Indispensable Knowledge for Negotiation

 Financial Services

I. Development of Financial Services

(I) International

In the recent years, the international financial market continued to expand in size. The dally average turnover of transaction instruments on the global foreign exchange market rose from USD 1 trillion in 1995 to USD 2.41 trillion in 2004.

In terms of the market size of the international securities balance, at the end of 2004, that for the exchange market was USD 25.76 trillion, and that for UTC market was USD 54.58 trillion. In terms of the issue scale of bonds, at the end of 2005, that for the exchange market was USD 3.69 trillion, and that for the OTC market was USD 16.55 trillion.

According to the incomplete statistics by the World Federation of Exchanges, by the end of 2005, the market value of the global stock exchange was about USD 40.970 trillion, a year-on-year increase of 11.2%; in 2005, funds raised through the global stock markets totaled USD 596.5 billion, a year-on-year increase of 12.8% and stock turnover was USD 51.05 trillion, a year-on-year rise of 20.7%.

According to the statistics of the US Futures Industry Association, in 2005, the global turnover of futures options was up to 9.9 billion contracts, which was a year-on-year growth by 11.7%.

(II) Domestic

In 2004, the transaction volume in the Chinese foreign exchange market was USD 209 billion, with the daily average turnover being approx. USD 1 billion; in 2005, an accumulated total of RMB 4.1 trillion worth of all types bonds were issued. By the end of 2005, the bonds balance in China's bonds market stood at RMB 7.24 trillion; by the end of 2005, there were a total of 1,381 companies listed on the Shanghai and Shenzhen markets, with a total market value of RMB 32,430.28 trillion, and the amount of funds raised totaled RMB 188.262 billion. The number of investor accounts totaled 73.3607 million, and the total contract value was RMB 3.166314 trillion; by the end of 2005, there were 12 futures varieties traded on China's futures market. In 2005, the national accumulated futures trading was up to 3.23 trillion units, and the traded amount was RMB 13.44 trillion.

By the end of 2005, China had a total of more than 30,000 banking and financial institutions, which included: 3 policy banks; 4 state-owned commercial banks; 13 joint-stock commercial banks (including the Bohai Bank); 115 urban commercial banks; 626 urban credit cooperatives; 30.438 rural credit cooperatives; 57 rural cooperative (commercial) banks; 238 business operators of foreign banks: 4 financial assets management companies; 59 trust and investment companies; 74 financial companies of group enterprises; 12 financial lease companies; and 5 automotive finance companies. In addition, there were postal savings institutions throughout the urban and rural areas. The total value of banking financial institutions' home and foreign, currency assets was RMB 36.2 trillion, up 19.2% over the same period of the year before, of which the banking assets accounted for over 90% of the total assets of China's financial institutions.

II. WTO Accession Commitments

The Chinese government's four Commitments on banking service are as follows:

(I) Business licenses will be granted with prudence, i.e. no economic needs tests or quantitative limits on tlie business license.

(II) Foreign exchange services will be opened timely, geographical and client restrictions will be eliminated.

(Ill) RMB services will be subject to phased opening. Within 4 years after accession geographic restrictions will be removed for up to 20 cities in five phases; within 5 years after accession all geographic restrictions will be eliminated. In respect of the clients, within 2 years after the WTU accession, foreign banks will be allowed to provide RMB services to Chinese enterprises; within 5 years after the WTO accession, foreign-funded banks will be allowed to conduct renminbi retail business. In addition, foreign-funded banks established in a given area in China and authorized to conduct renminbi business can also provide services to clients in other areas where the renminbi business is opened.

(IV) Financial consultancy business will be opened timely. At the time of China's WTO accession, foreign-funded institutions will be allowed to conduct related deposit and lending, financial leasing, all payment and remittance services, collateral and acceptance, consultancy on the investment of principle securities in corporate acquisitions, intermediary and other related services.

In addition, at the time of WTO accession, non-banking financial institutions are allowed to establish joint-venture and solely-owned establishments engaged in automotive consumption credit services.

The commitments on the securities lousiness:

Upon China's WTO accession, foreign securities agencies' representative offices in China will be allowed to become special members of all of China's stock exchanges. Foreign service providers will be allowed to set up joint-ventures to engage in management of China's domestic portfolio investment funds, and the foreign stake can be as much as 33%

Within 3 years after the WTO accession, in Sino-foreign joint-ventures engaged in management of domestic portfolio investment funds the foreign stake can be as much as 49%. Foreign securities companies will be allowed to establish joint-venture companies with the foreign stake not exceeding one third (1/3). The joint-venture companies are allowed to engage in the following businesses (without using Chinese intermediaries): A-stock underwriting, underwriting and dealing of B-stocks and H-stocks, and of government and corporate securities, launching of funds.

Immediately after China's WTO accession, China's banking industry fully opened the foreign currency business. The renminbi business was also progressively opened to include 25 cities. By December 2004, foreign-funded banks-were allowed to conduct renminbi business in 18 cities, namely Shanghai, Shenzhen, Tianjin, Dalian, Guangzhou, Zhuhai, Qingdao, Nanjing, Wuhan, Jinan, Fuzhou, Chengdu, Chongqing, Kunming, Beijing, Xiamen, Xi'an and Shenyang. By the end of 2005, areas that opened renminbi business covered 25 cities including Shanghai, Shenzhen and Tianjin. among them, Xi'an and Shenyang, Harbin, Changchun, Lanzhou, and Yinchuan and Nannmg were opened ahead of the time schedule committed to at accession. The clients of the renminbi business were extended from foreign-invested enterprises, foreigners and Hong Kong and Macao residents to China's domestic enterprises. Foreign-funded banks are running over 100 business lines within the range of regulatory framework, and access standards and procedures are simpler than at the time of Accession. China encouraged eligible overseas investors to participate in the restructuring and reform of China's domestic financial situations, and the original 15% limit for individual foreign institution's stake allowed in Chinese commercial banks was raised to 20%. China's securities market took successive steps in designing the B-stock market for foreign investors, permitting part of the state-owned large enterprises to get listed overseas, allowing Sino-foreign joint-ventures to raise funds in the A-stock market, and implemented the Provisional Measures for the Administration of Domestic Securities Investments of Qualified Foreign Institutional Investors (QFII) in the A-stock market in December 2002, which was a transitional new measure taken by China to introduce foreign capital and open-up securities market against a background where the renminbi is not yet fully convertible.

In addition. China opened the automotive financing service.

III. Relevant Policies and Regulations

With the China's banking industry being opened wider, laws and regulations were developed and fine tuned accordingly.

The Administrutive Measures for Equity Investment by Overseas Financial Institutions in Chinese Financial institutions that came into effect on 31December 2003 explicitly defined the main conditions that overseas financial institutions needed to satisfy when investing in Chinese financial institutions: Having made profits in the latest two consecutive years; capital sufficiency no less than 8% for the commercial banks; total capital of non-banking financial institutions no less than 10% of total weighted risk assets; in principle, total assets at the end of the latest year no less than USD 10 billion when making equity investment in Chinese commercial banks; in principle, total assets at the end of the latest year no less than USD 1 billion when making equity investment in Chinese urban or rural credit cooperatives. Equity investment in financial institutions should be in monetary form; capital subscription by individual financial institution no more than 20%; where total capital contribution in a non-listed Chinese financial institution by more than one overseas financial institutions is up to or more than 25%. the non-listed financial institution will be subject to supervision as a foreign-funded financial institution.

The amended De.tuiled Rules for the lmplenientation of the Regulation of the People's Republic of China on .the Administration of Foreign-funded Financial institutions was put to implementation on 1 September 2004. The Rules relaxed the access standards for foreign banks, and considerably simplified market access approval procedures for the foreign-funded financial institutions; time interval requirements for foreign-funded banks to set up branches were cancelled; the clause about re-application having to be one year after application for establishment of foreign-funded financial institution was rejected was deleted; requirement on capital (operational funds) needed for expanding business scope by foreign-funded financial institutions was appropriately lowered, the operational funds required for foreign bank branches to provide renminbi services to non-foreign-invested enterprises (Chinese enterprises). and those to Chinese citizens were substantially lowered. Categories of operational funds of wholly foreign-owned or Sino-foreign joint venture banks were simplified, lowering the minimum required amount of operational funds. In implementing the WTO's national treatment principle, the Rules applied the relevant regulations such as the Administrative Measures for Commercial Bank Capital Adequacy Ratios. the Circulation on Further Strengthening Credit Management of Commercial Banks and Controlling Risks Arising from Lending's to Related lndividuals and Enterprises, the Circulation on Further Strengthening Credit Management of Commercial Banks and Controlling Risks Arising from Lending to Reluted individuals and Enterprises, and the Guidance on Risk Management, for Extensions of Credit by Commercial. Banks to Group Clients, thus showing the consistency of supervisory standards applied to both Chinese and foreign-funded financial institutions.

