Automotive Industry Development Policy

PART ONE: POLICY OBJECTIVES

Article 1: A uniform market environment characterized by fair competition will be created and the system of legal administration of the automotive industry strengthened by adhering to the principle of combining the development of the fundamental market function in allocating resources with macroeconomic regulation and control by the government. Government functional departments will administer automobile, agricultural transport vehicle (here and hereafter referring to low speed cargo transport vehicles and three-wheeled motor vehicles), motorcycle, and part and component manufacturers and their products in accordance with administrative regulations and the mandatory requirements of technical standards and regulate the market actions of various kinds of economic entities in the automotive sector.

Article 2: The harmonious development of the automotive industry together with affiliated industries, urban transport infrastructure and environmental protection will be promoted. A favourable environment for the use of motor vehicles will be created, a healthy automobile consumption market fostered, the rights and interests of consumers protected and private automobile consumption promoted. The objective is to cause China to become one of the world's major automotive manufacturing countries and enable its automobile products to satisfy most domestic market demand and enter foreign markets en masse by 2010.

Article 3: Automobile manufacturers are encouraged to improve their research and development capabilities and technical innovation capabilities, actively develop products incorporating their own intellectual property and implement a business strategy stressing brands. By 2010, automobile manufacturers shall have created several well-known automobile, motorcycle, and part and component product brands.

Article 4: Adjustment and restructuring of the automotive industry's structure will be promoted in order to increase enterprise economies of scale, increase industry concentration and avoid redundant construction that is dispersed, disordered and of low standard.

Through market competition a few large internationally competitive automobile enterprise groups striving to pierce into the Fortune 500 will emerge by 2010.

Subject to market forces, automobile manufacturers are encouraged to form corporate alliances in order to enable them to make up for each other's weaknesses with their respective strengths, use resources jointly and increase the scope of their operations.

A number of relatively dominant part and component enterprises will be fostered in order to achieve scale of production, enable them to enter the international automobile part and component procurement system and aggressively compete internationally.

PART TWO: DEVELOPMENT PLANS

Article 5: The state will guide the preparation of industry development plans in accordance with automotive industry development policies. The development plans will include medium to long-term industry development plans and the development plans of large automobile enterprise groups. The medium to long-term industry development plans will be formulated by the National Development and Reform Commission in conjunction with relevant departments after a broad seeking of opinions and implemented after being submitted to and approved by the State Council. The development plans of large automobile enterprise groups will be formulated by the groups themselves on the basis of the medium to long-term industry development plans.

Article 6: Any automobile enterprise group that has such characteristics as a uniform plan, products that it developed itself, independent product trademarks and brands, integrated sales service system management and whose core enterprise, wholly owned subsidiaries, holding enterprise and Sino-foreign equity joint ventures produce automobile products that have a domestic market share of not less than 15% or whose annual revenues derived from the sale of whole vehicles account for not less than 15% of the entire industry's whole vehicle sales revenues may, as a large automobile enterprise group, independently prepare its group development plan and implement the same after the National Development and Reform Commission has arranged discussion thereof and approved the same.

PART THREE: TECHNOLOGY POLICIES

Article 7: The principle of combining the import of technology with autonomous development will be adhered to. International cutting-edge technology will be tracked and studied, international cooperation will be actively sought and suitable advanced technologies incorporating one's own intellectual property will be developed. Products with imported technology need to be internationally competitive and meet the development of the mandatory requirements of international automobile technical standards. Efforts will be exerted in bringing self-developed products up to international technical levels so that they can compete internationally. The state will support, through tax policies, research and development activities that comply with technical policies.

Article 8: The state will guide and encourage the development of fuel-efficient and environmentally friendly low emission vehicles. The automotive industry will combine the state's energy structure adjustment strategy with the requirements of emission standards in actively researching and industrializing electric vehicles and new forms of motive power such as traction batteries for vehicles, etc. and focus on the development of hybrid vehicle technologies and diesel engine technologies for sedans. The state will take measures in respect of scientific and technological research, technical improvement, industrialization of new technologies, the policy environment, etc. to promote the manufacture and use of hybrid vehicles.

Article 9: The state supports the research and development of such alternative fuels for vehicles as alcohol fuels, natural gas, hybrid fuels, hydrogen fuels, etc. and encourages automobile manufacturers to develop and manufacture alternative-fuel vehicles.

Article 10: The automotive industry and related industries need to focus on the development and application of new technologies to improve the fuel economy of motor vehicles. By 2010, the average fuel consumption of new passenger vehicles will be lowered by no less than 15% compared to the 2003 level. An automobile product fuel consumption announcement system will be established based on the mandatory requirements of relevant technical standards on energy efficiency.

Article 11: Research on new vehicle materials, such as light materials, recyclable materials and environmentally friendly materials will be actively carried out. At the appropriate time, the state will formulate requirements on minimum utilization rates for recycled materials.

Article 12: The state supports the research, development and production of automobile electronic products and the aggressive development of the automotive electronics industry in order to accelerate the utilization of electronic information technologies in automobile products, sales logistics and manufacturers so as to drive the development of the automotive industry.

