From September 1,2001 on, the companies and enterprises of our country that are provided the equipments and technology by the foreign enterprises pay principal and interest and rental charge by means of returning the products for sale or handing over the products. The enterprises also offset principal and interest by the cost of the assembling line labor for the

processing of the incoming materials. All the earnings from the interest and rent should be levied the business income tax following Article 19 of the Law of Income Tax of the People’s Republic of China on Enterprises with Foreign Investment and Foreign Enterprises and the relevant provisions. The provisions of Subparagraph 5 of Article 2 and the third Paragraph of Article 3 in the Interim Provisions of the Ministry of Finance on Reducing and Exempting the Income Tax of Interest Obtained in China By the Foreign Businessmen [CaiShuiZi(83) No.348] are stopped carrying out.

Announcement [2001] No.5 of the General Administration of Customs, the Ministry of Foreign Trade and Economic Cooperation and the State Economic and Trade Commission

June 21, 2001

Upon deliberation, the evaluation standards for classified management of enterprises are hereby adjusted and proclaimed as follows:

1. The evaluation standards of enterprises of catalogue A provided in article six of Regulations on the Classified Management of Enterprises of the Customs of the People’s Republic of China “no records of smuggling and rule violating actions for two consecutive years” has been adjusted to “no records of smuggling and rule violating actions for six months in a row”. The stated “six months” refers to the six months prior to the date of evaluation enterprise management categories.

2. The following rule violating actions may not be regarded as the records of the evaluation of classified enterprise management.

(1) The action that doesn’t involve import or export licensing or custom duties;

(2) The action that involves import or export licensing or custom duties but the fine by the customs is under (including) 10,000 RMB yuan.

3. The announcement shall enter into force as of July 1, 2001.

The State Administration of Taxation of the various provinces, autonomous regions, municipalities directly under the center government and municipalities separately listed on the State plan, the Administration of Local Taxation of ShenZhen city:

The relevant issues on how additional calculations and deductions of the expenses addressed in the “Circular of the State Administration of Taxation on Relevant Issues Concerning the Technology Development Expenses of Enterprises with Foreign Investment to be Deducted from the Taxable Income” (GuoShuiFa [1999] No. 173, hereinafter referred to as the “Circular”) shall be applied to the expenses arisen from the technology development which enterprises with foreign investment carried out themselves or by entrusting others, as well as from the technology development services they provide upon entrustment, are hereby further clarified as follows:

I. Where an enterprise with foreign investment applies, in accordance with the Circular, for the deduction of its taxable income for an additional 50% of its incurred technological development expenses, it shall devise in advance a plan for the technological project development and a budget for the technology development expenses, as well as establish a special office or appoint professionals responsible for the implementation of the said plan and budget. It should also be able to accurately collect and check the actual amount of technology development expenses.

II. Where an enterprise with foreign investment, in the process of technology development, cooperates with another organization such as an enterprise, an organ, a government-sponsored institution, or a scientific research institution, etc. (hereinafter referred to as “another entity”) or entrusts another entity to develop a new product, a new technology or a new process for the purpose of solely or jointly possessing the results of technology development, it may, in accordance with the Circular, enjoy preferential treatment for the deduction of taxable income for an additional 50% of all incurred technology development expenses (including expenses paid to an entrusted party) as provided by Article 1 and Article 2 of the Circular.

III. For an enterprise entrusted to provide technology development services, if all expenditures incurred from providing the entrusting party with technology development services do not fall within the scope of its technological development expenses, but belong to “the operational costs and expenses of the business of technology development services for an enterprise engaged in such business” provided in Article 1 and Article 2 of the Circular, and belong to the fees charged by the enterprise entrusted to provide technology development services; the entrusting party shall determine in accordance with the Circular and Article 2 of this Supplementary Circular whether the fees it charged when entrusted to provide technology development services shall be regarded as technology development expenses, for which the enterprise may enjoy the preferential treatment of a taxable income deduction by an additional 50%. Therefore, the entrusted enterprise may enjoy the preferential treatment of a taxable income deduction by an additional 50% of the expenditures incurred in its business of providing technology development services.ion by an additional 50% of the expenditures incurred in its business of providing technology development services.

PART ONE　GENERAL PROVISIONS

Article 1　These Provisions have been formulated pursuant to the PRC, Telecommunications Regulations, in order to safeguard the interests of the State and the lawful rights and interests of telecommunications subscribers and to ensure fair and effective competition among telecommunications carriers and timely and rational Interconnection between public telecommunications networks.

Article 2　These Provisions apply to the Interconnection of the telecommunications networks set forth below of carriers operating basic telecommunications services in the People’s Republic of China:

1. fixed local telephone networks;

2. domestic long-distance telephone networks;

3. international telephone networks;

4. IP telephone networks;

5. terrestrial cellular mobile communications networks;

6. satellite mobile communications networks;

7. internet backbone networks;

8. other telecommunication networks specified by the Ministry of Information Industry.

Article 3　Interconnection between telecommunications networks shall be effected in accordance with the principles of technical feasibility, economic rationality, equitability, fairness, and mutual cooperation.

Article 4　The Ministry of Information Industry and the communications regulatory bureaux of the provinces, autonomous regions and municipalities directly under the central government (hereafter collectively referred to as the Telecommunications Regulatory Authorities) are the authorities in charge of the Interconnection of telecommunications networks. The Ministry of Information Industry is responsible for implementing these Provisions on a national scale and the communications regulatory bureaux of the provinces, autonomous regions and municipalities directly under the central government are responsible for the implementation of these Provisions within their respective administrative territories.