The Provisional Measures for the Administration of Domestic Securities Investments by Qualified Foreign Institutiona.l investors (QFII) that was officially put to implementation in 2002 specified the required qualifications for eligible investors submitting the applications, whereby the applicant should have well-established financial accounting system, good credibility, employees that satisfy the required professional qualifications in the countries or regions where they are, full governance structure and well-designed internal control mechanism, not having been subject to severe penalties over the past three years by supervisory authorities in the countries or regions where they are, and the applicant should be from a country or region where there are well-developed legal and supervisory systems etc. At the same time, higher standards were set for the business experience and asset scale of the funds supervisory institutions, insurance companies, securities companies and commercial banks. According to the Measures, within the investment size authorized by the State Administration of Foreign Exchange, the eligible investor is allowed to invest in the following renminbi financial instruments: stocks listed for trading in stock exchanges, but excluding the foreign capital stocks listed in China; treasury bonds, convertible bonds, enterprise bonds and other financial instruments approved by the Securities Regulatory Commission and listed for trading in the stock exchanges. The securities being invested should comply with the requirements set by the Directirn' Catalogue of Industries fur Foreign Investors. Stocks held by an individual investor in a single listed company should not exceed 10% of the company's total number of shares; stocks held by all eligible investors in a single listed company should not exceed 20% of the company's total number of shares.

In August 2005, the People's Bank of China issued the Circular on Certain Issues Rela.ting to Accelerating the Development of Foreign Exchange Market. determining to launch relevant reform measures for further development of China's inter-bank foreign exchange market. The Circular covered three major issues: (1) expanding the range of transaction participants in the spot inter-bank foreign exchange market, allowing eligible non-banking financial institutions and non-financial enterprises to participate in inter- bank foreign exchange market transactions according to their actual needs; (2) adding more inter-bank market transaction, approaches, whereby the OTC approach is introduced in the inter-bank foreign exchange market. Participants in the inter- bank foreign exchange market can. on the original basis of centralized credit authorization and centralized auction, independently select the OTC approach featuring bilateral credit authorization and bilateral settlement. The OTC approach will first be applied in forward transactions; (3) more transaction varieties in the inter-bank foreign exchange market. Eligible participants of the inter-bank foreign exchange market are allowed to conduct inter-bank forward foreign exchange transactions' and market members that have been qualified for forward transaction records for more than six months are allowed to carry out renminbi to foreign currency swap transactions with a combination of inter- bank spot to forward or forward to fcorward approaches.

IV. Analysis on Trade in Financial Services

(I) International

According the analysis based on the WTO data, in 2003, the export of the world financial service amounted to USD 102.2 billion, and its share in the world's total export of services was 5.6%. Of which, exports by the top 20 countries and regions totaled USD 93.4 billion, accounting for 91.5% of the world's total export of financial services. The United Kingdom, the United States and Luxemburg were the world's three top exporters of financial services respectively, and together they accounted for 54.5% of the world's total export of financial services. The Chinese Mainland was not among the world's top 20 exporters of financial services, while Hong-Kong and Taiwan ranked the 7th and 17th positions respectively (see Table 3-13). In 2004, the UK's export of financial services ranked the world's No.1, with an export amount of USD 27.9 billion (see Table 3-14).

In 2003, the import of the world financial service amounted to USD 48.9 billion, and its share in the world's total import of services was 2.7%. Of which, imports by the top 20 countries and regions totaled USD 39.9 billion, accounting for 81.7% of the world's total import of financial services, Luxemburg, the UK and tlie USA were the world's three top importers of financial services respectively, and together they accounted for 36.0% of the world's total import of financial services. The Chinese Mainland was not among the world's top 20 importers of financial services, while Taiwan and Hong Kong ranked the 11th and 13th positions respectively.

(II) China's Cross-Boarder Trade in Services

During 2000-2005, China's export volume of financial services rose from USD 80 million to USD 150 million, at an average annual growth rate of 13.2% with its share in China's total export of services declining from 0.3% to 0.2%; and the import volume of financial services rose from USD 100 million to USD 160 million, at an average annual growth rate of 10.4 with its share in China's total import of services declining from 0.3% to 0.2%. In 2005, China's trade deficit in financial services stood at USD 14 million (see Fig. 3-10).

(III) Commercial Presence in China

By December 2005, there were a total of 226 business operators and 249 representative offices established by foreign banks in China; 25 overseas financial institutions took stakes in Chinese banks, with a total investment of nearly USD 20 billion, accounting for about 15% of the total capital of China's domestic banks; 34 overseas institutions obtained the QFII qualification. By the end of 2005, China approved 3 special overseas Members each for the Shanghai Stock Exchange and Shenzhen Stock Exchange; overseas securities institutions held 46 and 21 B-stock seats in Shanghai and Shenzhen stock exchanges respectively; three foreign-invested securities companies had been granted approval; there were 20 funds management companies with foreign capital participation; and approval were granted for preparing the establishment of 5 foreign-funded automotive finance companies, among them, GMAC-SAIC Automotive Finance Co. Ltd. is already in operation.

V. Prospect of Financial Sector

After years of development, China has established a financial market system in which transactions are conducted at various levels in many varieties by many different approaches. In the recent years, China's financial market developed rapidly with remarkable achievements. In the days to come, China will continue to open up and develop the financial industry orderly for a proper role of markets in allocation of resources.

The government's guidelines for the "Eleventh Five-Year Program" explicitly pointed out tliat the financial service sector will be orderly developed by establishing a complete financial system with a full range of services in more innovated varieties and higher duality; medium and small banks and non-banking financial institutions like securities companies, financial companies, financial lease companies and funds management companies of different ownership forms will be developed according to standardized norms; financial innovation will be encouraged, comprehensive financial services will be steadily developed, and on-line financial services will be given due support; financing and micro-credit services for medium and small enterprises will be actively developed; the payment and settlement system will be improved for higher efficiency; the registration, custody, transaction and clearing system of the financial market will be fully established; overseas financial services and foreign exchange risk management and comprehensive financial planning will be developed. aiming at providing cross-boarder operations by enterprises with convenient services and foreign exchange risk-avoiding instruments.

The overall objectives for the development of China's financial market during the "Eleventh Five-Year" period will be: after a period of development, a uniformly opened and orderly competitive financial market system that is consistent with the socialist market economy will be established step by step; a mechanism for organically organizing and coordinated developing of currency market and capital market will be established and developed for the financial market to play its essential role in the allocation of financial resources; overall stability in the financial market will be maintained to create a favorable financial environment against systematic financial risks.

Computer and Information Services

I. Development of Computer and Information Services

(I) International

From 2000 through 2004, the scale of the global electronic information industry was expanded to USD 1973 billion from USD 1965 billion. Of which, the software sector as a share in the industry rose to 39.7% in 2004 from 35.5% in 2000. The year 2005 witnessed that the global software industry continued to grow steadily, and its scale was up to USD 823.9 billion, a 5.27% increase, the US, the EU and Japan made the top three in the global software industry, accounting for 39%, 29.5% and 10.4% respectively, but grow at a slower rate (see Table 3-15). It is predicted that the global software industry will grow at an annual rate of 12% from 2005 through 2010, and reach USD 1.48 trillion by 2010.

(II) Domestic

The electronic information industry is among the rapidest growing industries in China, having the greatest impact on China's economy and society. In 2005, the scale of China's electronic information industry stood at RMB 3.84 trillion, up 24.8% over the year 2004.

By 2005, with its scale being up to RMB 390 billion, China's software industry as the percentage of the world software industry went up from 1.5% in 2001 to 5.9% in 2005. In 2005, software products as the percentage of the total revenues of China's software industry declined, while software services rose. The accumulated income from the sale of software products in the industry came to RMB 206.65 billion, up 35.2% over the previous year, and its share in the total incomes of the whole  industry dropped to 53% from 55% in 2004; that from system integration amounted to RMB 132.9 billion, up 40.1 @/o over the previous year; that from software services totaled RMB 50.49 billion, up 66.5% over the previous year, and as the rapidest growing part of the software industry, software services as the percentage of the total revenues of the industry rose 2 percentage points (see Table 3-16).

In 2005, 2587 qualified software enterprises came into being in China. By the end of 2005, in China there were altogether 12,000 software enterprises, with more than 900,000 employees.

II. WTO Accession Commitments

In the following are major commitments the Chinese government made in the field of computer and relevant services:

As far as market access is concerned, no limitations on market access are imposed on hardware installation related consulting services as well as data- processing and tabulation services and time-sharing services. Only enterprises in the form of joint ventures are allowed to operate software implementation services (system and software consultancy, system analysis, programming services, and systems maintenance services) and data-processing services (data entry services), with foreign majority ownership permitted.

With regard to limitations on national treatment, services supplied through the presence of natural persons should be rendered by registered engineers or personnel with a bachelor (or higher) degree and with three-year work experiences in this field.

