What’s the pricing policy of china?

China currently applied a mechanism of market-based pricing under macro-economic adjustment. There were presently three types of prices:
Government price
Government guidance price
Market-regulated price

The government price was set by price administration authorities and could not be changed without the approval of these authorities. Products and services subject to government pricing were those having a direct bearing on the national economy and the basic needs of the people‘s livelihood, including those products that were scarce in China. Meanwhile, government pricing was product- or service-specific, regardless of the ownership of the enterprises concerned. National treatment was applied in the areas of government pricing for all imported goods.

The government guidance price mechanism was a more flexible form of pricing. The price administration authorities stipulated either a basic price or floating ranges. The floating range of guidance pricing was generally 5 percent to 15 percent. Enterprises could, within the limits of the guidance and taking into account the market situation, make their own decisions on prices. With market-regulated prices, enterprises were free to set prices in accordance with supply and demand to the extent permitted by generally applicable laws, regulations and policies concerning prices.

Due to the continued reform of China‘s price system, the share of government prices had dropped substantially and that of market-regulated prices had increased; of social retailing products, the share of government prices was about 4 percent, that of government guidance prices 1.2 percent, and that of market-regulated prices 94.7 percent. For agricultural products, the share of government prices was 9.1 percent, government guidance prices 7.1 percent, and market-regulated 83.3 percent. For production inputs, the share of government prices was 9.6 percent, that of government guidance prices 4.4 percent, and market-regulated prices 86 percent. The share of directly government-controlled prices had been much reduced. China‘s price system was becoming increasingly rationalized, creating a relatively fair marketplace for all enterprises to compete on an equal footing.
 
What’s the competition policy of China?
The Government of China encouraged fair competition and was against acts of unfair competition of all kinds. The Law of the People‘s Republic of China on Combating Unfair Competition, promulgated on 2 September 1993 and implemented on 1 December 1993, was the basic law to maintain the order of competition in the market. In addition, the Price Law, the Law on Tendering and Bidding, the Criminal Law and other relevant laws also contained provisions on anti-monopoly and unfair competition. China was now formulating the Law on Anti-Monopoly.
  
General Policy Questions
1. What are the basic laws and regulations encouraging overseas investment? 
2. What are the formalities for overseas investment to establish enterprises in China? What departments are involved?
3. What items are encouraged for foreign investment by China, and what are prohibited?
4. What major achievements has China made in attracting foreign investment during the Ninth Five-Year Plan period (1996-2000)?
5. What impact may China‘s accession to the WTO have on foreign investment in China?
6. What are the changes in the new versions of the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures, Law on Chinese-Foreign Contractual Joint Ventures?
7. What are the regulations concerning labor management of foreign-invested enterprises?
8. What are the rules for foreign businesspeople to invest in investment companies?
9. What are the rules for foreign shipping companies to set up their solely owned companies in China?
10. What are the conditions for establishing Chinese-foreign equity and contractual joint venture medical institutions within Chinese territory?
11. What are the rules for establishing foreign-funded commercial enterprises in China?
12. What are the regulations concerning taxes for enterprises with foreign investment and foreign enterprises engaged in consultation business?
13. Are foreign businesses allowed to invest in cinemas? What are the relevant regulations?
 
Preferential Policies 
1. What are the preferential policies offered to enterprises with foreign investment?
2. What are the favorable policies for further encouraging foreign investment in high technology industries? 
3. What are the specific policies that encourage the development of software and integrated circuit industries?
4. What are the regulations regarding foreign investment in the establishment of research and development centers? What preferential policies are offered?
5. What are the favorable policies for foreign investors to central and western China?
6. What measures will the Chinese government take to expand the scale and enhance the level of foreign investment introduction in the Tenth Five-Year Plan (2001-2005)?
7. What are the specific regulations concerning the investment within China of foreign-invested enterprises? Will they continue to enjoy the preferential treatment given to foreign-invested enter?

What are the preferential policies offered to enterprises with foreign investment?
The Chinese government levies low tax on enterprises with foreign investment, and preferential tax policies are offered to the sectors and regions where investment is encouraged by the state.

