BUSINESS ENVIRONMENT IN CHINA

CHAPTER I
INTRODUCTION
The People's Republic of China (PRC), commonly known as China, is the most populous state in the world with over 1.3 billion people. Located in East Asia, it is a single-party state governed by the Communist Party of China (CPC). The PRC exercises jurisdiction over 22 provinces, five autonomous regions, four directly administered municipalities (Beijing, Tianjin, Shanghai, and Chongqing), and two highly autonomous special administrative regions (SARs) Hong Kong and Macau. Its capital city is Beijing. At about 9.6 million square kilometres (3.7 million square miles), the PRC is the world's third- or fourth-largest country by total area, depending on the definition of what is included in that total, and the second largest by land area. Its landscape is diverse, with forest steppes and deserts (the Gobi and Taklamakan) in the dry north near Mongolia and Russia's Siberia, and subtropical forests in the wet south close to Vietnam, Laos, and Burma. The terrain in the west is rugged and elevated, with the Himalayas and the Tian Shan mountain ranges forming China's natural borders with India, Nepal and Central Asia. In contrast, mainland China's eastern seaboard is low-lying and has a 14,500kilometre (9,000 mi) long coastline (the 11th longest in the world), bounded on the southeast by the South China Sea and on the east by the East China Sea, beyond which lie Taiwan, Korea, and Japan. The ancient Chinese civilizationone of the world's earliestflourished in the fertile basin of the Yellow River which flows through the North China Plain.[16] For more than 6,000 years, China's political system was based on hereditary monarchies (also known as dynasties). The first of these dynasties was the Xia (approx. 2000 BC) but it was the later Qin Dynasty that first unified China in 221 BC. The last dynasty, the Qing, ended in 1911 with the founding of the Republic of China (ROC) by the Kuomintang (KMT), the Chinese Nationalist Party. The first half of the 20th century saw China plunged into a period of disunity and civil wars that divided the country into two main political camps the Kuomintang and the communists. Major hostilities ended in 1949, when the communists won the civil war and established the People's Republic of China in mainland China. The KMT-led Republic of China relocated their capital to Taipei on Taiwan; its jurisdiction is now limited to Taiwan, Kinmen, Matsu and several outlying islands. Since then, the People's Republic of China (PRC) has been involved in political disputes with the Republic of China over issues of sovereignty and the political status of Taiwan.

CHAPTER 2
1. CHINAS POLITICAL STABILITY
Chinas economic rise increases the odds that its currency is destined to become a global currency, according to The New York Times. No one expects that to happen immediately, the article carefully adds, even if the writing is on the wall. The RMB is likely to become a reserve currency in the future, even if the government of China does nothing about it, economist Robert Mundell predicts. Perhaps, although the story also recognizes the political risk that still haunts China. China needs to assure investors that its political system is stable and that its economy still has plenty of growth ahead, the Times advises. The warning resonates these days as Egypt sways to and fro under the winds of revolution, writes Barry Eichengreen, professor of economics and political science at Berkeley. Eichengreen opines that upheaval in Egypt and Tunisia of late is less about economic growth per se. Rather, the problem is that the benefits of growth have failed to trickle down to disaffected youth. On first glance, that may not appear to present a comparable threat in China, but the warning signs are there. As Eichengreen explains, Given the lack of political freedoms, the Chinese governments legitimacy rests on its ability to deliver improved living standards and increased economic opportunity to the masses. So far those masses have little to complain about. But that could change, and suddenly.

First, there is the growing problem of unemployment and underemployment among university graduates. Since 1999, when the Chinese government began a push to ramp up university education, the number of graduates has risen seven-fold, but the number of high-skilled, high-paying jobs has not kept pace.

Indeed, the country is rife with reports of desperate university graduates unable to find productive employment. Newspapers and blogs speak of the ant tribe of recent graduates living in cramped basements in the countrys big cities while futilely searching for work. Eichengreen is hardly alone in worrying about Chinas political stability. The risk consultancy Maplecroft recently analyzed such hazards for China. The country is categorized as extreme risk across several areas, according to Maplecroft, including: civil and political rights, judicial independence, democratic governance,

labor rights, and human rights violations committed by members of the security forces. Companies which are deemed in any way to be supporting a government or its agents in stifling democracy, liberty and human rights may suffer reputational damage, which will ultimately impact the bottom line. Meanwhile, Reuters reports that Egypts uprising may prompt renewed focus on political risk in emerging economies at a time of rising food and fuel prices, raising investor fears of unorthodox or repressive policy moves.