China has now already honored its commitments in market access and national treatment, etc. Foreign enterprises may establish firms in form of joint venture in China to provide software implementation services, and are permitted to hold majority stakes.

III. Relevant Policies and Regulations

In order to improve the policy environment for the development of the software industry, in 2000 the State Council promulgated Several Incentives fives for the Development of the. Software Industry and IC Industry, providing for complete and systematic incentive measures for the software industry with regard to investment and financing. tax. export, income distribution, intellectual right protection as well as industry management, etc. Related ministries and commissions developed the Certificution Criteria and Administrative. Measures for Software Enterprises-Measures for the Administration of Software Products, Tax Policies for Encouraging the Development of Software and lilte grated Circuit lildustry. Circular on Relevant Issues of Software Exports, and Measures for the Administration of National Software Industrial Bases, to further clarify the program and policy for the development of China's software industry.

In November 2002, the Action Plan for the Rejuvenation of the. Software Industry (2002-2005) was developed. It is an attempt to promote the development of the software industry through policy support, and a significant breakthrough has been made in six respects such as fostering domestic market, expanding the export of software. supporting software enterprises, supporting the development of core technology and the cultivation of software professionals, and improving industrial environment, etc.

On 8 January 2005, the Opinions of the General Office of the State Council oil Accelerating the Development of Electronic Commerce was officially issued, which sets forth a series of specific measures for pushing forward the development of electronic commerce.

IV. Analysis on Trade in Computer and Information Services

According to the WTO's statistics, in 2003 the export volume of computer and information services in the world stood at USD 77.1 billion, accounting for 4.2% of the total world services exports. Of which, USD 70.1 billion or 90.9% of the total export volume of computer and information services in the world was contributed by top twenty countries and region. The top three countries were Ireland, India and the UK, sharing 43.4% of the total export volume of computer and information services in the world. China was in the 14th place, sharing 1.1% of the total export volume of computer and information services in the world.

In 2003, the import volume of computer and information services in the world was USD 37.5 billion, accounting for 2.1% of the total services exports in the world. Of which, USD 30.2 billion or 80.6% of the total import volume of computer and information services in the world was contributed by top twenty countries and regions. The top three countries were Germany, the UK and Netherlands, sharing 33.2% of the total import volume of computer and information services in the world. China was in the 13th place, sharing 2.8% of the total import volume of computer and information services in the world (see Table 3-17). In 2004, Germany was first in the ranking list, with its computer and information services import being up to USD 8 billion (see Table 3-18).

(II) China's Cross-Border Trade in Services

From 2000 through 2005, the export volume of china's computer and information services rose to USD 1.84 billion from USD 360 million, or to 2.5% from 1.2% of China's total services exports, representing an annual growth rate of 38.6%; the import volume of china's computer and information services increased to USD 1.62 billion from USD 270 million, or to 2.0% from 0.7% of China's total export of services, representing an annual growth rate of 43.1%. The year 2005 saw China's trade in computer and information services recorded a surplus of USD 220 million (see Fig. 3-11).

V. Prospect of the Computer and Information Services Industry

As far as global industrial structure is concerned, software and associated information services play an increasingly important role in the development of the industry. For the mode of service supply, newly emerged Internet related services will be made available in new forms, and the modes of service supply and the scope of services offered through Internet will be expanded. In view of the development tendency of China's foreign trade in computer and information services, China enjoys a great potential in the development of computer and information services outsourcing, and its service level and scale will continue to rise and expand.

The Chinese government has attached great importance to the development of the software industry, and made efforts to create a sound policy environment for the industry with regard to tax. export, personnel and intellectual right protection, etc. by developing several favorable policies. China's software industrial bases and export leases are developing rapidly, with the ratio of the turnover of software enterprises located in the bases to the sales of the national information services industry being up to three fourth (3/4). As the Internet is more widely applied in China, there will be enormous room for the development of Internet-based computer and information services, continuously creatiiig new service items.

In 2006, the Strategy fur Application of Information Technology in China for 2006-2020 was issued, which sets forth a strategic target for application of information echnologyin China for 2020, which explicitly puts forward "the wide application of information technology, restructuring and upgrading of traditional industries, development of information services, and promotion of the strategic adjustment in economic structure", ind which also adopts specific safeguard measures.

Royalties and License Fees

I. Development of Royalties and Licensing Services

(I) International

Statistics by the World Intellectual Property Organization show that in 2005, there were a total of 134,073 international patent applications in all countries and regions. Of which, applications submitted by China (including Hong Kong) amounted to 2,452, 43.7% higher than that in 2004, ranking the tenth position in the world, and the second position among the developing countries. Those ranked the first nine positions in the. world included the US (45,111), Japan (25,145), Germany (15.870), France (5.522), the UK (5,115), ROK (4.747), the Netherlands (.4.435), Switzerland (3.096) and Sweden (2.784). The number of patent rights applied for by the US and the European Patent Convention countries accounted for 33.6% and 34.6% of the total. and among the Asian countries the total number of patent rights applied for by Japan, ROK and China (including Hong Kong) accounted for 24.1%) of the total.

Statistics by the World Intellectual Property Organization show that in 2005. there were a total of 356,539 international trademark applications submitted in all countries and regions, among them there were 315,949 registration applications.

(II) Domestic

By the end of 2005. China had processed an accumulated 2,761,189 items of patent right applications, of which, 2,257,515 were domestic applications, accounting for 81.8%; 503,674 were overseas applications, accounting for 18.2% From 2000 through 2005, China's international patent right applications rose 212%, indicating that China's technological strength was growing stronger.

In 2005, China's applications for trademarks kept growing at high rates. The applications for all types of trademarks amounted to 838,000 items, 10% more than the 762,000 items in 2004. Among them, applications for registration of trademarks amounted to 664,000 items, a 12.9% rise. China's applications for registration of trademarks had ranked No.1 in the world for four consecutive years. In 2005, a total of 312,000 applications for trademark registration were examined, making it the third consecutiveyear in which over 310.000 applications were examined; in that year a total of 259,000 trademarks were granted approval. By the end of 2005, China's registered trademarks accumulated to 2.499 million items.

II. WTO Accession Commitments

China's royalties and license fees commitments focused on the protection of intellectual property rights, as indicated in the following 14 aspects:

(I) Amending Laws and Regulations Relating to Protection of Intellectual Property Rights

At the time of its application for WTO membership. China's legislation relating to intellectual property right was already basically compatible with the Agreement on Trade-Related Aspects uf Intellectual. Property Rights (TRIPS Agreement). In order to be consistent with the TRIPS Agreement, China further amended the Patent Law before joining the WTO, and committed itself to completing, upon WTO accession, the amendments to the Copyright Law, Trademark Law and the related "detailed implementation rules" covering different fields mentioned by the TRIPS Agreement- and putting the TRIPS Agreement to full implementation.

(II) National Treatment and MFN Treatment for Foreign Citizens

China will protect foreigner's intellectual property rights according the agreement signed between China and the country in citiestion, or according to any international convention to which both countries are members, or according to the principle of reciprocity.

China committed itself to amending relevant laws, regulations and other measures to ensure that the national treatment and MFN treatment enjoyed by the foreign right holder in respect of all intellectual property rights are fully consistent with the TRIPS Agreement. This will include that when local copyright bureaus are involved in copyright enforcement activities relevant to foreign copyright holders, no authorization by the State Copyright Bureau will be required.

(III) Copyright Protection

China committed itself to amending its copyright system,including the Detailed rules for the Implementation of the Copyright Law and the Regulations for the Implementaion of International Copyright Treaties, to ensure that China's copyright system is fully consistent with China's obligations under the TRIPS Agreement. the amended Copyright Law will make clarifications on the fee paying mechanism of broadcasting agencies for audio products, rental right for computer programs and motion picture products, mechanical reproduction right, right of communication to the public and related protective measures, protection of database assembly, interim measures. raising statutory compensation amount and intensifying measures for stopping infringements.

(IV) Trademark (including service trademark) Protection

The Trademark Law will be amended focusing on the following: adding that three- dimensional symbols, colour combinations, letters and numerals can be registered as trademarks; the descriptions about collective and certificate trademarks ( including geographical indication); introducing the protection for official symbols; protecting well-known trademarks; adding the priority rights; modifying the existing trademark ownership affirmation system, and providing stakeholders with opportunities for judicial reviews concerning affirmation of trademark ownership; combating all serious infringements; improving the compensation system for trademark infringements.

(V) Geographical Indication (including name of origin) Protection

China commits itself to protecting geographical indications as set out in the TRIPS Agreement.

(VI) Patent

1. Denying Patent Rights to Immoral Inventions

China guarantees that the amended Detailed Rules for the lnipl.enie.ntation of the. Patent Law will be fully consistent with the contents of paragraph 2, Article 27 of the TRIPS Agreement. The TRIPS Agreement stipulated in paragraph 2 of Article 27 that members may deny patent rights to certain product inventions or method inventions if their commercial exploitation may cause serious damages to public order or morality, or to the life, health or environment of humans, animals and plants.