PART FOUR: STRUCTURAL ADJUSTMENT

Article 13: The state encourages the development of automobile enterprise groups so as to create a new competition setup. Based on the combination of market competition and macroeconomic regulation and control, and through strategic inter-enterprise reorganization, the structure of the automotive industry will be optimized and upgraded.

The objectives of strategic reorganization are to support the development of large automobile enterprise groups through asset reorganizations by automobile manufacturers and encourage the creation of corporate alliances through cooperation in which members make up for each other's weaknesses with their respective strengths and jointly use resources so as to see the formation of an industry environment in which large automobile enterprise groups, corporate alliances and special purpose vehicle manufacturers develop harmoniously.

Article 14: Manufacturers of whole vehicles need, through structural adjustment, to improve their specialized production level, and progressively convert their internal ancillary parts and component production units into specialized parts and component manufacturers that are independent and socially oriented.

Article 15: Corporate alliances need to cooperate extensively in such fields as product research and development, production complementarity and harmonization, and sales services in order to adjust their product structures, optimize resource allocation, lower operating costs and bring about economies of scale and intensive development. Members of a certain corporate alliance may not enter into alliances with other enterprises in order to ensure the corporate alliance's stability and permit it to solidify its market position. The state encourages corporate alliances' formation into economic entities bonded together by assets as soon as possible. Corporate alliances whose cooperative development plans involve the establishment of new automobile manufacturers and cross-category automobile production projects will be subject to the relevant provisions of this Policy.

Article 16: The state encourages automobile and motorcycle manufacturers to launch international cooperation so that they can leverage their comparative advantages and participate in the international division of labour in the industry. The state supports the merger with and restructuring of domestic and foreign automobile manufacturers made jointly by large automobile enterprise groups and foreign automobile conglomerates so that they can broaden the scope of their market operations and cope with the globalization trend in automobile production.

Article 17: An exit mechanism for whole vehicle and motorcycle manufacturers will be established that will subject automobile manufacturers (including existing modified vehicle manufacturers) that are unable to sustain normal production and operations to special announcements. Such enterprises may not assign their automobile or motorcycle production qualifications to manufacturers or individuals that are not automobile or motorcycle manufacturers. The state encourages such enterprises to shift production to special purpose vehicles or automobile parts and components or to effect an asset reorganization with another whole vehicle manufacturers. Automobile manufacturers may not buy or sell production qualifications. Bankrupt automobile manufacturers will be removed from the gazette at the same time.

PART FIVE: ADMINISTRATION OF GRANTING MARKET ACCESS

Article 18: The Administration of Road Motor Vehicles Regulations will be formulated. Government functional departments will subject the design, manufacture, certification, registration, inspection, defect control, repair and maintenance, scrapping and recycling of road motor vehicles to administration in accordance with the Regulations. Administration will be characterized by a clear demarcation of responsibilities and powers, transparent procedures and convenience of operation and be easily supervisable by the public.

Article 19: Mandatory requirements for road motor vehicle safety, environmental protection, energy saving and anti-theft technical standards will be formulated. All road motor vehicles will be subject to mandatory requirements of centrally formulated technical standards. Such standards need to be in tune with the national situation in China and actively converge with the mandatory requirements of international technical standards for vehicles so as to promote the technical progress of the automotive industry. Road motor vehicle products that fail to meet the mandatory requirements of relevant technical standards may not be produced or sold. Agricultural transport vehicles may only be driven on highways of class three or below and will be subject to the mandatory requirements of the relevant technical standards formulated therefor.

Article 20: A uniform administrative system for granting to road motor vehicle manufacturers and their products access to the market will be established in accordance with this Policy and with state certification and accreditation regulations. Road motor vehicle products that comply with the administrative system for granting of market access, related regulations and the mandatory requirements of technical standards, and that have passed mandatory product certification will be entered into the Gazette of Road Motor Vehicle Manufacturers and Products. The Gazette will be jointly published by the National Development and Reform Commission and the General Administration for Quality Supervision, Inspection and Quarantine. Products in the Gazette must carry the China Compulsory Certificate (3C) mark. Imported vehicles and vehicles assembled from imported vehicle bodies may not be substituted for self-produced products and submitted for certification. The release onto the market of products that are illegally assembled from miscellaneous parts or that infringe upon intellectual property rights is prohibited.

Article 21: The traffic control department of public security authorities will handle the registration of vehicles on the basis of the Gazette of Road Motor Vehicle Manufacturers and Products and the China Compulsory Certificate (3C) mark.

Article 22: The relevant government functional departments will set the conditions for granting market access to enterprise production for such product categories as automobiles, agricultural transport vehicles and motorcycles in accordance with the administrative system for granting of market access, will subject manufacturers and their products to dynamic administration and will remove any enterprise or product that does not comply with provisions from the Gazette of Road Motor Vehicle Manufacturers and Products. Conditions for granting market access to enterprise production shall include such requirements as product design and development capabilities, product production facility capabilities, product production consistency and quality control capabilities, and product sale and after-sale service capabilities.

