Chengdu Investment Guide

Brief Introduction
As the capital city of Sichuan, Chengdu is a city with many faces. On the one hand this is an incredibly modern and vibrant place. Beijing has a relatively relaxed attitude towards this city and as such, Chengdu has blossomed in terms of affluence and investment.  The traditional industries of gold, silver, silk and laquerware have helped to make this city one of the most important centers of commerce in the country. Today, skyscrapers dominate the skyline and Japanese cars and western goods are hugely popular and widely available.

This modernization has no doubt been helped by the important role that Chengdu plays in terms of education and culture in China. Once one of the most important printing centers in the country, Chengdu has a long history as a destination for learned poets and artists to gather and seek inspiration. The great poet Du Fu, made his home here and today there are 14 colleges and an impressive university situated in the city. 

Chengdu Investment Form
The forms of businesses in Chengdu could be wholly foreign owned company(WFOE), a representative office(RO), a joint venture(JV). TANNET provides tailor-made consulting portfolio and one-stop investing follow-up: Market research and feasibility study; Assistance in finding office space; Introducing possible joint-venture partners; Attending to corporate and personal tax registration; Staff Recruitment; Book keeping and auditing.In China the registered capital is much higher than overseas’, and should be paid-up within the time limit. The lease for office space must be provided. You don’t have to go and sign the bank document when opening bank account.

Foreign Trade and Foreign Investment
Fueled by foreign and domestic investment, Chengdu has become more closely integrated with the world. In 2006, its foreign trade surged to US$ 6.95 billion, one of the highest in Central and Western China. From 2001 to 2006, the average growth rate of foreign trade was nearly 30%. And in 2006, its growth rate reached 53.3%, which was more than twice that of China’s national figure. It is also noted that Chengdu’s net export has surged from a US$ 0.11 billion deficit to a US$ 1.33 billion surplus, a clear indication that Chengdu is playing an increasingly important role in China’s export driven economy.

While Chengdu’s top trading partners include the U.S., Hong Kong, Japan and Korea, China’s traditional major trading partners, Chengdu’s top trade partners also include countries like India, Romania and Pakistan. On the one hand, it shows that Chengdu might have a niche in foreign trade. On the other hand, it also shows that there is much potential for Chengdu’s foreign trade to grow.

For export products, clothing, textile and shoes are the most important product lines, which are the traditional strength of Chengdu’s light industry. At the same time, with Intel and Semiconductor Manufacturing International Corporation (SMIC)’s move into Chengdu, IC products have emerged as another important export product line. In 2006, the export value of IC and micro assemblies reached US$ 361 million, 21 times the value in 2005. With more manufacturing facilities scheduled to commence operation, we expect a further growth in the next few years. Other important products include steel, machinery and electric equipment.

In terms of import products, Chengdu’s IC industry has seen rapid growth in its IC product imports as it is mainly a downstream-testing and packaging location. In 2006, IC and micro assemblies import value reached US$ 655 million, 12 times the value in 2005.

In Chengdu’s top 10 exporters list, it can be seen that most of them are trading companies, which might indicate that Chengdu’s manufacturers are mainly small in size. The three exceptions are Dongfang Electric Coporation, one of the three power plant equipment manufacturers, Intel and Pangang, one of the major steel producers in Western China.

At the moment China’s foreign trade is largely comprised of processing trade, which essentially entails the import of raw materials and components, assembling them and then exporting the final products. Hence, an exporter in China is often a big importer as well. Therefore, it is not surprising to see that Intel, Dongfang Electric Coporation and Pangang also topped the Chengdu importers list in 2006.

It is also important to note that since Chengdu is China’s fifth biggest aviation hub (Chengdu Shuangliu Airport ranked the sixth largest airport both by passenger turnover and freight turnover, notwithstanding, there are two airports in Shanghai), two airline related companies are also featured in its top 10 importers list.

In terms of foreign direct investment, Chengdu has stagnated after China’s entry to the WTO at the end of 2001. The city even witnessed a significant dip in utilized FDI in 2004. But FDI inflows saw a rebound in 2005 and have in fact been accelerating since. In 2006, utilized FDI reached US$ 760 million, 38.2% higher than 2005. Its contracted FDI, an indicator for future FDI inflows, reached US$ 2.05 billion, 41.4% higher than 2005.

Manufacturing has been the most important sector for foreign investors, followed by real estate. From 2002 to 2006, utilized FDI flowing into these two sectors reached US$ 858 million and US$ 845 million, respectively. They accounted for 39.4% and 38.8% of total utilized FDI, respectively. It is noted that the share of manufacturing is significantly lower than the national average while real estate is significantly higher than national average.

This trend became more apparent in 2006 when the real estate sector’s utilized FDI reached US$ 448 million, or 59.0% of total utilized FDI, which was more than double the share of the manufacturing sector.