2. Patent Compulsory License

China will amend the Detailed Rules for the Implementation of the Patent Law to ensure that (1) compulsory license or non-voluntary license refers to the case where the potential user may exploit a patent (by the government or by authorizing others) without the authorization by the patentee only if he had. before the implementation of these Detailed Rules, made efforts in requesting for authorization from the patentee on reasonable terms and conditions; (2) in cases of compulsory license, proper rewards should be paid to the patentee; (3) the purpose of exploiting the patent under compulsory license should mainly be to supply China's domestic market; (4) if it is a semiconductor technology, the scope and time period of its exploitation should be limited to public no-commercial purposes, or to remedy restrictive competition as determined byjudicial and administrative procedures.

(VII) Requirements on Un-Disclosed Information (Including Business Secret and Test Data)

In order to prevent improper commercial exploitation. China provides effective protection to undisclosed test data or other data submitted during application for sales license, of pharmaceutical products or farm chemicals using new chemical ingredients. except that such data are necessary for protecting public interests or that protective measures have already been taken preventing them from improper commercial exploitation. The protection will include formulating and applying laws and regulations to ensure that within at least six years starting" from the date of sales license issued by the Chinese government to the provider of the data no party other than the provider of the data is allowed to apply for sales license of the product based on such data without authorization by the said provider of data. During this period, a second applicant for the sales license will be granted the sales license only if he has submitted his own data. All pharmaceutical products or farm chemicals using new chemical ingredients will be subject to this type of data protection, regardless of whether they are under patent protection.

(VIII) Measures for Preventing Misuse of Intellectual Property Rights

China will fulfill the obligations set out by the TRIPS Agreement, for controlling the restrictive competition in licensing agreements, especially the requirements consulted with other Members, and such rules will be universally applied to all intellectual property rights.

(IX) Combating Intellectual Property Right Infringements

China's measures for combating intellectual property piracy include: Judicially, law courts at all levels are to attach importance to cases involving intellectual property rights: Administratively, authorities at all levels are to intensify anti-piracy activities. In addition, the Administrative Authorities are to step up publication of laws and educational programs for the public, to ensure that China's legal framework satisfies the requirements for implementing the TRIPS Agreement.

(X) Civil Procedures and Remedies

China undertakes to effectively implement the requirements relating to fair and impartial civil procedures and provision of evidence by involved parties according to the judicial rules of civil procedures in the way stipulated by the TRIPS Agreement.

Infringement compensation: China undertakes to amend the relevant Detailed Rules so that in the case the infringer knows or has good reason to know that his behavior is an infringement on the intellectual property right of others, the infringer pays the licensee a compensation that can sufficiently remedy the losses incurred by the licensee due to such infringements.

(XI) Interim measures

China makes the commitment that the implementation of Article 61 of the Patent Law will be in conformity with the provisions of the TRIPS Agreement. Article 61 of the Patent Law stipulates that where any patentee or interested party has evidence to prove that another person is infringing or will soon infringe its or his patent right, and that if such infringing act is not checked or prevented from occurring in time. it is likely to cause irreparable harm to it or him, it or he may, before any legal proceedings are instituted, request the people's court to adopt measures for ordering the suspension of relevant acts and the preservation of property. The interim measures of the judicial department will be implemented in a way fully complying with the provisions about interim measures contained in the TRIPS Agreeinent. The meaning of "reasonable evidence" will be "any reasonably available evidence for the judicial authority to have sufficient degree of certainty to believe the applicant is the patentee, and that the patentee's rights are being infringed or that such infringement is imminent, and the judicial department will have the authority to order the applicant to provide a security or equivalent assurance sufficient to protect the defendant or to prevent abuse".

(XII) Administrative Procedure and Remedies

China commits itself to continuing the intensified law enforcing efforts including adopting more effective administrative penalty measures. The departments concerned. including the State Administration for Industry and Commerce, the State General Administration of Quality Supervision. Inspection and Quarantine and Copyright Bureau, will be encouraged to exercise the authority to seize and preserve evidence of infringement such as inventory and documents. The administrative authorities will have the authority to impose sufficient sanctions to prevent or deter further infringement, and will be encouraged to exercise such authority. Appropriate cases, including those involving repeat offenders and willful piracy and counterfeiting, will be referred to relevant authorities for prosecution under the criminal law provisions.

(XIII) Special Border Measures

China will provide intellectual property right holders with procedures concerning border measures that are entirely in conformity with the relevant provisions of the TRIPS Agreement.

The relevant provisions of the TRIPS Agreement include: Members should adopt procedures according to relevant provisions to allow a right holder, who has valid grounds for suspecting that the importation of counterfeit trademark or pirated copyright goods may take place, to lodge an application in writing with competent judicial or administrative authorities, for the suspension by the customs authorities of the release into free circulation of such goods. The TRIPS Agreement further specified other measures that should be followed when applying the above-mentioned procedures. including: application, security or equivalent assurance, notice of suspension, duration of suspension, indemnification of the importer and of the owner of the goods, right of inspection and information, exofficio action, remedies and de minimis imports etc.

(XIV) Criminal Procedures

China's administrative authorities will make recommendations for the iudicial authorities to make necessary adjustments by lowering the currently applied monetary thresholds for bringing criminal actions against the infringements, so that the crimination action can effectively deter future piracy and counterfeiting. And upon its WTO accession China will fully apply the provisions of the TRIPS Agreement.

III. Relevant Policies and Regulations

(I) Policies and Regulations for Better Protection of Intellectual Property Rights

In order to effectively implement the Agreement on Trude-Refated Aspects of Intellectual. Property Rights, according to the commitments made. in the recent years China launched and amended a series of laws. regulations and implementation rules, and approved large numbers of applications for protection of patent rights and trademarks. A fairly complete modern intellectual property right protection system that is both appropriate for the development of the socialist market economy and consistent with the international intellectual property right rules and China's national conditions is basically in place.

With regard to the protection of trademark rights, according to the WTO commitments, the original Trademark Law was amended, and a remarkable feature of the revised Trademark Law is the more comprehensive and effective protection of the trademark right: in respect of the protectable subject matter related to exclusive right to use trademark, there are the provisions for protecting three-dimensional trademarks. colour combination trademarks, certificate trademarks, geographical indicators and well-known trademarks; regarding the definition of trademark infringement, the constitutive requirement of subjective fault is cancelled, meaning that any fact and evidence of infringement will fall into the category of infringement. It is explicitly stipulated that "reverse counterfeiting" is a kind of trademark infringement; in compulsory law enforcing measures, industrial and commercial administrative authorities are further authorized to use measures like sequestration and detention in checking trademark infringements; in the penalties to be imposed on the infringing party, the measure of confiscation is added, the applicable scope for destroying measures is expanded, and three types of behaviors are defined as constituting criminal activities. After that, China successively promulgated and implemented the Detailed Rules for the Implementation of the Trademark Law. the Rules for Trademark Review and Adjudication, Implementation Measures for Madrid International Trademark Registration, and Methods for Registration and Management of Collective Trademarks and Certificate Trademarks, thus providing more powerful legal measures for protection of trademark rights.

With regard to the protection of copyrights, the original Copyright Luw was fully revised. The new Copyright Law established the national treatment principle for foreigners, and the "stateless persons" are enlisted for the first time as one of the entities to he protected, and the protection of their copyrights will be the same as that for the foreigners. In order to be consistent with Article 14 of the TRIPS Agreement, the new Copyright Law expanded the scope for protection of the performer's right, audiovisual producer's right and broadcasting organization right. Regarding the audiovisual producer's right. Article 41 of the Copyright Law added the provision for the author of audiovisual products to enjoy rental rights and information network transmission right. After the revisions to the Copyright Law, China again promulgated and implemented more copyright protection related administrative regulations including the Regulations for the Protection of Computer Software, the Measures for the Registration of Computer Software Copyright, the Regulation on the Implementation of the Copyright Law of the People's Republic of China, the Implementation Measures for Administrative Sanctions for Copyright Infringement and the Regulation on Collective Administration of Copyright, amended the criminal law, in which criminal protection of copyright provisions are added. Thus, a fairly complete modern copyright protection system has been preliminarily established.

In protection of patent rights, on the basis of the second revision of the Patent Law, China again promulgated and implemented the Measures for Patent Administrative Law Enforcement, according to which, patent management departments are to establish dedicated agencies or employ dedicated personnel to deal with patent infringement disputes, mediate patent disputes, check on the activities of counterfeiting other people's patent inventions or faked patent inventions. In order to further develop the patent system to meet the requirements for enhancing China's capacity for independent innovation and for building an innovation-oriented country. China initiated the preparatory work for the third revision of the Patent La.w of the People's Republic of China in April 2005. After repeated discussions and deliberation, the Revised Draft of the Patent Law of the People's Republic of China (draft for soliciting opinions) was formulated and the comments on it were invited through all channels starting from August 2006.

