3. Foreign Trade Policies and Regulations

　3.1 Major Preferential Policies

　A uniform foreign trade system is practiced in China to maintain justice and free foreign trade orders. Foreign trade is encouraged and free import and export of goods and technology are allowed (except when specified otherwise by law). The export of machinery and electrical products, development of processing trades, service trades, and overseas processing trades is encouraged. The import of advanced technology and equipment, investment by foreign business people, and contracting overseas projects and labour co-operation are also encouraged. Market diversification and hi-tech backed business policies are implemented.

　Qingdao enjoys provincial-level economic management rights, and is one of the areas in China that enjoy the most preferential policies.

　<>If the foreign-invested manufacturing enterprise has an operating period of over 10 years, income tax will be exempted for the first two years beginning from the first year in profit and reduced by 50% from the third to the fifth year.
　<>The foreign party of a foreign-invested enterprise will be allowed to directly reinvest the business profits in the registered capital of the enterprise or invest them in other enterprises. If the operating period is not less than 5 years, 40% of the paid income tax of the reinvested part will be refunded. If funds are reinvested directly into the building or expansion of export-oriented enterprises or advanced technological enterprises, the paid income tax will be completely refunded.
　<>If the enterprise is set up at a port or a dock with an operating period of over 15 years, the income tax will be exempted for the first five years beginning from the first year in profit and reduced by half from the sixth to the tenth year.
　<>If the enterprise is engaged in breeding, planting, forestry, animal husbandry, or fishery, the product sales VAT will be exempted.
　<>After approval by the State Council, some foreign-funded enterprises will enjoy tax reimbursement when they purchase domestic equipment. 40% of the investment in purchasing domestic equipment (total invoice price and tax after deduction of refunded VAT and charges of transportation, installation, and test of equipment) can be offset by the newly added income tax over the previous year.
　<>From June 24, 2000 to the end of 2010, if the VAT of the sales of self-produced computer software and hardware exceeds 3%, the extra payment of the ordinary tax-payer will be refunded immediately after payment.
　<>Advanced or preferential technology transfer by a foreign enterprise, if approved by the tax administrative dept., the business tax and business income tax can be exempted. Business tax for technology transfer and technology development of a foreign invested enterprise can be exempted.
　<>Income tax for profits obtained from a foreign invested enterprise by a foreign businessperson will be exempted. Profits and share interests, bonus and incomes after enterprise settlement, can be freely remitted abroad.
　<>The deficit in a foreign invested enterprise can be offset with the next year's income. If the next year's income is insufficient, the following years' income can be used for a period not exceeding 5 years.
　<>For approved foreign invested projects, which belong to the encouraged class, restricted class II with technical transfer of the "Foreign Investment Enterprise Index", the import tariff and import link VAT, will be exempted for the following items (items listed in the "Foreign Investment Project Non-tax-free Commodity Index" are excluded): importing self-use equipment within the total investment volume (including importing auxiliary technology and a reasonable quantity of supporting or spare parts); importing self-use equipment using loans provided by foreign governments and international financial organizations, and processing equipment excluded from the import quota provided by foreign partners.
　<>Import tariff will be exempted for the renewal (complete-set or production line excluded) or repair of existing equipment using self-owned capital (enterprise reserved funds, development funds, depreciation, and after-tax profits), import of self-use equipment and its supporting technology, components and spare parts, which cannot be produced domestically, within the approved production scope, outside the total investment volume, when the existing encouraged class and restricted class II foreign invested enterprises, foreign invested research & development centres, or advanced technology and export-oriented foreign invested enterprises conduct technical innovations.
　<>Import tariff will be exempted if foreign invested research & development centres import self-use equipment and other related technology, components, and spare parts, which cannot be produced domestically or cannot meet the needs, within the total investment volume.
l If not specified otherwise, the production link consumption tax will be exempted and tax reimbursement for VAT will be practiced for the export of products of foreign invested enterprises.
　<>Large and medium-sized enterprises can be contracted by or leased to large international enterprises or consortia. Small and medium-sized state-owned, collectively-owned or township enterprises can be sold, leased or transferred to domestic or foreign enterprises. Foreign business people, who contract, hire or buy small or medium-sized enterprises in Qingdao, can enjoy preferential policies for internal investment enterprises.
