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Hefei Economic & Technological Development Area Investment

Environment Study 2011

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2 Hefei Economic & Technological Development Area Investment Environment Study 2011

Contents

Preface

1 Hefei Economic & Technological Development

Area (HETDA) 5

2 Foreign Investment in HETDA 16

3 Operating Costs 20

4 Appendix 27

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Preface

This publication presents an overview for those contemplating investment in Hefei Economic & Technological Development Area (HETDA). The original version of this booklet was released in April 2006, and updated in 2007, 2008, 2009, and 2010. This publication is the sixth edition, and was updated in March 2011.

Hefei is the political, economic, cultural, information, financial and commercial centre of Anhui province. Within a 500 kilometre circle of Hefei lie key cities within the Yangtze River Delta (YRD) and central China, representing an immense consumer market. With its convenient location making it a national transport hub, and being one of the four Science and Education cities in Auhui province, Hefei is blessed with many advantages, such as low operation costs, convenient transportation and abundant labour resources.

Hefei Economic and Technological Development Area (HETDA) is located in the southwest of Hefei. In 2010, the gross industrial output value realised by major enterprises was RMB 133.9 billion, representing 36% of the total gross industrial output of enterprises in Hefei. After 20 years of development, the area now hosts three main industries (automobile and parts, household electronic and machinery manufacturing) with clear industrial characteristics. In order to promote industrial development in HETDA, the Ministry of Industry and Information Technology of the People’s Republic of China (MIIT) has approved the area as one of the first “National New Industrialization Demonstration Bases”, with a particular emphasis on household electronics. Furthermore, with the approval of the State Council

obtained in July 2010, Hefei Export Processing Zone is focusing on the development of export processing enterprises, and will introduce processing trade enterprises, high-tech product export enterprises, and research and development centres of export processing enterprises that closely echoed market needs.

The main achievements in the promotion of industry transfer and the economic development of HETDA in recent years include the following:

HETDA has become the largest •Taiwan-funded and Janpanese-funded enterprise residence in central China, with famous enterprises such as AU Optronics Corporation, Junling Electronics, Japan Nipro Corporation and Kao setting up operations in 2010.

In 2010, HETDA ranked first in •central China in the Comprehensive Evaluation on Investment Environment of National Economic and Technological Development Zones by the Ministry of Commerce; in the same year, it ranked second on the Economic Observer and China Regional Economy Institute’s list of Economic Parks with the Most Investment Potential.

The settlement of Taiwan Winsson •in HETDA in 2010 marked the formal beginning of the industry transfer of processing trade enterprises from coastal areas.

In 2010, the largest LCD screen •manufacturer in Taiwan, AU Optronics Corp. （“AUO”（ invested in LCD module and flat panel TV production in HETDA, continuing the trend of high added value projects transferring to HETDA.

Hefei is one of the core model industry transfer cities in the Wanjiang City Belt. As an important element of the model zone, HETDA will benefit from favourable central and local government policies related to investment, tax, finance, land use, and market openness, and will further improve industry transfer that can provide sustainable development in planning, transportation, energy, environmental protection, and labour resources.

A detailed investment plan is vital to the successful investment in China. This publication, commissioned by HETDA, is designed to address the needs of foreign investors for accessible, independently researched information on the business environment and general business operating costs in HETDA.

The sources of information in this booklet have been attributed throughout and the assistance of HETDA is gratefully noted. All images are courtesy of the Commerce Bureau of Hefei, and were reproduced with permission. This booklet contains information available as of March 2011. The exchange rate used in this booklet is USD 1 = RMB 6.623 (Bank of China rate on 31 December 2010).

With the business environment, especially with regard to costs, changing rapidly in China, cost and operational issues vary from company to company and industry to industry. Companies doing business in China, or planning to do so, are advised to obtain current information and company-specific advice from experienced professional advisors; this report should not be construed as a substitute for due diligence on a proposed investment.


1 Hefei Economic & Technological Development Area (HETDA)

Hefei today

Location•

Economy •

Population and natural environment•

Hefei Economic & Technological Development Area

Introduction to HETDA•

Planning of HETDA•

Manufacturing in HETDA•

Hefei Export Processing Zone (“HEPZ”)•

Environment and facilities (Human capital, Living •environment , and transportation)

Hefei Economic and Technological Development Area is a state-level economic and technological development area with manufacturing as its focus. Leading industries in the area include automobiles and parts, household electronic, machinery manufacturing, and fast moving consumer goods.

LocationHefei is located in Anhui Province, in central eastern China.

Anhui Province is a fertile and densely populated inland province. The Yangtze, China’s longest river, flows through the south of the province. Anhui bridges the east and west of China and is an integral part of the government’s “Rise of Central China” strategic economic plan.

Hefei is the capital city of Anhui province, and also a core member among the key cities in the Yangtze River Delta (YRD) Economic Region. Benefiting from the positive effects of the YRD, Hefei is well-positioned to capture industrial transfer from coastal areas.

Hefei today

Hefei is less than two hours by plane from Beijing, Guangzhou, Shanghai and Hong Kong. The 500 kilometre area around Hefei accounts for roughly half of China’s GDP and over 40 percent of China’s consumer market.

Bordering Chao Lake—one of the five largest freshwater lakes in China—Hefei is implementing its “1-4-1” development plan: “One city, four satellites, and one new lakeside region” (The Hefei “1-4-1” development plan layout is on page seven).

500 km Economic Circle around Hefei Hefei and Yangtze River Delta Economic Region

•

•

•••

•

••

•

•

•

•

•

•• •

•

•

•

••

LegendH1 Hefei-Xuzhou Highway H2 Hurong Highway H3 206 National Highway

H4 312 National Highway

H5 Hefei-Tongling-Huangshan Highway

R1 Gansu-Liangyungang Railway R2 Beijing-Kowloon Railway R3 Beijing-Shanghai Railway R4 Shanghai-Wuhan-Chengdu Railway

H1

H2

H3

H4

R1

R2

R3

R4H5

Source: HETDA Investment Promotion Bureau

Railway

Highway

100 milles

200km


Zhengzhou

Anhui Province

Wuhan

Hefei

Yangzhou

Nanjing

ChangzhouNantong

Wuxi

Suzhou

Shanghai

Hangzhou

Ningbo Yangtze RiverDelta Region

Nanchang

Changsha

Yangtz

e Ri

ver

TaizhouZhenjiang

Jiaxing

Huzhou

ShaoxingZhoushan

Taizhou

Wenzhou

Lianyungang

Jilin

LiaoningBeijing

Tianjin

Hebei

Shandong

Jiangsu

Shanghai

Taiwan

Zhejiang

Fujian

Hefei

Anhui

Shanxi

Henan

Hubei

JiangxiHunan

Guangdong

Hong KongMacau

Guangzhou

Hainan

GuangxiYunnan

Guizhou

Sichuan Chongqing

Shaanxi

Ningxia

Inner Mongolia

Heilongjiang

500km

EconomyHefei’s economy, focused on the manufacturing and service industries, has been developing fast over the past few years.

In 2010, the gross domestic product •(GDP) of Hefei was USD40.8 billion, with a GDP per capita of USD 6,930, an increase of 29% and 11% respectively compared with 2009. Hefei’s GDP grew at a compound annual growth rate (CAGR) of 26 percent from 2006 to 2010, substantially higher than the 17 percent national average.

Hefei’s manufacturing and •construction sectors have been developing rapidly in recent years. The gross regional product of these sectors reached USD 22 billion in 2010, 2.2 times higher than the 2007 level.

In 2010, the gross regional •product of the service industries reached USD 16.8 billion. The service industries stake in the total gross regional product of Hefei has exceeded 40% since 2006. This sector includes finance and insurance, transportation and telecommunications, wholesale and retail, and catering.

Hefei’s primary sector (agriculture, •forestry, animal husbandry and fisheries) saw marginal growth, and

represents around five percent of the city’s GDP.

The economic development of Hefei has been recognised consistently by investors and the government.

In 2009, Hefei’s GDP and growth •rate in industrial added-value were the highest among the 26 provincial capital cities; it was also listed as one of the“Top 10 Cities With Most Investment Potential” the same year.

In 2008, Hefei ranked first on the list •of “Small and medium sized Chinese cities with the most investment potential”(a) issued by the Ministry of Housing and Urban-Rural Development (MOHURD). Hefei also ranked 37th in Forbes’s list of the 2008 “Top 100 Commercial Cities in China”.