In 2006. China launched the Actiofi Guidelines for Protecting Intellectual Property Rights 2006 - 2007 and the 2006 Action Programme for Protecting Intellectual Property Rights in China. Of which, the "2006 Action Programme, for Protecting Intellectual Property Rights in China" specified the tasks for China's intellectual property right protection activities in 2006. The program covered the key tasks for 11 law enforcing departments in combating intellectual property right infringement crimes in the fields of trademark, copyright, patent right and import and export, and will formulate or revise 17 regulations and 6 "judicial interpretations". Foul-draft judicial interpretations by the Supreme People's Court concerning improper competition, new varieties of plants, conflict of rights, and music and television dispute cases were put on the internet in November 2005 to openly invite public opinions for revision. At present, the Supreme Court is carefully studying the collected opinions and suggestions, to improve the judicial interpretation draft.

(II) Policies and Regulations on Trade in Exclusive Rights

In the recent years the Chinese government formulated a series of policies and regulations aiming at further standardizing tlie transaction norms in the markets, and stepping up trade between countries in exclusive rights.

1. Regulation on the Administration of Technology Import and Export (issued as of 1 January 2002)

In order to standardize management of technology import and export. maintain technology import and export order, promote national economy and social development. this document was formulated on the basis of the Foreign Trade Law of the People's Republic of China and provisions of other relevant laws. The Regulation made explicit provisions on the approval, licensing, registration or administrative penalties and the related legal liabilities concerning the enterprises' technology import and export activities.

2. Measures for Evaluation of the Charges for Using Imports Commodity Concession of the Customs of the People's Re public of China (implemented on 1 July 2003)

This document was formulated according to the Customs Law of the People's Republic of China and the Regulations of the People's Republic of China on Import and Export Duties, and was intended for standardizing the customs evaluation of the royalties on the imported goods. The royalties as mentioned by the Measures refer to the fees paid hy the buyers of the imported goods to obtain the permit to use the patent. trademark, know-how, copyrighted works and other rights, including the fees for the right to use the patent, trademark, copyright, know-how and the right of distribution and resale.

3. Circular on the Procedures for Enterprises Income Tax Deduction/Exemption on Technology Import

In order to encourage technology import and standardize the tax deduction and exemption procedures, on 15 April 2005, the State Administration of Taxation and the Ministry of Commerce issued the Circular on the Procedures for Enterprises Income Tax Deduction/Exemption on Technology Import, which further specified the issue concerning the procedures for approving cleduction,' exemption of corporate income taxes in the case royalties are involved in the import of technologies. The Circular made further clear provisions on the relevant procedures for foreign enterprises to apply for Recommendation Letter for deduction/exemption of income taxes.

IV. Analysis on Trade in Royalties and Licensing Services

(I) International

Royalties and license fees include incomes and expenses incurred in using the exclusive rights and licenses of intangible assets. According to the statistics provided by the WTO. in 1995 the import and export of global royalty and license based services were USD 55.5 billion and USD 52.8 billion respectively, which quickly rose to USD 116 billion and USD 130 billion in 2004. more than doubling in the ten years. During 2000-2004 in particular, the global royalties and licensing increased progressively at an annual average of 11% higher than the 9% annual average growth rate of the global trade in services, and its share in the. total trade in services also rose to 6% (see Fig. 3-12).

     In terms of the countries involved, for reasons of economic development, trading of royalty and license based services is taking place mostly among the countries and regions with more developed industry, such as the North America, Europe and East Asia. These countries and regions account for 90% of the total trade in royalty and license based services.

The United States is the largest exporter of royalty and license based services in the world, and also the second largest importer after the EU. In 2004, the export of the US was up to USD 52.6 billion, and its import was USD 29 billion. During the period of 2000-2004, the growth rate of the US import was far higher than that of its export (45% and 22% respectively, more than doubling), and the gap between imports and exports started to decline. Although the US advantage in exports declined slightly, it still accounted for nearly half of the global income.

In 2004, the import of royalty and license based services by 25 EU Members amounted to USD 53 billion, making the area the world's largest importer, accounting for 41% of the total. During the period from 2000 through 2004, the 25 EU countries exported less than they imported, maintaining a sustained trade deficit.

In the recent years, the export advantage of Japan rose steadily. Due to the continuous expansion in overseas investment, the growth rate of its export of royalty and license based services accelerated. During the period from 2000 through 2004, Japan was the world's third largest royalty exporting country. During the 2000-2002 period, Japan suffered a bit of trade deficit. Its export started to overtake import in 2003. In 2004, Japan's exports amounted to USD 15.7 billion, 28% higher than that in 2003 (see Tables 3-19, 3-20 and 3-21).

In other countries and regions of the Asian economy, such as Singapore, ROK, Taiwan, Thailand, Hong Kong and Malaysia, there have been trade deficits that are expanding, since the transnational companies account for a large share in the business. From 2000 through 2004, only RUK had greater growth in exports, mainly relying on the overseas investment and expansion of its electronic products. In 2004, its revenues rose to USD 1.8 billion, "which was far higher than any of the developing countries, or was 3 times that of 2000. Starting from 2003, the total imports of royalty and license-based services by Singapore, China and ROK surpassed Japan. In 2004, the total import by developing countries other than those in East Asia accounted for only about 4% of the total share, remaining at a low level in general.

(II) China's Cross-Boarder Trade in Services

During 2000-2005, China's export of royalty and license-based services rose from USD 80 million to USD 160 million, at an average annual growth rate of 14.4% with its share in China's total export of services declining from 0.3% to 0.2%: China's import of royalty and license-based services rose from USD 1. 28 billion to USD 5.32 million, at an average annual growth rate of 33.0% with its share in China's total import of services rising from 3.6% to 6.4%; and China's trade deficit in royalty and license based services rose by the year, from USD 1.2 billion to USD 5.16 billion, at an average annual growth rate of 33.9%. This was China's service sector with the third largest trade deficit following transportation and insurance services.

V. Prospect of Royalty and License-Based Services Sector

The "Eleventh Five-Year" period is a crucial stage for building a full-scale well-off society, and also a period offering opportunities and highlighting conflicts in developing the intellectual property affairs. China will be facing an environment in which opportunities and challenges co-exist, with more opportunities than challenges. The Outline of the Eleventh Five-Year Program for Nafional Economy and Social Development proposed to "take the scientific view for development as the standpoint, while putting the stress on independent innovation, and developing better institutional mechanisms for social harmony". This will create a general environment favorable for developing the intellectual property affairs during the "Eleventh Five-Year" period. Aiming at "creating a large number of superior enterprises with independent intellectual property rights, renowned brands and strong international competitiveness", efforts will be made to build an innovation-inclined country, and to bring about economic restructuring and change of growth mode. By putting forward new reciulrements on intellectual property affairs, a grand platform for its development will also have been prepared.

With a socio-economic environment favorable for protection of intellectual property rights, the Chinese enterprises will constantly expand input in R&D for higher technological strength and intellectual property right management capacity. At the same time however, due to the disparity in science, technology and economic standards between countries, the advantageous position of the developed countries in intellectual property rights will remain for a long-term, the imbalance in intellectual property rights will intensify, and the competition in this regard will become fiercer. There are new manifestations of trade protectionism in. the form of intellectual property rights, which are new challenges to China's intellectual property rights affairs and socio-economic development. In a considerably long period of time China's import of royalty and lisence-based services will remain greater than the export of them.

In the long-term, with China's economic strength growing and its capacity for managing and exploitation of intellectual property rights improving. China will grow out 3f its position as a passive acceptor of international rules on intellectual property rights to become a responsible and constructive participant in formulating the international rules. It will no long be passively responding to changes in the international rules on intellectual property rights, but will positively initiate changes in it so that it develops in the direction favorable for China's national interests.

Advertising Services

I. Development of Advertising Services

(I) International

The global advertising industry has been on a rise since the twenty-first century. In 2005, the global expenditures on advertisements hit USD 340 billion, a 4.4% increase over the year 2004. As far as scale is concerned, North America, Europe, Asia-Pacific Region, Latin America, Africa and Middle East were in descending order, as were they in 2004. Of which, the expenditures on advertisements in North America stood at USD 154.6 billion, accounting for 45% of the global expenditures on advertisements; USD 91.8 billion or 27% of tlie global expenditures on advertisements for Europe; USD 71.4 billion or 21% of the global expenditures on advertisements for Asia-Pacific Region.

(II) Domestic

Since the 1980s. China's advertising inclustry grows at an annual rate of more than 30% far higher than GDP growth rate. China has been one of the fastest growing-countries in the global advertising inclustry. China's advertising revenues surpassed RMB 100 billion in 2003, and were up to RMB 141.63 billion in 2005.

By the end of 2005, in China there were altogether 125.394 advertising service providers, up 11.889 or 10.5% over the year 2004; the advertising industry employed 940.415 people, increased by 26,583 or 2.9% over the year 2004. In 2005, there were 7.5 employees in average in an advertising agency, while the figure was 8.05 in 2004.

II. WTO Accession Commitments

The commitments the Chinese government made to the advertising industry upon its entry into the WTO are as follows:

(I) Where the services are provided in the form of cross-border supplies, they shall be operated only through advertising agents registered in China with the right to provide foreign advertising services.

(II) Where the services are provided in the form of consumption abroad, they shall be also operated only through advertising agents registered in China which have the right to provide foreign advertising services.

(III) Where the services are provided in the form of commercial presence, foreign service suppliers are permitted to establish advertising enterprises in China only in the form of joint venture with a foreign investment of up to 49 percent; within two years after China's accession to the WTU. foreign-majority ownership will be permitted, and within four years after its accession to the WTU. wholly foreign-owned subsidiaries will be permitted.

(IV) Where the services are provided in the form of presence of natural persons. there will be no limitations except as indicated in the Horizontal Commitments.

In respect of limitations on national treatment: Where the services are provided in the form of cross-border supplies, consumption abroad or commercial presence, there will be no limitations. Where the services are provided in the form of presence of natural persons. there will be no limitations except as indicated in the Horizontal Commitments.

No further commitments in advertising services exist except the ones mentioned above.

III. Relevant Policies and Regulations

Since 2004, the central government and local governments have developed certain regulations, to attract more investment from foreign advertising companies. According to the Regulation on Investment in Advertising Enterprises by Foreign Investors jointly promulgated by the State Administration of Industry and Commerce and Ministry of Commerce of PR China, foreign majority ownership in domestic advertising enterprises should be permitted starting from March 2004, with the maximum foreign ownership of 70% which rose from 49%. Wholly foreign owned advertising companies should be allowed after 10 December 2005. In addition, local departments of industry and commerce have also developed various regulations, to streamline the procedures for advertisement examination and approval.

As far as establishing condition is concerned, it is stipulated under the Regulation that apart from compliance with the conditions specified by relevant laws and regulations, the parties to an advertising joint venture to be established should be enterprises engaged in advertising business; with a history of more than 2 years; with good advertising performance: without limitations on registered capital. The investor(s) of a foreign-funded advertising enterprise to be established should be an enterprise (s) mainly engaged in advertising business, with a history of more than 3 years. Any foreign-funded advertising enterprise should, if apply for the establishment of its affiliate(s), pay registered capital in full. with its annul advertising turnover of no less than RMB 20 million.

In 2003, the central government and Hong Kong and Macao signed the Mainland-HongKong Closer Economic Partnership Arrangement (CEPA) and the Mainland-Mucao Closer Economic Partnership Arrangement respectively. The appendix to the Regulation on Investment in Advertising Enterprises by Foreign Investors sets forth supplemental provisions for investment in the advertising industry by investors from Hong Kong and Macao. According to the proceeding sentence, starting from 1 January 2004. Hong Kong and Macao service providers should be allowed to establish wholly owned advertising companies in the Mainland, provided that the requirements of the definition of "service supplier" and relevant provisions of the Mahiland-Hong Kong Closer Economic Partnership Arrangement are satisfied and the service providers are corporate companies engaged in advertising business.

IV. Analysis on Trade in Advertising Services

(I) International

The import and export of advertising, market research and public opinion polling services are basically able to reflect the general condition of the world trade in advertising services. EU Member States occupy an important position in the world export of advertising services. According to the WTO's statistics, in 2003 the export volume of advertising, market research and public opinion polling services in the UK. Belgium. Germany. Italy and France was up to USD 9.39 billion. 18 times that of the US (see Table 3-22).

(II) China's Trade in Cross-Border Services

From 2000 through 2005, China's export volume of advertising services rose to USD 1.08 billion from USD 220 million, representing a yearly growth rate of 37.0%, and its share in China's services exports increased to 1.5% from 0.7%, China's import volume of advertising services went up to USD 720 million from USD 200 million, representing a yearly growth rate of 28. 8%, and its share in China's services imports rose to 0.9% from 0.6%; China's trade in advertising services recorded a surplus of USD 360 million in 2005 (see Fig. 3-15).

(III) Commercial Presence in China

By the end of 2005, the full liberalization of China's advertisement market had been attained. Upon examination and approval, foreign investors may establish wholly Owned advertising enterprises in China, and previously-established joint ventures maybe changed into wholly foreign owned subsidiaries. Ten giant advertising companies in the world have now already accessed the China market. The world top ten advertising giants like Ogilvy &. Mather, J. Walter Thompson, Hakuhodo and WPP, etc. formed joint ventures with various large advertising companies in Shanghai.

V. Prospect of the Advertising Industry

Thanks to more than twenty years of development. China's advertising market has been almost mature. As market entities, enterprises have been. increasingly aware of the remarkable value of advertisement for business expansion, so more investment has been made in advertisement: meanwhile, the growing consuming capacity of consumers, the hosting of 2008 Olympic Games and 2010 Shanghai World Expo as well as the development of China's economy will fuel the development of China's advertising market, bringing about a continuous and fast growing expenditures on advertisements in the years to come. As far as the channels of communication in the advertising industry are concerned, the leading position of television medium will not be changed in a short time. and its market share will continue to grow. Newspapers as a paper medium will continue to maintain their competitive edge through their personalized, differentiated and deepened contents and market positioning. Among mass media radio and magazines' are characterized by their well-defined target market and low advertising price; radio
advertising revenues are on a decline, suggesting that the operation of radio medium as a whole tends to be adjusted further. With the Internet emerging and popularized, web adverting services as a new mode of advertisements will grow. Over the past several years, outdoor ads featuring flexible, diversified and unique forms have already become the third biggest medium after television and press in China's advertising industry. The Outline of China's Eleventh-Five Year Program explicitly puts forward that endeavors should be made to develop the advertising industry. On 13 September 2006. China issued the Outline of China's Eleventh Five Year Cultural Development Program, which clearly defines 9 priority cultural industries to be developed in the next five years. With regard to the advertising industry, it explicitly calls for giving various media into play, actively promoting the healthy development of the advertising industry. endeavoring to expand the scale of the advertising industry, and raising the public trust of advertisements, to ensure a fairly rapid growth in advertising revenues. In order to implement the Outline, local governmental departments will actively develop relevant implementation program. The next five years are likely to witness China's advertising industry will be further improved and upgraded in its scale, structure and public trust, etc.

Film and Audiovisual Services

I. Development of Film and Audiovisual Services

(I)Internationl

According to UNESCO's incomplete statistics, in 1999 there were 25,990 movie theaters in the world, with the seating capacity of 4.463 million, which accommodated 2.91 billion audiences. In recent years, the number of cinema-goers was dropping as a result of the impact on film by television, satellite channels, DVD, broadband network and pirated CDs.

In the musical production industry, after 2000 the global sales of musical productions kept dropping, and the four-year long decline did not end until 2004, when the retail sales of global musical productions were USD 33.6 billion. In 2005, however, the sales of global music market as a whole tended to drop again. Although remarkable achievements have been attained in anti-piracy and the digital (Internet and cell phone) music market has been growing swiftly, the retail sales of global music productions last year decreased by 2% over the year before last year. In 2005, the global sales of CDs were 618.9 million pieces, decreased by 19% compared to 762.8 million pieces in 2001.

(II) Domestic

In 2005, the film production in China hit an all-time high, and there were 260 movies, increased by 49 over the year 2004. In the same year, the comprehensive income from film making as its main business was up to RMB 4.8 billion, up RMB 1.2 billion over the previous year. Of which, the box office revenue was RMB 2 billion for national films and RMB 1. 65 billion for overseas films, and the film projection revenue stood at RMB 1.15 billion, all far higher than the previous year. In 2005, there were 55 newly established movie theaters and 272 newly added screens. In addition, digital film processing and special effects techniciues available in China are approaching the international level, and more than 50 digital films are produced in a year and the number of specialized digital film projection rooms exceeds 200.

China's filmmaking cooperation and exchanges with other countries have yielded good results. In 2005, there were altogether 263 Chinese films, which participated in 101 international film festivals held abroad, and which won 32 awards; there were 26 Chinese film exhibitions held abroad and in Hong Kong, Macao and Taiwan, on which 215 Chinese films were exhibited. A batch of national films have raked in a great deal of money, for example in North America, the box office revenue was USD 30 million for the film The Promise, and USD 11 million for the film House Of Flying Daggers.

According to the General Administration of Press and Publication's statistics, there were altogether 328 audiovisual products publishers and 170 electronic publications publishers in China in 2005. In the same year, there were 16,313 types of sound recordings published, a 5.89% rise over the year 2004, or 230 million cassettes published, a 11.65% rise over the year 2004. Of which, there were 189 million cassettes distributed, up 9.88@ over the year 2004, with the value of RMB 1.535 billion, up 35.96% over the year 2004. In 2005, there were 18,648 types of videotape published, a 1.42% drop over the year 2004, or 386 million cassettes published, a 6.63% increase over the year 2004. Of which, there were 300 million cassettes distributed, up 22.45% over the year 2004, with the value of RMB 2.08 billion, up 50.62% over the year 2004.

II. WTO Accession Commitments

The Chinese government's commitments to the film sector'are as follows:

After its accession to the WTOi without prejudice to the consistence of China's regulations for the administration of films, China should allow 20 foreign film imports a year on a revenue sharing basis. Foreign service providers may make investment of up to 49% in the construction and renovation of movie theaters.

In the following are the commitments the Chinese government made to the audiovisual sector:

Without prejudice to the provisions on the examination of audiovisual products by the Chinese government, foreign service suppliers are allowed to form a cooperative joint venture (not including motion picture) with their Chinese partners for the distribution of audiovisual products. The foreign and Chinese parties to the cooperative joint venture to be established for the distribution of audiovisual products should have no record of illegal practices for the proceeding three years. The joint venture formed should also meet the following conditions: It should be an independent corporate organization, meet the conditions for the establishment of audiovisual product distribution enterprises, and provide capitals tailored to its business scale: the Chinese partner holds eciuity ownership of up to 51% in it; the term of cooperation should not exceed 15 years.

Starting from 10 January 2002, China has allowed foreign investors to operate the wholesale, retail sale and renting of audiovisual products within its territory according to its WTO accession commitments on market access to the cultural industry. This suggests that China has honored the commitments in this regard.

III. Relevant Policies and Regulations

In recent years, the State Administration of Radio, Film and Television (SARFT) and related departments formulated a great deal of policies and regulations, to further intensify the remarkable achievements attained in the restructuring of the film and audiovisual industry as well as to furtlier advance the development of the film and audiovisual industry.

In early 2002, the State Council promulgated the Regulation on the Administration of Motion Pictures. which explicitly provides for the incentives for investors of various ownerships to actively take part in all aspects of the domestic film market, thus opening the film industry to investors of various ownerships. For foreign investors, however, their share proportion should not exceed 49%.

On 29 June 2003, the Closer Economic Partnership Arrangement (hereinafter referred to as "CEPA") was signed between the Mainland and Hong Kong, bringing about the opening of the domestic film market to Hong Kong competition. Hong Kong has almost obtained "national treatment" in this regard. It is stipulated under the CEPA that "Hong Kong service providers are allowed to provide, in the form of joint venture. videos and sound recording products (including motion picture products) distribution services in the Mainland with majority shareholding not exceeding 70%. It sets forth more detailed arrangement for further liberalizing the domestic film market for Hong Kong enterprises.

From September through October 2003, the SARFT consecutively promulgated four new regulations: interim Provisions on the. Access of Operational Qualifications for Movie Production, Distrihution and Projection. Administrative Regulation off Sino-Foreign Film Co-Productions. Interim Provisions oil Project Initiation of Film Scripts (Abstracts) and on the Examination of Films, and Provisional Regulation on Investment in Movie theaters by Foreign Investors (Decree Nos. 18. 19. 20 and 21). Building on the new Regulation on the Admillistration of Motion Pictures, these regulations or "interim provisions" have provided greater policy support for the liberalization and development of the film industry, brought about an easier access of operational qualifications for movie production, distribution and projection, adjusted and improved film financing policies, further promoted the distribution and screening of national films, reduced the governmental examination and approval procedures, and advanced the rapid development of the industry.

In April 2005, the Decisions of the State Council Concerning Non-Publ.ic Investment in Cultural Industries was issued, which encourages and supports non-publicly owned capitals to enter the cultural industry for the production and distribution. of films and television plays, development and application of radio, film and television technologies, film projection in movie theaters, online movie theaters and rural areas. Non-public investment is permitted for film production, distribution and projection on an equity basis, but Chinese investors should have up to 51% equity in any business.

Shortly afterward, the Ministry of Culture. State Administration of Radio, Film and Television, General Administration, of Press and Publication. National Development and Reform Commission, Ministry of Commerce, etc. jointly developed the Certain Opinions on the introduction of Foreign Investment into the Cultural Sector, a supporting policy governing the investment in the cultural sector. It further clarifies foreign investors are not allowed to enter the publicity areas such as channel, frequency, space, edition and publication, etc. in a disguised way through business activities like publications distribution, printing, advertising and cultural facility innovation, etc. It also calls for establishing and improving the market exit mechanism, being strict with issuing licenses, and earnestly implementing the annual audit system; making great efforts to press ahead with comprehensive law enforcement and intensifying the efforts to crack down illegal acts by the administrative departments of culture, radio, film and television, press and publication at various levels.

In July 2005. the Ministry of Publicity, Ministry of Culture, State Administration of Radio, Film and Television, General Administration of Press and Publication. Ministry of Commerce, General Administration of Customs jointly issued the Measures for Strengthening Administration of import of Cultural Products with a view to strengthening and improving the administration of cultural product import. It is stipulated under the Measures that the administrative departments of culture are in charge of the supervision and administration of the import of audiovisual products, fine arts and shows, etc.; the administrative departments of radio, film and television are responsible for the supervision and administration of the import of radio and television programs, film, TV plays, and animated cartoons, of Sino-foreign production of films, television plays and animated cartoons, and of the coverage of overseas satellite TV channels; the administrative departments of press and publication are in charge of the supervision and administration of the import of books, newspapers and magazines and electronic publications, trading of copyright, and publication cooperation, etc; the administrative departments of commerce and the administrative departments of customs at various levels are responsible for the supervision and administration of the import of cultural products within the scope of their duties. In China, the import of cultural products continues to be subject to licensing, and the business operators are governed by the cultural product import license system. The administrative departments of culture, radio, film and television, and press and publication under the State Council issue import licenses, against which the administrative departments of customs at various levels handle customs clearance for imported cultural products.

In the audio-video industry, the State Council modified and promulgated the Regulafiofi on the Administration of Audio-Visual Products, to better adapt to the new situation after China's accession to the WTO and the fulfillment of its commitments in intellectual property right protection. The new Regulation clearly stipulates that Sino- foreign cooperative joint ventures are permitted to be established in China for the distribution of audiovisual products. Audio-video publishers may partner with organizations or individuals from Hong Kong. Macao. Tainwan or foreign countries to produce audiovisual products. In addition, it has intensified the protection of the intellectual property right of audiovisual products, imposed tougher penalties on piracy, clearly divided the existing management work of audiovisual products, and straightened out the management system.

On 1 January 2004, the Measures for the Administra.tion of Sino-Foreign Cooperative Joint Ventures Engaged in Audiovisual Products took effect, which was revised in accordance with the recluirements of the Adnlinistrative Licensing Law as well as Mainland-Hong Kong Closer Economic Partnership Arrangement and Mainland-Macao Closer Economic Partnership Arrangement approved by the State Council. The Measures has abolished and modified certain provisions which are inconsistent with the Administrative Licensing Law . and has provided for supplemental provisions on the establishment of audiovisual product distribution enterprises by Hong Kong and Macao service providers.

On 25 May 2004. the Ministry of Culture printed and distributed the Circular on Reinforcing and Improving the Importation Administration of Audio-Video Products, which explicitly stipulates the issues concerning the authorized use of the copyrights of imported audiovisual products, censorship, publication and distribution as well as trade contracts of copyrights. Upon the issuance of the Circular, audio-video import relationship has been progressively rationalized, and import order more regulated.

In July 2004, the Notice, of the Ministry of Culture, Ministry of Commerce a.nd. General Administration of Customs on Promoting the Exportation of Domestic Audio-visual Products was issued. It has provided a policy guarantee for promoting the export of Chinese-made audiovisual products, established a scientific, efficient, easy and quick export audit mechanism, and adopted preferential export policies, to encourage and support audio-video operators to explore overseas market.

IV. Analysis on Trade in Film and Audiovisual Services

(I) International

Since film and audiovisual services constitute a major part of personal, cultural and recreational services, the trade in personal, cultural and recreational services can by and large reflect the general condition of the film and audiovisual industry.

According to the WTO's statistics, the world export volume of personal, cultural and recreational services in 2003 was USD 25.8 billion, accounting for 1.4% of the total export volume of services in the world. Of which, the export volume of top twenty countries and regions was USD 22.6 billion, taking up 87.8% of the world export volume of personal, cultural and recreational services. The top three countries were the US, the UK and France, altogether accounting for 45.8% of the world export volume of personal, cultural and recreational services. China was not among the top twenty countries in terms of the export volume of personal, cultural and recreational services.

In 2003, the world import volume of personal, cultural and recreational services was USD 24.3 billion, accounting for 1.3% of the total world import volume of services. Of which, the import volume of top twenty countries and regions was USD 19.7 billion, taking up 81.0% of the world import volume of personal, cultural and recreational services. The top three countries were Germany. Malaysia and France, altogether accounting for 33.7% of the world import volume of personal, cultural and recreational services. China was not among the top twenty countries in terms of the import volume of personal, cultural and recreational services (see Table 3-23).