Ely Ratner at the RAND Corporation and a research fellow with the National Asia Research Program considers the future for China and concludes that there are a number of potential trouble spots. Writing in the latest issue of the Washington Quarterly, Ratner discusses the complicated rise of China in the 21st century: Beijings permissive attitude toward non-democratic principles and singular focus on domestic economic development have become potential sources of blowback, including the specter of international terrorism as just one example. This threat, which is one of the most serious challenges facing Beijing, is aggravated by the fact that Chinas integration into the global economy has naturally meant a growing number of Chinese companies and expatriates in foreign landsor in other words, an ever-expanding target set for those wishing to attack Chinese assets. From pipelines in Kazakhstan to refineries in Nigeria to ports in Sri Lanka, soft power begets soft targets.

Meanwhile, The Globe and Mail ponders what might happen if North Korea implodes: There is more political risk in China than many investors realize. Just last year China justified its support of North Korea by saying that if North Korea collapsed, hundreds of thousands of refugees would stream over the border into China. But deeper interviews revealed that China viewed the North Korean regimes survival as key to its own: North Korea is our East Germany, a senior Chinese security official told The Washington Post. Do you remember what happened when East Germany collapsed? The Soviet Union fell. What if the North Korean regime faced a revolt like the ones in Tunisia and Egypt? What happens to China then or to Chinese stocks and ETFs? Its easy to overestimate the potential for trouble, of course. But itd be a mistake to dismiss the possibilities for instability in China. No ones predicting another

Tiananmen Square protest, although its worth reminding that few expected that event. Thats the nature of political risk: It surprises, and not often in a good way. The best we can do in real time is assess the odds. Most of the dire forecasts wont pan out. But its the ones that do that are the problem.

2. CHINA INFRASTRUCTURE
a. SEAPORTS Chinas seaports have been the most important gateways for its US$2 trillion foreign trade. Currently, the nation ranks first in the world in terms of both cargo throughput by weight and by the number of containers handled. In terms of cargo turnover measured by weight, Shanghai is the worlds busiest port. In 2007, Shanghai Port handled 560 million tons of cargos, 4.2% higher than in 2006. In total, the top 10 ports in China account for about 55% of the national total.

For container turnovers, Shanghai , Shenzhen and Qingdao are the three most important ports in China . In 2007, Shanghai Port handled 26.2 million TEU, 20.4% higher than 2006, ranking Shanghai second in the world, next only to Singapore , which handled 27.9 million TEU in 2007. It is expected that Shanghai will take the crown from Singapore in 2008, becoming the worlds busiest container port.

In 2004, to meet further demand, the State Council approved the Plan on the Seaport Construction in Yangtze River Delta, Pearl River Delta and Bohai Bay (2004 to 2010). The three port clusters possess Chinas most important port facilities and are the key areas for Chinas port capacity expansion. According to the plan, by 2010, the port capacity in the three port clusters will be increased to 3.5 billion tons, more than double the capacity at the end of 2004. The total investment is estimated to be nearly RMB 600 billion.

b. AIRPORTS With the improved living standard and higher requirement for logistics, both passenger and cargo turnovers have been experiencing fast growth in Chinas 140 something civil airports. In 2006, passenger turnover in Chinese airports reached 332 million, 16.7% higher than in 2005 and cargo turnover reached 7.53 million tons, 19.0% higher than in 2005. Beijing Capital International Airport ranks first in terms of passenger turnover. In 2006, its passenger turnover reached 48.7 million, 5.6% higher than the combined value of the two airports in Shanghai (Hongqiao and Pudong). In 2006, Beijing, Shanghai and Guangzhou, the three most important aviation hubs in China, accounted for 36.5% of the total market share in China.

Where cargo turnover is concerned, Shanghai is unarguably the most important aviation hub in China. In 2006, cargo turnover in Pudong Airport alone was 80% higher than Beijing, its nearest rival. It should be noted that cargo turnover presents a more concentrated pattern compared to passenger turnover rates. In 2006, Beijing, Shanghai and Guangzhou accounted for 58.2% of the total market share.

c. EXPRESSWAYS The rocketing growth of foreign trade coupled with the booming domestic economy has generated great pressure for improvements to Chinas domestic transportation system. Roadway systems have played the most important role in container transportation. It is estimated by MOCOM (Ministry of Communication) that 84% of Chinas containers for shipment (or from shipments) at major ports are transported by roadways.