Forbes ranked Hefei seventh out •of 286 cities at the prefecture (or higher) level in their list of “Low Cost Cities for Business in China”.

In 2006, Hefei was listed among •the "Top 50 Cities for Investment" out of 286 Chinese cities by the National Bureau of Statistics of China, and was ranked 11th among cities of significant Foreign Inward Investment potential by the Institute of Industrial Economics of the Chinese Academy of Social Sciences.

Population and natural environmentHefei is an ancient city dating back more than 2,000 years ago.

In ancient times Hefei was known •as “Luzhou“ and was first officially established as a county in the Qin Dynasty (248-206 BC).

Hefei has four districts (Yaohai, •Luyang, Shushan and Baohe) and three counties (Feidong, Feixi, Changfeng), covering a total area of 7,029 square kilometres.

By the end of 2010, Hefei had a •population of nearly 5.3 million, including 3.1 million urban residents.

Hefei enjoys a subtropical climate and is a “green city”.

Hefei has four distinct seasons with •an annual average temperature of 15.5 degrees Celsius. It enjoys an average of 5.8 hours of sunshine per day and has roughly 985.4 mm of rainfall annually.

Hefei was recognised as one of the •first “national garden cities” by the MOHURD. In 2010, 44.4 percent of Hefei’s area was categorised as “green space”, compared with the national average of 40 percent. This equates to 12.2 square metres of green space per person.

Notes: (a) The “China small and medium cities for investment potential” ranking includes criteria such as investment environment, city utilities and infrastructure and regional clustering. Around 500 small and medium cities were considered by the National Bureau of Statistics

Sources: Hefei Statistics Bureau; HETDA Investment Promotion Bureau

Hefei’s GDP, 2006-2010

354045

US

D b

illio

n 302520151050

16.220.1

25.1

31.7

40.8

2006 2007 2008 2009 2010

Source: Hefei Statistics Bureau

CAGR (%) 2006-2010

Hefei’s GDP 26%

7Hefei Economic & Technological Development Area Investment Environment Study 2011

Hefei Economic & Technological Development Area (HETDA)Introduction to HETDA

Hefei Economic and Technological Development Area was founded in 1993, and approved as an economic and technological development area at state level in 2000 by the State Council.

It is situated in the south-west part of the city, seven kilometres from downtown Hefei. Under the “1-4-1” development plan, HETDA, as a national manufacturing base for high-tech and service industries, will increasingly become a focal point of the south-western region of Hefei.

HETDA is planned to cover 74 square kilometres. In 2009, HETDA and Feixi county signed an enlarged cooperative development agreement, expanding HETDA 56 kilometres beyond the south bank of the Pai River.

The management and service systems of HETDA have been issued with ISO9001 and ISO14001 certificates. In 2009, HETDA was the first of China’s economic and technological development zones to be granted ISO9001 quality management system certification based on the latest criteria (adopted in 2008).

HETDA continuously encourages automobile, household electronics, machinery, synthetic materials, renewable resources, fast moving consumer goods, service outsourcing, and headquarter related investments on an individual basis, according to the size and economic return of the project. It offers preferential policies and financial aid(a) for corporate income tax, VAT, land prices, and factory construction.

Note: (a) Please contact No.1 Branch of HETDA Investment Promotion Bureau for more information of incentive policiesSource: HETDA Investment Promotion Bureau

(74km2)


HETDA consists of two sectors

The Eastern sector mainly focuses •on industry and includes the Central Industrial Zone, the Southern Industrial Zone and the New Port Park.

The New Port Park has an export --

processing zone, the Lingang industrial zone, port logistics zone, and Binhe bio-tourism zone. It primarily focuses on attracting logistics, automotive, machinery and household electronics projects.

The Western sector is a business •and culture area and includes the Hefei University Town, the International Business Central Zone and the International Community.

HETDA also has several special parks/zones, such as the Service Outsourcing Park, the Micro-Electronic Engineering

Planning of HETDA

Map of HETDA

Legend

Residence

Storage

Green buffer

Industry

Business and finance

Culture and recreation

Public green space

Education and research

Municipal infrastructure



Zone, the Life Science Zone, the Medical Healthcare Industry Zone, the Sinotrans Logistic Park, the Nanyan Lake High-Tech Zone, Hefei Innovation and Entrepreneurship Park and the Housing Industrialisation Base.

Hefei Export Processing Zone was founded in 2010. It is the first export processing zone in Hefei, and the second export processing zone in Anhui province. The zone will act as an ideal platform for industry transfer from the east coast area to Hefei and Anhui province. (See page ten for details).

Hefei will establish a “Pai River Industry Aisle" in HETDA to establish a port economy and regional logistics centre, with a view to introducing large processing trade companies. This will look to foster mutual benefit between ports, logistics, manufacturing and processing activities.


Pai River Port Zone

•

•

To Nanjing and Shanghai

Rai

lway

Bei

jing-

Kow

loon

To Yining of Xinjiang Uygur

Autonomous Region

Railway Nanjing-Xi’an

Life Science Zone

Micro-Electronic Engineering Zone

Central Industrial Zone

Southern Industrial Zone

Sinotrans Logistic Park

National Superhighway 312 (Yining-Hefei-

Nanjing-Shanghai)

Hefei University Town• Anhui University

• Hefei University of

Technology

HETDA Administration CommitteeInternational Community

Hefei Innovation and Entrepreneurship Park

Medical Healthcare Industry Zone

Nation

al Sup

erhig

hway

206

New Lakeside Region

3.5 km to Luogang Airport

Sewage Treatment Plant

Thermal Power Station

Nanyan Lake High-Tech Zone

Downtown

New Politics & Culture District

International Business Central

Hefei Export Processing Zone

New Port Park

Service Outsourcing Park

Railw

ay Shanghai-C

hengdu

HETDA’s gross industrial output value has continually increased in recent years.

From 2006 to 2010, the industrial •output of major enterprises in HETDA increased at a CAGR of around 32 percent, reaching USD 20.2 billion at the end of 2010, an increase from 30 percent in 2009.

HETDA is a major driver of economic •development in Hefei. From 2006 to 2010, the proportion of gross industrial output contributed by major enterprises settled in HETDA represented over one third of the total output contributed by major enterprises in Hefei.

The manufacturing industry (HETDA’s “pillar” sectors including the automobile, household electronics and machinery manufacturing industries) has accounted for the bulk of HETDA’s economic activity.

The automobile, household •electronics, and machinery manufacturing industries in HETDA have been developing rapidly in recent years (see table below for details).

The fast moving consumer goods •industry includes the household chemicals and food processing sectors, accounting for 14 percent of HETDA’s total manufacturing output in 2010. Major companies in HETDA include Unilever, Coca-cola, Kao, Taiwan Tongyi, and Huatai Food. Unilever’s branch in HETDA has become one of its four largest global production bases.

Manufacturing in HETDA

Sources: Hefei Statistics Bureau; HETDA Economy and Trade Development Bureau

HETDA’s industrial output of major enterprises, 2006-2010

Industrial output distribution of manufacturing sector, 2010

Others3%

Automobile 33%

Fast moving consumer goods

14%

Machinery21%

Household electronics 29%

Source: HETDA Economy and Trade Development Bureau

US

D b

illio

n

25

20

15

10

5

0

6.68.9

11.915.5

20.2

2006 2007 2008 2009 2010

CAGR (%) 2006-2010

HETDA’s industrial output of major enterprises

32%

Leading industry

Gross industrial output value in

2010

Industry characteristics Main residents Development focus

Automobile and parts

USD 6.6 billion, an increase of 18% over 2009

Led by Jianghuai Automobile Co., Ltd (JAC), automobile enterprises in HETDA have established a full range of manufacturing and assembly capabilities, covering passenger and business vehicles, off-roaders, trucks, car chassis, engines, gearboxes, and tyres

Johnson Controls, Giti Tire, Visteon Corporation, and American Axle & Manufacturing Holdings; JAC has also established a joint venture with Navistar and Caterpillar to develop engines and heavy trucks

Complete automobiles, key parts such as engines and gearboxes, and new energy automobiles

Household electronics


In 2010, the number of finished household electronic machines from HETDA was 17.69 million, a leading performance compared with other development zones. In the same year, HETDA was approved as one of the first “National New Industrialization Demonstration Bases” by the Ministry of Industry and Information Technology, with a focus on household electronic appliances

Famous enterprises such as Haier, Chang Hong, Midea, Meiling, and Valin; and new residents such as Huntkey Electronics, AUO, and Bitland

Finished household electronic appliances, flat panel displays and related equipment, and parts for air conditioners, refrigerators, and compressors.