Article 5　For the purposes of these Provisions, the following terms shall have the meanings ascribed to them below:

1. “Interconnection” means the establishment of an effective communications connection between telecommunication networks to enable the subscribers of one telecommunications carrier to communicate with the subscribers of another telecommunications carrier or to access the various telecommunications services of another telecommunications carrier. Interconnection includes the direct connection between two telecommunications networks to effect the sharing of services or the rerouting through a third party network by two telecommunications networks to effect the sharing of services.

2. “Interconnection Point” means the physical connection point where two telecommunications networks directly interconnect.

3. “Leading Telecommunications Carrier” means a carrier that controls the necessary basic telecommunications infrastructure, whose fixed local telephone service controls more than 50% of the market for the same type of service within the scope of the local grid and that is capable of materially affecting the entry of other telecommunications carriers into the market for telecommunications services.

4. “Non-leading Telecommunications Carrier” means a telecommunications carrier other than a Leading Telecommunications Carrier.

PART TWO　INTERCONNECTION OBLIGATIONS OF TELECOMMUNICATIONS CARRIERS

Article 6　Telecommunications carriers shall establish an Interconnection organization responsible for Interconnection work. The Interconnection organization shall establish a normal work liaison system to ensure an open channel of communications between telecommunications carriers and the Telecommunications Regulatory Authorities and among telecommunications carriers.

Article 7　Leading Telecommunications Carriers shall formulate Interconnection rules that include such particulars as the procedures, time limit and the number of Interconnection Points for Interconnection between networks, the addresses of the exchanges used for Interconnection between networks, the list of and charges for non-bundled network elements that are provided or rented out. Interconnection rules shall be submitted to the Ministry of Information Industry for approval before implementation. Interconnection rules shall be binding on the Interconnection and inter-communication activities of Leading Telecommunications Carriers.

Article 8　Telecommunications carriers may not refuse the Interconnection requests of other telecommunications carriers or violate relevant State regulations by restricting their subscribers’ selection of telecommunications services lawfully operated by other telecommunications carriers.

Article 9　Leading Telecommunications Carriers are under obligation to provide Non-leading Telecommunications Carriers with information on the Interconnection-related network functions (including the network structure, signalling method, billing method, method of synchronization, etc.) and equipment configuration (optical terminals, exchanges, etc.) and with information on the use of such Interconnection-related communications facilities as the conduits (ducts), pole lines, cable inlets and troughs, optic cables (fibres), bandwidth and circuitry.

Non-leading Telecommunications Carriers are under obligation to provide the Leading Telecommunications Carriers with information on their plans and schemes for the Interconnection-related network functions and equipment configuration.

Each party shall maintain the confidentiality of the information provided by the other party and may not use such information to engage in activities not related to Interconnection.

Article 10　When Interconnection is established between the telecommunications network of a Non-leading Telecommunications Carrier and the telecommunications network of a Leading Telecommunications Carrier and the Interconnection transmission lines must pass through such communications facilities of the Leading Telecommunications Carrier as its conduits (ducts), pole lines, cable inlets and troughs, etc., the Leading Telecommunications Carrier shall cooperate by making the same available to the Non-leading Telecommunications Carrier without imposing any unreasonable conditions.

If direct Interconnection is established between the networks of two Non-leading Telecommunications Carriers and the Interconnection transmission lines must pass through such communications facilities of the Leading Telecommunications Carrier as its building stories, yards, conduits (ducts), pole lines, cable inlets and troughs, etc. the Leading Telecommunications Carrier shall cooperate by making the same available to the Non-leading Telecommunications Carriers without imposing any unreasonable conditions.

If the telecommunications regulatory bureau of the province, autonomous region or municipality directly under the central government determines that it is impossible for a Leading Telecommunications Carrier as mentioned in the preceding paragraph to make its facilities available, the Non-leading Telecommunications Carriers may resolve the Interconnection transmission line problem through the use of overhead lines, buried lines or another such method.

Article 11　The Leading Telecommunications Carrier shall provide, and the Non-leading Telecommunications Carrier shall effect, Interconnection within the prescribed time limit. Neither party may delay the Interconnection without cause.

Article 12　Telecommunications carriers shall implement the relevant technical standards and regulations for network Interconnection formulated by the Ministry of Information Industry.

The quality of inter-network communications shall comply with relevant State standards. Telecommunications carriers shall ensure that the quality of inter-network communications is not lower than the quality of communications for the same type of service within their respective networks.

Article 13　At the request of a Non-leading Telecommunications Carrier, a Leading Telecommunications Carrier shall provide telephone number directory services to the subscribers of the requesting carrier and, subject to the agreement of the parties, may handle inquiries for the listed numbers of the requesting carrier’s subscribers in accordance with the rules on directory inquiries. The Non-leading Telecommunications Carrier shall provide to the Leading Telecommunications Carrier information on the listed numbers of the subscribers of its network in accordance with the rules on directory inquiries.

At the request of a Non-leading Telecommunications Carrier, a Leading Telecommunications Carrier shall provide special emergency services for reporting fires, reporting crimes, calling for emergency medical rescue, reporting of traffic accidents, etc. to the subscribers of the requesting carrier. The Non-leading Telecommunications Carrier shall conduct a test of the special emergency services on a daily basis. The parties shall jointly ensure the communications quality of the special emergency services.

Article 14　At the request of another party, a telecommunications carrier shall timely make available on such other party’s network various telecommunications service access numbers (including abbreviated numbers), other special service numbers (including the service numbers used by the telecommunications carrier itself, service numbers for government services and service numbers for social services), smart service numbers, etc. that the telecommunications carrier has made available on its own network, and it shall ensure the quality of the communications.