1. Income Tax
a. Rate of income tax:
The income tax on enterprises with foreign investment is levied at the rate of 33 percent. The income tax on enterprises with foreign investment located in special economic zones, state new- and hi-tech industrial zones, or economic and technological development zones is levied at the rate of 15 percent. The income tax on production enterprises with foreign investment located in coastal economic open zones, special economic zones, or in the old urban district of cities where economic and technological development zones are located is levied at the rate of 24 percent. And the income tax on enterprises with foreign investment that are engaged in projects such as energy, communications, port and dock is levied at the reduced rate of 15 percent.
 
b. Tax reduction and exemption:
The production enterprises with foreign investment that have an operation period exceeding 10 years shall, from the year they begin to make profit, be exempt from income tax for the first two years and allowed a 50 percent reduction for the following three years. Enterprises with foreign investment engaged in agriculture, forestry and animal husbandry, and enterprises with foreign investment established in remote and underdeveloped areas may, upon approval by the State Bureau of Taxation, be allowed a 15 to 30 percent reduction on the income tax for a period of another 10 years following the expiration of the period of tax exemption and reduction as provided for above. The income tax on enterprises with foreign investment located in mid-west China that are engaged in projects encouraged by the government shall be levied at a reduced rate of 15 percent for a period of another three years following the expiration of the Five-Year period of tax exemption and reduction. The enterprises with foreign investment that adopt advanced technology shall be exempt from income tax for the first two years and allowed a 50 percent reduction for the following six years. In addition to the two-year tax exemption and three-year tax reduction treatment, foreign-invested enterprises producing for export shall be allowed a reduced income tax rate of 50 percent as long as their annual export accounts for 70 percent or more of their sales volume. The foreign investor of an enterprise with foreign investment which reinvests its share of profit obtained from the enterprise in a project with an operation period of no less than 5 years shall, upon approval by the State Bureau of Taxation of an application filed by the investor, be refunded 40 percent of the income tax already paid on the reinvested amount.

2. Circulation-stage Tax:
Since January 1st, 1994, the Chinese government has levied unified value-added tax, consumption tax and business tax on enterprises with foreign investment and domestic enterprises. Technology transfer and technological development by foreign enterprises and enterprises with foreign investment are exempted from value-added tax, as a measure to expand domestic demand and to encourage technological renovation in foreign-invested enterprises. For foreign-invested enterprises engaged in projects in the encouraged or restricted-B categories, the value-added tax on China-made equipment purchased by the enterprises within their total amount of investment shall be fully refunded if the equipment is listed under the catalogue offered with income tariff exemption.

3. Import-stage Value-added Tax
a. Tariff rate: Since 1992 the Chinese government has reduced nine times the tariff rate for imported commodities. The present average tariff rate is 12 percent.
b. Tax exemption for imported equipment: Equipment imported for foreign-invested or domestic-invested projects that are encouraged and supported by the state shall enjoy tariff and import-stage value-added tax exemption.
 
What are the favorable policies for further encouraging foreign investment in high technology industries?
To encourage foreign-invested enterprises to introduce advanced foreign technologies and equipment, to promote industrial restructuring and technological upgrading, and to maintain sustained, rapid and healthy development of the national economy, the Chinese government has stipulated in recent years a series of favorable policies to invite foreign investment in high technology industries. These policies are mainly as follows:
 
1). Self-use equipment and supporting technologies, parts and spares imported for technological upgrading within their previously approved scope of production and operation by foreign-invested enterprises under the encouraged or restricted-B categories, foreign-invested research and development centers, foreign-invested enterprises producing for export and technologically advanced foreign-invested enterprises shall be exempted from the import tariff and import-stage value-added tax, if the equipment and supporting technologies, parts and spares cannot be produced domestically or the features and functionality of domestic products cannot meet requirements.
 
2). Self-use equipment and supporting technology, parts, spares and other accessories as clarified in the contract, imported by enterprises with foreign investment for the production of the products listed under the Catalogue of the State High and New Technology Products, shall be exempted, in accordance with relevant regulations, from the import tariff and import-stage value-added tax. 
 
3). Advanced technologies listed under the Catalog of the State High and New Technology Products introduced by enterprises with foreign investment, and their outbound payment made on the software in accordance with the contract shall be exempted from tariff and import-stage value-added tax. 
 
4). Self-use equipment and supporting technologies, parts and spares imported by foreign-invested research and development centers within the total amount of their investment shall be exempted, in accordance with relevant regulations, from the import tariff and import-stage value-added tax, if the imports cannot be produced domestically or the features and functionality of domestic products cannot meet requirements.

5). In cases where the tax refund rate on products listed under the Catalogue of the State High and New Technology Export Commodities is not up to the tax rate, a tax refund can be proceeded in accordance with the tax rate and existing regulations concerning tax refunding on exports, after the above-mentioned products are exported and upon approval by the State Bureau of Taxation.

6). If enterprises with foreign investment under the encouraged or the restricted-B categories purchase within the total amount of their investment China-made equipment that is listed under imports for import duty exemption, the enterprises can obtain a full refund of domestic equipment value-added tax on the equipment they have purchased. When enterprises with foreign investment purchase China-made equipment for the purpose of technological upgrading in conformity with the state industrial policy or for producing high-technology products, the cost of the equipment can offset the business income tax of these enterprises.