Machinery manufacturing


Machinery manufacturing in HETDA has taken shape (39 major enterprises); first class enterprises from both inside and outside China have settled in HETDA

Hitachi Construction Machinery, ABB Transformer, Anhui HeLi Co., Hefei Duanya Group, Rong An Power Machinery, etc.; Rongsheng Heavy Industry project introduced in 2010 (annual output of 30,000 excavators

Large finished equipment, major parts, assembly projects and marine equipment projects


Introduction

Founded on 5 July 2010 under Æ

the approval of the State Council, HEPZ will improve the investment environment in Hefei and promote industry clusters.

The business scope of HEPZ is Æ

planned to include the processing trade, bonded logistics, bonded storage, international logistics distribution, the re-export trade, inspections of exported products, after-sale maintenance of export products, and bonded international exhibits storage.

So far five enterprises have Æ

announced plans to make investments in HEPZ, amounting to a total of approximately USD 700 million. The total output of these projects is estimated to reach RMB15 billion, with related export amounts in excess of USD 1.5 billion, once construction is complete.

HEPZ is located in the southern Æ

part of HETDA, with a planned area of 1.42 square kilometres. It includes a production processing area, maintenance and inspection area, bonded logistics area and comprehensive support area. The comprehensive support area covers 497,000 square metres of industrial land and 208,000 square metres of residential space to satisfy supply chain and living/accommodation needs.

The infrastructure facilities in HEPZ Æ

are fully compatible with that of HETDA, and meet the national standards. HEPZ is five kilometres away from Hurong highway and half a kilometre from Pai River Port. It is also close to HETDA’s purpose-built railway and the highway to the airport.

Hefei Export Processing Zone (“HEPZ”)

Sources: Tentative Supervision Measures on Export Processing Zones by General Administration of Customs of the PRC. Order 81 of General Administration of Customs; HETDA Investment Bureau

HEPZ intends to introduce Æ

enterprises producing flat panel displays, electronic appliances, solar PV equipment, high brightness LEDs, and precision machinery. Based on the preferential policies available in export processing zones, the following types of enterprises would be welcome to settle in HEPZ (for investor reference only):

Manufacturing enterprises whose -main raw materials, parts and final products are imported from or will be exported abroad

Manufacturing enterprises who -import raw materials from abroad and sell their final products domestically, and the custom tax rate applicable to these products is lower than that to imported raw materials

Manufacturing enterprises who -make final products for export (e.g., parts are manufactured outside HEPZ, and assembly completed in HEPZ)

Enterprises whose management -is complicated due to adopting the Processing Trade Registration Handbook (e.g., many raw materials and parts are imported, complicating the verification of unit consumption)

High requirement on delivery time -

Cost of imported equipments -accounts for majority of total costs

Logistic companies with -international purchasing and international transportation

HEPZ map

HEPZ functional map

Ｎ

Production Area

Entrance

HEPZ Administrative Committee

Residential Space

Production Processing Area

Production Processing Area

Production Processing AreaProduction

Processing AreaComprehensive Support Area

Bonded Logistics Area

Ｎ

Maintenance and Inspection Area


Sources: Tentative Supervision Measures on Export Processing Zones by General Administration of Customs of the PRC. Order 81 of General Administration of Customs; HETDA Investment Bureau

HEPZ indicative map

Related policy Main contents

Exemption of import tax

Machines, equipment, modules, and maintenance parts necessary for production at enterprises in HEPZ are exempt; machines, equipment, and infrastructure construction materials necessary for building plants and warehouses; office facilities (exempt from import custom tax and import linkage tax)

Exemption of export tax, VAT and consumer tax

Products of HEPZ residents are exempt from export tariffs, VAT and consumer tax; VAT paid for water, electricity, and gas used to produce export products is reimbursed

Protective tariff on imported materials

Raw materials, parts, components, packaging materials and consumables imported for the processing of products for export in HEPZ are fully bonded

Tax refund on entering HEPZ

Products purchased outside HEPZ to be used by HEPZ residents (e.g. machines, equipment, raw materials, parts, components, packaging materials and infrastructure construction materials; and infrastructure materials for plants and office buildings) will be regarded as export goods, and therefore be subject to the same tax policies as export goods; enterprises outside HEPZ who sell the products listed in brackets above to HEPZ residents may apply to tax authorities for tax refunds with export tax rebate vouchers

Regulations applicable

HEPZ residents may not be required to use the bank deposit account system for processing trade, and Customs may not implement the Processing Trade Registration Handbook.

Quota, license management

Goods imported from or exported may not be subject to export quota and license management, except for those under passive export quota control

Enterprises can enjoy the special administration by the Customs and the incentive policies from a national-level development zone (please refer to the main contents in the table below).


Human capital

There has been an increase in the number of new entrants to the labour force (a) in Hefei in recent years, providing a large workforce for HETDA.

As a well-known scientific research Æ

and educational base in China, Hefei has 56 universities and colleges, 28 technical schools, 96 vocational high schools and 246 middle schools. Major educational institutions include the University of Science & Technology of China, Hefei University of Technology, Anhui University and the Electronic Engineering Institute of PLA University.

Anhui province is rich in labour Æ

resources, currently providing 10 million migrant workers to areas around the Yangtze River Delta, Pearl River Delta, and Beijing and Tianjin. In 2009, the number of new entrants to the labour market in Hefei was 104,000.

HETDA provides sufficient labour Æ

resources and support to its residents.

Environment and facilities

The human resource public -service platform under the HETDA management committee-Labour Service Centre has established long-term partnerships with 96 schools and 32 employment agencies to ensure sufficient labour resources for enterprises settled in HETDA

The centre provides >various tailored solutions for enterprises, such as an exclusive recruitment platform, job fairs, cooperation between universities and enterprises, and subsidies to enterprises for recruitment and training

According to the statistics of -the centre, the annual turnover rate of employees in HETDA has remained between 5 and 10 percent over the last three years

HETDA has begun construction -of public rental apartment blocks that will accommodate 6,000 people, providing enterprises with the facilities they need to cultivate the talents they need

Note: (a) Labour force defined as those with the ability to work between 15 to 59 years oldSources: Hefei Statistics Bureau; HETDA Human Resource Service Centre; HETDA Investment Promotion Bureau

Below middle24%

High school/technical school

46%

University degree and above

10%

Education level of employees in HETDA 2010

Source: HETDA Human Resource Service Centre

Higher diploma

20%


Sources: Hefei Statistics Bureau; HETDA Human Resource Service Centre; HETDA Investment Promotion Bureau

Hefei has substantial R&D resources available to HETDA enterprises.

Hefei is one of three national Æ

“technological innovation cities”, with around 200 national and provincial research institutes and 56 universities; cooperation between these institutes and HETDA enterprises is on the rise. For example:

Hefei University of Technology -cooperated with Guotone High-tech Pipe Co., Ltd. on the joint development of nano-treated material

Hefei University of Technology -and Hefei Rong An Power Machinery Co., Ltd. jointly founded the Diesel Engine Engineering Technical Research Centre to conduct research and development for high-horsepower marine diesel engines

Hefei Duanya Group cooperated -with Hefei University of Technology on six-axis numeric control hydraulic machine for ship project

Anhui HeLi Co.,Ltd cooperated -with Hefei University of Technology on Noise, Vibration and Harshness of forklift

Mei Ling cooperated with -China Household Electric Appliance Research Institute on comprehensive test technology on reliability of household refrigerators and building of experiment platforms

Living environment

The ecological environment of HETDA is improving constantly.

In recent years, HETDA has placed Æ

controls on projects that may lead to significant pollution, with the aim of limiting the total volume of pollutants discharged, and improving resource utilisation efficiency. In 2010, HETDA treatment rates of industrial waste water, waste gas were 100%. HETDA plans to become a national ecological model industrial park in 2012 via improving resource utilisation efficiency and cleaner production.

In 2010, the green area of HETDA Æ

was 18.7 square kilometres, with a green area coverage rate of 42% To improve residential standards, HETDA has constructed more than 40 up-market residential districts, such as the Xiangcun Garden, Fan Hua Shi Jia, and Donghai Garden.

Due to the natural beauty of Feicui Æ

lake, Nanyanhu Park helps HETDA to be a high end community. In 2009, Zhejiang Green Town Group constructed the high-end residential project “Feicui Lake Rose Garden”.


