China Business Guide 中 国 商 务 指 南 2009 （The Light Industry）

Figure 10-1 Catalogue of industries in which foreign investment is encouraged, restricted and prohibited

Catalogue of light industries in which foreign investment is encouraged
Industry name	Content
Agricultural And sideline food processing industry	1.Development and production of biology feeds, straw feeds, and aquatic product feeds 2. Aquatic products processing, seashell products cleansing and processing, and development of function food made from seaweed 3. Storage and processing of vegetables, dry and fresh fruits, fowl and livestock products
Food manufacturing industry	1. Development and production of food for babies and agedness, as well as function food 2.Development, production and processing of forest food 3.Natural food additives, food ingredients production (equity joint ventures or contractual joint ventures only)
Beverage manufacturing industry	1. Development and production of drinks of fruits, vegetables , albuen,teas, coffees and botanical drinks
Leather, fur, feather/down, and their product industry	1.Cleansing technology processing of leather and fur 2. Post ornament and processing of bather with new technology 3.Processing of high-grade leather(leather for sofa and automobile cushion)
Lumber Processing Industry and Bamboo, Vine, Palm, Grass Products Industry	1. Development and production of new technology and products for the comprehensive utilization of three remains "sub-quality, small wood and fuel wood" and bamboo in the forest industry
Paper Making and Paper Products Industry	1.Project based on the mode of integration of forest and paper with an annual production capacity of over 300 thousand tons of chemical wood pulp on single production line or an annual production capacity of over 100 thousand tons of chemical mechanical wood pulp on single production line, and production of high-quality paper and cardboard under synchronized construction (equity joint ventures or contractual joint ventures only)
Plastic products industry	1. Development and production of new products and new technologies for agricultural films (photolysis film, multifunctional film and the raw materials, etc.) 2. Reutilization and counteraction of waste and old plastics 3. Development and production of plastic flexible packaging technology and new products (high barrier, multi-functional film and materials)
Catalogue of light industries in which foreign investment is restricted
Agricultural And sideline food processing industry	1.Soybean and rapeseed edible oils and fats processing(Chinese partner shall hold the majority of shares), deep processing of corn 2.Production of bio-liquid fuel (fuel ethanol, bio-diesel) (Chinese partner shall hold the majority of shares)
Beverage manufacturing industry	1. Production of millet wine and spirits of famous brands (Chinese partner shall hold the majority of shares) 2. Production of soda beverage
Printing and Record Medium Reproduction Industry	1. Printing of publications (Chinese partner shall hold the majority of shares except printing of package decoration)
Rubber product industry	1. Old tire recondition (not including radial tire), and production of industrial rubber fittings of low-performance
Catalogue of light industries in which foreign investment is prohibited
Beverage manufacturing industry	1. Processing of green lea and special tea with China's traditional crafts (famous tea, dark tea, etc.)
Commercial product and other manufacturing industries	1. Ivory carving 2. Tiger-bone processing 3. Production of bodiless lacquer ware 4. Production of enamel products 5.Production of Xuan-paper (rice paper) and ingot-shaped tablets of Chinese ink

Source: National Development and Reform Committee and the Ministry of Commerce

10.3.3 Guiding Catalogue for the Adjustment of Industrial Structure

The National Development and Reform Commission issued the Guiding Catalogue for the Adjustment of Industrial Structure in 2008, to point out the direction for light industry investors. The Catalogue shows clear the specific items in which investment is encouraged, restricted and prohibited as follows:

