization.
4. Based on the needs of economic and social development and the implementation status of preferential corporate income tax policies, the financial and tax authorities under the State Council, together with relevant departments such as the National Development and Reform Commission, will, at appropriate times, adjust and revise the projects listed in the “Catalog,” and after obtaining approval from the State Council, update the “Catalog.”

Ministry of Finance, State Administration of Taxation Adjust the method of collecting stamp duty on securities (stock) transactions.

September 18, 2008

With the approval of the State Council, the Ministry of Finance and the State Administration of Taxation have decided, effective September 19, 2008, to adjust the collection method for the securities (stock) transaction stamp tax. Specifically, the current practice of levying the securities (stock) transaction stamp tax at a rate of 1‰ on both parties involved in the transfer of A-share and B-share equity certificates executed through buying, selling, inheritance, or gift will be revised to a unilateral tax collection system. Under this new arrangement, the securities (stock) transaction stamp tax will be levied at a rate of 1‰ only on the transferor—the party selling, inheriting, or gifting the equity certificates—and no longer on the transferee.