HETDA is directly connected to the national highway network.

HETDA has convenient access to Æ

a number of highways, including Highway 206 (Shandong to Guangdong), Highway 312 (Shanghai to Xinjiang), the Hefei-Xuzhou highway, the Hetonghuang highway (Hefei to Tongling to Huangshan), the Hewu highway (Hefei to Wuhu) and the Hurong highway (Shanghai to Chengdu). It is two hours’ drive from HETDA to Nanjing and Wuhan, and five hours to Shanghai.

Transportation

Note: (a) 4E indicates the runway is more than 1,800 metres long and can accommodate a maximum wingspan between 52 metres and 60 metres and maximum tread width between 9 metres and 14 metres

Sources: Sinotrans Limited, Hefei Branch; HETDA Investment Promotion Bureau

HETDA has excellent rail transportation with connection to five national main railway lines.

Hefei is a railway transportation Æ

hub and is linked to five major lines: Jingguang (Beijing-Guangzhou), Jinghu (Beijing-Shanghai), Jingjiu (Beijing-Kowloon), Longhai (Lanzhou-Lianyungang) and Ningxi (Nanjing-Xi’an).

The Hefei-Shanghai and Hefei-Æ

Wuhan sections of the Shanghai-Wuhan-Chengdu express railway are now in operation. It currently takes three hours to travel from Hefei to Shanghai by train, and two and half hours to Wuhan.

The Hefei-Bengbu section of the Æ

Beijing-Shanghai express railway is under construction, and the new station is expected to hold up to 9,000 people. The main construction will be completed in 2011 and put into use in 2012. After the completion of that section, the travel time from Hefei to Beijing by train will be cut to four hours. Construction of the Hefei-Fuzhou section of the Beijing-Hefei-Fuzhou express railway is under construction and is expected to be completed in 2014.

The purpose-built railway line will Æ

pass through the southern part of HETDA, connecting with the boiler plant and logistic park, and is 28 kilometres long; it will reach Pai River Dock via HEPZ, link to railway and waterway. In 2010, Phase I has started to operate.

Waterway, marine and air transportation capabilities of HETDA are improving.

Enterprises in HETDA ship twenty-Æ

foot equivalent units (TEUs) through Wuhu, Nanjing, Shanghai ports.

In 2009, the Ministry of Transport of Æ

the People’s Republic of China and Hefei Government jointly approved

Port Distance from HETDA

Annual throughput capacity

Wuhu Port

1140km, 2 hours drive

1.3 million TEUs

Nanjing Port


2.2 million TEUs

Shanghai Port


29.05 million TEUs

Source: Sinotrans Limited, Hefei Branch

the“Hefei Port Master Plan”. The new Nanfei River Port has been put into use in October 2010, with annual throughput of 70,000 TEUs and 0.91 million tons of general cargo; Phase II will be put into use in 2014, with annual throughput of 250,000 TEUs and 1.3 million tons of general cargo.

Located in the southern section Æ

of HETDA, the Pai River is the key port for development. Work on the Pai River and the Pai River dock is in progress. The Pai River dock, covering 3 million square metres, has a 14.5 million tonnes at annual capacity.

The Pai River upgrade has been Æ

designed in line with ‘national grade three navigable standards, with an expected transport capacity between 1,500 and 2,000 tonnes per ship by 2010. Current capacity at the harbour is approximately 1,000 tonnes.

Hefei Luogang International Airport Æ

is only 3.5 kilometres from HETDA. The airport has over 30 domestic air routes (including Hong Kong and Taiwan). Direct routes to Seoul and Singapore commenced in 2009 and 2010 respectively, direct flight to Tokyo will start operation in 2011.

Situated in the northwest of Hefei Æ

and 31.8 kilometres from the centre of the city, Hefei Xinqiao International Airport, currently under construction, has been designed in line with 4E(a) international airport standards. To be completed in March 2012, it is expected to eventually reach 9.5 million passengers and 122,400 tons of cargo throughput each year, has 35 direct flights to cities in and out of China ( including HK, Macao, Taipei, Singapore and South Korea).


2 Foreign Investment in HETDA

For• eign direct investment (FDI)

Inv• estment case study

Foreign direct investment in HETDA is on the rise. By the end of 2010, foreign direct investments actually utilised by HETDA reached USD 2.8 billion. Key investment areas include automobile, household electronics, machinery, and fast-moving consumer goods industries

Foreign direct investment (“FDI”) continues to promote the economic growth of HETDA.

In 2010, utilised FDI in HETDA Æ

reached USD 350 million, an increase of four percent from 2009.

By the end of 2010, HETDA had Æ

utilised a total of USD 2.8 billion in FDI from 26 countries and regions. Among major foreign-funded enterprises, 29 companies received over USD10 million investment each.

11 “Fortune 500” companies -have established a presence in HETDA since 1996: Unilever, Coca-Cola, Hitachi, Mitsubishi, Sumitomo, ABB, Bouygues, Johnson Controls, Visteon and Caterpillar.

Foreign-funded HETDA residents Æ

continue to increase investments in HETDA as planned. In 2010, seven enterprises increased investment with individual amount over USD 15.1 million (RMB 100 million): TCM, Yingliu Electromechanical, Salon Machine Manufacturing, Jigang Hitachi, GEM Electronics, Anhui Guojing Microelectronics, and Unilever.

In recent years, HETDA has become Æ

the main cluster location for Japanese-funded companies and Taiwan-funded companies in central China. By 2010, the Japanese-funded companies and Taiwan-funded enterprises in HETDA include Japan Nipro Corporation, Kao AU Optronics Corporation, Ahresty, and Taiwan AUO, Junling Electronics and Winsson.

Manufacturing has always been a key investment area for foreign investors in HETDA

By the end of 2010, HETDA had Æ

attracted a total of USD 13.85 billion in investment (USD 11.05 billion from domestic investors, USD 2.8 billion from foreign investors), an increase of 18.4 percent from 2009.

Manufacturing accounts for the Æ

lion’s share of foreign investment in HETDA. The distribution of FDI by industry as at the end of 2010 is shown in the figure at left.

There are 77 major FIEs in HETDA, Æ

with total investments completed of USD 2.8 billion. The number of FIEs and average investment in HETDA as at the end of 2010 are shown in the following table:

Sales revenue of major FIEs in HETDA continues to grow

Sales of major FIEs in HETDA across Æ

most sectors grew significantly in 2010, reaching USD 6.3 billion, an increase of 44 percent from 2009.

Sales revenue of machinery Æ

manufacturing increased the most quickly, totaling over USD 2.5 billion, an increase of 70 percent from 2009.

Foreign direct investment

Sources: Hefei Statistics Bureau; HETDA Economy and Trade Development Bureau; Ministry of Commerce of PRC; HETDA Investment Promotion Bureau

1,400

1,600

US

D m

illio

n

800

600400

200

02006 2007 2008 2009 2010

Sources: Hefei Statistics Bureau; HETDA Economy and Trade Development Bureau

Utilisation of FDI in HETDA and Hefei 2006-2010

Others 7%

Automobile30%

Household electronics

13%

Machinery41%


1,200

1,000

321

722

353

1,012

353

1,200

336

1,300

350

1,430

FDI utilised by HETDA FDI utilised by Hefei

HETDA’s FDI manufacturing industry distribution sector, 2010

US

D m

illio

n 2,500

2,000

1,500

1,000

0

3,000

500

2007 2008 2009 2010

Sales of major FIEs in HETDA, 2007-2010


Number of FIEs and average investment in HETDA (as at the end of 2010)

Industry No. of FIEs Average investment (USD million)

Automobile 15 46

Machinery 20 55

Fast moving consumer goods 11 23

Household electronics 15 23

Others 16 13


AutomobileMachinery

Household electronicsFast moving consumer goods

Fast movinig consumer goods

9%


Introduction to KaoÆ

Headquatred in Tokyo, Kao was -founded in 1887, and is the largest daily necessities company in Japan. The company has around 35,000 employees all over the world. With factories mainly located in Japan (9 factories), the company engages in producing and selling cosmetics, skin care, hair care, sanitary products, laundry products, household cleaning products, and health food.

As the second factory of Kao -China, the Kao Hefei project started in HETDA in 2010 with

a total investment of USD 95 million (RMB 630 million) and a registered capital of USD 65 million (RMB 430 million). The project intends to satisfy increasing domestic market demand and expand Kao’s presence in China.

