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The National Development and Reform Commission (NDRC) is currently seeking public opinion on its revised Catalogue for Guiding Industrial Restructuring (2007 version). Compared with the existing 2005 version, the new catalogue encourages the development of financial services, including credit card services and small and medium-sized enterprises credit guarantee services. Meanwhile, a number of production technologies, equipment and products are added to the lists of items to be phased out before the end of 2008 and 2010 respectively.

Oil shale, oil sand and other "unconventional energy resources", as important supplements to conventional energy resources such as petroleum and natural gas, will be given support through preferential credit and taxation policies over the next few years.

In the draft catalogue recently published by NDRC, "the prospecting and exploitation of new energy resources such as oil shale, oil sand and natural gas hydrate" is listed under the encouraged category. In the 2005 version, the same item was only given as the "prospecting and exploitation of natural gas hydrate".

Oil shale and oil sand mentioned for the first time in this consultation draft are typical unconventional energy sources. The Boston Consulting Group predicted in its report, entitled Unlocking China's Energy Potential, that if China is willing to cooperate with multinational companies to develop unconventional energy reserves, it should be able to fundamentally ease its energy shortage. According to this report, China's unconventional energy reserves are 16 times greater than its conventional reserves. Shale is a type of mineral reserve in great abundance but not properly utilised. China's shale reserves amount to 2,000 billion tonnes, equivalent to 80 billion tonnes of shale oil and ranking fourth in the world after the US, Brazil and Russia. These unconventional energy reserves should be able to produce 1.8 million barrels of crude oil in 2015 if properly exploited.

Since it is China's energy security policy to accelerate reserve prospecting and increase energy sufficiency, the government will attach greater importance to the prospecting of unconventional oil and gas resources, making these important supplements to conventional energy resources like petroleum and natural gas and taking them into consideration in the planning of energy production and supply.

Liquefied natural gas (LNG) as an environmentally friendly and efficient new energy will also receive policy encouragement. The encouraged category in the consultation draft also covers "the building of storage, transportation and pipeline transmission facilities and networks for crude oil, natural gas, LNG and processed oil". However, LNG and supporting facilities were not mentioned in the 2005 version.

Jiang Xinmin of NDRC's Research Centre for Energy Economy and Development Strategy predicted that demand for natural gas in China will reach 100-120 billion cubic metres by 2010 while output will reach 90-100 billion cubic metres. The small shortfall can be made up for by encouraging PetroChina and the other two big oil companies to increase production. Between 2010 and 2020, China's demand for natural gas is expected to soar to 200-240 million cubic metres, and the only way to fill the big demand gap is through import. As such, LNG storage and transmission facilities must be basically completed by that time.

Since oil shale, oil sand and LNG are listed under the encouraged category, financial institutions will give these projects credit support after the projects have been examined and approved or filed for the record in accordance with the state's investment management regulations. These projects will also receive tax concessions and other policy support.

In order to ensure the rational utilisation of new energy resources, the consultation draft also lists under the restricted category projects for the construction of gas-fired power plants, production of methanol using natural gas as fuel, and production of methanol using natural gas as substitute for coal in the 13 coal production bases, including Shaanxi, Mongolia, Shanxi and Anhui. Investment management departments will not examine, approve or file these projects for the record. Financial institutions are not allowed to grant loans to them, while departments of land management, urban planning and construction, environmental protection, quality inspection, fire services, customs and industrial and commercial administration will not process their applications.

In the real estate sector, there is not much difference between the new catalogue and the 2005 catalogue. The encouraged category still focuses on the "green" theme with the addition of two new types of projects. The restricted category still targets the construction of luxury villas.

In real estate-related sectors such as architecture, nine types of projects, including the development of energy-efficient and land-saving buildings and green buildings, the development of technologies for high-rise buildings and spatial structures, and the development and application of key technologies for water, energy, land and materials conservation and for environmental protection, are still encouraged. For urban infrastructure and real estate, two types of projects, namely the renovation of sewage treatment plants and the development and application of technologies for heat balance and energy-saving systems in urban buildings, are added to the new catalogue. The state will continue to give support to 20 types of projects, including urban transport, urban landscaping and building of eco-friendly communities, and state model housing projects.