Article 15　The direct connection of the telecommunications networks of two Non-leading Telecommunications Carriers shall be resolved through consultations between the parties.

Connection of the inter-network services of the telecommunications networks of two Non-leading Telecommunications Carriers that are not linked by direct Interconnection shall be effected by rerouting traffic through the fixed local telephone network of a third party or the network of an organization designated by the Ministry of Information Industry. If the Non-leading Telecommunications Carriers select the fixed local telephone network of the Leading Telecommunications Carrier as their third party network, the Leading Telecommunications Carrier may not refuse to provide such rerouting service and shall ensure the quality of the rerouted communications.

PART THREE　ESTABLISHMENT OF INTERCONNECTION POINTS AND THE APPORTIONMENT AND SETTLEMENT OF INTERCONNECTION EXPENSES

Article 16　When Interconnection is effected between the telecommunications network of a Non-leading Telecommunications Carrier and the telecommunications network of a Leading Telecommunications Carrier, the Interconnection Points shall be established at one end of the Interconnection transmission line, namely at the end furthest from the equipment of the Non-leading Telecommunications Carrier (for example, if the Interconnection transmission line is an optic cable, the Interconnection Point shall be established on the outside of the Leading Telecommunications Carrier’s optical distribution frame).

When direct Interconnection is effected between the telecommunications networks of two Non-leading Telecommunications Carriers, the parties shall determine the specific locations of the Interconnection Points through consultations.

Article 17　The number of Interconnection Points shall be determined through consultations in accordance with the business development requirements of the parties and the demands of inter-network communications security. In principle, within one local grid, each Interconnection between telecommunications networks shall have at least two Interconnection Points.

The telecommunications equipment on either side of an Interconnection Point may be jointly used by each telecommunications network or may be set up separately by each telecommunications network. If the telecommunications equipment on either side of an Interconnection Point is jointly used by each telecommunications network and the inter-network settlement rates of each telecommunications network are inconsistent and the parties cannot easily employ a technological solution to carry out billing verification, the Interconnection relay circuits may be set up in separate groups.

Article 18　When Interconnection is effected between the telecommunications network of a Non-leading Telecommunications Carrier and the telecommunications network of a Leading Telecommunications Carrier, the parties shall each be responsible for one half of the Interconnection transmission lines and the conduits.

When direct Interconnection is effected between the telecommunications networks of two Non-leading Telecommunications Carriers, the parties shall determine the apportionment of the expenses for the Interconnection transmission lines through consultations.

Article 19　The cost of installing, increasing the capacity of and/or upgrading the equipment (here and hereinafter including the telecommunications equipment on each party’s own network) on either side of an Interconnection Point (including the cost of signalling methods, exchange data modifications, software upgrades, etc.) shall be borne by each of the parties itself.

The cost of the ancillary facilities for the telecommunications equipment on either side of an Interconnection Point (including the machine room, air conditioning, power source, testers, billing equipment and other ancillary facilities) shall be borne by each of the parties itself.

Article 20　If the Interconnection transmission lines pass through such communications facilities of the Leading Telecommunications Carrier as conduits (ducts), pole lines, cable inlets and troughs, etc. the Leading Telecommunications Carrier shall charge a leasing fee in accordance with the specified rate. Fees for facilities for which no rate has yet been set shall be determined by the parties on the basis of the construction cost.

Article 21　While effecting Interconnection and inter-communication, telecommunications carriers shall implement the Settlement of Call Charges Between Telecommunications Networks Procedures formulated by the Ministry of Information Industry and may not charge extra fees not stipulated in the standards.

A telecommunications carrier shall carry out inter-network settlements in accordance with the settlement cycle stipulated in the Interconnection agreement and may not delay the settlement of charges payable to the other party without cause.

Article 22　Telecommunications carriers shall prepare accounts of the Interconnection-related receipts and payments for their networks and of the Interconnection costs, in accordance with the relevant State regulations. After such accounts have been examined and verified by the relevant intermediary institution, the data for each year shall be submitted to the Ministry of Information Industry by 31 March of the next year.

The fee rates for inter-network settlement shall be determined on a cost basis. Until a telecommunications carrier’s Interconnection costs have been determined, the inter-network settlement rates shall provisionally be determined on the basis of charges.

PART FOUR　INTERCONNECTION AGREEMENTS AND CONSTRUCTION

Article 23　Interconnection agreements shall be entered into (and amended) by telecommunications carriers’ organizations at or above the provincial level. Telecommunications carriers’ organizations below the provincial level shall no longer separately enter into Interconnection agreements. The two parties to the Interconnection shall conduct consultations on an Interconnection agreement in line with the principles of friendly cooperation and mutual coordination.

Article 24　The main topics for the Interconnection consultations shall include the bases for entering into the agreement, the timetable for the Interconnection works, the mutually accessible services, the technical plan for the Interconnection (which shall include the establishment of Interconnection Points, the installation of the equipment on either side of an Interconnection Point, the dialling method, the routing, the relay capacity as well as the signalling, billing, synchronization and transmission quality, etc.), network functions related to the Interconnection, the provision of telecommunications facilities, the configuration of the equipment used for the Interconnection, the apportionment of the Interconnection costs, post-Interconnection network management (including the two Interconnection parties’ scope of maintenance, the mutual reporting system for the quality of inter-network communications, the system for handling inter-network communications malfunctions, the reporting system for major breakdowns in inter-network communications, the scheme for responding to emergencies arising in inter-network communications, etc.), inter-network settlements and liability for breach of contract.