Labour supply, government support Æ

and working efficiency were the main reasons for choosing HETDA.

“The local government actively -offers help when we needed to complete the relevant procedures, and is highly efficient, and as flexible as long as policy permits. We benefited a lot.” –Management of Kao China

Case Study-Kao (China) Holding Co., Ltd. (“Kao China”)

Case Study - AU Optronics Corp. (“AUO”)

Source（ KPMG interview

(1 April 2011)

“In HETDA there is a -professional team responsible for enterprises labour supply, which satisfied our need to some extent. Meanwhile, HETDA also introduce labour service agencies to enterprises, lessening our burden in recruiting high-profile

talents”- Management of Kao China (1 April 2011)

Introduction of AUOÆ

One of the four largest LCD panel -manufacturers worldwide, AUO was founded in 1996 and ranks first in total production line output in this area. In January 2010, AUO invested in LCD panels and finished TV production in HETDA. The total investment was USD 151 million (RMB 1 billion). It will start production in 2011. Industrial output will reach USD 2.87 billion (RMB 19 billion) in 2013. AUO’s turnover in 2010 is about USD 16.3 billion and it has around

25,000 employees in China.

AUO selected Hefei due to its Æ

advantageous location, supporting companies and efficient government services.

”The household electronics -industry in Hefei has a track record of development; many household electronics companies invest in Hefei, so the supply chain of household electronics components is well developed. The investment environment is suitable for the development of companies. Compared with other economic and technological development zones in inner China, HETDA’s investment promotion is better and the administration efficiency high. HETDA always works for the benefit of its tenants, so we invested in Hefei” - the

department head of finance of AUO (26 March 2010)

The Wanjiang City Cluster plan Æ

for attracting further industrial relocations to the wider Anhui and Yangtze River area advantages HETDA

“The plans for relocation of -companies to the Wangjiang City Cluster give us confidence that there is real national government support for the area. AUO will be moving our supporting companies nearer HETDA to benefit from reduced transport costs. We predict that more companies in the household electronic industry, upstream and downstream, will move to Hefei and enrich our supply chain” - the department head of finance of AUO (26 March 2010)


KPMG interviewed Hitachi Construction Machinery on their HETDA investment.

Hitachi Group is a “Fortune 500” Æ

company. It’s subsidiary, Hitachi Construction Machinery (China) Co., Ltd (“Hitachi Construction Machinery”) was established as a JV in March 1995, becoming a WOFE in 1998 with paid in capital of USD 120 million (RMB 800 million). Located in HETDA, Hitachi’s site covers 750,000 square metres. By the end of 2009, total investment reached USD 250 million (RMB 1.7 billion), total assets reached USD590 million (RMB 4 billion), and there were more than 2,000 employees.

According to management, Æ

Hitachi Construction Machinery is Hitachi’s largest production base outside Japan, and one of the best performers of Hitachi Group based on its advantageous location (near the eastern market, which includes Shanghai).

In 2010, Hitachi Construction -Machinery’s total industrial output reached USD 1.57 billion (RMB 10.4 billion), total sales reached USD 104 million (RMB 686 million) and average profit per employee reached USD 48,000 (RMB 320,000). Among subsidiaries of Hitachi in China with more than 1,000 employee, it is one of the best performers in terms of average outputs per employee, profit and tax

Hitachi has benefited from HETDA’s assistance through the global downturn.

The government of Hefei and HETDA Æ

acted proactively to help companies to cope with the challenges of a slump in overseas demand .

“In order to promote the growth -of companies facing the financial crisis, Hefei government announced several incentive polices in 2009, such as rewarding cash to companies with industrial output levels higher than last year. This incentive enabled companies to obtain millions in reward from the government. The government

also helped companies reduce bank loan interest rates”.

“Hefei Investment Promotion -Bureau and HETDA Investment Promotion Bureau are always willing to get involved with tenant companies to solve problems. They are nice and amiable, and have impressed us a lot”.

In conjunction with national policies Æ

to promote domestic demand, the incentive policies of the governments of Hefei and HETDA have helped companies more than cope through the downturn.

“Since the beginning of 2010, -we have adjusted our production plans upwards twice, with the production plan for excavators up 50 percent. We estimate that sales in 2010 will reach RMB 10 billion, an 80 percent increase compared with last year”.

Industrial relocation within the wider YRD could bring new cost advantages.

“We have around 100 supporting Æ

enterprises in the coastal area. If we are able to have 10 supporting enterprises take up the incentive policies of Anhui province, Hefei and HETDA and relocate here, we could reduce our total cost base by 5 percent”.

Companies are satisfied with the facilities and resources in HETDA.

“HETDA does not lack labour and Æ

can provide a sufficient work force. There are 100,000 university gradates each year providing us with a large pool of high-end candidates. The transportation, water and electricity facilities are well equipped, which guarantees normal production”.

“There are two Japanese schools Æ

in HETDA and one international kindergarten which helps our Japanese employees with their children’s education. The level of healthcare provision in Hefei is high; the Anhui Medical University-affiliated hospital is nearby and medical facilities are advanced. Our Japanese employees work and live in Hefei with ease”.

Case Study - Hitachi Construction Machinery (China) Co., Ltd.

Note: KPMG interview with Mr. Feng Xian, associate GM of Hitachi Construction Machinery on 17 March 2010 Sources: “Fortune 500 list”, Oct. 2009, CNN News


3 Operating Costs(a)

Land, factory and office building costsÆ

Labour costsÆ

UtilitiesÆ

Transportation costsÆ

Operating costs and infrastructure are crucial factors when selecting a plant or office location. HETDA strives to improve infrastructure facilities and minimize operating cost, to satisfy foreign investors in this regard.

Note: (a) Operating costs are marked in both US dollar and Chinese yuan in this chapter for investors’ reference . Exchange

rate based on RMB 6.623 to USD 1 from the Bank of China on 31 December 2010

Note: (a) The price for an industrial project is likely to be lower still, due to incentive policies on investment in fixed assets. For details, please consult HETDA Investment Promotion Bureau directly. Contact information can be found in the useful contacts list in the Appendix of this report


Annual rental for standard factory (March 2011)

Floor USD/m2 RMB/m2

Ground floor 22-27 144-180

Second floor 14-20 96-132

Third floor 14-18 96-120

Fourth floor 13-16 84-108


LandForeign companies cannot own land outright. The transfer price of industrial land shall be determined via negotiation between the investor and HETDA.

Foreign companies cannot own land Æ

in China; most lease land by paying a one-off fee to the local government in exchange for a land use right certificate. Industrial land is leased for a maximum of 50 years.

Leasing requirements in HETDA Æ

for industrial land are in line with national industrial policies and environmental protection laws. Industrial projects should have fixed

HETDA has various standard Æ

factories for rent, the total area of which is around 200,000 square metres. Annual rental for a standard factory space is USD 16-27 (RMB 108-180) per square metre depending on the floor and amount of space taken. There are various levels of rent discount if the fixed asset investment is above USD 1.5 million (RMB10 million), and tax payments exceed USD 150,000 (RMB 1 million).

Land and factory costs

asset investments of no less than USD 906 (RMB 6,000) per square metre.

HETDA has its own land-use right Æ

price based on national industrial land pricing standards; land transfer should be conducted via competitive bidding, auction and listing for sale.

The nationally set price for industrial Æ

land is USD 58 (RMB 384) per square metre. (Consistent with the Minimum Price for Transferring National industrial land)(a).

Transfer of land use rights will incur Æ

a contract tax of four percent of the agreed transaction price.

FactoryLand in HETDA has a weight Æ

bearing capacity of 25-30 tonnes per square metre, and can support factories with heavy machinery.

Cost to construct a single story Æ

steel frame plant with a height of 8-15 metres ranges from USD 60-91 (RMB 400-600)per square metre; a steel-reinforced concrete factory ranges from USD 121-151 (RMB 800-1,000) per square metre. The minimum construction time cost of a single story steel frame plant is 45 days.


Comparison of costs: construction of a standard factory and office rental (March 2011)

ETD Zones Cost to construct standard factory

(USD/m2)

Cost to construct standard factory(RMB/m2)

Monthly rental for office building (USD/m2)

Monthly rental for office building(RMB/m2)

Tianjin 226-302 1,500-2,000 15 105

Nanchang 139 920 12 80

Changsha 151 1,000 7 48

Hefe 60-91 400-600 5.3-6.8 35-45

Source: KPMG analysis

Office buildingFully-fitted office buildings are Æ

located close to HETDA in the centre of the city, with easy access to the airport, railway stations and other transport facilities. The monthly rental of a grade A office is about USD 5.3-6.8 (RMB 35-45) per square metre .