In contrast, the share of utilized FDI in real estate and manufacturing sectors in China’s total utilized FDI inflows (excluding the financial sector) was 13.1% and 63.9%, respectively. With China stepping up efforts to deter "hot money" flowing into sectors, like real estate, we expect FDI flowing to this sector to be more muzzled in the future.

While the much higher-than-national-average share of real estate FDI in Chengdu may hint at the value of its property market, the much-lower-than-national-average manufacturing sector could also point towards potential accelerated growth ahead given Chengdu’s unique competitiveness.

Geographic Situation
Chengdu is situated in the middle of Sichuan Province, the West Sichuan Plain.Covering an area of 12390 sq km, it is 192 KM long from east to west and 166 KM wide from south to north. Up to the year 2000, the city zone of Chengdu is 208 sq km. Chengdu is adjacent to Deyang City in the northwest, Ziyang District in the southeast, Meishan District in the south, Ya'an District in southwest and Aba Tibetan and Qiang Autonomous Prefecture in the northwest. Chengdu belongs to inland zone. It is 1,600 km away from the East China Sea and 1,090 km from the South China Sea.

Topographic Features
The geology of Chengdu has a long history and the stratigraphic exposure is relatively complete. The hypsography of Chengdu slants gradually from northwest to southeast. Characterized by hills and gullies is the western peripheral area of Sichuan Basin, which is 1,000 -3,000 above the sea level. The highest part is Shuanghe (Twin rivers) located in Dayi county with an altitude of 5,364 meters and a relative altitude of 1000 meters. At the bottom of Sichuan basin is the eastern part of Chengdu, forming the heartland of Chengdu plain. It is mainly composed of alluvion plains, mesas and part of low hills, where there the land is profound and fertile. The lowest part of the basin is only 387 meters, which located in Yutai, Jintang County. Due to the great difference of 4,977 meters on altitude between the east and the west of Chengdu, the moisture and heat distribution varies quite remarkably. As a result, in the mountainous areas of the west areas, the temperatures of air, water and land are much lower than that of the eastern plain. Moreover, even in the same mountain, the vertical distributions of different climatic zones occur. As a result, large varieties of vegetations grow in profusion, which provides favorable conditions for the development of agriculture and tourism for Chengdu.

Culture of Chengdu
Owing to their wisdom, diligence and creativity, from ancient times to the present, Chengdu people have been created a host of "Firsts" in the fields of culture, economy, science and technology. These achievements range from "First" in Sichuan, "First" in China and "First" in the world. These "Firsts" are a source of great pride for this historical city and endow Chengdu with a permanent enchantment and charming demeanor. Lets start with one of the "Firsts"in the world created by Chengdu people. Dujiangyan Irrigation System was built around 250 B.C and it has been benefiting Chengdu people ever since-a period of 2000 years. It is the first in the world. In the year of 61 B.C, people drilled a deep well to tap natural gas in Linqiong (a city under Chengdu's jurisdiction) and the gas was used in salt making, cooking and lighting.

Chengdu Shu Brocade, also named "Brocade Satin", is the earliest brocade silk in the world. The foot-driven loom invented in Chengdu in the Eastern Han Dynasty was the most advanced in the world at that time. Up until the Han Dynasty, Chengdu was the center of lacquer making in the world. China is world renowned for its tea and Chengdu was the birthplace of tea culture. In Tang Dynasty, for the first time, engraving printing was invented and widely used in Chengdu. The "Tuoluoni" Scriptures, the Incantation of the Bian Family, the remaining fragments of the Diamond Sutra of the Guo Family in west Sichuan and the Fan Family history in Chengdu are examples of the earliest existing presswork in the world. During the Northern Song Dynasty, merchants in Chengdu jointly issued the earliest paper money in the world, which was called Jiaozi at that time. The local government set up an Office of Jiaozi, which was the earliest administrative and savings bank in the world. Now let us talk about the Firsts in China created by the people of Chengdu. In 250 B.C, Libing used stone dolls to measure the water level of Dujianyuan, which is the earliest water gauge in the world. In 141 B.C a bureaucrat named Wenweng of Shu Prefecture, established "Wenweng Stone House" a school run by local officials this was a first for China. In Western Han Dynasty (202 B.C-8 A.D.), Sima Xiangru, Mei Cheng, Jia Yi, Yang Xiong and Wang Bao laid the foundations of Hanfu (ode in Han Dynasty).

Meng Chang, emperor of the Latter Shu Kingdom ( 943 A.D.-965 A.D.), wrote the first spring festival scrolls in China, the content of which is that at the end of an abundant year, we welcome with great passion the remaining days of this year, and at this joyous festival, we shout and jump for the upcoming spring. Before 355 A.D, Chang Qu compiled "Chronicles of Huayuang", the earliest existing chorography in China. "Midst Flowers", the first collection of poems in the history of Chinese literature was compiled by Zhao Chongzuo during the reign of the Latter Shu Kingdom. In 1082 A.D, the earliest pharmacopoeia of China was composed by a famous doctor Tang Shenwei in Chengdu.

Lacquer, also known as halogen lacquer, has a long history as "an ornate flower" of Sichuan art and crafts.
Today, Sichuan lacquer includes mainly craft lacquer and lacquer painting. The main techniques applied by the lacquer artisan are carving and filling with colors and various materials such as bamboo, wood, metal, figures mounted with shells, bones, stones and eggshells, which endow Sichuan lacquer with a unique style, strong local flavor and aesthetic value.

Preferential Policies Business Income Tax
1.For foreign invested manufacturing enterprises with an operation period of over 10 year, staring from when profits are achieved, income taxes will be exempted for year 1 and year 2 and levied on a half rate from the 3rd to the 5th years.

2.the income tax on production enterprises with foreign investment shall be levied at a reduced rate of 24%. And the income tax on the production FIEs that adopt advanced technology and located in Chengdu Economic & Technological Development Zone or Chengdu Hi-tech Zone (including Chengdu Cross-Strait Scientific Industry Development Park) shall be allowed a reduced income tax rate of 15%.

3.Production projects with foreign investment in middle and west China, encouraged by the state industrial policies shall pay income tax at the reduced rate of 15% for three years on expiry of the current favorable tax period.

4.For foreign invested enterprises at west China (including Chengdu) and under the encouraged category of Guiding Directory for Foreign Invested Industries or belonging to the Directory for Advantageous Foreign Invested Industries at Mid-west China, provided the encouraged industries are the key business of the companies accounting for over 70% of the total income, income taxes will be levied on 15% during 2001 and 2010.

5.The FIEs which are engaged in technology or knowledge-intensive projects, or which make an investment over USD 30 million and have a long payoff period, which are engaged in production for energy and transportation projects, shall pay business tax at a reduced rate of 15% upon approval by the competent tax authority.

6.Following the expiration of the tax preferential period, the business income tax for foreign funded export enterprises shall be reduced by half of the state decided rate if their export for the current year exceeds 70% of the total production value. For export enterprises that pay business income tax at a rate of 15% of the state decided tax rate, the tax rate shall be reduced to 10% if they meet the abovementioned conditions.

7.The income tax on the financial agencies such as foreign funded banks, joint venture banks and etc., which are located in Chengdu, shall be levied at a reduced rate of 15%upon approval by tax authority foreign investors or operation capital from the head bank to the branch exceeds USD 10 million and with an operation period of exceeding 10 years. The business income tax shall be exempted for the first year and be reduced by half in the 2nd and 3rd year staring from the year the begin to make profit.

8.For foreign invested enterprise to utilize pretax profit to increase its registered capital or use after-tax profit to establish new enterprises, with an operation period over five years, 40%of the income taxes paid for the re-investment will be refunded by ratification of tax administration. If the new enterprise is engaged in high and new technology, export-oriented, infrastructure projects such as highway, energy, irrigation, or public facility or the development of agriculture, forestry, stockbreeding and fishery with at least 5 years' operation period, the paid business income tax for the re-invested value shall be fully refunded to the investors.

9.The foreign companies, enterprises and other economic agencies that have no branch in Chengdu but obtain income from Chengdu's bonus stock, inteerst, rent franchise fights and others, shall be allowed a 10% reduction rate on the income tax.

10.For foreign invested enterprises with R&D expenses increasing 10% over the previous year (inclusive), 50% of the actual R&D expenses may deduct the tax that year.

11.For foreign invested advance-technology enterprises which are recognized as advanced technological enterprises, after the expiry of their exempt or reduced tax period, half-tax rate period may be prolonged for additional three years as described by tax regulation. The income tax rate below 10% will be levied at 10% for the enterprises conforming to the half-tax reduction conditions.

Chenddu Taxation
1.Work hard to organize the levying tax to provide capital guarantee for the development of the economy of Chengdu. Stick and equivalent to improve the quality of income; strengthen the survey and analysis of tax sources, sustain the concept of from economy to tax and foster new tax-increasing sources to promote a fine recycle of economic increase and tax increase. 

2.Make full use of micro adjustment function of tax levy to supply tax policy support to the development of enterprises. 
One measure is stick to the market orientation, actively support the development of high-technical industry to promote the gradation and optimization of industrial structure.  The specific measures of encouraging technical progress and the development of high technology are:

(1) To the enterprises whose expenditure on technical development increasing more than 10% than that of the previous year, it can be deducted from the income tax should be turned in the same year according to 50% of the actuated expenditure on technical development;

(2) The donation of the social entities, including that of the enterprises ( foreign invested enterprises and foreign enterprises excluded), career units, social entities, privates and private owners to the research and development of new products, new technologies and new process by non-connected scientific institutes and institutions of higher learning, all donation can be deducted from the income tax should be turned in the same year;

(3) The total amount of wages paid by software enterprises can be deducted from the tax should be turned in the same year;

(4) The income tax of the scientific research institutes built after October 1, 1999 that conform to the condition of income tax payer will be exempted by the end of 2000.

(5) To the enterprises of conducting technical innovation which conform to the national industrial policy, 40% of the investment on state-made equipments can be counteracted or exempted from the increased income tax in the year of purchasing the equipments than that of the previous year.

(6) To the export of high-tech products, when the rate of drawback is lower than that of levied tax, the tax will be rebated according to the rate of levied tax ;

(7) Software for computer developed and produced by ordinary payers of added-value tax will be levied according to 17% legal rate of taxation and the taxation that surpasses 6% will be rebated immediately after levying.

(8) To the enterprises registered within economic development zone of high-tech ratified by the State of Council. If ratified as technical enterprises by relative departments, the income tax will be levied at the rate of 15%. The income tax of high-tech enterprises ratified by the State of Council will be exempted with two years since operation.

3.Work hard to improve the level of introducing foreign investment,encourage foreign trade and support opening
to the outside world. The preferential taxation policies and taxation measures to foreign-invested enterprises,
foreign enterprises and foreign trade are:

(1) To productive enterprises in the line of energy source and traffic infrastructure in Chengdu, the income tax can be levied at the rate of 15% after submitted and ratified by the State General Bureau of Tax.

(2) To foreign businessmen who have not built organizations and have the income of dividend, benefit, rent, royalty for charter and other sources in Chengdu, the income tax will be levied at the rate of 10% except those who have been exempted of income tax.

(3) To foreign-invested enterprises who enjoy the preferential tax policy of Two Exemptions and Three Rebates, the income tax will be levied at the rate of 15% within 3 years after the end;

(4) Foreign-invested enterprises purchase state-made equipments with the aggregate investment, if this kind of equipments belongs to the range of duty-free, all of the value-added tax will be rebated for state-owned equipments;

(5) Foreign-invested enterprises enjoy the same preferential policy of tax rebating as well as the domestic enterprises;

(6) The measures of tax exemption will be changed to the measures of tax drawback to the foreign-invested enterprises ratified before December 31, 1999, enterprises of self-management of export and enterprises of entrusting export from November 1, 1999. The calculation will adopt the measure of Drawback after Levying or the Measures of Exemption, Rebating and Drawback ;

(7) Try to increase 10% of the drawback index than that of the previous year in 2000 and actively adjust the drawback measure of classified management. Try to increase the numbers of class B from the province to let more enterprises in our city enjoy the right of drawback the tax in priority.  Make full use of the adjusting function of taxation, lighten the burden of enterprises so as to promote the enterprises more active and further developed. Enlarge the strength of debating the stocks of the enterprises in the beginning of period for the ordinary tax-payers. The debate of tax in the year of 2000 reaches more than 60% of the balance and finish the work of debating the levied tax for the stocks in the beginning of period within two years.

3.Strengthen the management of taxation, simplify the procedure of taxation and provide fine and high-effective service to the development and business invitation and capital import.  

Deepen the transformation of tax levying, push the experimental work of CTAIS software, regulate the management procedure, improve the management and boost the efficiency of tax levying; Strengthen the construction of the service centre and the design of
the function provide fine and high-effective service to the tax payer;  Strengthen the propaganda of the laws on tax, impress the information of the policy on tax in time and insure a straightway for tax -payers to realize the laws on taxation;simply the procedure of taxation actually, reduce the procedure and promote One-station Style service during registration, consult, declaration and levying in the taxation center, carry out checking the drawback of tax at any time and the application that conforms to the requirement will be completed in 2 working days.

4.  Levy the tax strictly according to laws to provide a fine taxation environment for the fair competition between enterprises.  Strengthen the construction of regulations and system, perfect the system of administrative reconsideration and judge's private sitting,enlarge the strength of supervision for execution of law, carry out united supervision and management on the laws on taxation and all policies on taxation; Further push responsibility system of administrative law enforcement and the system of to be prosecuted for the mistakes,strictly execute the system of examination for the qualification to tax staff and improve the law-enforcement level and the understanding of policies of all-grades cadres of taxation; fully practice the checking and planning system on tax to avoid blindness and randomness so as to lighten the burdens of the enterprises;charge on relative licenses according to regulations strictly and charges by breaching of regulation is prohibited so as not to increase the burdens of the enterprises.

Tannet——Global Corporate Solution Provider,Value Investment & Strategic Development.