DECISION OF THE CHINESE COMMUNIST PARTY CENTRAL COMMITTEE AND THE STATE COUNCIL ON STRENGTHENING TECHNICAL INNOVATION, DEVELOPING HIGH TECHNOLOGY AND REALIZING INDUSTRIALIZATION.

    Our country is going to enter the critical period in implementing her third step strategy for modernization.
In the twenty-first century, developing China to be a more prosperous and strong socialist modern country is the grand historical
task of the entire Party and the people of all nationalities across China. In the contemporary world, science and technology develop
and change quickly, and the unprecedented development of high and new technology and its industrialization represented by information
technology and biological technology is deeply influencing the political, economic, military, cultural and other sections of the
nations around the world. During the increased competition in integrated viability of the State mainly consisting of economic power,
military power and the solidarity of its people among countries, whether a country can hold a place in the area of high and new technology
and its industries has become the focus of such competition, and has become the essence of how to safeguard national sovereignty
and the security of economy. We are confronted with stern challenges together with uncommon opportunities. Since the foundation of
New China 50 years ago and especially since the reform and opening up, our country has achieved world-known substantial development
in science and technology. Apparent progress has seen the reform to the science and technology system, and the broad masses of scientists
and technologists have made significant contributions to the socialist modernization drive. However, the problem that science and
technology are loose away with the economy hasn’t been resolved at the root. The weak ability to transform science and technology
into real productivity and the lower level of industrialization of high and new technology remain the impediments to our economic
development. We must, according to the requirements of the Fifteenth National Congress of our Party, that is, “to estimate fully
the substantial effect that the develo
pment of science and technology in the future, especially the high and new technologies, has on the integrated viability of a country,
social and economic structure and the people’s life, and to place the acceleration of scientific and technological advancements as
the key to economic and social development”, and, by furthering the reform, form a system and mechanism conductive to the realization
of scientific and technological achievements from the root, strengthen technical innovation, develop high technology and realize
industrialization. These not only are urgently required by the resolution of deep problems confronting our economic development,
the further improvement of overall quality of our national economy and integrated viability and the realization of leap development,
but also are strategic decisions to face the international competition and guarantee the success of the Chinese nation in the new
century.

    I. Strengthening technical innovation, developing high technologies, realizing industrialization and promoting
leap development of social productivity.

    1. Innovation is the soul of a nation’s advancement, and is the unexhausted power of a county’s prosperity
and wealth. The core of strengthening technical innovation, developing high technologies and realizing industrialization lies in
the complete fulfillment of respected Deng Xiaoping’s key ideas regarding “science and technology being the first productivity”,
“a breakthrough in high technology areas bringing about the development of a group of industries”, “developing high technologies
and realizing industrialization” and etc., that is, in aspects of systems, mechanisms, policies and etc., promoting the close combination
of science and technology and economy, transforming our scientific and technological power into real first productivity, and helping
our integrated viability meet the international advanced level.

    Technical innovation means that an enterprise, applying innovative knowledge and new techniques and processes
and adopting a new mode of production and pattern of business management, improves product quality, develops and produces new products,
provides new services, occupies market and realizes market value. Enterprises are the subject of technical innovation. Technical
innovation is the important prerequisite for developing high technologies and realizing industrialization.

    To develop high technologies and realize industrialization, that is, commercialize and industrialize high
and new technology achievements, we shall start with the restructuring, activate existing scientific and technological resources,
strengthen the research and development adapted to the market, popularize strongly and apply high and new technology and applicable
technology, and enable scientific and technological achievements to be transformed speedily and effectively into market-competitive
commodity; rebuild traditional industries, develop existing high and new technology industries, and form a number of new industries
driven by technical innovation and breakthroughs.

    While promoting technical innovation and the commercialization and industrialization of high and new technology
achievements, we shall regard market demand, social demand and national security demand as the basic start point of research and
development, reinforce the status of enterprises as the subject of technical innovation, utilize fully the basic function of the
market mechanism in allocating scientific and technological resources and directing scientific and technological activities, and
encourage most scientific and technological forces into the market to accomplish innovation and business; driven by the reform, further
the component reforms in the economic system, scientific and technological system and educational system, speed the construction
of the State innovation system, and provide a regime as an effective safeguard for the commercialization and industrialization of
high and new technology achievements.

    To strengthen technical innovation, develop high technologies, and realize industrialization, we must widen
our opening up to the outside world, conduct comprehensive international cooperation and exchange, and develop ourselves in competition.
We must combine research and development on our own with introduction and absorption of foreign advanced technologies, prevent low-level
repetitions, pay attention to technical integration, promote interdisciplinary intersection, fusion and penetration, solve key problems
jointly, accomplish technical leaps at a higher level, and shape more independent intellectual property; must insist on combination
of short term and long term targets, and emphasize basic research, strategic high technology research and major scientific research
in social benefits. For significant innovative breakthroughs, we must start with basic research, form continuously new ideas, new
theories and new processes, provide sources for applied research and technological development, and enhance the capacity of continuous
innovation.

    2. We shall strengthen macro direction in the aspects and stresses of technical innovation and the commercialization
and industrialization of high and new technology achievements. On the basis of fully utilizing the market mechanism, we shall correctly
realize the macro control function of the government, make overall planning, highlight the stresses, and, in such technological and
industrial areas with advantages in our country, high-degree industry connection, good market prospects, and conductive to resolving
the key, hot or difficult problems in national economy, select optimally a number of major projects, concentrate powers, crack key
problems jointly, and make breakthroughs.

    We shall strengthen innovation, popularization and application of key technologies in agricultural and rural
economic development. We shall emphasize the combination of information technology, biological technology, science and technology
and traditional agricultural technologies, research and develop a number of key technologies, concentrate powers and achieve new
breakthroughs as soon as possible especially in two major areas such as fine breed cultivation and water-saving agriculture to provide
science and technology as a strong and powerful buttress for our agricultural modernization. We shall highlight independent innovation
in high and new technology industry area, and foster a new growth point of economy. In electronic information area, especially in
integrated circuit design and manufacture, network and communications, computer and software, digital electronic product and etc.,
and in high and new technology industry areas with a certain base such as biological technology and new medicines, new materials,
new energies, aviation and space, and ocean, we shall strengthen technical innovation, and form a number of high and new technology
enterprises with independent intellectual property and competitive advantages.

    We shall accelerate technological updating of our traditional industries. We shall stress the graft of traditional
industries and technologies such as electronic information, develop vigorously competitive new products conductive to expanding domestic
and international markets, improve the quality level of products and technical added value, develop and apply advanced manufacturing
technology, process and equipment, and maximally improve the level of domestically made technical equipment.

    We shall increase the knowledge content in the services industry. We shall promote strongly electronic commerce,
remote education and other emerging services industry, accelerate the application and popularization of high and new technologies
in finance, consulting, trade, culture and other service areas, and fortify the competitiveness of the services industry.

    We shall strengthen technical innovation in areas of environmental protection and integrated development and
use of resources. We shall develop strongly environmental protection technology and its industries, accelerate the development of
technologies relating to clean energy and clean production and their industries, reinforce the development, popularization and application
of technologies relating to disaster monitoring, forecast and prevention and treatment, and realize the strategy of sustainable development
through scientific and technological advancement.

    Technologies used both for civil and military purposes shall be developed vigorously. We shall accelerate
the transfer of military technology to civil areas and the development of its related industries, emphasize the important function
of high and new technology in building our army through science and technology, and provide high technology support for our national
security by cooperation of the army and civilians.

    II. Furthering the restructuring and promoting technical innovation and the commercialization and industrialization
of high and new technology achievements

    3. We shall impel enterprises to be the subject of technical innovation, and enhance the capacity of enterprises
for technical innovation in every aspect. State-owned enterprises shall regard the establishment and completion of technical innovation
mechanisms as an important component of the establishment of the modern enterprise system, regard the improvement of technical innovation
capacity and business management level as key measures to step out of difficult condition and toward development and prosperity,
and thus make the enterprises the true subject of technical innovation. The existence and development of an enterprise must be directed
by the market, and we shall strengthen research and development of technologies and the transformation and application of scientific
and technological achievements, and switch actually to the reliance on technical advancement and industry updating to improve economic
benefits.

    Large- and medium-scale enterprises shall establish and complete their enterprise technical centers, and accelerate
the formation of effective operation mechanisms favoring technical innovation and the prompt transformation of technological achievements.
We shall strengthen post technical training, improve completely the quality of laborers, and encourage employees to conduct technical
invention and technical renovation in all aspects. They shall actively create conditions to attract in various manners more superior
scientists and technologists into their enterprises, and exploit adequately their potential in technical development. They shall
develop continuously new products, new technologies and new processes toward market demand, and organize scientifically the production,
sales and services adopting advanced business management methods and mode of organization. Joint cooperation between enterprises
and higher educational institutions or scientific research institutes shall be strengthened. Bilateral or multilateral technical
cooperation mechanisms shall be established in accordance with principles of mutual complementing in advantages and benefit sharing,
and the exchanges of scientists and technologists in different units shall be strengthened by means of mutual participation and mutual
training. A certain proportion of research and development funds in enterprises shall be applied to the cooperation among production,
study and research. They shall reinforce the effective connection between importation and digestion and absorption of technologies,
and enhance capacities in technical fitness and independent development.

    We shall impel enterprises to increase actively scientific and technological input. The annual funds for research
and development in high and new technology enterprises shall be no less than 5% of the annual sales revenue. The State supports and
encourages large-scale enterprise groups to allocate a certain amount of funds for intensive use in the research and development
and industrialization input of significant scientific and technological problems that are common, critical and the frontiers.

    Technical reformation of enterprises shall be directed by the market. They shall take note of utilization
of existing bases and potentials, and emphasize the combination with development of high and new technology industry. The starting
point of technical reformation shall be high, and the phenomenon of being left behind while reforming shall be avoided. Each year,
the State shall support selectively a number of technical reformation projects in State-owned large- or medium-scale enterprises
that are of strategic importance to national economy and own markets and are going well, and interest discount shall be granted to
the projects that have been scientifically demonstrated and approved.

    Township enterprises shall also endeavor to improve technical innovation capacity, and stride further in developing
and applying advanced technologies and enhancing business management.

    4. We shall push the transformation of applied scientific research institutes and design units into enterprise
system, and promote vigorously the development of scientific and technological enterprises. We shall further deepen the reform of
scientific and technological system, and optimize completely the distribution of scientific and technological power and the allocation
of scientific and technological resources. In principle, the applied scientific research institutes and design units shall be transformed
into scientific and technological enterprises, be transformed into enterprises in part or completely, or be transformed into service
intermediaries. The government shall, by means of inviting bids for scientific and technological projects, continue to support the
technical research activities that are common, critical and the frontiers conducted by these scientific and technological enterprises.
Classified reform shall be applied to existing scientific research institutes for social benefits: for scientific research institutes
with marketing ability, they shall be transformed into scientific and technological enterprises, be transformed into enterprises
in part or completely, or be transformed into service intermediaries of an enterprise nature; for scientific research institutes
providing public services for the society and without corresponding economic compensations, they shall be operated and managed pursuant
to non-profit organization mechanisms based on structure adjustment and employee divergence, and the government shall provide funds
for the scientific research projects and base construction by supporting policies and competitive selection. The scientific research
institutes subordinate to the departments of the State Council (including scientific research institutes transformed into enterprises)
shall generally be managed according to the principle of localization, except a few managed by the Center Government.

    The 10 scientific research institutes subordinate to State bureaus administered by the State Economic and
Trade Commission have been transformed into enterprises, which provides beneficial experiences for overall advancement of the restructuring
of scientific research institutes. After the transformation of scientific research institutes into enterprises, they shall establish
a modern enterprise system, utilize fully their advantages in research and development directed to the market as well as technical
innovation, form as soon as possible a number of international competitive high technology enterprises or enterprise groups with
independent intellectual property, and develop to be an energetic new economic growth point.

    5. We shall strengthen the construction of State high and new technology industry development zones, and form
high and new technology industrialization bases. Constructing high and new technology industry development zones is the important
achievement of reforms in our economic and scientific and technological systems, and is an effective vehicle conforming to our national
condition to develop high and new technology industry. At the present stage, we shall further strengthen the momentum of the coordinated
reforms for State high and new technology industry development zones, enhance their functions to provide services for various enterprises
transforming high and new technology achievements, build a sound environment attracting and fusing superior scientists and technologists
and business managers to make innovation and business, and make them the important bases of technical innovation, industrialization
of scientific and technological achievements and export of high and new technology products, discharging radiation and driving functions
in regional economic development.

    We shall strengthen supervision and evaluation of State high and new technology industry development zones
and high and new technology enterprises. A few development zones or enterprises losing qualifications and with poor management and
few effect in developing high and new technology industry shall be cancelled their qualifications as State high and new technology
industry development zones or high and new technology enterprises after evaluation and determination.

    Higher educational institutions shall fully utilize their own advantages in human resources, technologies
and information, encourage their teachers and scientific research staff to enter high and new technology industry development zones
engaging in the commercialization and industrialization of scientific and technological achievements. We shall support the development
of scientific and technological zones in higher educational institutions, cultivate a number of knowledge and intelligence intensive
high and new technology enterprises and enterprise groups with advantages in market competition, and thus further fasten the combination
of production, study and research.

    The State shall apply supporting policies to a few State high and new technology industry development zones
selected for their basis, conditions and advantages, and encourage bold exploitation, first establishment of new investment and financing
mechanisms and incentive mechanisms and the prompt formation of internationally influencing high and new technology industrialization
bases, providing beneficial experiences for the national construction of high and new technology industry development zones and the
development of high and new technology industry.

    6. Development of various forms of private scientific and technological enterprises is encouraged. Private
scientific and technological enterprises are a new power to develop our high and new technology industry, and are playing a more
and more important role in our economic and scientific and technological development. The State technical innovation fund for medium-
and small-scale scientific and technological enterprises shall give support to private scientific and technological enterprises.
We shall, in the management system, ensure that private scientific and technological enterprises are able to participate equally
in the bids for governmental scientific and technological programs or projects.

    The financial departments at all levels shall assist and support private scientific and technological enterprises
in solving problems as to unclear post_titles. Disputes over post_titles between private scientific and technological enterprises and State-owned
enterprises or institutions for historical reason shall be solved properly in accordance with the principles of protecting State-owned
assets and rights and interests thereof, favoring encouragement of achievement transformation and supporting scientists and technologists
in making business. In aspects of decision-making, management, distribution and etc. in an enterprise, individual lawful rights and
interests shall be fully protected. We shall permit private scientific and technological enterprises to adopt a stock option plan
and other means to mobilize the enthusiasm of talented scientists and technologists or talented business managers with power in innovation.

    State-owned scientific research institutes, upon approval by relevant departments, may be restructured to
share or share cooperation enterprises.

    7. We shall develop strongly service intermediaries for science and technology. Service intermediaries for
science and technology belong to non-governmental organizations, and are an indispensable service link between science and technology
and their application, and between production and consumption. The State encourages certain scientific research institutes with similar
nature to be transformed into enterprise service intermediaries for science and technology, and encourages scientists and technologists
to establish such intermediaries. We shall formulate and complete laws and regulations regarding service intermediaries for science
and technology as soon as possible, regulating their industrial conduct to strengthen management. We shall direct the various service
intermediaries for technical innovation, intermediaries for technical evaluation, intermediaries for technical brokerage and other
intermediaries to provide good services for accelerating transfer of scientific and technological achievements, and develop actively
information consulting service providers to provide enterprises, especially the comprehensive medium and small ones, with services
in business management, technology, marketing, information, human resources, accounting, finance, law and other areas. The intermediaries
mainly engaged in providing public services for the society may be operated and managed as non-profit organizations after verification.

    We shall further cultivate and complete the technological market. The construction of infrastructure such
as key technical supply and demand databases and scientific and technological information networks shall be strengthened. All regions
shall, according to the characteristics of resources and industries, complete regional intermediary systems, realize gradually the
organizational network, socialization in functions and industrialization of intermediary services, and form a national and even international
electronic network commercial trading market.

    We shall, through reform, complete the agricultural scientific and technological popularization service system,
and establish an agricultural scientific and technological popularization service network closely linked by scientific research institutes
in agriculture, higher educational institutions, various technical service providers and enterprises involving agriculture. Scientific
research institutes in agriculture shall be oriented to agricultural production, and the scientific research achievements in agriculture
shall be transformed into productivity promptly. The State vests an independent sales right as to seeds and other products researched
and developed in scientific research institutes in agriculture, and encourages them to perform various forms of cooperation or consolidation
with all kinds of enterprises in agricultural businesses. The existing popularization service providers of agricultural technologies
in counties (cities) and villages (towns) shall further change their modes of service, and improve continuously their functions and
levels of service. We shall break the administrative land boundaries, develop actively a new type of popularization mode of agricultural
technologies closed linked by leading enterprises, intermediaries and farmers, improve the operating level of agricultural industrialization,
and direct the comprehensive farmers to adjust structures promptly and organize production according to market demand.

    III. Adopting effective measures to build a policy environment favoring technical innovation and developing
high technology and realizing industrialization

    8. Implementing supporting policy in finance and taxation. The financial departments at all levels shall increase
their scientific and technological input. The mode of input by the financial departments to science and technology shall change from
general support to scientific research institutes and scientists and technologists to selective support mainly to projects; the State
scientific research programs adopt a task system, and bidding and intermediary evaluation systems for projects shall be greatly executed;
the technical innovation fund for medium and small-scale scientific and technological enterprises shall be established to provide
capital support for the transformation activities of high and new technology achievements. Supporting policy in finance and taxation
shall be applied to high and new technology products. By enforcing governmental procurement policy, budgetary control, bidding and
other manners, we shall direct and encourage government departments, enterprises and institutions to purchase selectively domestic
high and new technologies and equipment and products thereof. The research and development funds contributed to scientific research
institutes and higher educational institutions by social forces may be deducted by the State from the revenue taxable according to
a certain proportion.

    Revenues from technological transfer and technological development as well as technical consulting and technical
service in connection therewith shall be exempted from business tax. For enterprises developing and manufacturing software products,
the value-added tax on their software products may be levied by a rate of 6%; supporting policy for software sales enterprises shall
be formulated, and the expenditures in wages of software developing and manufacturing enterprises may be deducted according to the
actual occurring amount before enterprise income tax is paid. For export of high and new technology products, zero value-added tax
rate policy shall be enforced. For import of advanced technology and equipment not domestically available, supporting policy in taxation
shall be enforced.

    We shall permit and encourage technology, management and other production elements to participate in benefits
distribution. Experiments in partial high and new technology enterprises shall be made to reward meritorious employees, especially
scientists and technologists and business management personnel, by sharing stocks out of a certain proportion of the increment of
State-owned net assets in recent years.

    9. Implementing supporting policy in banking. The financial institutions shall fully realize the support function
of credit loan, and improve their credit loan services for scientific and technological enterprises by actively developing various
effective instruments. They shall, according to the different characteristics of enterprises, establish corresponding rules on authorization
and loan facility, complete capital management rules, increase the categories of credit loan, develop security manners, and expand
scientific and technological credit input. The rules on security for granting loans to medium- and small-scale scientific and technological
enterprises shall be researched, proposed and settled as soon as possible. For qualified scientific and technological projects with
lawful security, scientific and technological loans and technical reformation loans shall be granted in priority; for high and new
technology achievement transformation projects and technical reformation projects with good market prospects, high content of technology
and good economic results and able to replace imports, the supporting momentum shall be reinforced. The State shall provide corresponding
discount interest support for these projects. The State shall support the export of high and new technology products in credit loan
and discount interest.

    We shall cultivate a capital market favoring the development of high and new technology industry, establish
gradually the risk investment mechanism, develop risk investment companies and risk investment funds, establish a withdrawal mechanism
of risk investment, and increase