The annual rent of office buildings in Æ

HETDA is USD 27-45 (RMB 180-300)

per square metre. Grade A offices, serviced apartments and SOHO (small office/home office) are under construction in HETDA’s International Business Central Zone.

Compared with some other Economic and Technological Development Zones (ETD Zones), the construction costs and rentals for office buildings in HETDA are relatively low.



Hefei income benchmark, 2010

Position High-level

(USD)

High-level

(RMB)

Mid-level

(USD)

Mid-level

(RMB)

Low-level

(USD)

Low-level

(RMB)

General worker 2,716 17,988 2,013 13,335 1,378 9,129

Skilled worker 4,610 30,533 2,597 17,200 1,455 9,638

Engineer and technician

6,675 44,207 3,443 22,804 1,930 12,784

Administration service staff

3,855 25,531 2,277 15,080 1,386 9,177

Management personnel

14,891 98,620 3,713 24,590 2,058 13,630

Senior management

38,313 253,750 7,512 49,750 3,858 25,550

Source: HETDA Labour Service Centre

Average annual salaries for manufacturing staff (including workers, technicians and managers) in Hefei is under USD 4,030 (RMB 26,691) in 2009.

Total employmentÆ (a) costs consist of a basic salary and social welfare benefits, such as pension contributions.

The table below details the range Æ

and mean average for the annual salaries of employees in various job categories in Hefei. The minimum salary in Hefei is USD109 per month (RMB720). FIEs typically offer above average compensation to staff(b). Table below is an income benchmark in Hefei, for foreign investors’ reference.

Salaries for higher-level staff tend to Æ

be directly related to the size of the company and thus vary significantly.

Social welfare benefits must also

Labour costs

be paid by the company and thus need to be considered when estimating total staff costs.

All enterprises must contribute to Æ

a range of benefits required by the government on behalf of employees, including injury(c), unemployment, medical and pregnancy insurance, and pension contributions.

The amount of employer’s Æ

contribution is calculated based on the percentage of employee’s salary stipulated by the local government (see the figure at left ).

Non-salary welfare may represent Æ

a portion of an employee’s annual salary, i.e., if a worker’s annual compensation is USD 4,000 (RMB 26,492), the total labour cost is USD 4,125-5,352 (RMB 34,784-35,446).

Notes: (a) Total cost of employment in this report does not include employee bonuses (b) According to HETDA Human Resource Service Centre, the average annual salary for junior staff of FIEs in Hefei is approximately 20 percent higher than the city average (c) The rate of staff and workers’ injury insurance is set according to the industry risk Source: HETDA Human Resource Service Centre

+

31.3%-33.8%

0.8% Pregnancy insurance premium

0.5%-3% Staff and workers’ injury

2% Unemployment insurance premium

8% Basic medical insurance premium

20% Pension fund

Basic salary Welfare package

100%

Source: HETDA Human Resource Service Centre


HETDA electricity price for industrial use (March 2011)

Basic price Price

Based on transformer capacity

RMB 28/kVA/Month USD 4.23/kVA/Month

Based on maximum demand

RMB 38/kW/Month USD 5.74/kW/Month

KWH pricePeak period

July-September

Peak period

Other months

Period of average demand

Period of low usage

1-10KV RMB/kWh 0.9943 0.9363 0.6292 0.3916

USD/kWh 0.1501 0.1414 0.0950 0.0591

35KV RMB/kWh 0.9698 0.9134 0.6142 0.3828

USD/kWh 0.1464 0.1379 0.0927 0.0578

110KV RMB/kWh 0.9454 0.8904 0.5992 0.3739

USD/kWh 0.1427 0.1344 0.0905 0.0565

220KV RMB/kWh 0.9291 0.8751 0.5892 0.3680

USD/kWh 0.1403 0.1321 0.0890 0.0556

Note: Peak period refer to 09:00~12:00 and 17:00~22:00; period of average demand refer to 08:00~09:00, 12:00~17:00 and 22:00~23:00; period of low usage refer to 23:00~24:00 and 00:00~08:00

Sources: current electricity price list of Anhui Provincial Power Company; HETDA Investment Promotion Bureau

Utilities

HETDA has sufficient water, electricity and gas supplies, with a constantly improving heat supply.

The main water source of HETDA is Æ

the nearby Dongpu reservoir with a 230 million cubic metre water reserve. A water plant is located in the north of HETDA with a water supply capacity of 500,000 tonnes per day.

HETDA has established a sewage Æ

treatment plant, whose daily disposal capacity reached 200,000 tonnes in April 2010, and is expected to reach 600,000 tonnes in the future.

HETDA has one power substation Æ

with 500 kV, three with 220kV, and six with 110 kV capacity. The total power supply capacity is 900,000kVA. The length of the

HETDA utility price (March 2011)

Utilities Price

Water

Domestic RMB 2.37-3.79/ton

USD 0.36-0.57/ton

Industrial RMB 2.65/ton USD 0.40/ton

Steam RMB 200-210/ton

USD 30.2-31.7/ton

Natural gas

RMB 2.48/m3 USD 0.37/m3


10 kV power line in HETDA is 150 kilometres and covers a 55 square kilometre area.

A newly constructed thermal Æ

power station is under operation. The maximum supply capacity for phase one is 430 tonnes per hour, with 1.15Mpa pressure of and a temperature of 295°C. Expected capacity in the future is 500 tonnes per hour.

HETDA uses natural gas from Æ

western China via pipeline, and has a natural gas storage station with a supply capacity of 50,000 cubic metres per day (pressure: 0.4Mpa).

Public utilities, such as pipes and electricity cables, are pre-installed for immediate use on all of HETDA’s development plots.

Source: The cost information of utilities in HETDA is from HETDA Investment Promotion Bureau unless otherwise stated


Comparison of cost of electricity and industrial water (March 2011)

ETD ZoneElectricity

(USD/kWh/month)

Electricity (RMB/kWh/month)

Natural gas

(USD/m3)

Natural gas

(RMB/m3)

Industrial water

(USD/tonne)

Industrial water

(RMB/tonne)Tianjin 0.07-0.13 0.49-0.89 0.46 3.05 1.03 6.8

Nanchang 0.08-0.15 0.54-0.99 0.88 5.80 0.27 1.7

Changsha 0.09 0.57 0.41 2.7 0.33 2.2

Hefei 0.05-0.15 0.37-0.99 0.37 2.48 0.40(a) 2.65(a)

Note: (a) Water tariff including sewage fee. Sewage fee is zero when reach the sewage standardSource: KPMG analysis

Cost and transit time: highway transportation (March 2011)

Destination TEU FEU Time

Cost (USD) Cost (RMB) Cost (USD) Cost (RMB) Days

Shanghai 725 4,800 800 5,300 1

Beijing 1,102 7,300 1,208 8,000 2

Nanjing 347 2,300 377 2,500 1

Guangzhou 1,389 9,200 1,510 10,000 3

Note: Cost of transportation refers to transporting a container of general cargo from HETDA to the selected destination. Above prices are estimates and may fluctuate with changes in materials and fuel prices.


Cost and transit time: railway transportation (March 2011)

Destination TEU FEU Time

Cost (USD) Cost (RMB) Cost (USD) Cost (RMB) Days

Shanghai 377 2,500 544 3,600 2

Beijing 574 3,800 906 6,000 3

Nanjing 279 1,850 423 2,800 1

Guangzhou 679 4,500 1,102 7,300 4

Wuhan 423 2,800 679 4,500 2

Note: Cost of transportation refers to transporting a container of general cargo from HETDA to the selected destination. Above prices are estimates and may fluctuate with achanges in materials and fuel prices.


Highway transportation is faster than rail, but more costly.

The cost of electricity and industrial water in HETDA is comparable with other zones.

Transportation costs



It takes one to two days for air freight shipments from HETDA to reach Asia, Europe and the West and East coasts of the US.

Many companies, such as TNT, PG Logistics Group, Sinotrans or DHL, provide Æ

domestic and international express airfreight from HETDA to destinations all over the world. The prices are shown in the table below.

Goods can be delivered worldwide via three nearby ports.

Cargo can reach major international cities from HETDA via shipment. HETDA Æ

is two hours from ports in Wuhu and Nanjing, and six hours from the port of Shanghai by road.