There is no change in the restricted category. The development of luxury villas, golf courses and horse-racing courses is still restricted.

In the auto industry, the new catalogue makes it clear that the future direction for the reform and development of the industry is energy conservation, environmental protection and structural optimisation. Compared with the 2005 version, higher requirements are set for energy conservation and environmental protection.

While continuing to encourage the development of cars using alternative energy (such as compressed natural gas, hydrogen fuel and synthetic fuel), hybrid cars, electric cars and fuel cell cars, the state also encourages for the first time the development of vehicles using bio fuel, DME fuel and flex fuel; the design and development of cars, motorcycles, engines and key spare parts; and the development and manufacturing of alternative energy cars, energy-efficient and eco-friendly small cylinder capacity cars and low chassis buses. Meanwhile, plans for the production of LNG and alcohol-ether fuel cars, development of diesel engines for cars, and production of small cylinder capacity economy cars, container trucks and multi-axle vehicles are scrapped.

Compared with the 2005 version, the new catalogue also features two new items: the design and manufacturing of general equipment for cars, such as dies, jigs and checking gauge; and the manufacturing of exhaust particle filter for petrol and diesel motors and pollution control systems for diesel motors.

The introduction of the new catalogue will have an important impact on the structural adjustment of China's auto industry. The new regulation that hatchback cars may not be longer than 4 metres and sedan cars may not exceed 4.2 metres in length prevents the tendency of making small cars bigger and bigger and creates a distinction between small cars and medium cars.

The new catalogue also opens up new areas for competition in China's auto industry. First, enterprises with small cylinder capacity, eco-friendly and alternative fuel cars as dominant products will be able to benefit from the policy of encouraging the development and production of energy-efficient, eco-friendly small cylinder capacity cars. They will be able to develop more energy-efficient and environmentally friendly cars using new energies and new technologies, continuously improve their car-making technologies, and take advantage of their strengths to increase their market share and competitive edge. Second, the development of bio fuel and DME fuel and enterprises with an edge in hybrid power, performance-price ratio and cooperation with foreign firms will benefit under the new policy.

As far as the coal industry is concerned, the new catalogue raises the access threshold for the industry but includes little change in the eliminated category. Single-pit coal mining projects below the following production scales are restricted: Shanxi, Inner Mongolia and Shaanxi (1.2 million tonnes/year); Chongqing, Sichuan, Guizhou and Yunnan (150,000 tonnes/year); Fujian, Jiangxi, Hubei, Hunan and Guangxi (90,000 tonnes/year); other regions (300,000 tonnes/year).

In the 2005 version, the thresholds for single-pit coal mining projects are: Shanxi, Shaanxi and Inner Mongolia (300,000 tonnes/year); Xinjiang, Gansu, Ningxia, Qinghai, Beijing, Hebei, northeastern China and eastern China (150,000 tonnes/year); southwestern China and central south China (90,000 tonnes/year); and the excavation of ultra-thin seams (30,000 tonnes/year).

In the electricity industry, restructuring mainly centres on energy saving and consumption reduction. In the new catalogue, projects under the restricted category are defined as generating units with a coal consumption higher than 286 grammes of standard coal per kwh, with the exception of small power grids in Tibet, Xinjiang and Hainan. In the 2005 version, the standard was set at "higher than 300 grammes".

The new catalogue includes an eliminated category for the electricity industry. This category covers conventional thermal generating units with a single generator capacity of less than 100,000 kw that have been running for 20 years; generating units of various types with a single generator capacity of less than 200,000 kw that have reached the end of their designed service life; and coal-fired generating units with a standard coal consumption 10% higher than the provincial (regional or city) level or 15% higher than the national level in 2005.

Thanks to the rapid growth in the number of generating units, China's power shortage has basically been eased in recent years. The timely suggestion to eliminate small thermal generating units will help raise the efficiency of energy utilisation.

China Bans or Restricts Import of 126 Technologies

The Ministry of Commerce (MOFCOM) recently issued the revised Catalogue of Technologies Prohibited and Restricted from Import into China in a bid to check random imports, guide enterprises to import advanced and applicable technologies, and enhance efforts to assimilate imported technologies and make innovations.