To increase land utilization efficiency and ensure fast traffic, China has placed expressways at the core of roadway network construction. According to MOCOM, expressways can save 60% of the land used for highways and provide a similar capacity of traffic volume.

The pace at which China has constructed expressways is the best indicator of how fast the nation has changed in the past two decades. Its first expressway Shanghai to Jiading, 18.5 km long, was built only 20 years ago and began operation in October 1988.

The first decade after that was rather slow in terms of expressway construction. By the end of 1997, the total length of Chinas expressways reached 4,800 km. They were being constructed at a rate of 480 km per year. However, since 1998, the pace of expressway construction has accelerated. By the end of 2007, Chinas total length of expressways reached 53,000km, constructed at a rate of 4,820 km per year - a rate more than 10 times that of the first ten-year period. Currently, China ranks second in terms of total length of expressways, next only to the

United States (which had expressway networks of 75,000 km by the end of 2005).

By the end of 2006, there were six provinces with more than 2,000 km of expressway. Among them, Henan, Chinas most populous province ranked first with 3,439 km of expressway. Jiangsu, Guangdong and Shandong also had expressways of more than 3,000km.

It is worth mentioning that Henan almost doubled its total length of expressways in two years. Back in 2004, the length of Henans expressways measured only 1,759 km. However, information from MOCOM shows that by the end of 2007, the length of Henans expressways exceeded the 4,000km mark, becoming the first province in China to have done so. As the more developed Eastern Region has already established extensive expressway networks, the rapid expansion of such networks will be concentrated in inland China in the future.

2007 is an important year for Chinas roadway network construction. Chinas nationwide highway network (proposed in the early 1990s) was completed by the end of the year. The five north-south pathways and seven west-east highways

network has a total length of 35,000km, and 76% of this network is comprised of expressways. The construction of the network was completed 13 years ahead of the original schedule.

To further expand its roadway systems, especially expressway networks, MOCOM released the Plan for National Expressways Networks in 2005. The proposed expressway network, also referred to as the 7918 network, is comprised of seven radial roads (centered in Beijing), nine north-south lines and 18 east-west lines. Upon combining existing networks with the completed 7918 network, the total length of Chinas expressways will be 85,000 km.

However, construction of expressway systems in the United States is expected to grow at a much slower pace. This suggests that China will eventually overtake United States in possessing the worlds longest expressway network someday. It is estimated that once the 7918 network is completed, it will cover a population of 1 billion people and account for 85% of Chinas GDP. It is also expected to boost the economic integration among different regions across China tremendously.

In their master plan, China aimed to reach the 85,000 km mark in about 30 years - approximately by the end of 2034. However, just three years into the plan (i.e. at the end of 2007), the nation reached the point whereby it planned to reach its goal by 2010. It seemed quite as if the planner had been a little too conservative in drafting the original master plan. The probability of China reaching the 85,000 km mark in a much shorter time is high, judging by its previous nationwide highway network construction record

d. RAILWAYS While roadway transportation plays a dominant role in container transportation, railway systems play a very important role in bulk cargo and passenger transportation. By the end of 2006, the length of Chinas railway system reached

above 77,000 km, ranking third in the world, next to the United States and Russia. In terms of length, Chinas railway system expansion in the past is less impressive than its expressway expansion. However, China is embarking on an ambitious plan to turn Chinas railway system into a world-class one.

In December 2007, the Beijing-Shanghai Hi-Speed Railway Co was established to construct and operate the Beijing-Shanghai high-speed railway. In January 2008, it was announced that six Chinese companies had won bids for construction contracts worth RMB 83.7 billion. After more than 10 years of debate, the highly anticipated project in China is finally about to begin.

In December 2007, the Beijing-Shanghai Hi-Speed Railway Co was established to construct and operate the Beijing-Shanghai high-speed railway. In January 2008, it was announced that six Chinese companies had won bids for construction contracts worth RMB 83.7 billion. After more than 10 years of debate, the highly anticipated project in China is finally about to begin.

After completion, the new line will be used to ferry passengers while the existing Beijing-Shanghai railway will be used mainly for cargo transportation. With the new line, the travel time from Beijing to Shanghai, the two most important cities in China, might be shortened to five hours - half the current travel time. It would be approximately the same amount of time passengers would need if they travelled between the cities by air, (with travel time from cities to airports factored in). In addition, while yet to be ascertained, the price of train tickets for

the new line is expected to be 50 to 60 per cent that of air fares. With a five-year construction period, the new line is expected to be ready by the end of 2012. The Beijing-Shanghai Hi-Speed Railway is just a portion of Chinas grand ambitions to establish an extensive passenger railway network. In the past, its railway system was perceived to be slow and dilapidate an embarrassing problem that the nation wishes to rectify.