The cost and time for shipping containers of general cargo from Nanjing and Æ

Shanghai to selected destinations overseas is shown below.

Companies registered in HETDA and involved in the importing and exporting Æ

of goods through any port in the YRD Economic Region can declare goods through Hefei customs. The usual customs transfer declaration requirements are thereby waived.

Sources: Sinotrans Limited, Hefei Branch; HETDA Investment Promotion Bureau

Cost of air express transportation for general cargo (March 2011)

Destination

File

≤0.5kg

(USD)

≤0.5kg

(RMB)

>0.5kg, per 0.5 kg thereafter (USD/0.5kg)

>0.5kg, per 0.5 kg thereafter (RMB/0.5kg)

≤0.5kg

(RMB)

>0.5kg, per 0.5 kg thereafter (USD/0.5kg)

>0.5kg, per 0.5 kg thereafter (RMB/0.5kg)

Hong Kong, Macau 15 100 5 33 165 5 34

Korea, Taiwan 21 141 8 54 233 8 50

Japan 20 132 7 48 220 8 56

Southeast Asia 22 146 8 53 249 8 53

South Pacific 31 207 10 65 250 11 75

US, Canada 34 223 14 90 255 12 81

Western Europe 36 238 14 91 329 13 83

Middle East, South Asia 44 294 16 106 420 16 106

South America, Eastern Europe, Africa

63 418 20 134 631 20 135

Note: Above prices are estimates and may fluctuate with changes in materials and fuel pricesSources: Sinotrans Limited, Hefei Branch

Cost and transit time: shipping from HETDA (March 2011)

DestinationNanjing port Shanghai port

DaysTEU (USD) FEU (USD) TEU (USD) FEU (USD)

Osaka 40 50 30 60 4

Hong Kong 45 60 30 50 8

Singapore 80 120 80 110 8

Los Angeles 1,320 1,660 1,200 1,600 14

New York 2,360 2,980 2,300 2,900 27

Rotterdam 1,250 1,800 1,000 1,850 27

Hamburg 1,050 1,780 1,000 1,870 29

Note: Prices exclude of the cost of overland transportation from HETDA to Nanjing port and Shanghai port; The above prices are estimates and may fluctuate with changes in materials and fuel prices; ;international shipping costs are denominated in US dollars.



4 Appendix

Travel, housing and healthcareÆ

Shopping, recreation and educationÆ

List of useful contacts in HETDAÆ

HETDA strives to offer one-stop service to investors, to satisfy their needs.

Living arrangements for investors in Hefei come with a number of options, including travel, housing, healthcare, shopping, recreation and education.

A list of useful contacts in HETDA is included in this section.

Hefei is well connected to other major Chinese cities.

Hefei Luogang airport, and the Æ

Xinqiao International Airport to be completed in March 2012 will facilitate transportation between Hefei and many domestic and foreign cities.

Hefei’s main railway station is Æ

located downtown making it a short drive from HETDA. It has daily express trains to other major cities, such as Beijing, Shanghai, Nanjing and Guangzhou.

Hefei High Speed Railway Station Æ

commenced construction in 2010 and is expected to be completed in 2012. It is four kilometres from the northeast of HETDA (10 minute-drive), and will provide direct transport from the station to Shanghai by high speed rail. It is the third largest railway station in east China after Shanghai Hongqiao Railway Station and Nanjing South Station.

Several housing options are available for investors and employees

Long-term residents in Hefei have Æ

several housing options, ranging from apartment rentals to serviced rooms in one of many hotels.

The cost of renting a three -bedroom, 130 square metre (1,400 ft2) apartment in the downtown area starts at approximately USD 226-272 per month.

Travel, housing and healthcare

Hefei has 11 five-star hotels, 24 Æ

four-star hotels and 34 three-star hotels. The standard daily rate for a room in a five-star hotel ranges from USD 64-104, with discounts available for longer stays.

HETDA offers public rental Æ

apartments and the Tiandu Apartment for company employees to rent. Public rental apartments covers 34 mu of land and have 960 furnished suites. Tiandu Apartment has 244 suites with areas ranging from 40-100 square metres.

Healthcare services are provided by many hospitals and clinics.

Hefei contains 793 healthcare Æ

institutes, including 223 hospitals and health clinics, and 199 Community Health Service Centres. Together there is a total of 25,900 beds and 30,000 healthcare technicians.

Over 60 of these hospitals serve Æ

visitors and foreigners. A ‘medical card’ can be issued on the initial hospital visit, after which the card can be used to make appointments in advance and receive house calls from a doctor.

Domestic travel by air from Hefei (March 2011)

DestinationTicket price (USD)

Flying time

(hours)

Number of flights per week

Beijing 174 1.7 63

Shanghai 91 1 14

Guangzhou 181 2 49

Shenzhen 204 1.9 35

Hong Kong 340 2 2

Seoul 495 3 5

Taipei 587 2.2 1

Singapore 819 5.3 2

Notes: Price is the price of an Economy Class ticket; Flights to Seoul and Singapore commenced in 2009 and 2010 respectively

Source: Hefei Luogang Airport

Domestic travel by train from Hefei (March 2011)

DestinationTicket price (USD)

Travel time

(hours)

Number of trains

daily

Beijing 37 9.5 6

Guangzhou 53 18.5 1

Shanghai 24-29 3 30

Nanjing 11-13 1 18

Notes: Price from Hefei to Beijing and Guangzhou is sleeper ticket price; from Hefei to Nanjing and Shanghai is high speed rail train ticket price and the travel time is based on the time via Shanghai-Wuhan-Chengdu express railway

Source: Hefei Railway Station



Various shopping and entertainment options are available in Hefei.

A number of multinational Æ

hypermarket chains, including Carrefour, Metro, Tesco, Wal-Mart and Lotus, as well as well-known western chain restaurants, have set up outlets in Hefei.

Gyms, golf courses, history and Æ

natural museums, parks and other recreational facilities in and around Hefei provide plenty of entertainment options for residents and visitors alike.

Hefei has a long history with beautiful landscape.

Baogong Temple lies to the south of Æ

Hefei city and is one of Hefei’s most historic spots. The Baogong Temple was built in the Ming Dynasty (1368-1644 AD) to commemorate Bao Zheng, a famous officer in the Song Dynasty (960-1279 AD).

There are many other historic and Æ

modern scenic sites, including XiaoYaoJin, Jiaonutai and the Dashu Mountain volcano site. Hefei is also near a number of well-known tourist sites, such as Huangshan, Jiuhua Mountain, Taiping Lake and Langya Mountain.

Chao Lake is located in the Æ

southeast of Hefei and has a water area of approximately 800 square kilometres. There are over ten scenic sites around the lake, hosting many traditional Chinese events, such as dragon boat races, are held at the lake every year.

Shopping, recreation and education

HETDA itself has gradually become Æ

a site for tourism in Hefei and Anhui province. There are many popular tourist spots in HETDA, such as the Nanyan Lake Scenery Tourist Zone, the Feicui Lake Scenery Tourist Zone, a Hui Theme Park, Happy Island, Anhui’s first aquarium and the Anhui Expo Pavilion.

As one of the four national science and education cities, Hefei enjoys a strong academic atmosphere.

As a provincial capital city, Hefei has Æ

a number of science institutions, such as the University of Science and Technology of China, the Institute of Physical Science –Chinese Academy of Sciences, China Electronics Technology Group Corporation, Hefei General Machinery Research Institute and Hefei Cement Research & Design Institute.

Hefei World Foreign Language Æ

School and Hefei Run’an Boarding School are two international schools in HETDA.

Hefei World Foreign Language -School was established in 2000 and provides a full range of boarding classes for kindergarten to high school. There are currently 270 staff and over 1,400 students.

Hefei Run’an Boarding School -was established in 1993 and also provides a full range of boarding classes for kindergarten through to high school. Currently there are approximately 400 staff and over 2,200 students.