The revised catalogue, which went into force on 23 November 2007, gives further details on key areas of control and technical specifications to facilitate implementation. It also lists 126 technologies which are prohibited or restricted from import. These technologies, covering 19 sectors including agriculture, food manufacturing, textiles, raw chemical materials and chemical products, pharmaceuticals, metal smelting and processing, equipment manufacturing, power and heat generation and supply, and environmental management, are likely to endanger national security, affect public moral and public interests, cause harm to the health of human beings, animals and plants, and damage the ecological environment.

Based on the Catalogue of Technologies Prohibited and Restricted from Import (First Batch) issued in December 2001, the new catalogue incorporates recommendations made by different ministries and commissions under the State Council, various industry associations and local commerce departments and was finalised after repeated assessment by over 100 technological and trade experts and review by environmental protection departments as well as experts from the Chinese Academy of Engineering.

A MOFCOM official pointed out that in accordance with the Foreign Trade Law and the Regulations on the Administration of Import and Export of Technologies, technologies under the prohibited category in the catalogue are banned from import while those under the restricted category are subject to licensing. The implementation of the catalogue will provide a norm for the administration of technology imports and give a boost to the upgrading of the quality and standards of technology imports.

Enterprises Violating Environmental Rules Banned from Foreign Trade

According to a circular jointly issued by the Ministry of Commerce (MOFCOM) and the State Environmental Protection Administration (SEPA) on 8 October 2007 on strengthening supervision over export enterprises' compliance with environmental protection rules, enterprises which violate environmental protection rules and regulations will have their foreign trade right suspended for one to three years depending on the seriousness of their offence.

In order to step up environmental protection, different government authorities have been introducing different "green" policies in China. MOFCOM has now also joined the rank punishing non-compliant enterprises by stopping them from conducting foreign trade.

The joint circular states that the new policy is designed to meet the State Council's requirements for reducing energy consumption and pollutant emission. Export enterprises are required to take the lead in protecting the environment by effectively controlling the export of "high pollution, high energy consumption and resource consumption" products. The objectives are to speed up the change of China's foreign trade growth pattern and achieve balanced trade.

The circular points out that export enterprises which emit pollutants are creating pressure on resources and the environment. For one thing, the products produced are exported out of the country but the pollutants stay behind in China. For another, while export price does not fully reflect the social cost of production, it attributes to escalated trade friction and fuels the unreasonable growth of China's trade surplus. As a result, the image of Chinese products is tarnished.

Environmental protection authorities at all levels are therefore stepping up supervision of pollutant-emitting export enterprises, especially those involving "high pollution, high energy consumption and resource consumption". A campaign targeting these enterprises will be launched to evaluate their compliance with environmental protection laws and regulations. Enterprises found to be non-compliant will be punished according to law.

According to the circular, MOFCOM will distribute to its local offices the list of law-breaking enterprises and the corresponding penalty notices issued by SEPA. MOFCOM will authorise its local offices to stop processing the foreign trade related applications by the enterprises on the list in accordance with the penalty notices.

Moreover, MOFCOM may suspend polluting export enterprises from carrying out foreign trade activities for one to three years in accordance with the Foreign Trade Law. MOFCOM will inform its local offices of the penalty and they will suspend the processing of foreign trade applications by the enterprises concerned within the specified period.

The circular also points out that a new system of enterprise environment supervisors will first be implemented in such industries as metallurgy, chemicals, cement, textiles and light industry, which are posting large trade surpluses and causing serious environmental problems. Under this system, the enterprises are required to set up an environment management unit, appoint dedicated staff as environment supervisors, inspect and keep records of the enterprise's environmental protection indicators, and submit regular reports to local commerce and environmental protection departments. Also, enterprises should be prepared for random inspection and checking, and should release environmental protection updates to the public on a regular basis.

China to Introduce Small Business Tax Concession in 2008

According to China's vice minister of finance Zhang Hongli, tax concessions will be offered to small businesses making low profits under the revised corporate income tax law scheduled to take effect in 2008.

Zhang pointed out that as the most active players in the market economy, small- and medium-sized enterprises (SMEs) offer numerous job opportunities and technology innovations. As such, they help promote competition and forestall monopoly. However, SMEs face difficulties in terms of access to capital, technology and information. Government support in these areas is therefore essential.