Article 23: Road motor vehicle product certification institutions and testing institutions will be designated by the General Administration of Quality Supervision, Inspection and Quarantine after discussion with the National Development and Reform Commission and will carry out their certification and testing work in accordance with the specific provisions of the administrative system for granting of market access. Certification institutions and testing institutions shall have the status of impartial third parties and may not have a material interest in automobile manufacturers in terms of assets or management and may not test and collect the fee for testing any one product more than one time. The state supports the development, in accordance with the law, of automobile, motorcycle and key part and component testing institutions that have the status of impartial third parties.

PART SIX: TRADEMARKS AND BRANDS

Article 24: Automobile, motorcycle, engine, and part and component manufacturers need to strengthen their awareness of corporate and product branding, actively develop products that incorporate one's own intellectual property, stress the protection of intellectual property rights, strive in their production and operational activities to increase the fame of their corporate brands and safeguard the image of their corporate brands.

Article 25: Automobile, motorcycle, engine, and part and component manufacturers shall register their own product and service marks in accordance with the Trademark Law. The state encourages enterprises to formulate brand development and protection plans and to strive to implement business strategies that stress brands.

Article 26: From 2005, all vehicles and assembly parts produced in China will be required to bear the registered product trademark of the manufacturer, whole vehicles sold on the domestic market will be required to bear in a prominent location on the outside of the body the manufacturer's product trademark and enterprise name or the place of production of the product. If the product trademark incorporates the manufacturer's geographical indicator, the product's place of production will not be required. All brand dealers will be required to display the manufacturer's service mark in a prominent location on their sales service premises.

PART SEVEN: PRODUCT DEVELOPMENT

Article 27: The state supports the establishment of product research and development organizations by automobile, motorcycle, and part and component manufacturers to enable them to develop their product innovation capabilities and autonomous development capabilities. Autonomous development may take the form of development undertaken on one's own account, joint development, commissioned development, etc. Any investments in the establishment of scientific research facilities for the autonomous development of an enterprise's products that comply with relevant state tax provisions for the promotion of enterprise technological progress may be listed as an expense before income tax. The state will soon issue policies for the encouragement of autonomous development by enterprises.

Article 28: Automobile manufacturers need to strive to master vehicle body development technologies, stress the development of product process technologies and develop chassis and engine development capabilities as soon as possible. In the process of industrial transformation, the state supports large automobile enterprise groups, corporate alliances and automobile part and component manufacturers in their development of cutting edge whole vehicles and part assemblies that incorporate their own intellectual property.

Article 29: Automobile, motorcycle, and part and component manufacturers need to actively participate in major science and technology research projects organized by the state, strengthen cooperative research with scientific research institutions and institutions for higher learning and pay attention to the application and transformation of scientific research achievements.

PART EIGHT: PARTS AND COMPONENTS AND RELATED INDUSTRIES

Article 30: Automobile part and component enterprises need to adapt to the development trends in the industry internationally and actively participate in the product development work of main-engine manufacturers. In the field of key automobile parts and components, they need to progressively develop systematic development capabilities and in the field of standard automobile parts and components develop advanced product development and manufacturing capabilities so that they can satisfy demand in the domestic and foreign markets and strive to enter the international automobile part and component procurement system.

Article 31: A part and component special development plan will be formulated that will classify automobile parts and components for the purposes of guidance and support and to attract investment of private funds in the automobile part and component production sector so as to cause relatively dominant part and component enterprises to develop specialized, mass production and modular supply capabilities. The state will support in terms of technology import, technological innovation, financing, mergers and reorganizations, etc. on a priority basis those part and component manufacturers that are capable of supplying ancillaries to a multiple number of independent whole vehicle manufacturers and that enter the international automobile part and component procurement system. Whole vehicle manufacturers should progressively adopt electronic commerce and online procurement to procure parts and components from private suppliers.

Article 32: In accordance with the requirements of the automotive industry development plan, manufacturers in such automotive industry related sectors as metallurgy, petrochemicals, machinery, electronics, light industry, textiles, construction materials, etc. should stress the improvement of product levels and market competitiveness in metal materials, machinery, tooling moulds, automobile electronics, rubber, engineering plastics, textiles, glass, automobile oil products, etc. so that they develop in lock step with the automotive industry.

Key support will be given to developing the capabilities of iron and steel manufacturers to supply sheet steel for sedans. Support will be given to the establishment of professional mould design and manufacturing centres so as to improve automobile mould design and manufacturing capabilities. Support will be given to petrochemical enterprise technological progress and product upgrading so as to cause the quality of such oil products as processed oil and lubricating oil to attain advanced international levels and satisfy the development needs of the automotive industry.

PART NINE: MARKETING NETWORKS

Article 33: The state encourages automobile, motorcycle and, part and component manufacturers together with financial and service trade enterprises to actively develop automobile service trading by drawing lessons from mature international automotive marketing methods, management expertise and service trade ideas.