Through efforts like upgrading existing railways and replacing old carriages with new ones, China increased train speeds five-fold by 2005. Unfortunately, the system could not cope with the next speed hike, partially delaying the sixth speed increase by two years (from May 2005 to July 2007).

Due to the limits of the existing railway facilities, China began to build new railways dedicated to passenger transportation. In 2003, QinghuangdaoShenyang, the first express passenger railway, commenced operation. The length of this railway was 407km with a designed speed of 200km/hour. In 2004, the Medium and Long Term Plan for Chinas Railways System drafted by the Ministry of Railways (MOR), was approved by the State Council. According to the Plan, by 2010, the length of express passenger railways will reach 5,000km, and it will reach 12,000 km by 2020.

The blueprint includes four north-south lines and four east-west lines, forming a national express passenger railway network. Three inter-city networks (which help integrate neighboring cities) have also been included.

The three regional networks are in Bohai Bay, Yangtze River Delta and Pearl River Delta - the three most affluent regions in China. While the plan looks ambitious, implementation is well underway.

In 2006, when the 11th Five Year Plan for the railway industry was released, the 2010 goal of express passenger railways was increased from 5,000km (in the Medium and Long Term Plan) to 7,000km.

e. TELECOMMUNICATIONS Knowing the importance of telecommunication services, China has been paying close attention to this sector of its economy. The Chinese telecoms network features a large network capacity and many high speed connections. It covers the entire country with optical cables as the mainstay, and satellite and digital microwave systems to supplement the system. In 1998, China completed its eight from east to west and eight from north to south - a lattice-type optical cable network, linking all the provincial capital cities and over 90% of counties and cities. With the exception of Lhasa, the capital of Tibet, each provincial or autonomous regional capital is connected by at least two optical cables. By the end of 2006, the nations optical cables extended 4.25 million km. In the coastal and economically advanced hinterland areas, optical cables have reached townships, towns, urban residential quarters and even multi-storied buildings, thus becoming the main technological means for transmitting information.

In 1987, China began to provide mobile phone services. This industry has been developing rapidly since 1990. Now, China ranks first in the world in terms of the number of phone users where both fixed line phones and mobile phones are concerned. Since surpassing the number of fixed line users, mobile phone users continue to grow substantially while the number of fixed line users stagnates.

By the end of November 2007, the total number of phone users reached more than 900 million. Out of that number, 369 million were fixed line subscribers and 539 million were mobile phone subscribers. It translates into a fixed line

penetration rate of 28.4% (i.e. out of every 100 persons, 26 had fixed line access) and a mobile phone penetration rate of 41.5%.

China is also emerging as the nation with the worlds largest number of netizens. In January 2008, data released by the China Internet Network Information Center (CNNIC) showed that, by the end of 2007, China had 210 million netizens, only 5 million short of the United States. Given the fact that millions of Chinese are becoming new netizens at a rapid pace, it is likely that by the time you read this book, China will have the most number of netizens on the planet.

Broadband has become the dominant mode of Internet access. By the end of November 2007, the number of people accessing the Internet through dial-up connections amounted to 19.6 million - 6.8 million less than at the beginning of 2007, while the number of people accessing the Internet through broadband reached 65.6 million, 14.7% more than at the beginning of 2007.

3. CHINA INFLATION
a. INFLATION RATE DEFINITION In mainstream economics, the word inflation refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances

The most well known are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy.The prevailing view in mainstream economics is that inflation is caused by the interaction of the supply of money with output and interest rates. Mainstream economist views can be broadly divided into two camps: the "monetarists" who believe that monetary effects dominate all others in setting the rate of inflation, and the "Keynesians" who believe that the interaction of money, interest and output dominate over other effects. Other theories, such as those of the Austrian school of economics, believe that an inflation of overall prices is a result from an increase in the supply of money by central banking authorities.

b. CHINA INFLATION RATE The inflation rate in China was last reported at 5.4 percent in March of 2011. From 1994 until 2010, the average inflation rate in China was 4.25 percent reaching an historical high of 27.70 percent in October of 1994 and a record low of -2.20 percent in March of 1999. Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. The most well known measures of Inflation are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy. This page includes: China Inflation Rate chart, historical data and news.

4. CHINA TAXES
a. INCOME TAX RATES IN CHINA

The tax on an individual's income is progressive. As at 2011, an individual's income is taxed progressively at 5% - 45%.

The 2011 corporate tax rate for domestic and foreign companies is 25%. Small companies pay 20% corporate tax in certain cases.

b. CAPITAL GAINS

An individual's capital gains are taxable in China at the rate of 20%. Capital gains tax for a Chinese company is added to the regular tax. A 10% deduction at source is made from the capital gains of a foreign company in China.

On taxing capital gains from the sale of real estate, when calculating the capital gain the purchase cost is deducted from the sale price at the 20% rate. When the capital gains are in excess of 50% of the purchase price, the rate of capital gains tax fluctuates between 30% - 60%. (It is 60% when the capital gain is over 200% when compared to the cost).

c. TABLE OF INCOME TAX RATES IN CHINA FOR AN INDIVIDUAL IN 2011 Tax % Monthly Income (CNY) 5% 10% 15% 20% 25% 30% 35% 40% 45% 1 - 500 501 - 2,000 2,001 - 5,000 5,001 - 20,000 20,001 - 40,000 40,001 - 60,000 60,001 - 80,000 80,001 - 100,000 100,001 and above

The table relates to income from a salary. Income from other business is taxable at 5% - 35%. Passive income such as interest and royalties is taxable at a standard rate of 20%.

d. OVERSEAS INCOME

An individual and company who are Chinese residents are also taxed on their income outside China and receive a credit for overseas taxes.

Qualification for residence for an individual: Permanent residence in China while an individual who has no permanent residence in China but has lived in China for less than 5 years is taxed on his income in China, or overseas income that has its origins in China.

Individuals staying in China more than five tax years are taxed on their worldwide income too.

5. CHINAS LABOR COST

China is sometimes assumed to be a low cost manufacturing country, in large part because of cheap labor. However, China is a high-cost manufacturing country because of low productivity, immature infrastructure, and the artificially high cost of imported energy and components, among other factors. While labor costs are a local market, capital and raw materials costs are more often priced in international markets. Thus China can only have an advantage on labor, but not necessarily raw materials and capital costs. a. CHINA INTERNATIONAL TRADE International trade has been used to bring in new equipment and technologies and to meet scarcities in the domestic economy since China has sought to modernize its economy. Exports have been used as a means of producing foreign earnings to pay for the imports. The state has sought to maintain an even balance of trade so that the country can pay for imports rather than buying on credit. With 1.2 billion people and the world's fastest growing major economy, China is hailed as potentially the "market of all markets," which has helped to attract investments from around the world at such a magnitude that China is now the second largest recipient of foreign capital (next only to the United States). However, it has also given the government more reasons to carefully guard its market. The issue of market entry has been a contentious one, bogging down its negotiations to join the General Agreement on Tariffs and Trade and the World Trade Organization for over a decade.

The total volume of China's exports was US$232 billion ( f.o.b. , 2000), according to the CIA World Fact-book. The country's principal commodities are machinery and equipment, textiles and clothing, footwear, toys and sporting goods, and mineral fuels. The United States bought 21 percent of China's

exports, Hong Kong 18 percent, and Japan 17 percent; Germany, South Korea, the Netherlands, the United Kingdom, Singapore, and Taiwan are other main export partners.

Trade (expressed in billions of US$): China Exports Imports 1975 1980 1985 1990 1995 1998 7.689 7.926

18.099 19.941 27.350 42.252 62.091 53.345 148.797 129.113 183.589 140.305

SOURCE: International Monetary Fund. International Financial Statistics Yearbook 1999.

China exports agricultural commodities and goods (about one-third of total exports) and manufactured goods (about half), as well as mineral products such as oil and coal. Foodstuffs account for about 6 percent of total imports, and industrial supplies and materials such as crude steel and chemicals account for about 50 percent. The remainder consists chiefly of expensive capital goods such as machinery, precision instruments, and transportation equipment.

In 1998, machinery and transport equipment took the first place among the exports, amounting to 50.2 billion dollars. The proportion of it is 48.4 percent, much higher than the proportion of light and textile industrial products (26.5 percent). On the other hand, export structure of machinery and transport equipment is changing for the better. The proportion of more technologicallyintensive products is growing up, and labor-intensive products are slowing down. Also, the interim structure of traditional export products, such as light and textile industrial products, changed tremendously. Resource and labor-intensive, low value-added, low-technological products declined, lower labor-extensive but higher technological and value-added products increased.