According to Zhang, the Ministry of Finance plans to further enhance the package of tax concessions in support of SMEs during the 11th Five-Year Programme period. The focus of the new measures will shift gradually from helping the weak to activating market competition.

Under the new corporate income tax law that goes into effect next year, the tax rate will be unified at 25% for all types of enterprises. Small businesses that meet the definition of low profit makers will be eligible for the reduced rate of 20%. Zhang explained that the rationale of this preferential treatment is to create a level playing field for SMEs and large enterprises.

According to official statistics, there were over 4.3 million SMEs registered at industry and commerce administrations across the mainland as at the end of June 2006. The combined value of their products and services now accounts for nearly 60% of China's GDP. SMEs’ shares in the country's total tax revenue and urban employment stand at 50% and over 75% respectively.

Shanghai Stock Exchange Strengthens Monitoring of Abnormal Price Fluctuations

The Shanghai Stock Exchange (SSE) recently issued the Notice on Further Strengthening the Monitoring of Abnormal Fluctuations in Stock Trading and Information Disclosure in order to establish a quick response mechanism for the dynamic monitoring of abnormal price fluctuations and information disclosure. The new rules took effect on 1 September.

According to an SSE official, there has been an increase in swing trading, insider trading and ST (special treatment) share speculation as a result of bullish trading and rocketing of individual share prices on the securities market since the second half of last year. In order to curb these irregularities and effectively prevent market risks and maintain market order, SSE announced the above notice in accordance with SSE Trading Rules and SSE Stock Listing Rules.

The notice mainly covers three rules: when a stock without trading limit surges above 100% or drops below 50% of its opening price on a certain day, this is considered abnormal fluctuation and SSE has the right to suspend its trading for up to 30 minutes. SSE will announce the time for the resumption of trading.

When an A-share stock with daily price limits hits the maximum (or minimum) trading limit for two consecutive trading days and if more than 30% of its total daily turnover comes from the same player but the listed company does not disclose any significant events, it is considered to be abnormal fluctuation and SSE has the right to suspend its trading. Shares can only resume trading at 10:30 am on the day after the listed company has made an announcement. The abnormal fluctuation index will be recalculated from the date of resumption of trading.

When an ST-share stock, *ST-share stock or S-share stock hits the maximum (or minimum) trading limit for three consecutive trading days, it is considered abnormal fluctuation and SSE has the right to suspend its trading until 10:30 am on the day after the listed company has made an announcement. The abnormal fluctuation index will be recalculated from the date of resumption of trading.

In respect of shares with abnormal fluctuations, SSE will on the following trading day announce the names of the five players that have the largest cumulative buys or sells during the abnormal fluctuations (the day of temporary suspension of trading) as well as their buy or sell amounts.

SSE will also urge the listed companies concerned to strictly abide by their information disclosure obligations and promptly make announcements regarding the abnormal fluctuations of their share trading in accordance with relevant regulations.

New Measures on Processing Trade under Restricted Category Take Effect in August

Under Announcement No.44 jointly issued by the Ministry of Commerce (MOFCOM) and General Administration of Customs (GAC), the new Catalogue of Products under the Restricted Category in Processing Trade comes into effect on 23 August 2007. The newly added restricted exports mainly consist of plastic raw materials and products, textile yarn, fabrics, furniture and metal products. The new catalogue covers a total of 2,247 products under 10-digit commodity codes, including 1,853 newly added restricted export items and 394 existing restricted import items.

As explained by MOFCOM officials, existing enterprises in eastern China (including Beijing, Shanghai, Tianjin, Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian and Guangdong) may continue to engage in processing trade of products under the restricted category provided that they pay customs duty deposit. Categories A and B enterprises have to pay a deposit equivalent to 50% of the import-related taxes, while Category C enterprises are required to pay a deposit equivalent to 100% of the taxes payable.

Newly established enterprises in eastern China granted foreign trade rights after 23 July 2007 may not engage in processing trade of products under the restricted category. However, enterprises that have undertaken commissioned processing activities before 23 July but do not have foreign trade rights may be regarded as old enterprises and may continue to engage in processing trade of products under the restricted and non-restricted categories if they apply to the local commerce department for conversion into enterprises with foreign trade rights before 23 October 2007. Such enterprises, whether or not they have foreign trade rights, may continue to engage in commissioned processing activities. As for enterprises granted foreign trade rights before 23 July 2007, it is understood that they may engage in processing trade of products under the restricted category even though they might not have engaged in such activities before.

