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China Briefings

Reports on China issued by Samsung Economic Research Institute

China Business Intelligence No. 160

China Business Intelligence No. 160

Samsung Economic Research Institute Beijing Office

May 26, 2010

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Highlights:

I. Economy

China is set to scale down its FFE (foreign-funded enterprises)--friendly policy. Also, the two-year full corporate tax exemption and three-year partial corporate tax exemption for FFEs, which have been in place since China 's reform and opening-up, will be rescinded. On the whole, China 's current dual income-tax structures will be reformed in favor of local companies as evidenced by the provision of subsidies for home appliance purchases by rural residents and government procurement policy. China still welcomes foreign investment in high-tech industries, services and industries related to energy conservation and environmental protection, but foreign investment in industries characterized by high pollution, high energy consumption and over production will be limited. In addition, foreign capital is encouraged to flow into the Midwestern regions of China . With the policy about-face, FFEs need to retool their investment strategies.

II. Industry

Chi Mei Optoelectronics, Innolux Display, and Toppoly Optoelectronics emerged as one of the world's top three panel companies under the name Chi Mei Innolux Corporation. The merger took place in a share swap and Innolux took control of the new company. Analysts expect a synergy effect from the combination of Chi Mei's production capacity and Innolux's module and technology. For the time being, there seems to be a limited impact on the market because Chi Mei Innolux has decided on a price freeze. Meanwhile, Taiwanese panel makers including Chi Mei Innolux are increasingly moving into the mainland market, as the Taiwanese government has eased regulations. Indeed, the birth of Chi Mei Innolux represents the integration trend of the industry, which is taking place across the field including relevant companies. In so doing, they expect effects of scale in the technology and capital intensive industry.

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