Source: HETDA Investment Promotion Bureauc


List of useful contacts in HETDAAdministration Committee of HETDA

CPC Committee Office Tel: +86 (551) 3679013 Fax: +86 (551) 3679041

Administration Committee Office Tel: +86 (551) 3679056 Fax: +86 (551) 3679050

Economy and Trade Development Bureau Tel: +86 (551) 3679049 Fax: +86 (551) 3679024

Construction Bureau Tel: +86 (551) 3679031 Fax: +86 (551) 3679088

Social Development Bureau Tel: +86 (551) 3679104 Fax: +86 (551) 3679159

Community Management Bureau Tel: +86 (551) 3679125 Fax: +86 (551) 3679068

Finance Bureau Tel: +86 (551) 3679133 Fax: +86 (551) 3679135

New Port Industrial Park Office Tel : +86 (551) 3683743 Fax: +86 (551) 3683708

Personnel and Labour Bureau Tel: +86 (551) 3679143 Fax: +86 (551) 3679074

Municipal Bureau for Urban Administration (branch and urban management brigade) Tel: +86 (551) 3823515 Fax: +86 (551) 3679128

Key Project Construction Administration Bureau Tel:+86 (551) 3847180 Fax: +86 (551) 3674739

Construction Administration Centre Tel: +86 (551) 3679053 Fax: +86 (551) 3679152

Development Research Centre Tel: +86 (551) 3679100 Fax: +86 (551) 3679101

Human Resource Service Centre Tel: +86 (551) 3812611 Fax: +86 (551) 3812611

HETDA Real Estate Business Centre Tel: +86 (551) 3830860 Fax: +86 (551) 3830856

Programming and Design Research Institute Tel: +86 (551) 3811204-901 Fax: +86 (551) 3812206

Hefei Industry and Commerce Bureau HETDA Branch Tel: +86 (551) 3821962 Fax: +86 (551) 3821962

HETDA State Administration of Taxation Tel: +86 (551) 3849908 Fax: +86 (551) 3849908

Hefei Local Tax Bureau HETDA Branch Tel: +86 (551) 3816204 Fax: +86 (551) 3815336

Hefei Public Security Bureau HETDA Branch Tel: +86 (551) 3812601 Fax: +86 (551) 3812601

Hefei Land and Resource Department HETDA Branch Tel: +86 (551) 3876730 Fax: +86 (551) 3870389

Hefei Environmental Protection Bureau HETDA Branch Tel: +86 (551) 3679029 Fax: +86 (551) 3679069

Hefei Quality and Technical Supervision Bureau HETDA Branch Tel: +86 (551) 3812365 Fax: +86 (551) 3815299

No.1 Branch of HETDA Investment Promotion Bureau Address: Room2203, Tower B, No.398 of Feicui Road, Hefei Economic and Technological Development Area Post code: 230601 Tel: +86 (551) 3811070, +86 18956009570 Fax: +86 (551) 3812940 Email: [email protected]

International business consulting service ( WOFE and JV) USA, Europe, Hong Kong, Macau and Taiwan: Tel: +86 (551) 3679085 +86 (551) 3679086 +86 (551) 3679388

Japan, Korea, and Southeast Asia: Tel: +86 (551) 3811070 +86 (551) 3679399

Domestic business consulting service (Domestic companies) Tel: +86 (551) 3679075 +86 (551) 3679084 +86 (551) 3679085 +86 (551) 3679388

Comprehensive business consulting service (Investment promotion information, projects and propagandizing) Tel: +86 (551) 3679059 +86 (551) 3679379

No.2 Branch of HETDA Investment Promotion Bureau 2311 Room2311, Tower B, No.398 of Feicui Road, Hefei Economic and Technological Development Area Post code: 230601 24-hour hot line: +86 (551) 3679333, +86 18919667779

Hefei Economic & Technological Development Area Germany Office

Address: 26 Hans-Boeckler-Allee, D-30173 Hannover, Germany Tel: +49 (511) 3654674 Fax: +49 (511) 2615973 Email: [email protected]

Hefei Economic & Technological Development Area Japan Office Address: 2-1, Nihonbashi Koami-cho, Chuo-Ku, Tokyo, Japan Tel: +81 (3) 5641 9660 Tel: +81 90 8203 6896

Please go to www.hetda.gov.cn for more details

Contacts for further information about HETDA


located in China. The flexibility of this single structure allows us to effectively serve companies across China, and we have many projects where professionals from different offices work together on a work engagement under the supervision of a single nominated client partner, who has operational control of all resources.

Our business in China has established industry groups, helping enable targeted, industry-specific experience and methodologies to be delivered where needed. For our clients, this focus on industry and country-specific knowledge helps us deliver exceptional people with an intimate knowledge of specific business issues, as well as an overriding commitment to strive for the highest quality services.

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 150 countries and have 138,000 people working in member firms around the world.

KPMG China has 13 offices (including KPMG Advisory (China) Limited) in Beijing, Shenyang, Qingdao, Shanghai, Nanjing, Chengdu, Hangzhou, Guangzhou, Fuzhou, Shenzhen, Xiamen, Hong Kong SAR and Macau SAR, with more than 9,000 professionals. Shanghai office is the hub of Eastern & Western China region.

In 1992, KPMG became the first international accounting firm to be granted a joint venture licence in China, and our Hong Kong SAR operations have been established for over 60 years

About KPMG

since 1945. This early commitment to the China market, together with our unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in our appointment by some of the China's most prestigious companies.

As China businesses join the global economy and international companies seek to enter the China market, KPMG's blend of international experience and local

knowledge makes us well-positioned to serve our clients in this increasingly complex, but exciting market.

Our single management structure for all our China offices allows efficient and rapid allocation of experienced professionals wherever the client is

Contact usKPMG China:

Nelson Fung Senior partner Eastern and Western China Tel: +86 (21) 2212 2801 Email: [email protected]

Chris Ho Partner Tax Advisory Tel: +86 (21) 2212 3406 Email: [email protected]

William Gong Senior partner Nanjing Tel: +86 (25) 8691 2999 Email: [email protected]

Honson To Senior Partner Head of Advisory Asia Pacific Tel: +86 (10) 8508 7055 Email: [email protected]

Mei Dong Director Transactions and Restructuring services Tel: +86 (10) 8508 5809 Email: [email protected]

Jeffrey Wong Partner Transactions and Restructuring services Tel: +86 (21) 2212 2721 Email: [email protected]

kpmg.com/cn

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

© 2011 KPMG Huazhen, a Sino-foreign joint venture in China and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in China.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

Publication number: HK-T&R11-0002c

Publication date: April 2011

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Chengdu18th Floor, Tower 1, Plaza Central 8 Shuncheng AvenueChengdu 610016, ChinaTel : +86 (28) 8673 3888Fax : +86 (28) 8673 3838

Nanjing46th Floor, Zhujiang No.1 Plaza1 Zhujiang RoadNanjing 210008, ChinaTel : +86 (25) 8691 2888Fax : +86 (25) 8691 2828

Shanghai50th Floor, Plaza 66 1266 Nanjing West RoadShanghai 200040, ChinaTel : +86 (21) 2212 2888Fax : +86 (21) 6288 1889

Guangzhou38th Floor, Teem Tower 208 Tianhe RoadGuangzhou 510620, ChinaTel : +86 (20) 3813 8000Fax : +86 (20) 3813 7000

Fuzhou25th Floor, Fujian BOC Building136 Wu Si RoadFuzhou 350003, ChinaTel : +86 (591) 8833 1000Fax : +86 (591) 8833 1188

Hangzhou8th Floor, West Tower, Julong Building9 Hangda RoadHangzhou 310007, ChinaTel : +86 (571) 2803 8000Fax : +86 (571) 2803 8111

Beijing8th Floor, Tower E2, Oriental Plaza1 East Chang An AvenueBeijing 100738, China Tel : +86 (10) 8508 5000Fax : +86 (10) 8518 5111

Qingdao4th Floor, Inter Royal Building 15 Donghai West RoadQingdao 266071, ChinaTel : +86 (532) 8907 1688Fax : +86 (532) 8907 1689

Shenyang27th Floor, Tower E, Fortune Plaza 59 Beizhan RoadShenyang 110013, ChinaTel : +86 (24) 3128 3888Fax : +86 (24) 3128 3899

Xiamen12th Floor, International Plaza8 Lujiang RoadXiamen 361001, ChinaTel : +86 (592) 2150 888Fax : +86 (592) 2150 999

Shenzhen9th Floor, China Resources Building 5001 Shennan East RoadShenzhen 518001, ChinaTel : +86 (755) 2547 1000Fax : +86 (755) 8266 8930

Hong Kong8th Floor, Prince’s Building 10 Chater RoadCentral, Hong KongTel : +852 2522 6022Fax : +852 2845 2588

Macau24th Floor, B&C, Bank of China BuildingAvenida Doutor Mario Soares MacauTel : +853 2878 1092Fax : +853 2878 1096

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