Given below is the full text of Announcement No.44 on the Catalogue of Products under the Restricted Category in Processing Trade issued by MOFCOM and GAC on 23 July 2007:

With State Council approval, the Catalogue of Products under the Restricted Category in Processing Trade is hereby released with details as follows:

1. This Announcement will take effect from 23 August 2007.

2. Processing trade activities involving products under the restricted category will be subject to "actual payment" of customs duty deposit. Enterprises engaged in the processing of restricted products must pay customs duty deposit when filing processing contracts for the record. The deposit plus interest will be returned to the enterprise upon completion of verification and cancellation procedure after the finished product is exported within a specified time limit.

Different categories of enterprises under the customs supervision system are subject to different treatments. Categories A and B enterprises have to pay a deposit equivalent to 50% of the import tariff and import-related value-added tax (VAT), while Category C enterprises are required to pay a deposit equivalent to 100% of the taxes payable.

The customs duty deposit payable by Categories A and B enterprises is calculated as follows:

(1) Restricted imports

Customs duty deposit payable = the sum of all payable import tariffs and import-related VAT of all restricted imports x 50%

(2) Restricted exports

Customs duty deposit payable = total value of materials and parts imported under bond as filed with customs x (value of restricted exports as filed with customs / total value of export processing products as filed with customs) x integrated tax rate x 50% (3) If the imported materials and parts fall under the restricted category, and the finished products fall under the restricted exports category, the customs duty deposit will be calculated on the basis of restricted imports using the formula as stated in (1) above.

In the case where both the business enterprise and the processing enterprise engaging in processing trade of products under the restricted category are located in the central and western regions, Categories A and B enterprises are subject to "nominal payment" of customs duty deposit while Category C enterprises are subject to 100% "actual payment".

3. When an enterprise applies to engage in processing trade, remarks should be made in the application regarding products under the restricted category. In addition, details concerning deep processing transfer business involving products under the restricted category should also be furnished in the application. In granting approval to such applications, the supervisory commerce department should make remarks about products under the restricted category and deep processing transfer. Customs will then file the application for the record based on the commerce department's approval documents and calculate the payable customs duty deposit in accordance with the stipulation in Article 2 of this Announcement.

Enterprises subject to online customs supervision are also governed by this Article when carrying out processing trade of products under the restricted category.

4. The transitional administrative measures for processing trade of products listed in Appendices 1 and 2 of this Announcement will be implemented.

(1) Applications for processing trade business on contract basis that are duly approved by the local commerce department and filed with customs for the record before 23 August 2007 with all required documents will be processed according to existing rules. Enterprises which are managed on company basis will continue to be subject to the existing administrative rules until 23 August 2008.

Except for details such as product name, commodity code, quantity, value and expiry date which cannot be altered, other details in the contract of the processing trade business involving products under the restricted category can be altered. For enterprises wishing to expand processing trade activities involving the alteration of details such as product name, commodity code, quantity and value, or to extend the operating period of processing activities involving products under the restricted category, separate approval and record filing must be completed in accordance with the stipulation in Article 2 of this Announcement.

(2) With effect from 23 August 2007, any Certificate of Approval for Processing Trade Business that was approved by the local commerce department but not filed with customs for the record before 23 August 2007 will become invalid. Enterprises concerned must reapply to the local commerce department for approval and customs will keep record in accordance with the stipulation in Article 2 of this Announcement.

5. Applications by enterprises in the eastern region not granted foreign trade rights prior to 23 July 2007 for conducting processing trade of products under the restricted category will not be entertained. However, production enterprises in the eastern region that have engaged in commissioned processing trade activities before with no foreign trade rights but have filed with the local commerce department before 23 October 2007 to convert into enterprises with foreign trade rights within a specified time limit, as well as enterprises which have been renamed following restructuring but whose shareholders and legal representative have remained unchanged, are exempt from this stipulation.

6. The central and western regions referred to in this Announcement cover places other than those in the eastern region. The eastern region covers Beijing, Tianjin, Shanghai, Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian and Guangdong.