　<>Foreign banks are encouraged to set up branches in Qingdao. Local income taxes will be exempted for the profits from these branches. Sino-foreign jointly funded or co-operated travel agencies are positively encouraged.
　<>According to relevant regulations, foreign businesses investing in traffic facilities or public utilities may operate relevant service businesses and utilize BOT, TOT, or other forms. They may also enjoy tax exemption and reduction policies granted by the state. Investors involved in the construction of highways and bridges, whose charges fall into the category stipulated by the state, may make suggestions on toll fees on the basis of a rational investment recouping period. The plan will be put into effect upon examination and approval by related authorities within the sphere of responsibility for price management. The toll fees will be modified according to the social price fluctuations upon the approval of the original authorities. Foreign invested traffic facilities will be exempted of local income taxes.
　<>Foreign invested enterprises approved to participate in the renovation of old urban areas with a concentration of poor houses and the development and construction of affordable housing for low- and medium-income families will enjoy the same treatment as domestic enterprises. Land for the construction of affordable housing approved by the government may be supplied through the form of administrative allocation. Relevant fees will be exempted or reduced accordingly. In the living areas, 20%-30% commodity houses will be built in order to increase the foreign investment recouping rate.
　<>Foreign investment in agriculture will be exempted from the local income tax. 40% of the paid reinvestment tax will be refunded in full if foreign investors reinvest in agriculture using the profits obtained from their investments and the operational period of the reinvestment is five years or longer.
　<>Taxes paid by foreign investors in exploitation of barren hills, shallows, or water resources will be refunded in full, with approval by the municipal or district government. Further 50% of the same will be deducted for the following five years.
　<>Priority will be placed on agriculture in land allocation. 50% of the land-use fee will be exempted for the investment using large areas of non-farm land for exploitation of agriculture, forestry, and animal husbandry, and a certain amount of the same will be deducted from the sixth year. The land-use fee will be exempted in full for ten years for foreign investment in low-yield farmland. Land lease deposit of reserved land for projects using investment of over US$10 million (including US$10 million) will be exempted under approval of local finance and land administrations. The land can be paid for in installments. Permission to withhold 100% use-right for thirty years of shallows shall be granted to investors who are engaged in the said exploitation, and land transfer fees will be exempted in full.
　<>A 30% deduction of the prescribed land-use fee will be granted for investments in export or advanced technology enterprises. Enterprises, which are given the land-use right in the form of transfer, will enjoy exemption of land-use fees from September 1, 1999.
　<>Many talented people and returning graduates from abroad are attracted to Qingdao, and preferential treatment is exercised for their work, families, and daily life. Excellent people are encouraged to establish enterprises here, and the new hi-tech products developed by these people will be granted preferential entry into the returnee industrial garden, where all the local preferential policies will be available.

　　3.2 Main Areas for Foreign Investment in Qingdao

　Foreign investment encouragement principles

　<>Hi-tech priority principle: Investments in new skill, new material, new technology and new product are encouraged. Reforming the traditional industries using new hi technology is also encouraged.
　<>Demand expanding and export increasing priority principle. Investments in trades or products, which have potential market and large capacity and export development, and investments in some service and trade fields, are encouraged.
　<>Sustainable development principle: Investments in comprehensive resource development and utilization and environment protection are encouraged.

　Major foreign investment sectors

　<>Special support will be given to foreign investments in the IT industry, electronic information, bio-pharmacy, new materials, machine building, and chemical engineering; foreign investments in agricultural development and farm product deep-processing, and investments in traffic, energy, and other urban infrastructure facilities in diversified forms and modes will be encouraged.
　<>Foreign investments in the expansion of such pillar industries as new household appliances, new beverages, petrochemicals, shipbuilding, automobile and vehicle making, and electronic equipment will be encouraged. Foreign business people will be encouraged to make investments in the transformation of traditional trades like textiles, garments, light industry, foodstuffs, rubber, and mechanical processing.
　<>Encouragement will also be given to foreign investments in service fields including culture, education, health, tourism, and information consultation.