Article 34: Any domestic or foreign automobile manufacturers that sells its self-produced automobile products on the Chinese market must establish a self-produced automobile brand sales and service system as soon as possible in order to protect the lawful rights and interests of automobile consumers and enable them to obtain good service in the course of purchasing and using automobiles. Such system may be established through the domestic or foreign automobile manufacturer's own investment or through investment by an authorized automobile dealer. Once a domestic or foreign investor has obtained the authorization of an automobile manufacturer and carried out the necessary procedures in accordance with relevant provisions, it may engage in sales and after-sales service activities relating to the relevant brand of automobiles produced in China or imported automobiles.

Article 35: From 2005, all automobile manufacturers will be required to develop branded sales and services for their self-produced passenger vehicles and by 2006, branded sales and services will be required for all self-produced automobile products.

Article 36: The current procedures for the administration of the verification of the right to sell small sedans will be abolished and implementing procedures for the administration of branded automobile sales will be formulated by the Ministry of Commerce in conjunction with such relevant departments as the State Administration for Industry and Commerce and the National Development and Reform Commission. Automobile sellers shall engage in automobile business activities within the scope of business approved by the administration for industry and commerce. The scope of business of dealers dealing in brands of passenger vehicle (including used vehicles) with less than nine seats will be subject to the verification of, and announced by, the state department in charge of industry and commerce administration in accordance with relevant provisions. The business licences of brand dealers will be uniformly verified as branded automobile sales.

Article 37: Automobile and motorcycle manufacturers need to strengthen the management of sales effected through their marketing networks and standardize maintenance and repair services. They have a responsibility to announce to the public those models that will be discontinued and to take active measures to ensure that reliable components will be provided for after-sales service and repair and maintenance for a reasonable period of time after the discontinuation. They shall announce to the public on a regular basis the list of branded sale and maintenance and repair enterprises that they have authorized and those whose authorizations they have revoked. They may not provide products to those dealers that have not received brand authorization or do not meet dealership conditions.

Article 38: When conducting their business activities, automobile, motorcycle, and part and component sellers shall comply with relevant state laws and regulations. The relevant departments will punish in accordance with the law those sellers that sell vehicles whose sale is prohibited by the state or whose sale has been announced as being discontinued, those that sell vehicles by counterfeiting or passing off a third party's factory name, factory address or certificate of quality, those without the authorization of the automobile manufacturers or those whose authorization has been revoked but nevertheless continue to use the original brand to sell automobiles or components or provide maintenance and repair services and those that deal in counterfeit or substandard automobile components and provide maintenance and repair services to customers.

Article 39: Automobile manufacturers need to simultaneously pay attention to the overall benefits in both the manufacturing and sales service stages so as to improve composite economic results. The assignment of rights and interests in the sales stage to another legal person organization shall be deemed a material change in the feasibility study report for the original investment project and, in addition to reporting the same to the Ministry of Commerce for its approval in accordance with the provisions, the approval of the original project examination and approval work unit will be required.

PART TEN: INVESTMENT ADMINISTRATION

Article 40: In accordance with the principles of benefiting autonomous enterprise development and implementing macroeconomic regulation and control by the government, the government's system of administering the examination and approval of automobile manufacturer's investment projects will be reformed and a dual record filing and approval system will be implemented.

Article 41: Investment projects subject to record filing:

(1) Projects in which existing automobile, agricultural transport vehicle and vehicle engine manufacturers raise funds themselves to expand their capacity to produce the same type of products or increase product varieties, including the establishment of new non-independent legal person production work units producing the same types of products in a different region.

(2) Investments in projects for the production of motorcycles and motorcycle engines.

(3) Investments in projects for the production of parts and components for automobiles, agricultural transport vehicles and motorcycles.

Article 42: Investment projects subject to record filing falling under Item (1) shall be reported to the National Development and Reform Commission for the record by the investment administration department of the provincial-level government or enterprise group with independent development plans. Projects falling under Item (2) or (3) shall be reported directly by the enterprise to the investment administration department of the provincial level government for the record. For the recorded particulars see Annex 2.

Article 43: Investment projects subject to verification:

(1) Projects for the establishment of new automobile, agricultural transport vehicle or vehicle engine manufacturers, including the establishment by existing automobile manufacturers of new independent legal person manufacturers in a different region.

(2) Projects in which existing automobile manufacturers cross product categories to produce another category of whole vehicle product.

Article 44: Investment projects subject to verification shall be submitted to the National Development and Reform Commission for examination by the investment administration department of the provincial-level government or enterprise group with independent development plans. Investment projects for the production of special purpose vehicles shall be reported to the National Development and Reform Commission for the record after verification by the investment administration department of the provincial-level government. The establishment of new Sino-foreign equity joint venture sedan projects shall be submitted for the verification of the State Council by the National Development and Reform Commission.

Article 45: Once the development plan of a large automobile enterprise group has been approved, the projects contained therein shall be implemented by the enterprise itself.