Figure 10-2 Light industry projects in which investment is encouraged

No.	Contents
1	Projects of chemical wood pulp with an annual output capacity of 300,000 tons, chemical mechanical wood pulp with an annual output capacity of 100,000 tons, chemical bamboo pulp with an annual output capacity of 100,000 tons, cultural paper with an annual output capacity of 300,000 tons, paper board with an annual output capacity of 300,000 tons.
2	Development and manufacturing of complete sets of pulp and paper making machines with high and new technology
3	Non-metal products mold design, processing and manufacturing
4	Development of bio-degradable plastics and its product series
5	Development and manufacturing of plastic water conservation equipment and multilayer films for farming
6	High technology ceramics (including industrial ceramics) and equipment technology development
7	Development and application of ceramics cleansing production technology
8	Development and manufacturing of sewing machines of integration of light, machinery and electricity.
9	New technology R & D and product manufacturing of natural perfume and synthetic perfume
10	R & D and manufacturing of new and ecotype (easy for degradation, recycle and reuse) packaging material
11	Development and manufacturing of new plastic products such as new plastic heated boards, heavy caliber plastic pipes (diameter bigger than 0.5m and more), ultra-low noise drain plastic pipes, anti-seepage geomembrane, medical plastics
12	Development and application of high-new, digital printing technology and high definition plate making system
13	Paint film craft of environment-friendly peritoneum
14	Special procurement products manufacturing of ethnic minorities
15	Development and application of natural food additives materials and production technology
16	Development and application of ECF and TCF chemical pulp bleaching craft
17	Manufacturing of high-tech green stored energy battery (mercury-free alkaline manganese battery, ni-mh battery, lithium ion battery, fuel battery, zinc-air battery, solar battery)
18	lithium primary battery
19	Cleansing production of pig, cow and sheep skin and new technology processing of finishing leather ornaments
20	R & D and production of water-based and eco-type after finishing material technology of synthetic leather, artificial leather, synthetic leather
21	R & D, production and application of The use of high-tech fermentation products (excluding maize) with biological technology and using biomass as raw materials
22	Multipurpose use of byproducts in agricultural products processing
23	Development and production and raw material base construction of juice and vegetable juice
24	Development and production of botanical drinks and botanical protein drinks
25	Development of light weight hollow glassware products and production technology and equipment

Source: National Development and Reform Commission

Figure 10-3 Light industry projects in which investment is restricted

No.	Content
1	Refrigerator, freezer and fridge-freezer projects which cannot meet Standard for Refrigerator on Energy Savings and Environment Protection
2	Washing machine project which can't meet Standard for Electric Washing Machine on Energy Savings and Environment Protection
3	Air-conditioner projects which cannot meet Standard for Air-conditioners on Energy Savings and Environment Protection
4	Low end paper and paper board production projects
5	Ordinary PVC artificial leather production line
6	Tanning project with annual output capacity below 100,000 pieces (accounted by standard cow skin piece)
7	Single-spiral incandescent filament production line at a production speed lower than 1500/hour
8	Series production line of common medium-speed industrial sewing machine
9	Production line of common medium-speed industrial over-lock sewing machine
10	Electronic price computing scale (accuracy lower than 1/3000 of the largest weighing, weighing ≤15kg)
11	Electronic truck scale project (accuracy lower than 1/3000 of the largest weighing, weighing ≤300 tons)
12	Electronic railroad track scale projects(accuracy lower than 1/3000 of the largest weighing, weighing ≤150 tons)
13	Electronic dynamic weighbridge project (accuracy lower than 1/500 of the largest weighing, weighing ≤150 ton)
14	Electronic belt scale (accuracy lower than 5/1000 of the largest weighing)
15	Electric hanging scale projects (accuracy lower than 1/1000 of the largest weighing, weighing ≤50 ton)
16	Spring dial scale projects (accuracy lower than 1/400 of the largest weighing, weighing ≤8kg)
17	Two aluminum pieces can project
18	Common bile vacuum flask glass production line
19	Glass container production line with an annual capacity lower than 20,000 tons
20	Synthetic fatty alcohol projects (synthol and Ziegler alcohols with oxo alcohols, non-oil hydrogenation alcohol)
21	Trimeric sodium phosphate production line with annual output capacity of 50,000 tons
22	Paste-type zinc-manganese battery project
23	Nickel-cadmium cell battery projects
24	Open-type lead-acid batteries projects
25	Toothpaste projects with an annual output capacity below 5,000 tons
26	Sugar production projects
27	North sea salt project with an annual output below 1 million annually, new South sea salt project; mine (well) salt project with output capacity below 600,000 tons annually; lake salt project with output capacity below 200,000 tons annually
28	Chinese spirit production line
29	Alcohol production line (exclude fuel ethanol projects)
30	Monosodium glutamate production line with traditional technology and craft
31	Saccharin and other chemical synthetic sweeteners production line
32	Pulp production with chemicals like elemental chlorine or generating elemental chlorine as bleaching agents
33	Cast polypropylene (cpp) film production projects
34	Film for farming production projects
35	Common lead-acid battery production projects with an annual output capacity below 200,000 KVAh (exclude new structures of dragnet, winding type, bipolar and colloid), cadmium plate type and open-type
36	Common electric incandescent lamp products
37	Pulp and paper board production projects not qualified to economic scale