Article 25　The Interconnection parties’ organizations at or above the provincial level shall enter into an Interconnection agreement in accordance with the PRC, Contract Law and relevant State regulations. The Interconnection agreement may not contain discriminatory provisions or provisions that prejudice the interests of a third party.

Article 26　Within 15 days of entering into an agreement, the Interconnection parties’ organizations at or above the provincial level shall forward the agreement to their respective subordinate organizations and submit the same to the Telecommunications Regulatory Authority for the record.

Article 27　Each of the Interconnection parties shall arrange for the construction work for which it is responsible within the stipulated Interconnection time limit and in accordance with the Interconnection work schedule and the technical plan for the Interconnection agreed upon between them, and the parties shall jointly arrange for testing of the Interconnection. Service may commence once all works have passed preliminary examination.

PART FIVE　INTERCONNECTION TIME LIMITS AND INTERCONNECTION OVERSIGHT

Article 28　For network Interconnections effected simultaneously on a nationwide scale (or across-provinces, autonomous regions and municipalities directly under the central government) the Non-leading Telecommunications Carrier shall submit by hand a written Interconnection request to the Leading Telecommunications Carrier on the basis of the progress of the work on its own network or the circumstances of its network operations, and Interconnection work shall commence after it submits the request to the Ministry of Information Industry for the record.

The Interconnection parties shall enter into an Interconnection agreement within two months after the date of commencement of Interconnection.

For network Interconnections effected simultaneously on a nationwide scale that require the establishment of new Interconnection Points, service shall commence within seven months after the date of commencement of Interconnection.

For network Interconnections effected simultaneously on a nationwide scale that do not require the establishment of new Interconnection Points and only require increasing the capacity of the network or upgrading the network, service shall commence within four months after the date of commencement of Interconnection.

For network Interconnections effected simultaneously on a nationwide scale that only involve exchange data modifications, service shall commence within two months after the date of commencement of Interconnection.

When necessary, the Ministry of Information Industry will impose specific requirements on the time for the commencement of service for network Interconnections effected simultaneously on a nationwide scale.

Article 29　For network Interconnections not effected simultaneously on a nationwide scale the Non-leading Telecommunications Carrier’s organization at or above the provincial level shall submit by hand a written Interconnection request to the provincial level organization of the Leading Telecommunications Carrier on the basis of the progress of the work on its own network or the circumstances of its network operations, and Interconnection work shall commence once it submits the request to the communications regulatory authority of the province, autonomous region or municipality directly under the central government for the record. The provincial level organization of the Leading Telecommunications Carrier may not refuse to accept the written Interconnection request submitted by the other party.

The Interconnection parties shall enter into a works agreement before commencement of the Interconnection work. The entry into the works agreement shall not affect the progress of the overall Interconnection works. Before the commencement of service, the parties shall enter into agreements on the mutual access to services, post-Interconnection network management and inter-network settlements. Consultations on the agreements may be conducted simultaneously with the implementation of the works.

If the network Interconnection requires the establishment of new Interconnection points, service shall commence within seven months of the commencement of Interconnection.

If the network Interconnection does not require the establishment of new Interconnection Points and only requires increasing the capacity of the network or upgrading the network, service shall commence within four months after the date of commencement of Interconnection.

If the network Interconnection only involves exchange data modifications, service shall commence within one month after the date of commencement of Interconnection.

When necessary, the communications regulatory authority of the province, autonomous region or municipality directly under the central government shall impose specific requirements on the time for the commencement of service for network Interconnections.

Article 30　If, during the course of effecting Interconnection, the Interconnection cannot be completed within the prescribed Interconnection time limit as a result of an objective reason, the time for Interconnection may be postponed subject to the approval of the two Interconnection parties and reporting of the matter to the Telecommunications Regulatory Authority for the record.

Article 31　The two Interconnection parties shall report the Interconnection commencement date, the service commencement date, and the quality of the inter-network communications during the first three days after the commencement of service, to the Telecommunications Regulatory Authority in writing within 30 days after the commencement of service. The Telecommunications Regulatory Authority shall announce the same in an appropriate manner, depending on the specific circumstances.

Article 32　The Telecommunications Regulatory Authority shall regularly or irregularly convene Interconnection coordination meetings of the concerned telecommunications carriers to supervise the resolution of problems encountered during the course of effecting Interconnection.

The Telecommunications Regulatory Bureau of the Ministry of Information Industry shall report on the status of Interconnection work to the communications regulatory authorities of the provinces, autonomous regions and municipalities directly under the central government and the concerned telecommunications carriers.

PART SIX　POST-INTERCONNECTION NETWORK MANAGEMENT

Article 33　The Interconnection Points for Interconnections established at network Interconnection exchange addresses determined by the Ministry of Information Industry shall remain relatively stable. In principle, changes to existing Interconnection Points shall not be permitted.

If a Leading Telecommunications Carrier unilaterally requests making a change to an existing Interconnection Point, it shall submit its plan for the intended modification to the relevant telecommunications carrier beforehand and may only commence modification works after reaching an agreement with the other party through consultations. The modification works shall be completed within seven months. The costs of the modification works shall in principle be borne by the Leading Telecommunications Carrier.

Article 34　If a network capacity increase or upgrade by either Interconnection party could affect the communications of the subscribers of the other network, the circumstances shall be reported to the other party in writing three months in advance.

If adjustments to the routing, relay circuits, signalling method, exchange data, software versions, etc. within the network of either Interconnection party could affect the communications of the subscribers of the other network, the circumstances shall be reported to the other party in writing 15 days in advance.

Article 35　A Telecommunications carrier shall cooperate with adjustments to the inter-network routing, relay circuits, signalling method, exchange data, software versions, etc., in order to ensure that the quality of inter-network communications meets requirements.

Article 36　Telecommunications carriers shall clearly divide the responsibilities for inter-network operation and maintenance, regularly carry out joint analyses of the quality of inter-network communications, establish a system for mutual reporting on the quality of inter-network communications and make regular reports to the Telecommunications Regulatory Authority. The Telecommunications Regulatory Authority shall arrange for the convening of communications quality coordination meetings based on the specific circumstances.

Article 37　Telecommunications carriers shall establish a system for handling inter-network communications malfunctions. If either Interconnection party discovers an inter-network communications malfunction, it shall notify the other party in a timely manner and the parties shall mutually cooperate to jointly handle the malfunction. The time limit for handling inter-network communications malfunctions shall be the same as the time limit for handling similar malfunctions on the parties’ own networks.

Article 38　Without the approval of the Ministry of Information Industry, no telecommunications carrier may cut inter-network communications. Telecommunications carriers shall establish a reporting system for major breakdowns in inter-network communications. If inter-network communications are cut or seriously impaired, the telecommunications carriers shall promptly adopt effective measures to restore communications and timely report the matter to the Telecommunications Regulatory Authority.

For the purposes of the preceding paragraph, the phrase “inter-network communications are seriously impaired” means that the inter-network connection rate (answer bid ratio) is less than 20% or that such circumstances as time lags clearly perceptible to subscribers, call loss or static, etc. arise.

PART SEVEN　MEDIATION AND HANDLING OF INTERCONNECTION DISPUTES

Article 39　The Telecommunications Regulatory Authorities shall resolve Interconnection disputes between telecommunications carriers pursuant to the procedures for the resolution of telecommunications network Interconnection disputes formulated by the Ministry of Information Industry.

Article 40　During the course of effecting Interconnection, if a dispute over any of the issues set forth below arises between telecommunications carriers with the result that the Interconnection cannot be continued or if, after Interconnection, a dispute over any of the issues set forth below arises between telecommunications carriers with the result that the mutual access to network services is affected, either party may apply to the Telecommunications Regulatory Authority for mediation:

1. the technical plan for the Interconnection;

2. the Interconnection network functions and the provision of communications facilities;

3. time limits for the Interconnection;

4. the provision of telecommunications services;

5. the quality of inter-network communications;

6. Interconnection related costs;

7. other issues requiring mediation.

Article 41　After a Telecommunications Regulatory Authority receives an application for mediation, it shall conduct a preliminary examination of the contents of the application. If upon examination the Telecommunications Regulatory Authority discovers that the contents of the application clearly fail to comply with relevant State regulations or clearly exceed the scope of its authority, it shall give the applicant a written response refusing to accept the application. If upon examination the contents of the application are found to comply with requirements, the Telecommunications Regulatory Authority shall formally commence mediation.

Article 42　The Telecommunications Regulatory Authorities shall arrange for relevant persons to mediate Interconnection disputes between telecommunications carriers.

Mediation shall conclude within 45 days of the date of commencement thereof.

Article 43　If, after the conclusion of mediation, the parties to the dispute fail to reach a consensus, the Telecommunications Regulatory Authority shall randomly invite experts on telecommunications technology, economics and the law to publicly debate the issues. The Telecommunications Regulatory Authority shall render a decision on the Interconnection dispute on the basis of the opinions or proposals arising from the debate and enforce the same on the parties to the dispute.

Article 44　Decisions shall be rendered within 45 days of the date of conclusion of the mediation. Decisions rendered by the communications regulatory authorities of the provinces, autonomous regions and municipalities directly under the central government shall be submitted to the Ministry of Information Industry for the record. The Telecommunications Regulatory Authorities shall publish their decisions in an appropriate manner.

Article 45　Once the decision has been made, the parties to the dispute shall perform it within the time limit specified in the decision.

If one or both parties to the dispute are dissatisfied with the decision, it/they may apply for administrative review or institute administrative proceedings according to the law. Implementation of the decision shall not be halted during the review or administrative proceedings.

PART EIGHT　PENAL PROVISIONS

Article 46　If anyone violates Article 9, 10, 11, 12 (first paragraph), 13, 14, 15, 21 (second paragraph), 33, 35, 36 or 37 hereof, the Telecommunications Regulatory Authority shall ex officio issue an order for rectification and impose a fine of not less than Rmb 5,000 and not more than Rmb 30,000, depending on the seriousness of the circumstances.

If a violation of the preceding paragraph causes direct financial loss to another telecommunications carrier, financial compensation shall be paid to the said telecommunications carrier.

Article 47　If anyone violates Article 8, 12 (second paragraph) or 45 hereof, the Telecommunications Regulatory Authority shall ex officio issue an order for rectification and impose punishment in accordance with the relevant provisions of the PRC, Telecommunications Regulations.

Article 48　If anyone violates Article 21 (first paragraph) or 38 hereof, the Telecommunications Regulatory Authority shall ex officio issue an order for rectification, confiscate the illegal income (if any) and impose punishment in accordance with the relevant provisions of the PRC, Telecommunications Regulations.

PART NINE　SUPPLEMENTARY PROVISIONS

Article 49　These Provisions shall be implemented from the date of promulgation. The Administration of the Interconnection of Telecommunication Networks Tentative Provisions promulgated by the Ministry of Information Industry on 7 September 1999 shall be repealed simultaneously.