7. Enterprises should declare their processing trade activities in their applications truthfully. Supervisory commerce departments will disapprove a processing trade application if false information about the name or commodity code of a restricted product is found in the application during the approval process. If false information is found by customs regarding the name or commodity code of a restricted product, customs will refuse the record filing request.

8. The stipulations of this Announcement are not applicable to processing trade activities in special customs supervision zones such as export processing zones and bonded zones, or processing trade activities that take place in the form of deep processing transfer outside special customs supervision zones involving the transfer-in of restricted imports and transfer-out of restricted exports within the mainland.

9. Customs will calculate and collect customs duty deposit payments using the above simple formulas until the various supervisory government departments complete the necessary information system integration work.

10. If there is any discrepancy between existing rules and stipulations contained herein, this Announcement shall prevail.

Administrative Measures for Deep Processing Transfer of Restricted Products

The new Catalogue of Products under the Restricted Category in Processing Trade announced on 23 July 2007 consists of 1,853 newly added restricted export items and 394 existing restricted import items.

If the finished goods exported by an enterprise fall under the "restricted export" category entirely, the customs duty deposit payable by the enterprise is calculated on the basis of the total value of all imported materials and parts, at an integrated tax rate of 22%. If the finished products exported by an enterprise consist of both "restricted export" and "non-restricted export" items, the customs duty deposit will be calculated on the basis of the share of restricted exports in the total exports in value terms and the total value of imported materials and parts, at an integrated tax rate of 22%.

As for "restricted import", imported materials and parts are placed directly under the restricted category. In calculating the payable customs duty deposit, the total value of the imported materials and parts will be used as the base, and the corresponding import tariff and import-related VAT rates will be applied.

The new measures on customs duty deposit are not applicable to enterprises in special customs supervision zones such as export processing zones and bonded zones, or processing trade activities that take place in the form of deep processing transfer outside special customs supervision zones involving the transfer-in of restricted imports and transfer-out of restricted exports within the mainland.

In other words, only those "restricted export" products that are directly exported out of China and those "restricted import" products that are directly imported into China are subject to customs duty deposit payment. However, when an enterprise applies to engage in processing trade, details should be given in the application regarding the deep processing of products under the restricted category. In granting approval to such applications, the supervisory commerce department should make remarks about restricted products and deep processing transfer. Customs will then file the application for the record based on the approval document of the commerce department.

CSRC Set to Rein in Shares Speculation Craze

China is prepared to take various measures including taxation to clamp down on the recent shares speculation craze, according to Qi Bin, director-general of China Securities Regulation Commission (CSRC) Research Centre.

According to Qi, the capitalisation of China's stock market grew from Rmb3,060 billion in early 2006 to Rmb9,000 billion at the end of 2006 and has currently reached the Rmb15,000 billion mark. With A-share trading scaling new heights every day, China has become the world's largest emerging capital market.

China's capital market has entered a new stage of development, as evidenced by a number of qualitative changes: 1) reform of the shares system has basically been completed, with China's fundamental system being the same as that of developed countries; 2) the shares issuance system is more market-driven; 3) modern corporate governance has become a possibility with the smooth implementation of the system to clear outstanding debts of listed companies and the introduction of incentives; 4) securities firms are entering a new phase of development; 5) the role of institutional investors in the capital market has been established; 6) Chinese people are increasingly aware of the importance of the capital market.

Qi said the government is very concerned about the entry of the general public into the capital market, and will move to rein in the situation at the right time. CSRC has recently completed a draft report on the development of China's capital market to seek public views. The report summarises the development of China's capital market in the past 15 years, analyses and compares its current status with international norms, as well as outlines the commission's planning and forecast in the run-up to 2020.

According to Qi, a number of crises are looming under the current market conditions. From an internal perspective, deep-rooted problems relating to the systems and mechanisms of the market still persist, while the internal and external constraints affecting the development of the capital market are basically unresolved. From an external perspective, the capital market is increasingly intertwined with the economy, and external factors affecting the operation of the capital market are becoming more diversified and complicated. From a market development perspective, new products and new business activities are emerging rapidly and market operations are becoming more complicated and diversified. From a global perspective, as countries around the world put more emphasis on the capital market, competition among countries, stock exchanges and financial centres worldwide is intensifying.