Article 46: The verification for the establishment of new agricultural transport vehicle manufacturers shall be suspended until January 1 2006.

Article 47: New investment projects shall meet the following conditions:

(1) newly established motorcycle and motorcycle engine manufacturers shall possess technology development capabilities and conditions and the total investment in the project may not be less than Rmb200 million;

(2) special purpose vehicle manufacturers may not have registered capital of less than Rmb20 million and shall possess product development capabilities and conditions;

(3) the total investment amount of cross-product category investment projects for the production of other categories of whole vehicle products (including the use of existing fixed assets and intangible assets) may not be less than Rmb1.5 billion, the enterprise must have an asset-to-liability ratio of less than 50% and its bank credit rating must be AAA;

(4) automobile manufacturers that cross product categories to manufacture sedans or other passenger vehicles shall have a track record of mass producing automobile products and aggregate after tax profits of not less than Rmb1 billion during the most recent three years (as evidenced by tax documents); the enterprise's asset-to-liability ratio must be less than 50% and its bank credit rating must be AAA;

(5) the total amount of investment in investment projects for the establishment of new automobile manufacturers may not be less than Rmb2 billion, of which their own funds may not be less than Rmb800 million; furthermore, a product research and development organization with an investment of not less than Rmb500 million must be established. Investment projects for the establishment of new passenger vehicle and heavy cargo vehicle manufacturers shall include the production of ancillary engines for whole vehicles;

the total amount of investment in investment projects for the establishment of new vehicle engine manufacturers may not be less than Rmb1.5 billion, of which their own funds may not be less than Rmb500 million; furthermore, a product research and development organization, the level of whose products must satisfy the progressively more demanding mandatory requirements of state technical standards, must be established;

(6) when the following types of investment projects are to be established, their production scale may not be less than: heavy cargo vehicles, 10,000 units; and four-cylinder passenger vehicles, 50,000 units, and six-cylinder passenger vehicles, 30,000 units.

Article 48: The shareholding ratio of the Chinese party/parties to a Sino-foreign equity joint venture whole vehicle, special purpose vehicle, agricultural transport vehicle or motorcycle that manufactures may not be less than 50%. Where a whole vehicle, special purpose vehicle, agricultural transport vehicle or motorcycle joint stock company whose shares are listed sells legal person shares to (a) foreign party/parties, one of the Chinese legal persons must maintain a relative controlling interest and its share must be larger than the total of the legal person shares held by foreign investors. A foreign investor may establish no more than two equity joint ventures in China to produce the same category (passenger vehicles, commercial vehicles or motorcycles) of whole vehicle products. In the event that it, together with its Chinese joint venture partner, merges with other domestic automobile manufacturers, it will not be subject to the foregoing restriction. Where an overseas enterprise with legal person status has a relative controlling interest in another enterprise, the latter enterprise will be deemed part of the same enterprise.

Article 49: If a domestic or foreign automobile manufacturer invests in a project in an export processing zone to manufacture vehicles or vehicle engines for export, it may be exempted from the restrictions of the relevant provisions hereof and shall be subject to special approval by the State Council.

Article 50: If the parties to a Sino-foreign equity joint venture automobile manufacturer intend to extend the joint venture term or change the equity ratio or a foreign shareholder in the joint venture, the same needs to be reported to the original examination and approval authority for handling in accordance with the relevant provisions.

Article 51: Prior to receipt of a verification notice for a project subject to verification, the land administration department may not carry out land requisition procedures, state-owned banks may not release loans, customs may not carry out tax exemption procedures, the China Securities Regulatory Commission may not verify the offering and listing of shares and the administration for industry and commerce may not carry out the procedures for registration of the establishment of a new enterprise. The state department responsible for administration of automobile product certification may not accept applications for granting to the manufacturer or its products access to the market.

PART ELEVEN: IMPORT ADMINISTRATION

Article 52: The state supports efforts by automobile manufacturers to increase localization of automobile product production capabilities so as to drive technical progress in automobile part and component enterprises and develop the automotive manufacturing industry.

Article 53: If an automobile manufacturer uses imported parts and components to produce vehicles that constitute the characteristics of a whole vehicle, it shall truthfully report the same to the Ministry of Commerce, the General Administration of Customs and the National Development and Reform Commission. All the imported parts for the vehicle model involved must be declared to the competent customs and duties and tax paid thereon so as to facilitate effective administration by the relevant departments.

Article 54: Customs duties and tax will be levied in strict accordance with the tariff rate for imported whole vehicles or parts and components to prevent the loss of customs duties and tax. The relevant functional departments of the state shall conduct checking at such stages as the application for quotas, import declaration, and granting the product access to the market.

Article 55: The scope for determining what constitutes a characteristic of a whole vehicle includes the body (including the driver's cabin) assembly, engine assembly, transmission assembly, drive axle assembly, non-drive axle assembly, frame assembly, steering system, brake system, etc.

Article 56: The scope for determining what constitutes a characteristic of a vehicle assembly (system) includes the individual parts for an assembly imported as a whole set or the several key individually imported disassembled parts of an assembly or system. Once imported key parts reach or surpass the prescribed quantity, they will be deemed to constitute a characteristic of an assembly.

Article 57: If, in accordance with the scope for determining what constitutes a characteristic of a whole vehicle, any of the following states is reached, a characteristic of a whole vehicle will be deemed to be constituted:

(1) vehicles assembled from the two large assemblies, i.e. imported bodies (including driver's cabin) and engines;

(2) vehicles assembled from one of the two large assemblies, i.e. imported bodies (including driver's cabin) or engines, and three or more of the other assemblies; or

(3) vehicles assembled from five or more imported assemblies other than the two large assemblies, i.e., bodies (including driver's cabin) and engines.

Article 58: The state has designated four coastal ports, namely Dalian New Port, Tianjin New Port, Port of Shanghai and Huangpu Port, two land ports, namely Manzhouli and Shenzhen (Huanggang) as well as Xinjiang Alashankou Port (for the import of whole vehicles originating from the Commonwealth of Independent States and that are for the use of the Xinjiang Uygur Autonomous Region itself) as ports for the import of whole vehicles. Imported whole vehicles must be imported through one of the aforementioned ports. From 2005, no bonded zone of an import port may store vehicles that are destined for the domestic market.

Article 59: The state prohibits the import of used automobiles, motorcycles or their parts or components by way of trade or donation and the import of used vehicle assemblies or parts, under the guise of scrap iron and steel or scrap metal, for the purposes of dismantling and reconditioning. The repair and maintenance of the aforementioned products from abroad in an export processing zone and their re-export may be carried out, but the dismantling and reconditioning of used automobiles or motorcycles is prohibited.

Article 60: The specific procedures for the administration of the import of whole vehicles and parts and components will be formulated by the General Administration of Customs in conjunction with the relevant departments and implemented after approval by the State Council. The administration of foreign sample vehicles sent for inspection, vehicles that enter China for exhibition purposes and other such temporarily imported vehicles will be handled in accordance with the provisions of customs for the administration of temporarily imported and exported goods.

PART TWELVE: AUTOMOBILE CONSUMPTION

Article 61: An automotive market driven by private consumption will be fostered, the environment for the use of automobiles improved and the rights and interests of automobile consumers protected. Automobile consumers will be directed toward the purchase and use of low-energy consumption, low pollution, low emission, new energy resource and new motive power vehicles in order to strengthen environmental protection. Efforts will be expended to bring about the harmonious development of the automotive industry together with urban transport facilities, environmental protection, energy economization and related industries.

Article 62: A uniform and transparent national automotive market and administrative system will be established. Regional governments shall encourage fair competition in their markets for automobiles produced elsewhere and may not implement policies that discriminate against automobile products produced elsewhere or measures that could lead to discriminatory results. Any restrictions or additional conditions on the purchase and use of automobiles or disposal of title thereto that do not comply with state regulations or the requirements of this Policy shall be amended or abolished.

Article 63: The state will centrally formulate and publish all administrative and institutional fee and governmental fund fee items targeting automobiles and the rates thereof in order to standardize the various government charges imposed in the vehicle registration stage and in the course of vehicle usage. Regions may not impose new administrative and institutional fee and governmental fund fee items or increase the amount of such fees at the stages of automobile purchase, registration or use. If there truly is a need to impose new fees or increase the amount of such fees, the same shall be submitted for approval in accordance with laws, regulations and State Council approved documents. No work unit may compel automobile consumers to pay any non-business service charges other than the fee items specified by the state. If compelled to pay such a charge in violation of provisions, an automobile consumer shall have the right to report the same and refuse payment of the charge.

Article 64: Administration of business service charges will be strengthened. Business service charges, such as those for repair and maintenance, non-statutory insurance, motor vehicle parking, etc. arising in the course of vehicle usage shall be collected by the business service provider based on the principle of the automobile consumer accepting the service of his own free will. The charges and rates thereof in competitive sectors such as repair and maintenance, etc. will be determined by business service providers themselves based on market principles. Charge rates for business services provided through the monopolization of resources, such as motor vehicle parking, etc., and procedures for the administration thereof will be formulated and published and implementation thereof supervised by the State Council department in charge of pricing or the competent provincial level department in charge of pricing authorized by it. Business service providers shall erect a sign detailing the charge collection dynamics on the premises where collection is effected and subject to public supervision.

The establishment of highway toll stations must comply with relevant state provisions. The basis for the toll and the toll rate shall be posted in a conspicuous location at all toll stations.

Article 65: Trade in automobile service will be actively developed as a driver of automobile consumption. The state supports the development of automobile credit consumption. Financial institutions that engage in the automobile consumer loan business need to upgrade their service and improve their automobile loan mortgage methods. Provided that loan security is ensured, consumers will be permitted to mortgage their purchased vehicles to obtain automobile consumer loans. Subject to verification, qualified enterprises may establish non-bank financial institutions specialized in serving automobile sales. Foreign investors may engage in such business as the provision of automobile consumer loans, automobile leasing, etc. Efforts will be expended in developing such services as automobile leasing, driver training, storage and transport, rescue, etc., improving the structure of the automotive industry information statistical system and developing network information services and electronic commerce for automobiles. Support will be given to qualified work units to establish consumer credit information systems and to bringing about the sharing of such information.