All security regulatory offices, representative offices, special commissioner’s offices and all security companies:

The issues concerning guaranty of security companies are as follows, in a bid to standardize guarantee activities of security companies and forestall risks that may be caused by guarantee activities of security companies:

1. According to the Circular on the Adjustment of Calculating Rules of Security Companies’ Net Assets of the Commission, (ZhengJianJiGouZi [2000] No.223), security companies with net assets below the floor qualification for comprehensive security companies (200 million RMB) prescribed by the Commission, shall not provide guarantee for other persons. Those qualified for guarantee provision shall disclose in detail the guarantee matters in the annotations of accounting statements and the explanation of net assets status.

2. The guaranteed amount a security company provides should not exceed 20% of its net assets.

3. All security companies shall strictly abide by the Industrial Pact on Financing or Financing in Disguised Form in Stock Underwriting of the Security Industry Association of China (ZhongZhengXieZi [2000] No.20) and shall not provide loan guarantee for enterprises in stock underwriting.

4. Security companies, which are not qualified for guarantee provision shall, since the date of the issuing of this circular review former guarantee, and disclose in detail the information of review in the explanation of net capital status.

5. Security companies shall not provide guarantee for clients who get loans in order to trade stocks.

6. Security companies which provide guarantee against the provisions stated above, or disclose guarantee matters in an inaccurate, false or delayed way, and the responsible staff, shall be punished, exclusively or concurrently, by way of criticism circular, warning, suspension or even cancellation of the business qualification, suspension or even cancellation of the occupational qualification.

Finance departments (bureaus), local taxation bureaus, state taxation bureaus of Guangdong Province, Fujian Province, Hainan Province, Shanghai, and Jiangsu Province:

With a view to balancing the taxation among financial enterprises and to promoting fair competition, and upon the approval of the State Council, the business tax rate prescribed by the state shall be uniformly implemented with respect to all the financial enterprises with foreign investment and foreign financial enterprises newly set up within the economic zones (including the Pudong New Area of Shanghai and the Suzhou Industrial Park) from May 1, 2001. The preferential policies on business tax prescribed in Article 3 of the Circular of the State Council Concerning Relevant Issues on Adjusting Tax Policies of the Finance and Insurance Industries [GuoFa [1997] No.5] shall be stopped from implementation.

With regard to the financial enterprises with foreign investment and foreign financial enterprises that have been registered and established before this Circular is promulgated, and are enjoying the policies on business tax exemption mentioned above, where the former term of implementation of the tax exemption policies hasn’t expired, the policies shall be implemented continuously till the expiration.

GuoShuiHan [2001] No.289

April 17, 2001

Sichuan State Taxation Bureau:

Your Request for Instructions on the Proof of Disposal of Tax Issues in the Case of Chengdu EnWei (ChuanGuoShuiFa [2001] No.55) was received. Upon deliberation, the official reply is hereby given as follows:

Paragraph 2 of Article 4 of the Law of the People’s Republic of China on Chinese-foreign Equity Joint Ventures provides that “the proportion of the foreign party’s investment in an equity joint venture shall be, in general, not less than 25 percent of its registered capital”. Within the term of capital contribution stipulated in the relevant laws, regulations or the investment contracts, where foreign investor as taxpayer doesn’t meet the requirement of this paragraph, and the taxpayer doesn’t report his actual situation to the taxation authorities when going through the tax registration procedures in accordance with the Article 6 of the Implementing Rules of Law of the People’s Republic of China on the

Administration of Tax Collection, the taxation authorities are entitled to calculate and levy the tax fund according to the taxpayer’s actual situation, in accordance with the Article 59 of the Implementing Rules of Law of the People’s Republic of China on the Administration of Tax Collection” where the taxation authorities find that the taxpayer’s contents of tax registration don’t conform to its actual situation, they may order it to be rectified and levy the tax according to the actual situation”.axation authorities find that the taxpayer’s contents of tax registration don’t conform to its actual situation, they may order it to be rectified and levy the tax according to the actual situation”.axation authorities find that the taxpayer’s contents of tax registration don’t conform to its actual situation, they may order it to be rectified and levy the tax according to the actual situation”.axation authorities find that the taxpayer’s contents of tax registration don’t conform to its actual situation, they may order it to be rectified and levy the tax according to the actual situation”.axation authorities find that the taxpayer’s contents of tax registration don’t conform to its actual situation, they may order it to be rectified and levy the tax according to the actual situation”.axation authorities find that the taxpayer’s contents of tax registration don’t conform to its actual situation, they may order it to be rectified and levy the tax according to the actual situation”.axation authorities find that the taxpayer’s contents of tax registration don’t conform to its actual situation, they may order it to be rectified and levy the tax according to the actual situation”.axation authorities find that the taxpayer’s contents of tax registration don’t conform to its actual situation, they may order it to be rectified and levy the tax according to the actual situation”.

The departments (bureaus) of finance and the local tax bureaus of all provinces, autonomous regions, municipalities directly under the Central Government and municipalities separately listed on the State plan:

After the issuance and execution of the Circular of the Ministry of Finance and State Administration of Taxation (”SAT”) on Relevant Taxation Issues on Carrying out and Ensuring the Implementation of the Decision of Central Committee of the Communist Party of China and the State Council on Strengthening Technical Innovation, Developing Hi-techs and Realizing Industrialization (CaiShuiZi [1999] No.273), some issues have been put forward in succession by various jurisdictions. In order to execute the Circular more conveniently, relevant business tax issues for foreign enterprises and foreign individuals to transfer technologies and other intangible assets from outside the mainland of China into China’s mainland are hereby clarified as follows:

I. On the issue of the period for collecting and exempting the business tax of foreign enterprises and foreign individuals in transferring intangible assets