Guangdong Issues Measures to Recognise Industry Cluster Upgrade Model Zones

In order to expedite the development of industry clusters in Guangdong, encourage and support their optimisation and upgrade, and boost their competitiveness in the region, the provincial government recently issued the Interim Administrative Measures for the Recognition of Industry Cluster Upgrade Model Zones.

Under the measures, the model zones refer to those zones which have a high concentration of niche industry clusters and a solid foundation in the "three buildings" (the building of a public services and supporting services platform, brand building, and industry park building). These zones serve as models for the optimisation and upgrade of industry clusters in Guangdong province.

The following are criteria for recognising a model zone:

(1) A certain degree of clustering, with annual output value of the niche industries in the zone exceeding Rmb2 billion in the Pearl River Delta (PRD) region and Rmb1 billion in the mountainous regions and eastern and western flanks of the province. The share of the niche industries in total industrial output value should be > 50% in townships, > 20% in counties and > 10% in prefectural cities.

(2) Compliance with industrial policy, development planning and environment protection requirements; and availability of sound infrastructure facilities that can facilitate the further clustering and development of niche industries.

(3) Possessing a certain number of provincial-level famous brand products, well-known trademarks or regional brands.

(4) Presence of an industry chain complete with supporting industries.

(5) Presence of a public services platform featuring facilities such as technology innovation centre and services such as R&D, quality inspection and testing, training, information, consulting, IPR protection, credit guarantee, exhibition and sales, and logistics.

(6) Qualified or granted approval to build industry parks, and such parks should have a permanent administrative organ, have formulated measures for managing the parks, be equipped with infrastructure facilities meeting fire prevention, safety and environmental protection standards which would allow the entry of production facilities that cause serious pollution and require centralised heat and gas supply and water treatment.

(7) Presence of intermediary organisations such as industry or trade associations which can play a role in communication, service provision and exercising self-discipline.

(8) Assistance granted by the local government in creating a favourable environment for enterprises in the industry clusters to develop, and providing guidance and support in terms of industrial policy formulation and planning for the industry clusters to grow.

1,800 Electronic Products Subject to Compulsory Eco Labelling

More than 1,800 types of electronic information products under 10 broad categories are required to carry the Eco Label before entering the mainland market starting 1 March 2007 under the Pollution Control Labelling Requirements for Electronic Information Products.

Industry experts pointed out that the new rule has created much pressure on household electrical appliance makers in terms of cost, especially those which do not have any export experience, and as a result they might have to undergo transformation.

10 Categories Subject to New Rule

Under the new rule, starting from 1 March 2007, all electronic information products entering the mainland market for sale that contain toxic or hazardous substances are required to carry a label or instruction manual which clearly lists all relevant information such as the name and content of the toxic or hazardous substances or elements, environmentally safe period, and recyclability of the item. The new rule allows consumers to access all such information by simply checking out the label before making their purchase.

The electronic information products in question cover 1,800 products under 10 major categories including brown goods, medical electronic equipment and consumer electronics such as mobile phone, laptop computer, desk-top personal computer, home appliances, digital camera, digital video camera, MP3 player, MP4 player and printer. However, white goods such as air-conditioner, washing machine and refrigerator are not subject to the labelling requirement because they are not classified as electronic information products.

Alignment with World Pollution Control Standards

In January 2003, the European Union (EU) adopted a directive on the Restrictions on Hazardous Substances in Electrical and Electronic Equipment (RoHS). In view of this, China introduced the Administrative Measures on the Control of Pollution by Electronic Information Products in 2004. Then on 28 February 2006, the Ministry of Information Industry (MII) and six other ministries and commissions including the National Development and Reform Commission jointly formulated a detailed set of measures dubbed by industry players as "China's version of RoHS".

According to the person in charge of a leading mainland home appliance manufacturing enterprise, raw materials banned under China's measures on the control of pollution by electronic information products are the same as those in the EU directive, which implies that China is quickening its pace in keeping up with world standards in preventing and controlling pollution caused by electronic information products.

Cost Could Rise by 10%

According to Skyworth vice president Zhao Kejun, the use of substitutes for the six types of restricted toxic and hazardous substances will increase production cost, including testing fee, by as much as 10%. He reckoned that part of the cost increase will be transferred to the retail price.