China imports a total volume of US$197 billion (2000). The principal commodities China imports are machinery and equipment, mineral fuels, plastics, iron and steel, and chemicals. Japan provides the main source (20 percent) of China's imports. The United States provides 12 percent, Taiwan 12

percent, and South Korea 10 percent. Other trading partners include Germany, Hong Kong, Russia, and Singapore.

The 5 top import products of China during the first semester in 1999 included mechanical and electrical products at US$35 billion (up 28 percent from 1998); plastics in primary form at US$4.1 billion (up 3.9 percent from 1998); steel products at US$3.4 billion (up 14.6 percent from 1998); computer parts at US$1.8 billion (up 18.7 percent from 1998); and crude petroleum oil at US$1.6 billion (down 23.6 percent from 1998). The commodities China imports are materials essential to modernizing China's economy and increasing exportoriented industries.

b. CHINA FOREIGN INVESTMENTS INCENTIVES China attempts to encourage investments from foreign residents. The following are among the reasons that foreign investors are attracted to China:

Extremely low labor costs. A tremendous buyers' market in China itself with a population of 1.3 billion.

An expectation of a sharp increase in the buying power of Chinese residents, a fact that is influenced by the annual GDP of over 8% per annum and the low rates of inflation.

In recent years, Chinese laws concerning foreign investments have been significantly eased. The total FDI in China for 2010 totaled 105.7 billion Dollars.

From the beginning of the nineties and particularly from 2001, when China joined the WTO, until the present, the attitude to foreign investment in China has changed, among other matters, foreign investors are permitted to form companies that are 100% owned by foreign capital. Sales to the local market are permitted and foreign investment is also allowed in sectors other than industry and hi-tech, such as banking, insurance, financial services, etc.

As a result of joining the WTO, China is expected to standardize specific benefits that were previously granted only to overseas investors or only to Chinese companies.

As a general rule, industries in China that are open to foreign investments are divided into 3 categories, an encouraged investment, a restricted investment and

a prohibited investment. Foreign investors cannot invest in projects that are connected with the military and defense industries in China. There are also restrictions on 100% control of foreign investors over transport, the automobile industry and power stations.

c. BENEFITS FOR FOREIGN INVESTORS-SPECIAL ECONOMIC ZONES (SEZ) AND DEVELOPMENT ZONES

Benefits that China grants to foreign investors are not given in the form of grants. Most benefits are in the form of a tax benefit, including value added tax, customs and income tax benefits in putting the emphasis on an investment in a Special Economic Zone (SEZ) or in special sectors and areas. The benefits granted are as previously approved according to the nature of the foreign investment. - Special Economic Zones (SEZ) There are 5 SEZ's in China in the south of the country, the main tax benefits are:

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Corporate tax of 15%. A benefit of "2 + 3 years" which means an exemption from tax for the first two years and tax at the rate of 12.5% for the next three years.

For certain projects in basic infrastructure, environment protection and energy there is a "3+3" years tax holiday.

Under certain terms enterprises investing in integrated circuits production can get a "5+5" years tax holiday. - Pudong Zone (Shanghai) In the Pudong zone there are 5 development zones specializing in hi-tech, financial services, agriculture and more. The benefits are similar to those granted to investors in an SEZ.

9. CHINA'S SCIENCE AND TECHNOLOGY The history of science and technology in China is both long and rich with many contributions to science and technology. In antiquity, independently of Greek philosophers and other civilizations, ancient Chinese philosophers made significant advances in science, technology, mathematics, and astronomy. The first recorded observations of comets, solar eclipses, and supernovae were made in China. Traditional Chinese medicine, acupuncture and herbal medicine were also practiced.

Among the earliest inventions were the abacus, the "shadow clock," and the first flying machines such as kites and Kongming lanterns. The four Great Inventions of ancient China: the compass, gunpowder, papermaking, and printing, were among the most important technological advances, only known in Europe by the end of the Middle Ages. The Tang Dynasty (AD 618 - 906) in particular, was a time of great innovation. A good deal of exchange occurred between Western and Chinese discoveries up to the Qing Dynasty.

The Jesuit China missions of the 16th and 17th centuries introduced Western science and astronomy, then undergoing its own revolution, to China, and knowledge of Chinese technology was brought to Europe. Much of the early Western work in the history of science in China was done by Joseph Needham.