In accordance with the provisions of the Interim Regulations of the People’s Republic of China on Business Tax, Circular of the SAT on the Issue of Business Tax to be Collected upon the Income Obtained by Foreign Enterprises from Transferring Intangible Assets into China’s Mainland (GuoShuiFa [1998] No. 4 ), Circular of the SAT on Relevant Business Tax Issues for Foreign Enterprises to Transfer Intangible Assets (GuoShuiFa [2000] No. 70 ) and Circular of Ministry of Finance and SAT on Relevant Taxation Issues on Carrying out and Ensuring the Implementation of the Decisions of Central Committee of the Communist Party of China and the State Council on Strengthening Technical Innovation, Developing Hi-techs and Realizing Industrialization (CuiShuiZi [1999] No.273), if a foreign enterprise or a foreign individual transfers intangible assets into China’s Mainland, the period of tax collection and exemption on the income obtained form such transfer shall be:

(1) If the contract was concluded before the end of 1993 and if one of the parties to which was inside China’s Mainland, the business tax shall not be collected no matter when the income is obtained;

(2) If the contract was concluded after January 1, 1994, no matter whether the business tax has been collected upon the income obtained prior to December 31, 1997, the amount of the business tax shall be neither refunded nor made up;

(3) If the contract was concluded after January 1, 1994, the business tax shall, in accordance with relevant provisions, be collected upon the income obtained after January 1, 1998;

(4) If the technology transfer contract was concluded after January 1, 1994, the business tax upon the income obtained after October 1, 1999 may be exempted on the condition that the enterprise has, after having obtained relevant certificates and documents, applied to and been approved by the SAT. The business tax upon intangible assets other than technologies shall be collected in accordance with the rules.

II. On the issue of certificates and documents to be provided by foreign enterprises and foreign individuals who apply for exemption of business tax upon technology transfer fees.

In accordance with the provisions of CaiShuiZi [1999] No.273, where a foreign enterprise or a foreign individual who transfers technology into China’s Mainland needs to be exempted from business tax, such tax may not be exempted until it/he has provided the certificate of examination and check opinions issued by the provincial department in charge of science and technology at the location of the transferee of the technology. In order to simplify the formalities and improve the efficiency, if, when handling the tax exemption on technology transfer, the said enterprise or individual can provide the technology transfer contract or agreement and the approval documents issued by the authority which examined and approved the technology import project, that is, Ministry of Foreign Trade and Economic Cooperation or its authorized local department of foreign trade and economic relations, it/he is no longer required to provide the certificate of examination and check opinions issued by the provincial department in charge of science and technology. charge of science and technology.

The sub-administrations of the State Administration of Foreign Exchange; the departments of foreign exchange administration of Beijing and Chongqin; and the sub-administrations of Dalian, Qingdao, Ningbo, Xiamen and Shenzhen:

In order to promote the software export enterprises to export their products and earn foreign exchange income, the relevant issues of the execution of item 7) of Article 1 of the Circular Concerning the Relevant Issues of Software Exports (WaiJingMaoJiFa [2000] No.680 ) (hereinafter referred to as the Circular) promulgated jointly by the Ministry of Foreign Trade and Economic Cooperation, the Ministry of Information Industry, the State Administration of Taxation, the General Administration of Customs, the State Administration of Foreign Exchange and the State Administration of Statistics are hereby defined as follows:

1. The domestic-funded software enterprises of self-management export (hereinafter referred to as “enterprises”) that meet the conditions for account opening as provided by the Circular shall, when applying to the foreign exchange administrations for opening accounts of foreign exchange settlement, provide the “Certificate of Cognizance of Software Enterprise” issued by the competent department under the Ministry of Information Industry, apart from providing the relevant materials as provided for in the Procedures for the Keeping of Limited Amount of Foreign Exchange Income by Domestic-funded Enterprises.

2. When making the examination and verification of account opening of an enterprise, the foreign exchange administration shall examine and verify whether the enterprise is in the “List of Honorable Enterprises”, and shall determine the maximum limit of the account on the basis of 15% of the sum of cancellation after verification of export earnings in foreign exchange of last year issued by the foreign exchange administration of the place where the enterprise is located. The sum cancelled after verification of export earnings in foreign exchange that is used to determine the limit shall be kept together with the materials for account opening, for the purpose of check and verification.

3. The sub-administrations shall strictly take the sum cancelled after verification of export earnings in foreign exchange of last year that actually occurred to the enterprise as the base, and determine the limit of the account of foreign exchange settlement according to the prescribed proportion. The limit may not be broken without the approval of the general administration.

The sub-administrations shall transmit this Circular to their branches as soon as possible after receiving it.

All the Securities Regulatory Offices, Sub-Offices, Representative Offices; all the branches, Beijing and Chongqing Departments of State Administration of Foreign Exchange (”SAFE”); Shanghai and Shenzhen Stock Exchanges; all the commercial banks, securities companies and investment trust companies:

To promote the sound development of foreign currency stocks listed in the domestic stock markets (hereinafter referred to as “B shares”), maintain the normal operation of both the B shares and foreign exchange markets, safeguard the legal rights of the investors and regulate the conduct of the participants in the stock market, this notice has been thus made by the China Securities Regulatory Commission (hereinafter referred to as “CSRC”) to the following issues:

1. Pursuant to Article 4 of the Provisions of the State Council on Foreign Currency Stocks Listed in the Domestic Stock Market Issued by Joint Stock Limited Companies (Decree No.189 of the State Council, 1995] and the decision made by CSRC on February 19, 2001 concerning the approval of domestic residents’ investment in the B Share market, individual domestic residents may, adhering to this notice, invest in the B shares.