Meanwhile, Huang Jianzhong, director of the market and system reform division of MII's economic reform and operation department, pointed out that the new rule would likely create pressure on enterprises in terms of cost in the short run, especially those which do not have any export experience, and as a result they might have to undergo transformation. Yet, given the glut of suppliers and the intense competition on the market, manufacturers of electronic information products in China will be very cautious about raising prices.

Chinese Customs Strictly Bans "Foreign Garbage" Smuggling

The General Administration of Customs (GAC) is taking the following four measures to prevent the smuggling of "foreign garbage" into the country at source.

A system of management of waste import enterprises by category is implemented and the establishment of waste metals and waste plastics parks is encouraged.

Customs supervision and control at ports for waste imports are tightened. Small ports without sufficient customs officers and do not have the necessary infrastructure, such as customs channels, electronic weigh bridges, X-ray machines and independent stacking grounds, will not be allowed to handle the import of waste metals and plastics.

Awareness against corruption is heightened and the intensity of anti-corruption work is enhanced. GAC urges customs offices directly under its jurisdiction to strengthen the supervision of relevant functional departments, firmly rectify non-compliant and unlawful practices, and severely punish deliberate connivance in smuggling.

Competent departments are encouraged to clearly define the rules governing waste import administration under the Law on the Prevention of Environmental Pollution Caused by Solid Wastes, set minimum penalties and conviction yardsticks for crimes of waste smuggling in conjunction with the Supreme People's Court, and expedite the promulgation of judicial interpretation on "crimes of waste smuggling". GAC will also look into the possibility of asking the customs authorities of exporting countries to allow overseas offices of the General Administration of Quality Supervision, Inspection and Quarantine to inspect China-bound wastes and check the relevant documents before loading in order to stem the smuggling of wastes into China at its roots.

The State Administration of Environmental Protection, in conjunction with the former Ministry of Foreign Trade and Economic Cooperation and GAC, has promulgated and revised the Catalogue of Wastes Imported as Raw Materials Restricted by the State from time to time since 1996. The catalogue covers items such as animal waste, slag from smelting, wood and wood product waste, waste and scrap of paper or paperboard, textile waste, waste and scrap of base metals and their products, various types of waste and old metal parts, electrical machines and appliances, scrapped transport equipment, as well as waste, scrap and residue of plastics. Import of wastes not covered in the catalogue is banned.

Under existing regulations, environmental protection departments are responsible for the approval of waste imports while quality inspection departments are responsible for inspection. Customs will give clearance based on the Certificate of Approval for Import of Wastes issued by the State Administration of Environmental Protection and the Inbound Goods Clearance Note issued by quality inspection departments.

New Cosmetics Rule Bans 790 Substances

With a view to strengthening supervision and management of the cosmetics market and aligning with international standards, the Ministry of Health (MOH) has released the Hygiene Standard for Cosmetics (2007 Edition) to be effective from 1 July 2007.

The new rule contains a revised list of prohibited and restricted substances. First, an additional 790 substances have been included in the prohibited list based on the EU's Cosmetics Directive, bringing the total number of prohibited substances to 1,286. Second, the substances on the List of Hair Dye Agent Ingredients issued by MOH in 2005 have been added to the restricted list. Third, rules restricting the use of certain ingredients contained in preservatives, sun screen agent, colouring agent and hair dye agent have been removed, added or modified.

The latest revision has added several new testing methods for prohibited and restricted ingredients, such as certain antibiotics, and four anti-dandruff agents (namely salicylic acid, ketoconzole, climbazole and piroctone olamine). Two assessment methods for determining the efficacy of sun screen cosmetics have also been added: testing on the human body and in the lab. Also, the water-resistant feature of sun screen products will be subject to new testing and labelling requirements.

The Hygien Standard for Cosmetics (2002 Edition) issued and implemented by MOH in 2002 primarily contains a list of prohibited and restricted ingredients, toxicity assessment methods and micro physical/chemical analysis methods. As safety assessment methods and testing technologies for cosmetics have advanced steadily in recent years, the technical standards contained in the 2002 version can no longer meet the market supervision requirements of the EU and US.