Source: National Development and Reform Commission

Figure10-4 Light industry projects in which investment is prohibited

No.	Content
1	Process units of vacuum salt making, lake salt and North sea salt with annual output of 50,000 tons and below
2	Salt production units applying mine bittern water, and oil, gas and fields water and applying pan and sun-drying methods
3	South sea salt production unit with annual output capacity of 10,000 tons
4	Leather production units to process less than 30,000 pieces of leather (accounted by standard cow piece)
5	Ink production units with an annual output capacity below 300 tons (exclude those applying high technology and pollution-free units)
6	Sodas production line with a capacity below 100 bottles/minute (bottle capacity of 250ml below )
7	Chemical wood pulp production line with an annual output capacity of 510,000 tons annually
8	Straw pulp production unit with annual output capacity of 340,000 tons and pulp making production and equipment such as spherical digester, low level paper making machine with narrow width, low speed and high consumption.
9	Manufacturing technique of polyurethane foam products with CFCs as blowing agent, polyethylene and polystyrene extruded foam plastics (eliminated in accordance with the general requirements of International Convention that China abides by)
10	Production line of refrigerator, freezer, automotive air conditioner, industrial and commercial refrigeration equipment with CFCs as blowing agents
11	Production technique with CTC as cleaning agent
12	Production technique with CTC-113 as cleaning agent
13	Production technique with TCA as cleaning agent
14	Bike salt welding furnace
15	Soldering craft in lithographed sheet canning industry
16	Techniques of match stick rowing and dismantling
17	Match stick machine, rowing machine and dismantling machine
18	Impact nail making machine
19	Crack metal wire loom
20	Alcohol production craft and equipment with an annual output of 30,000 tons (exclude alcohol made by waste molasses)
21	Monosodium glutamate production technique and equipment with an annual output capacity below 30,000 tons
22	Citric acid production technique and equipment which cannot meet environment protection standards
23	Paper products production line made from waster paper with an annual output capacity below 10,000 tons which cannot meet environment protection standards
24	Retail plastic shopping bags thinner than 0.025 mm

Source: National Development and Reform Commission

10.4 Tax Policies

10.4.1 Enterprise Income Tax

The Enterprise Income Tax Law of the People's Republic of China has been adopted at the 5th Session of the 10th National People's Congress of the People's Republic of China on March 16, 2007. It is hereby promulgated and shall go into effect as of January 1, 2008.

Small and medium sized enterprises are accounting for 90% of Chinese light industry enterprises. Many of them enjoy small low-profit enterprises tax preferences. According to the Law and its implementation regulation, those enterprises meeting the necessary requirements will be eligible for a reduced enterprise income tax rate of 20%. Small low-profit enterprises refer to those involved in business which is not restricted or prohibited by the government and meet the following requirements: industrial enterprises with an annual amount of taxable income less than 300,000 yuan, number of employees less than 100 and total assets less than 30 million yuan; other enterprises with an annual amount of taxable income less than 300,000 yuan, number of employees less than 80 and total assets less than 10 million yuan.

10.4.2 Corporate Value-added Tax

Chinese government decided to implement value-added tax (VAT) reform from January 1^st 2009. According to the relevant provisions of The Provisional Regulations of the People’s Republic of China on Value-Added Tax and PRC Value-added Tax Tentative Regulations Implementing Rules, general VAT taxpayer can deduct the income tax amount through purchased or self-made fixed assets from substituted money on VAT by means of VAT special invoices, customs import VAT payment book, transportation cost billing documents (Hereafter referred as value-added tax deduction certificates).

VAT is a new commodity and service tax with added value as tax base and commodity and service as subjects to taxation. It is known as a modern form of multi-link indirect taxes. In accordance with income tax amount deduction method, VAT can be divided into two types: firstly, only deduct the tax of purchased raw materials but not the tax contained in outsourcing of fixed assets; secondly, tax included in all outsourcing projects such as raw materials and fixed assets are allowed to deduct. The first type is usually referred to as "production-type VAT", while the second "consumption-type VAT". China is now implementing production-type VAT. VAT reform is to transfer production-type to consumption-type VAT.

China's current basic VAT rate is 17%, of production-type, which equals 23% of consumption-type. The tax burden is considered high internationally. In terms of improving the international competitiveness of enterprises, promoting their technological progress and realizing business goals of industrial upgrading, basic VAT rate shall remain the same or reduce appropriately after reform. Generally speaking, overall VAT reform increases the enterprise's profits and will lay a good foundation for their future development.