Article 66: The state encourages the circulation of second-hand vehicles. The relevant departments shall actively create suitable conditions, uniformly standardize the procedures for the levy and administration of taxes and fees on second-hand vehicle transactions and facilitate the trading in second-hand vehicles by automobile dealers so as to foster and develop the second-hand vehicle market.

A system of voluntary application for the appraisal of second-hand vehicles will be established. With the exception of those vehicles involving state-owned assets, the transaction price for second-hand vehicles will be determined through consultations between the parties to the transaction. The parties may, of their own free will, engage an intermediary organization with a qualification certificate to carry out an appraisal for reference purposes at the time of the transaction. No work unit or department may compel or under another guise compel the appraisal of a vehicle that is the subject of a transaction.

Article 67: An enterprise that intends to deal in second-hand vehicles shall have the requisite funds, premises and professional technicians and shall launch its business activities after verification and registration by the administration for industry and commerce. When an automobile seller sells a second-hand vehicle, it shall provide truthful information on the vehicle to the buyer and may not conceal information or engage in fraud. The vehicle sold must have a Motor Vehicle Registration Certificate and a Motor Vehicle Driving Permit and valid annual inspection certificates from the traffic control department of public security authorities and the environmental protection administrative department. If a buyer is unable to carry out the procedures for registration of the transfer of ownership, the seller shall unconditionally accept the returned vehicle and bear the attendant liability.

Article 68: The automobile insurance system will be improved. Premiums under the insurance system will be charged based on the degree of risk presented by the consumer and the insured vehicle. The insurance industry is encouraged to promote diversification in automobile insurance products with premiums based on market principles.

Article 69: People's governments of cities will comprehensively research policies and methods to balance the development of transport demand and means of transport in their cities with such transport resources as urban roads, parking facilities, etc. If traffic control plans for permanent drive restricted zones are to be formulated, the implementation of a hearing system is required.

Article 70: People's governments of municipalities shall actively and duly plan and construct parking lots and facilities depending on the economic development in their cities and the principles of ensuring traffic flow, convenient parking and promoting automobile consumption. They will formulate land use policies on parking lots and for encouraging investment therein and will encourage the investment in and establishment of parking facilities by individuals, collectives and foreign investors. For the purpose of regulating the establishment of urban parking facilities, the Ministry of Construction shall formulate appropriate standards that set forth specific requirements for the establishment of parking facilities in residential districts, commercial districts, public areas, at entertainment venues, etc.

Article 71: The relevant state departments will centrally formulate and issue automobile emission standards that will be divided into current standards and prospective standards based on national conditions. People's governments of the provinces, autonomous regions and municipalities directly under the central government will opt to implement the current standards or the prospective standards based on the actual circumstances operating in their jurisdictions. If a people's government opts to make the prospective standards the current standards, it shall publish the implementation date at least one year in advance.

Article 72: A uniform national system for the administration of motor vehicle registration and inspection will be implemented. Regions may not formulate their own administrative procedures. When someone applies to carry out motor vehicle registration or the annual inspection, the traffic control department of public security authorities may not require him to submit documentation other than the documentation (the proof of identity of the owner of the motor vehicle, proof of the history of the motor vehicle, ex-factory certificate of quality of a whole motor vehicle produced in China or the import certificate for an imported motor vehicle, the relevant tax voucher, receipt for payment of the statutory insurance premiums, proof of passing annual inspection, etc.) that relevant state laws, regulations or the State Council specifies or authorizes be specified to be submitted. People's governments and relevant departments at various levels also may not require the traffic control department of public security authorities to additionally examine other documents at the time of registration or annual inspection. If the documentation provided by the automobile consumer complies with state regulations, the traffic control department of public security authorities may not refuse registration or refuse to carry out the annual inspection.

Article 73: The traffic control department of public security authorities and environmental protection administrative departments shall, in consultation with relevant departments, formulate differentiated administrative procedures based on type and purpose of automotive products and whether they are new or used. They will appropriately lengthen the interval for inspections of new vehicles and vehicles not used for business purposes and may appropriately increase the frequency of inspections of, and inspection items for, old and used vehicles.

Article 74: Motor Vehicle Registration Certificates issued by the traffic control department of public security authorities may serve as proof of the motor vehicle owner's title at the time of vehicle leasing, for automobile consumer loans and at the time of second-hand vehicle transactions. The Motor Vehicle Registration Certificate must also be transferred when an automobile transaction is effected.