2. Before June 1, 2001, domestic residents who intend to invest in the B shares, can only use the foreign exchange account and foreign currency account which had been deposited in domestic commercial banks before the date of February 19, 2001 (February 19 included and the same hereinafter). Nevertheless, those foreign currencies either in cash or transacted from other sources rather than from the foreign currency deposit accounts as aforementioned will not be allowed to invest in the B shares. The foreign currency that had been deposited before February 19, 2001 in domestic commercial banks and the deposit referred upon the expiration date is allowed to invest in the B shares. After June 1, 2001, domestic residents are allowed to invest in the B shares with foreign currencies which should be deposited after February 19,2001 or remitted from abroad to the Chinese domestic commercial banks. Foreign currencies in cash, however, still will not be allowed to invest in B-share market as aforementioned.

3. Security companies and trust investment companies which bear the authorization of CRSC to engage in B shares transactions and the authorization of SAFE to handle foreign currencies may carry the certificates produced by the CSRC for operating the B shares and the licenses authorized by the State Bureau of Foreign Exchange for managing foreign currencies to open B share guarantee accounts at all the domestic commercial banks and their branches which bear the authorization to manage foreign currencies in the same city. The branches of the aforementioned securities companies and investment trust companies may open the guarantee accounts by producing copies of the aforementioned certificates and licenses issued to the companies, on which the official seals of the branches shall be set. Securities companies or investment trust companies or their branches (hereinafter referred to as “securities operating institutions”) can open only one B share guarantee account within one domestic commercial bank within the same area, and under no circumstances, should securities operating institutions open more than one B share guarantee account in one domestic commercial bank within the same area. Securities operating institutions should, within three working days after the opening of the account, submit the name of the bank of the deposit to SAFE or its local branches (”Foreign Exchange Bureau”) to be put on file and disclose the information about their guarantee accounts to the public via mess media.

4. Domestic residents who intend to open B share accounts should go through the following proceedings:

Individuals may, bearing their legal ID documents, have their foreign currencies transferred from their original deposit accounts into the B share guarantee accounts opened by the securities operating institutions. Personal IDs are required for such transactions. Presently such transactions are restricted to the same kind of bank and the same city. Domestic commercial banks should produce entry vouchers to individuals for their money transference, and should deliver the statement of account to the securities operating institutions.

Individuals then may bring their legal IDs and entry vouchers of the transferred foreign currencies to the securities opening institutions to open B share capital accounts. The minimum B share account opening balance is 1,000.00 US dollars or the equivalent.

Upon opening the B share capital accounts, individuals may open their B share securities accounts with the said securities operating companies.

5. Domestic commercial banks should, when handling with transference of foreign currency for domestic residents, strictly abide by the rules prescribed in this notice to check the deposit dates and transferred currency. Before June 1, 2001, when domestic residents transfer foreign currency from their certified deposit, the foreign currency should be deposited before February 19, 2001. When domestic residents transfer foreign currency from the current deposit, the amount should not be over the balance of the accounts before February 19, 2001. When domestic residents make the transactions, the foreign currency should be converted into the same kind of currency as the B share guarantee account held by the securities operating institutions.

6. The profit of the B share capital accounts for domestic residents should include the profit of the foreign currency being transferred from foreign exchange account or foreign currency accounts, and the profit from B share trading. The cost should include the foreign currency spent for buying B-share stocks or transferring back to domestic commercial banks. Nevertheless, foreign currency in B-share capital account is not allowed to be transferred to foreign countries. All the foreign currencies transferred from B share capital accounts to their deposit accounts within domestic commercial banks shall be deemed foreign currency within the country and be subjected to the “The Interim Rules on Foreign Currency Regulations of Individual Domestic Residents” and other applicable rules. Domestic residents shall not withdraw foreign currency cash from their B share capital accounts at anytime.

7. The profit of B share accounts for non-residents shall include foreign currency being transferred from abroad, foreign currency legally deposited with domestic commercial banks and profit from the B-share trading. The cost should include the cost of the foreign currency being transferred abroad, or the foreign currency being deposited in their legal accounts within domestic commercial banks and/or the foreign currency spent for B share trading. Non-residents shall not withdraw foreign currency cash from their B share accounts.

8. Transference of B share between domestic residents and non-residents is forbidden. Domestic residents shall not entrust their B share holdings to the entities outside of main land China.

9. All domestic commercial banks, having opened B share guarantee accounts for the securities operating institutions, are permitted to manage foreign currency payment and settlement which are associated to B-share trading between the securities operating companies and securities registration and settlement companies, and between the securities operating companies and their branches.

10. All securities operating institutions, domestic commercial banks, domestic residents, non-residents shall strictly abide by the rules prescribed in this notice and other relevant rules and regulations issued by the CSRC and the SAFE concerning B share trading, in order to avoid transferring foreign exchange abroad and illegal trading of foreign currencies. Those who breach the rules and regulations shall be subject to CSRC and SAFE’s punishments stipulated by the relevant rules and regulations.

11. This notice shall enter into force as of February 21, 2001. Securities operating institutions may open B share guarantee accounts in domestic commercial banks from the effective date of this notice. Nevertheless, domestic residents shall not transfer foreign currency for the purpose of opening B share capital accounts until February 26, 2001. “The Circular on Issues related to Strict Control of Opening B Share Accounts” (ZhengJianFaZi [1996] No. 75) and “The Circular of Clearing up B Share Accounts” (ZhengJianJiaoZi [1996] No. 1) of CSRC shall be nullified at the same time as this notice enters into force.