CIRCUKAR OF THE GENERAL OFFICE OF THE STATE COUNCIL ON ISSUING THE INTERIM PROVISIONS OF THE MINISTRY OF SCIENCE AND TECHNOLOGY AND THE MINISTRY OF FINANCE ON TECHNOLOGICAL INNOVATION FUNDS OF SCIENCE-AND-TECHNOLOGY-ORIENTED SMALL AND MEDIUM-SIZED ENTERPRISES

    In order to support and promote the technological innovation of science-and-technology-oriented small and
medium-sized enterprises (hereinafter referred to as small and medium-sized enterprises), upon the approval of the State Council,
a special government fund (hereinafter referred to as innovation fund) is established to support technological innovation projects
in science-and-technology-oriented small and medium-sized enterprises (hereinafter referred to as small and medium-sized enterprises).  In
order to strengthen the management of the innovation fund, and increase its employing benefits, provisions are hereby made as follows:

    1 The innovation fund is an introductory fund, through which a new investment system is to be gradually built
catering to the objective discipline of socialist market economy and supporting the technological innovation of small and medium-sized
enterprises by attracting investment into technological innovation of small and medium-sized enterprises from localities, enterprises,
investment institutions of science and technology and financial organizations.

    2 The innovation fund, not aiming at making profit, is to strengthen the innovative capability of small and
medium-sized enterprises by supporting their innovation programs.

    3 The employment and management of innovation fund must conform to the relevant laws, administrative regulations
and financial regulations and rules of the State, and follow the principle of applying honestly, consider justly, manage scientifically,
support favorably, publicize clearly and special funds used specially.

    4 The innovation fund comes form the allocation of the Central finance and the interests thereof.

    5 The innovation fund is geared to the needs of all types of small and medium-sized enterprises registered
within China. The program the fund supports and the enterprises taking the program must meet the following conditions:

    (1) the program the fund supports must be a program involving the transference of high and new technological
achievements and conforming to the State’s policy of industrial technology, having high level of innovation and strong competitive
power in the market, possessing the potentialities of producing economic and social benefits, and having the possibility to form
jumped-up industry.

    (2) the enterprise has register with the administrative department for  industry and commerce at
the place where it is located, possesses the qualification of enterprise legal person and a complete financial system; the number
of its workers and staff should, in principal, not exceed 500, among them, the technological personnel with the academic degree higher
than that conferred by an institution of higher education should have a ratio of not less than 30% to the total amount of the workers
and staff. As for an high and new technology enterprises recognized by the competent department of science and technology under the
people’s government at or above the provincial level which engages in scaled  production of technological innovation programs,
the requirements for the ration of the technological personnel to its workers and staff may be properly relaxed.

    (3) the enterprises should mainly engage in research, development, production and service of products with
high and new technology, and  the persons in charge of the enterprise should have strong sense of innovation, market development
capability and managing skills. The money used in the research and development of products with high and new technology should not
be less than 3% of the sales volume, and the number of workers and staff directly engaged in research and development must be not
less than 10% of the total number of the workers and staff. Those enterprises with leading products which will be produced in  batches
or those engaged in scaled production must have a good operating record.

    6 The innovation fund encourages and gives priority to the support to joint innovation of production, study
and research, and also gives priority to the support to those programs which possess independent intellectual property right, contain
high technology and high added value and which can provide employment, save energy, reduce costs, improve environment and make profits
from export.

    7 The innovation fund should not support repeated construction at a low level, infrastructure construction
with merely purpose, technology introduction and ordinary processing projects.

    8 According to different characteristics of small and medium-sized enterprises and programs, the innovation
fund gives support in different forms such as subsidization to the interests of loan, gratis financial aid and input of capital fund:

    (1) subsidization to the interests of loan: for those innovation programs with certain level, scale and profits,
the measure of giving subsidy to the interests of loan is usually taken to encourage loaning in order to enlarge the production scale.
The subsidy is equal to 50% -100% of the annual interest of loan. The total interest should not exceed 1 million yuan and the total
interest of some major program should not exceed 2 million yuan.

    (2) gratis financial aid: this financial aid is mainly used to subsidize the research, development and test
of products in the technological innovation of small and medium-sized enterprises and to help researching personnel transfer the
achievements when they establish enterprises with their scientific and technological achievements. The sum of this financial aid
is usually no more than 1 million yuan and no more than 2 million yuan with some major programs. In addition, the enterprises must
have the same amount of matching capital or more.

    (3) input of capital fund: the fund provides capital money to those programs which have high starting point,
rich innovation content, high innovation level, innovation potential, great potential demand in market and the possibility of becoming
a new industry. The capital money is invested in order to induce the investment of other capitals. The sum is usually no more than
20% of the enterprise’s registered capital. In principle, the capital money can be transferred according to law or retracted by joint
operation within the time limit. The specific measure is to be formulated separately.

    9 The Ministry of Science and Technology is the competent department of the innovative fund, which is responsible
for considering and announcing the annual priorities of support and work guidelines of the innovative fund, discussing major events
in the operation of the innovation fund, approving the annual working plan of the innovative fund, examining and approving programs
to be supported in cooperation with the Ministry of Finance, submitting reports on the implementation to the State Council annually.