10.4.3 Export Rebate Rate

Chinese government frequently increases export rebate rate on some products in the second half of 2008 and 2009 to stimuli economic growth and promote export. Each adjustment on export rebates involves in light industry products. The rebate rate is adjusted as follows:

On July 30 , 2008, the Ministry of Finance and State Tax Administration issued Notice on Adjusting Export Rebate Rate for Certain Products of Textile and Apparel etc. (No.111 [2008] of the Ministry of Finance and State Tax Administration) which stipulates to increase VAT export rebate rate for some textile and apparel from 11% to 13%, for some bamboo products to 11% and cancel the export rebate rate of red pine seed, some agricultural chemical, some organic arsine products, taxol and its products, colophony, silver, zero zinc, some coating products, some battery products and carbon element.

October 21^st 2008, the Ministry of Finance and the State Administration of Taxation issued a Notice Concerning Increasing the Export Tax Rebate Rates for Certain Commodities (No.138 [2008] of the Ministry of Finance and State Tax Administration) which stipulates that effective from 1 November 2008. Export rebate rates for certain textile products, toys are increased to 14%, ceramic articles for daily use and ceramic art increased to 11%, certain plastic articles increased to 9%; various types of furniture increased to 11% or 13%. Those for various commodities including AIDS medicine, freeze-dried powder of recombinant human insulin, collagen, toughened safety glass, capacitor tantalum wire, marine anchor chain, sewing machine, fan, carbide-tipped tool for digit control machine, some books and notebooks are increased to 9%, 11% and 13%.

On November 17^th 2008, Notice Concerning Increasing Export Tax Rebate Rates for Various Labor-intensive Products and Other Commodities (Ministry of Finance and the State Administration of Taxation No.144/2008) was approved by the State Council and issued by the Ministry of Finance and the State Administration of Taxation. It stipulates for December 1^st on, export rebate rates for some rubber products and wood articles are increased from 5% to 9%; those for some molds and glassware are increased from 5% to 11%; for aquatic products are increased 5% to 13%; for suitcases, shoes, hats, umbrellas, furniture, bedding, lamps and watches among others will be increased from 11% to 13%; for various chemical products, stones and non-ferrous metal processing materials are increased from 5% and 9% to 11% and 13% respectively; for mechanical & electrical products are increased from 9% 11%, from 11% to 13%, from 13% to 14%.

On December 29^th 2008, the Ministry of Finance and the State Administration of Taxation issued a Notice Concerning Increasing the Export Tax Rebate Rates for Certain Mechanical & Electrical Products (No.177 [2008] of the Ministry of Finance and State Tax Administration) which stipulates that effective from January 1^st 2009, export rebate rates for air inertial navigation instrument, gyroscope, ion-ray detector, nuclear reactor, industrial robot among others are increased from 13% and 14% to 17%; for motorcycle, sewing machines, electric conductor among others are increased from 11% and 13% to 14%.

On April 1^st 2009, the Ministry of Finance stipulated that export rebate rates for commodities such as CRT color TV, some TV spare, optical cables, UPS, backing copper clad laminate for refining copper printed circuit board are increased to 17%; export rebate rates for textile and apparel are increased to 16%; export rebate rates for heavy chemicals like six sodium fluoaluminate, perfuming and laundry stuff like perfume, plastics like PVC, some rubber and rubber products, leather products like fur apparel, paper products like envelope, ceramics for daily use, glassware like kinescope bulb, steel material like refined welded steel pipe, non-ferrous metal like single crystal silicon, single crystal silicon rod with diameter larger than 30cm and aluminum extruded sections, rock drilling tool and metal furniture are increased to 13%; export rebate rates for various commodities including methanol, some plastics and products, wood products like wood picture frame, glassware lick rearview mirror are increased to 11%; export rebate rates for heavy chemicals like sodium carbonate, architectural ceramics, sanitary ceramics, hardware like locks, copper belt material, some enamelware, some steel products, and imitation jewelry are increased to 9%; export rebate rates for calcium hypochlorite, and hypochlorite, zinc sulfate of other calcium are increased to 5%.

On June 1^st 2009, the Ministry of Finance stipulates that export rebate rates for transmitting apparatus for TV and sewing machines among others are increased to 17%; export rebate rates for deep processed agricultural products like can and juice, mechanical and electrical products like electric wheel pump and semi-trailer, instruments and meters like optical elements, medicines like INS, suitcase, shoes and hats, umbrella, hair products, toys and furniture are increased to 15%; export rebate rates for some plastics, ceramics, glassware, some aquatic products and turning tools are increased to 13%; export rebate rates for steel materials like alloy steel anisotropic medium, steel products like steel structure, scissors are increased to 9%; export rebate rates for corn starch and alcohol are increased to 5%.

10.5 Newly-implemented Industry Standards

There are more than 100 newly-implemented industry standards on light industry products in 2008. The industry standards on major products are as follows: