CIRCULAR OF THE STATE COUNCIL ON ITS APPROVAL AND TRANSMISSION OFTHE REPORT SUBMITTED BY THE STATE ADMINISTRATION FOR COMMODITY PRICES,REQUESTING INSTRUCTIONS ON SEVERAL PROBLEMS CONCERNING THE FIXING OFPRICES OF INDUSTRIAL GOODS

CIRCULAR OF THE STATE COUNCIL ON ITS APPROVAL AND TRANSMISSION OFTHE REPORT SUBMITTED BY THE STATE ADMINISTRATION FOR COMMODITY PRICES,REQUESTING INSTRUCTIONS ON SEVERAL PROBLEMS CONCERNING THE FIXING OFPRICES OF INDUSTRIAL GOODS SUPPLIED FOR EXPORT This English document is coming from the "LAWS AND REGULATIONS OF THE PEOPLE'S REPUBLIC OF CHINA GOVERNING FOREIGN-RELATED MATTERS" (1991.7) which is compiled by the Brueau of Legislative Affairs of the State Council of the People's Republic of China, and is published by the China Legal System Publishing House.

In case of discrepancy, the original version in Chinese shall prevail.

Whole Document CIRCULAR OF THE STATE COUNCIL ON ITS APPROVAL AND TRANSMISSION OF THE REPORT SUBMITTED BY THE STATE ADMINISTRATION FOR COMMODITY PRICES, REQUESTING INSTRUCTIONS ON SEVERAL PROBLEMS CONCERNING THE FIXING OF PRICES OF INDUSTRIAL GOODS SUPPLIED FOR EXPORT (August 21, 1979) The State Council has given its consent to the "Report Requesting Instructions on Several Problems Concerning the Fixing of Prices of Industrial Goods Supplied for Export" submitted by the State Administration for Commodity Prices, and the Report is hereby transmitted to you for prompt study and implementation.

REPORT REQUESTING INSTRUCTIONS ON SEVERAL PROBLEMS CONCERNING THE FIXING OF PRICES OF INDUSTRIAL GOODS SUPPLIED FOR EXPORT (Excerpts) In November, 1965, the State Council promulgated Interim Provisions Concerning the Unified Measures for Fixing Prices of Industrial Goods Supplied for Exports. The implementation of these Provisions has played an active role in promoting the development of the production of export commodities, in strengthening the business accounting in the foreign trade department as well as in the supplier departments, and mutual assistance and cooperation between these departments, and in fulfilling the task of exportation set by the State. At present, judged by what has been achieved in recent years, the basic principles laid down in this document for fixing prices of export commodities supplied are still practicable, and these principles shall continue to be implemented.

However, in recent years, some new problems have emerged with the development of foreign trade and with the increase in the exportation of industrial and mineral products. In order to develop foreign trade vigorously, to expand export actively, to generate foreign exchange earnings by a big margin for the State, and to promote socialist modernization, it is urgently necessary to find an appropriate solution to several problems concerning the fixing of prices of export industrial goods. The following are our recommendations on the solution to these problems: I. The Guiding Principle for Fixing the Prices at Home of Export Industrial Goods The basic principle for fixing the home prices of export industrial goods should remain that of same price for goods of same quality, and high price for goods of high quality on the basis of prices of industrial goods for domestic sales. However, certain special characteristics of export industrial goods should also be taken into full consideration. The fixing of prices at home for export industrial goods should be conducive to bringing into play the initiative of the industrial departments and the foreign trade departments, to improving the quality of export commodities, to increasing the variety of designs and patterns, to upgrading the packaging and decoration, to speeding up delivery, to meeting the demands of the international market, and to enabling better and more flexible export business operations. The industrial departments and the foreign trade departments should, in dealing with the problem of fixing prices for export industrial goods, have a heightened sense of the whole, starting from the interests of the country as a whole, promote mutual assistance and coordination, work in harmony with one another, provide each other with data concerning the production and marketing of export commodities, the comparability in quality, production costs, exportation for earning foreign exchange, etc., and work energetically towards the same goal of developing production, expanding export, and generating more foreign exchange earnings.

II. Price-Fixing Problems Relating to Commodities That Cause Big Export Losses Though High in Industrial Profits With respect to those industrial goods whose producer price is high, industrial profits are good, production potential is great, and sale has yet to be expanded, the producer price and market price may with the approval of the competent authorities for commodity prices, be reduced by an appropriate margin. If the producer price of goods for export and the producer price of goods for domestic sales are to be reduced at the same time, the principle of "same price for goods of same quality, and high price for goods of high quality" should apply to products for export and to those for domestic sales. For such products whose domestic sale price is not to be reduced for the time being and whose prospect for export is bright though their exportation still causes great losses in spite of the efforts made by the foreign trade departments in rational export business, their producer price for export may, with the consent of the department(s) concerned after consultation, be reduced first without reducing their producer price for domestic sales, on the condition that the fulfillment of the export plan is not affected. With respect to some areas where it is not possible to reduce the producer price of goods for export, the enterprises concerned should strive to reduce their production costs, and to catch up with the advanced level within a prescribed time limit; and within a specific period of time, the relevant foreign trade departments must continue to purchase the produce manufactured in these areas for export, in accordance with the State plan or with the contracts signed by foreign trade departments with industrial departments. For such products with no big industrial profits but high tax rates, resulting thus in high producer price and large export losses, the relevant foreign trade department or industrial department may file an application for a reduction of, or exemption from, taxes; and the case(s) shall be submitted to the Ministry of Finance or to the people's governments of the provinces, autonomous regions, or municipalities directly under the Central Government for approval before execution.

III. Price-Fixing Problems Relating to Export Commodities That Yield Meagre or No Industrial Profits, or Cause Losses There are some industrial goods, which sell well on the international market, and earn high rates of foreign exchange, but whose producer price is too low; under normal circumstances and with rational management the enterprises concerned can only manage to have a break-even between costs and profits, or have just meagre profits, or, worse still, suffer losses; however, for the time being, it is inadvisable to raise the domestic selling price. There is still another case: the domestic selling price is basically reasonable; however, the special demands for the portion of goods for export such as small quantities but rich varieties, result in an increase in production costs. The two cases mentioned above may, with the consent reached through consultation between the interested industrial departments and foreign trade departments, be handled this way: with respect to the portion of goods for export, on the principle of allowing the producer enterprises to have a proper percentage of profits, the problem may be solved by the properly purchasing price of goods for export, on condition that the aforesaid readjustment does not hamper the fulfillment of the marketing plan on the domestic market.

IV. The Price-Fixing Problem Concerning the Commodities Produced Exclusively for Export For those products manufactured exclusively for export, and those export products manufactured by designated factories or by designated workshops, as well as those export products manufactured from imported raw materials (the raw materials are imported for this special purpose only), they may, with the consent reached through consultation between the interested foreign trade departments and industrial departments, be separated in price ratio from those similar goods for domestic sales, and their producer price shall be fixed in accordance with the production costs calculated under the conditions of normal industrial production and rational operation, plus a certain percentage of profits.

V. The Price-Fixing Problems Concerning the Products Manufactured under the System of "Promotion of Exports by Importation of New Technology and Equipment" In accordance with Trial Measures Concerning the Promotion of Exports by Importation of New Technology and Equipment, transmitted by the State Council in March, 1979, cases concerning the price-fixing in Renminbi at home for imported goods and materials needed for carrying out the system of "promotion of exports by importation of new technology and equipment" shall be handled, in principle, in accordance with the existing measures for fixing prices for imported goods. With respect to a few varieties of finished products, exported under the system of "promotion of exports by importation of new technology and equipment", owing to the fact that the domestic appropriation price, the profit rate and the tax rate for the imported raw and auxiliary materials are too high, the foreign trade department that undertakes the exportation of the aforesaid finished products suffers a big export loss; so long as the aforesaid finished products sell well on the international market, and the rate of foreign exchange earnings is acceptable, the imported raw and auxiliary materials needed may, with approval, have their price fixed by adding a commission of 3% to the import cost. As regards the limits of powers for approval, cases concerning imports by using the foreign exchange of the Central Government, shall be examined and approved by the Ministry of Foreign Trade; cases concerning imports by using the foreign exchange of localities, shall be examined and approved by the competent pricing authorities of the provinces, autonomous regions, or municipalities directly under the Central Government. The Customs duties and consolidated industrial and commercial taxes on the aforesaid goods and materials may, with the exception of those which have been given preferential treatment of exemption or reduction according to the clear-cut decision made by the competent authorities under the State Council, be computed and levied in accordance with the pertinent provisions promulgated by the State. Any new applications filed by the departments and localities concerned for the reduction of, or exemption from, import duties, shall be examined and determined, in good time, by the Ministry of Foreign Trade and the Ministry of Finance in accordance with the principle of being conducive to the implementation of the system of "promotion of exports by importation of new technology and equipment". With respect to those raw and auxiliary materials which are imported regularly every year, relatively steady domestic appropriation prices may be fixed through consultation in accordance with the aforesaid principle. The industrial departments may, on the basis of the aforesaid prices fixed for the raw and auxiliary materials, calculate the production costs and the producer prices for export products. The industrial profits for products of this category shall be determined reasonably, in the light of the profit level of similar industrial products, and by considering the actual profits and losses in the operation of exportation. In the event that there is insufficient supply of imported raw and auxiliary materials and that home- produced raw and auxiliary materials have to be used, the Ministry of Foreign Trade shall make up the price differences between home-produced raw and auxiliary materials and imported raw and auxiliary materials for the industrial departments.

The prices of imported raw materials specially required for the production of packages for export products may also be fixed and approved in accordance with the measures mentioned above.

VI. Price-Fixing Problems Concerning Some Home-Produced Raw Materials There are some home-produced raw materials whose producer price is fixed at a rather high rate because of the consideration for the price ratio between the aforesaid products and other products of the same category or other relevant products, and for the different conditions in different localities, resulting in the high production costs and high producer prices of the export products made from the aforesaid raw materials, and comparatively large export losses; however the said export products are in demand on the international market. In areas where the home-produced raw and processed materials mentioned above are produced at very low production costs before the unified re-adjustment of the producer prices and thus the industrial profits are relatively high, the portion of the aforesaid home-produced raw and processed materials to be used for the manufacture of export products may, with the approval agreed upon through consultation between the interested foreign trade departments and industrial departments, have their producer prices fixed separately in accordance with the principle that the producer enterprises shall have a proper percentage of profits.

VII. The Limits of Powers for Approval of the Readjustment of Prices According to the original provisions, cases concerning the readjustment of prices of export commodities to prices lower or higher than those of similar commodities for domestic sales, shall all be approved by the State Administration for Commodity Prices. Such provisions are necessary for carrying out strictly the principle of "same price for goods of same quality, and pricing on the basis of quality" as far as both the commodities for export and the commodities for domestic sales are concerned; they are also necessary for avoiding aggravating conflicts caused by price-fixing between different areas. However, with the daily increase in the varieties of commodities for export, it would be difficult for the State Administration for Commodity Prices to handle, in good time, all pricing cases if every product is to be reported to it for examination and approval, and this situation may affect to a certain extent the arrangements for production and exports. Therefore, from now on, cases concerning the fixing of prices for export commodities in accordance with the measures mentioned in recommendations II through VI of this Report shall, with the consent reached through consultation between the interested foreign trade departments and industrial departments, be submitted to, and handled by, the competent authorities concerned in accordance with the limits of powers for the administration of prices at different levels, namely, products whose prices are to be fixed by the departments concerned under the State Council, shall be reported to, examined and approved by the departments concerned under the State Council which may, however, authorize the local competent authorities for the administration of commodity prices, to examine and approve the prices of part of varieties of export goods; products the prices of which are to be fixed by the local authorities shall be reported to the competent authorities for the administration of commodity prices of the provinces, municipalities directly under the Central Government, and autonomous regions for examination and approval. Commodity prices to be fixed by the local competent authorities shall be reported to the departments concerned under the State Council for the record. With respect to those products whose prices need to be adjusted, the original prices shall be adhered to in business transactions; before the new prices are notified to the departments concerned at the lower levels, or, when necessary, business transactions may, with the consent reached through consultation between the interested supplying departments and foreign trade departments, or with the confirmation by the local competent authorities for the administration of commodity prices, be calculated on the basis of the original prices and, after the new prices have been approved and notified to the departments concerned at the lower levels, refund for any overpayment or collect a supplementary payment for any deficiency.

After prices have been adjusted, it is necessary to stabilize them for a period of time; it is inadvisable to change the prices of commodities for export frequently because of price fluctuations on the international market.

With respect to the changes, in terms of increases or decreases, in the production costs and profits of the departments, the localities and enterprises concerned, as a result of the adjustment of prices of export commodities and raw and processed materials, the Central and local planning departments and financial departments shall, when transmitting plans to, or examining the performance of the departments at the lower levels, take into consideration the aforesaid factors, and find ways to solve the problems properly.

If nothing is deemed inappropriate in the Report, it is requested that the Report be approved and transmitted to all the departments concerned and to the provinces, municipalities directly under the Central Government, and autonomous regions for study and implementation.

nsufficient supply of imported raw and auxiliary materials and that home- produced raw and auxiliary materials have to be used, the Ministry of Foreign Trade shall make up the price differences between home-produced raw and auxiliary materials and imported raw and auxiliary materials for the industrial departments.

The prices of imported raw materials specially required for the production of packages for export products may also be fixed and approved in accordance with the measures mentioned above.

VI. Price-Fixing Problems Concerning Some Home-Produced Raw Materials There are some home-produced raw materials whose producer price is fixed at a rather high rate because of the consideration for the price ratio between the aforesaid products and other products of the same category or other relevant products, and for the different conditions in different localities, resulting in the high production costs and high producer prices of the export products made from the aforesaid raw materials, and comparatively large export losses; however the said export products are in demand on the international market. In areas where the home-produced raw and processed materials mentioned above are produced at very low production costs before the unified re-adjustment of the producer prices and thus the industrial profits are relatively high, the portion of the aforesaid home-produced raw and processed materials to be used for the manufacture of export products may, with the approval agreed upon through consultation between the interested foreign trade departments and industrial departments, have their producer prices fixed separately in accordance with the principle that the producer enterprises shall have a proper percentage of profits.

VII. The Limits of Powers for Approval of the Readjustment of Prices According to the original provisions, cases concerning the readjustment of prices of export commodities to prices lower or higher than those of similar commodities for domestic sales, shall all be approved by the State Administration for Commodity Prices. Such provisions are necessary for carrying out strictly the principle of "same price for goods of same quality, and pricing on the basis of quality" as far as both the commodities for export and the commodities for domestic sales are concerned; they are also necessary for avoiding aggravating conflicts caused by price-fixing between different areas. However, with the daily increase in the varieties of commodities for export, it would be difficult for the State Administration for Commodity Prices to handle, in good time, all pricing cases if every product is to be reported to it for examination and approval, and this situation may affect to a certain extent the arrangements for production and exports. Therefore, from now on, cases concerning the fixing of prices for export commodities in accordance with the measures mentioned in recommendations II through VI of this Report shall, with the consent reached through consultation between the interested foreign trade departments and industrial departments, be submitted to, and handled by, the competent authorities concerned in accordance with the limits of powers for the administration of prices at different levels, namely, products whose prices are to be fixed by the departments concerned under the State Council, shall be reported to, examined and approved by the departments concerned under the State Council which may, however, authorize the local competent authorities for the administration of commodity prices, to examine and approve the prices of part of varieties of export goods; products the prices of which are to be fixed by the local authorities shall be reported to the competent authorities for the administration of commodity prices of the provinces, municipalities directly under the Central Government, and autonomous regions for examination and approval. Commodity prices to be fixed by the local competent authorities shall be reported to the departments concerned under the State Council for the record. With respect to those products whose prices need to be adjusted, the original prices shall be adhered to in business transactions; before the new prices are notified to the departments concerned at the lower levels, or, when necessary, business transactions may, with the consent reached through consultation between the interested supplying departments and foreign trade departments, or with the confirmation by the local competent authorities for the administration of commodity prices, be calculated on the basis of the original prices and, after the new prices have been approved and notified to the departments concerned at the lower levels, refund for any overpayment or collect a supplementary payment for any deficiency.

After prices have been adjusted, it is necessary to stabilize them for a period of time; it is inadvisable to change the prices of commodities for export frequently because of price fluctuations on the international market.

With respect to the changes, in terms of increases or decreases, in the production costs and profits of the departments, the localities and enterprises concerned, as a result of the adjustment of prices of export commodities and raw and processed materials, the Central and local planning departments and financial departments shall, when transmitting plans to, or examining the performance of the departments at the lower levels, take into consideration the aforesaid factors, and find ways to solve the problems properly.

If nothing is deemed inappropriate in the Report, it is requested that the Report be approved and transmitted to all the departments concerned and to the provinces, municipalities directly under the Central Government, and autonomous regions for study and implementation.