    10 The Ministry of Finance is the supervision department of the innovative fund, which participates in considering
and announcing the annual priorities of support and work guidelines of the innovative fund, allocates in two batches each year the
innovative fund into the special account of the Innovative Fund Administration Center through the Ministry of Science and Technology
according to the annual working plan of the innovative fund, supervises and inspects the operation and use of the fund.

    11 An Experts Consulting Committee of Innovation Fund is to be constituted by the authoritative experts on
technology, economy and management and entrepreneurs, which is responsible for researching into the fields given priority in support
and major programs for each year, guiding the formulation of annual priorities in support and work guidelines of the innovative fund,
and providing technical consultation to the Innovative Fund Administration Center.

    12 To establish Innovative Fund Administration Center of Small and Medium-Sized Enterprises (hereinafter referred
to as Administration Center), as a non-profit institution legal person, which is responsible for the administration of the innovative
fund and performs the following functions under the direction of the Ministry of Science and Technology and the Ministry of Finance:

    (1) making research and putting forward annual priorities in support and work guidelines of the innovative
fund, uniformly accepting applications for innovation fund and conducting procedural examination;

    (2) making research and putting forward the standard for evaluation, assessment and bid of innovative fund
programs, putting forward the qualifications of evaluating organs and other intermediary organs participating in the innovation fund
administration;

    (3) accrediting or organizing related units or organs to conduct the evaluation, assessment and bid of innovation
fund programs;

    (4) being responsible for working out the annual final settlement of accounts and working plan of the innovation
fund, making proposals on annual programs to be supported by innovation fund, and being responsible for the operation of innovation
fund;

    (5) being responsible for the integrative administration in the course of implementation of innovation fund
programs, and for the audit, supervision and periodical report of the innovation fund program.

    13 The Ministry of Science and Technology annually promulgates priorities in support and work guidelines of
the innovative fund. For programs conforming to the requirements for support of the innovation fund, enterprises may submit corresponding
application materials according to requirements for applications; application materials should be submitted with recommendation opinions
of the recommending units, those applying for subsidization to the interests of loan should also provide the promise on offering
the loan of the banks concerned.

    14 The recommending units of programs should conduct serious examination on the applying enterprises’ qualifications,
accuracy and truth of the materials; and provide recommendation opinions to programs conforming to the applying conditions and requirements.

    15 Competition system should be introduced actively and the systems of evaluation and bid for innovation fund
be implemented. Units conforming to bid conditions should be selected for the program through public competition.

    16 The Administration Center handles and investigates the applications according to relevant standards and
submit to related evaluating organs or experts for evaluation, investigation or consultation; those conforming to the conditions
must be selected through the evaluation of bidding materials and performance.

    17 Assessment organs and evaluation experts should objectively assess and evaluate the marketing prospect,
technological innovation, technical feasibility, risks and profits of the applying program as well as the managing and operating
skills of the applying enterprises and give definite opinions.

    18 The Administration Center provides suggestions on the supporting programs of innovation fund according
to the bid condition and evaluating opinions; if necessary, the Ministry of Science and Technology and the Ministry of Finance may
reconsider the evaluating results. After the program proposal has been examined and approved by the Ministry of Science and Technology
together with the Ministry of Finance, the Administration Center should conclude a contract with the enterprise, on the basis of
which the corresponding procedures should be gone through.

    19 the Ministry of Science and Technology and the Ministry of Finance publicize annually in batches the supported
programs and enterprises of the innovation fund and receive the supervision form the society.

    20 For programs have not passed the procedural examination or not been given support of the innovation fund
after evaluation, assessment and bid, the Administration Center should inform the applying enterprises in written form within 4 months
of the date of the acceptance of the applications.

    21 The annual budget for innovation fund is decided by the Ministry of Finance. The Ministry of Science and
Technology should report the use of the innovation fund according to related provisions of the Ministry of Finance and receive supervision
from the Ministry of Finance.

    22 The Administration Center should allocate the innovation fund completely to the units who are in charge
of the programs in accordance with the requirements of contract. The innovation fund should not be used in financing, stocks, futures,
real estate, sponsoring, donation, etc. and should not be appropriated.

    23 The Administration Center should budget the fees used in evaluation, assessment and bid as well as daily
administration of the innovation fund, which are disbursed from the interests of innovation fund after the approval of the Ministry
of Finance.

    24 The unit responsible for the project should report the implementation of the program to the Administration
Center annually; the Administration Center should submit the annual budget and implementation situation to the Ministry of Science
and Technology, which in turn submit to the Ministry of Finance.

    25 If the enterprise needs to adjust the objective, progress or outlay of the project owing to objective reasons,
it should submit a written application, which can only be implemented after the verification of the Administration Center and examination
and approval of the Ministry of Science and Technology and the Ministry of Finance.

    26 If the contracted projects are retracted or held in abeyance after the approval of the Administration Center,
enterprises should clear the accounts and turned the left funds completely to the Administration Center.

    27 The implementation scheme concerning the administration of programs and expenditures put forward by the
Administration Center should come into effect after being submitted to and approved by the  Ministry of Science and Technology
and the Ministry of Finance.