7). The incomes of foreign-invested enterprises and research and development centers and foreign enterprises and individuals obtained from technology transfer and development and related technological consultation and services shall be exempted from business tax.

8). If the expenditure on technology development of enterprises with foreign investment increases by 10 percent or more over that of the previous year, the taxable income of the enterprises for the current year can, with the approval of the taxation authorities, be set off by 50 percent of the actual amount of the spending on technology development.

9). In accordance with the articles concerning donations in the Income Tax Law of the People‘s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises, the foreign-invested and foreign enterprises who provide financial aid to non-affiliated scientific and research institutes or schools of higher learning for their research and development projects can deduct the entire amount of the aid from their taxable income.
 
What are the favorable policies for foreign investors to central and western China? 
In order to coordinate economic development in different areas, the Chinese government is encouraging foreign investment in central and western China. Key measures being taken are as follows.

1). The state has approved and issued the Catalogue of Advantageous Sectors for Foreign investment in Central and Western Regions. Projects included in this catalogue enjoy the same policy as offered to projects of encouraged category in the Industrial Catalogue for Foreign Investment, and favorable tax policy applies to the import of necessary equipment, parts, spares and technology used in such projects.

2). There will be fewer restrictions in investment fields, and on the conditions for establishment of foreign-invested enterprises in central and western China, as well as on the proportion of shares owned by the foreign contingent of the foreign-invested enterprises in these areas.

3). Encouraged Projects in central and western China shall pay income tax at the reduced rate of 15 percent for three years on expiry of the current favorable tax period.

4). If foreign-invested enterprises reinvest in central and western China with foreign capital accounting for 25 percent or more of the project, the new project will enjoy policies offered to enterprises with foreign investment.

5). Trial projects approved by the central government should, in principle, be carried out simultaneously in eastern, central and western China. On approval from the state government, provincial and autonomous regional capitals and municipalities may open the fields of commerce, foreign trade and banking to foreign investment on a trial basis. Foreign-funded banks in western China may embark on RMB business gradually. Foreign investors may invest in telecommunications and tourism insurance in accordance with relevant regulations, and set up Sino-foreign joint venture accounting firms, engineering design companies, railway and highway freight transport and public utility companies, and other fields open to foreign investment.

6). Provinces, municipalities and autonomous regions in central and western China may select a built-up development area in the provincial or regional capital and apply for the status of a national economic and technological development zone.

7). Enterprises with foreign investment engaged in energy and transportation infrastructure will pay income tax at the reduced rate of 15 percent with approval from the State Bureau of Taxation.

8). In the interests of protecting the ecological environment, income from special products reverting cultivated land to forestry and grassland is exempt from special agricultural product tax for a period of ten years.

9). There are also preferential policies for land use and mineral resource exploration, promoting forest farming and grass planting on barren mountain slopes and fields, and the reverting of cultivated land to forest and grassland. Those who revert cultivated land to forest and grassland enjoy land use rights, as well as rights of ownership of forest or grassland. Economic entities and individuals may apply to utilize barren mountain slopes and fields according to legal procedures, plant trees and grass, and practice ecological environmental protection. Alternatively, they can be granted the land use rights directly from the state, in which case the land utilization fee will be either exempted or reduced. Land use rights will remain unchanged for a period of 50 years. On expiration of this period, application may be made for renewal of these rights. The granted rights of land use may be inherited, or transferred on payment of a transfer fee. The government supports activities involving mineral resource exploration, evaluation, rational utilization and protection.

10). Foreign investment is encouraged in agriculture, water conservancy, transportation, energy, ecological and environmental protection, tourism, mining, municipal engineering and other infrastructure projects in western China. The establishment of foreign-invested research and development centers are also encouraged, and will be given support in terms of funding for accessory projects and pertinent policies.

11). Trials in western China to utilize foreign capital through BOT and TOT methods are encouraged. The state supports enterprises in the encouraged and permitted categories in the west to attract foreign investment through assignment of operation right, offering equity interests and enterprise merger and reorganization.
 
Policy Dynamics and Limitations
1. What items are prohibited for foreign investment by China?
2. What impact may China's accession to the WTO have on foreign investment in China?
3. What are the changes in the new versions of the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures, Law on Chinese-Foreign Contractual Joint Ventures?
4. What are the conditions for establishing Chinese-foreign equity and contractual joint venture medical institutions within Chinese territory?
5. What are the regulations concerning taxes for enterprises with foreign investment and foreign enterprises engaged in consultation business?