PART THIRTEEN: MISCELLANEOUS PROVISIONS

Article 75: Public organizations such as automotive industry organizations, intermediary organizations, etc. shall strengthen their development efforts and service mentality so as to enable intermediary organizations to fully play their roles. They should actively participate in international exchange activities in the relevant sectors and fully play their roles as bridges and links between governments and enterprises so as to promote the development of the automotive industry.

Article 76: Investments in the automotive industry in mainland China by investors from the Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan shall be handled in accordance with the relevant provisions of this Policy.

Article 77: State mandatory standards shall provisionally be implemented until the mandatory requirements of technical standards for road motor vehicle products are issued.

Article 78: This Policy shall be implemented as of the date of promulgation. The National Development and Reform Commission shall be in charge of interpreting this Policy.

Annex 1: Definitions

1. The term "road motor vehicle" means various types of motor vehicles and their trailers that are driven on roads, have at least two wheels and whose maximum designed speed is above six kilometres per hour. The term mainly includes automobiles, agricultural transport vehicles, motorcycles and other road transport machinery and trailers. The term does not include vehicles that are driven on rails or various types of agricultural, forestry, engineering, etc. motorized machinery and tractors not for use on roads.

2. The terms "automobile", "special purpose vehicle", "agricultural transport vehicle" and "motorcycle": for the purposes of the Automotive Industry Development Policy, the term "automobile" means the vehicles defined in Paragraph 2.1 of state standard (GB/T 3730.1-2001) and includes whole vehicles and special purpose vehicles; the term "special purpose vehicle" means the vehicles defined in paragraphs 2.1.1.11, 2.1.2.3.5 and 2.1.2.3.6 of state standard (GB/T 3730.1-2001); the term "agricultural transport vehicle" means the vehicles defined in state standard (GB18320-2001); and the term "motorcycle" means the vehicles defined in state standard (GB/T 5359.1-1996).

3. The term "product category" means passenger vehicles, commercial vehicles and motorcycles and their subcategories as defined in state standards:

(1) passenger vehicles are further divided as follows:

sedans: defined in paragraphs 2.1.1.1-2.1.1.6 of state standard (GB/T 3730.1-2001)

other passenger vehicles (including multi-purpose vehicles and sports vehicles): defined in paragraphs 2.1.1.7-2.1.1.11 of state standard (GB/T 3730.1-2001)

(2) commercial vehicles are further divided as follows:

buses: defined in paragraph 2.1.2.1 of state standard (GB/T 3730.1-2001)

truck tractors and cargo vehicles: defined in paragraphs 2.1.2.2 and 2.1.2.3 of state standard (GB/T 3730.1-2001)

4. The term "newly established automobile, agricultural transport vehicle and vehicle engine investment projects" means newly established whole vehicle, special purpose vehicle, agricultural transport vehicle and vehicle engine manufacturers (including Sino-foreign equity joint ventures) and changes of legal person shareholder and the establishment of new independent legal person manufacturers in a different region by an existing whole vehicle, special purpose vehicle, agricultural transport vehicle or vehicle engine manufacturer (including Sino-foreign equity joint ventures). The term "different region" means a region other than the city or county where the enterprise is located.

5. The term "total amount of investment in a project" means the total of the investment in all the fixed assets (including existing and newly added fixed assets), intangible assets and working capital required for the investment project.

6. The term "own property rights" (own intellectual property rights) means the industrial property rights, product improvement and approval rights and product technology transfer rights in products owned by an enterprise and obtained through self-development, joint development or commissioned development of the products.

7. The term "automobile manufacturer" means a whole vehicle manufacturer or special purpose vehicle manufacturer (including Sino-foreign equity and cooperative joint ventures) lawfully registered in the customs territory of China in accordance with the state specified examination and approval procedure.

8. The term "domestic market share" means the proportion of the entire sales turnover of automobiles manufactured in China accounted for by the sales turnover of whole vehicles on the domestic market for the whole year by a certain group (or enterprise).

Annex 2: Recorded Particulars of Automobile Investment Projects

The recorded particulars shall include the following:

1. The basic particulars, legal address(es) and the name(s) of the legal representative(s) of the automobile manufacturer or project investor(s). The enterprise's business track record and bank creditworthiness for the last three years.

2. The necessity of the investment project and an analysis of the domestic and foreign markets; analysis of the product's technology level and technology sources (explanation of the intellectual property rights in the product); total amount of investment in, and registered capital of, the project and source of the funds; production (business) scale and details of the construction of the project; method of construction and construction schedule.

3. For a Sino-foreign equity or cooperative joint venture, the basic particulars of the foreign party/parties, including the foreign business entity's/entities' name(s), country/countries of registration, legal address(es), legal representative(s) and nationality/nationalities. Details of the foreign party's/parties' investments and business track record(s) in China. The share capital ratios of the Chinese and foreign parties to the investment project, investment method, source of funds and joint venture term.

4. Technology transfer and cooperation contracts with the foreign party.

5. Analysis of the economic returns of the investment project.

6. Documents of environmental protection, land and bank undertakings and the document of the government of the place where the project is to be located verifying the construction.

7. The local government's supporting conditions and preferential policies.