(II) China's Cross-Border Trade in Services

From 2000 through 2005, China's export volume of film and audiovisual services rose to USD 134 million from USD 11 million, representing a yearly growth rate of 64.9%, and its share, in China's services exports increased to 0.18% from 0.04%; services imports rose to 0.19% from 0.1%; China's trade in film and audiovisual services recorded a deficit of USD 20 million in 2005 (see Fig. 3-17)

V. Prospect of the Film and Audiovisual Industry

The Outline of China's Eleventh Five Year Cultural Development Program is a plan for the development of culture including Chinese films and audiovisual products in China. The overall goal for China's culture construction during the "Eleventh-Five Year Program" period is: Thanks to the growing influence in the world by Chinese culture and the increasing position and role of culture in global competitiveness, China's culture development level will match China's economic strength and international position by 2010.

The culture spreading function of multi-media should be employed for promoting the trade in film and audiovisual services. Adhering to the principle of combing government promotion and enterprise participation, efforts shall be made to foster and develop outward-oriented radio, film and television enterprises, focusing on promoting the export of Chinese films and TV plays and animated cartoons. A film and TV play marketing network will be built on a gradual basis through the establishment of'film and TV play production and marketing agencies abroad. It is necessary to actively promote Chinese cultural products and services by taking advantage of such platforms as overseas famous film festival, TV festival, arts festival, books fair and expo, etc. Endeavors shall be made to carefully choose participators and cultural products to show at exhibitions, to show China's cultural strength and image as a whole. To raise China's cultural influence, international books fairs and cultural forums and activities of country of honor will be actively participated in or held. Continued efforts will be made to expand the coverage of radio and TV programs abroad, which should conform to foreign audiences' needs and habits. New areas of non-governmental exchange and cooperation should be explored, and people's groups, non-governmental organizations, private businesses and individuals should be encouraged to undertake foreign cultural exchanges. Commercial exhibition and show. film screening, and the sale of cultural products will be expanded. All forces should be mobilized to form one resultant force for foreign cultural exchange by gearing the culture "going global" work to foreign affairs. foreign trade, foreign aid, science and technology, tourism and sports, etc. and by using a combination of exhibition and show, film screening, and the sale of products.

Education Services

I. Development of Education Services

(I) International

Since the 1990s, more and more countries have paid attention to education services. According to OECD's (Organization for Economic Cooperation and Development) statistics, the ratio of education-related expenditures for all countries to their GDP is 5.9% in average. Based on OECD/UNESCO WEI statistics, the average global education-related expenditures as the percentage of GDP rose to 5.6% in 2005 from 4.3% in 1995. In 2005, the ratio of education-related expenses per student to per capita GDP was 14.6% in average in the world, 19.6% in high-income countries, and 11.3% in low and middle-income countries.

At present, most WTO members, international organizations and experts have been already aware of the importance of education services to various extents. Education services will continue to keep pace with the development of public educational system, and more ample education servic,es will be available in more diverse forms. There are an increasing number of participants in this industry, and the scale of the industry is expanding. It is more important that new issues like quality assurance of education services and how to evaluate the quality of education services are attracting more and more attention. Consequently, since 2003, OECD and UNESCO jointly drafted theGuidelines on Quality Provision in Cross-Border Higher Education, covering government departments, education service providers, consumers, quality assurance and certification organizations, qualification examination and evaluation organizations, and professionals, etc.

(II) Domestic

In 2005, the coverage rate of compulsory education in China rose to 95% from 85% in 2000, and the gross ratio of junior secondary school enrollment was 95%, up 0.9 percentage points over the year 2004.

The scale of senior secondary education (including regular senior secondary school, adult secondary school and secondary vocational school) has been expanded remarkably. In 2005, there were 31,532 senior secondary schools, increased by 125 over the year 2004, with the gross ratio of senior secondary school enrollment being 52.7%. Especially secondary vocational education has been thriving again after a setback. There were 16 million students in secondary vocational schools, and this hit an all-time high.

A historical breakthrough has been made in higher education. In 2005, higher education enrollment was increased to 5.0446 million, and the number of students in tertiary education exceeded 23 million, ranking number one in the world, followed by Russia, India and the US. The gross ratio of higher education enrollment was up to 21%.

China increases funds for education year by year. China's educational funds totaled RMB 384.9 billion in 2000, and RMB 724.3 billion in 2004. Of which, the educational funds from government budgets were increased to RMB 446.6 billion from RMB 256.3 billion, representing an annual growth rate of 15%.

II. WTO Accession Commitments

(I) Commitments in education services

China's commitments in education services are mainly as follows:

1. Education services referred to herein do not include compulsory education (nine- year compulsory education, consisting of primary education and junior secondary education) and special education services (such as military, police, political education and party school education, etc. ), which are closed to the outside world. Apart from those above, included under China's commitments are primary education, secondary
education, higher education, adult education and other educational services;

2. Under China's commitments, there are still market access and national treatment limitations on cross-border supply. For education services like remote education and correspondence education, etc. rendered to Chinese citizens by foreign organizations, therefore, China is not bound by the WTO Agreement, left to decide the extent of liberalization by itself;

3. There is no market access and national treatment limitation on consumption abroad, namely no measures have been adopted to restrict Chinese citizens' access to foreign educational services;

4. As far as commercial presence is concerned. Sino-foreign cooperation in running schools and foreign majority ownership are permitted, but no commitment is made to accord national treatment with regard to Sino-foreign cooperation in running schools. Foreign organizations are not allowed to establish wholly owned schools and other education establishments in China;

5. With regard to the presence of natural persons, foreign individuals should not be allowed to provide education services in China unless they are invited or employed by schools and other education establishments in China; in terms of qualification, they should: have a bachelor degree or above, a corresponding professional title or qualification certificate, and two years or more work experience in relevant field.

6. Sino-foreign joint education in certain areas is subject to pricing by the government. Under the Protocol, on the Accession, China reserves the right to fix or guide the prices of major products and services by the government, including the charges for primary, secondary and higher education services (CPC 921, 922 AND 923) in the education services sector given in the Schedule of Specific Commitments on Services List, which are subject to state pricing.

(II) Other Contents as to the Commitments in Education Services

1. China's WTO accession commitments on market access and national treatment with regard to trade in services are, of a "permit" concept only, and China reserves the approval power for foreign enterprises' access to relevant business. In education services, the Sino-foreign joint education prescribed in the Schedule of Specific ComJnitments on Services List is subject to approval and administration by the Chinese government in accordance with specific regulations, and so are other education services.

2. Without any transition period and geographical limitation, the commitments in education services shall be construed effective starting from II December 2001. As China reserves the approval power for foreign enterprises' access to relevant business. however, as a matter of fact, they will not be implemented until relevant laws and regulations are officially promulgated.

III. Relevant Policies and Regulations

China is very scrupulous about the liberalization of the education industry. It is stipulated under Article 67 of the Education Law of the People's Republic of China that "External exchange and cooperation of education shall firmly accord to the principles of maintaining independence keeping initiative in our own hands, equality. mutual benefits and respect and may not run counter to Chinese laws or imperil the state sovereignty, safety or public interests of the society". This is reflected in the following three respects:

(I) The Chinese government is left to decide the adoption of relevant law and policy concerning external exchange and cooperation of education, whether or not to join an international education organization or institution, and whether or not conclude or ratify any education related international agreement or convention, including the WTO agreement on trade in services.

(II) External exchange and cooperation of education, in whatever form or way, should be conducted within the scope defined by Chinese law and in conformity with the basic principle prescribed by Chinese constitution and law. External exchange and cooperation of education in any form shall not imperil the state sovereignty, safety or public interests of the society.

(Ill) Any education exchange and cooperation activities of foreign organizations and individuals in China should be in compliance with Chinese law and subject to administration and supervision by Chinese administrative departments of education; the legitimate interests of foreign organizations and individuals, which/who conduct external exchanges and cooperation in China in accordance with Chinese law. shall be protected by the Chinese government. Any individual living outside China, who is in compliance with relevant Chinese stipulations, may come to China for studying in a school or other education establishment, doing research, conducting academic exchange or teaching after going through relevant formalities. No foreign organization or individual is allowed to carry out any activity in China prohibited by Chinese law in the name of external exchange and cooperation. Without approval, no foreign organization or individual is allowed to recruit students or provide any form of educational testing services. Any cooperation with foreign religious groups, religious organizations, religious colleges or religious personnel for running schools in China is prohibited.

Before China's accession to the WTO, international cooperation of education, in such forms as Sino-foreign cooperation in running schools and Sino-foreign cooperation in providing educational testing services, etc., was already permitted. In order to adapt to the need of the present situation and intensify the administration of foreign-related education activities, the State Education Commission of PR China promulgated the Interim Provisionf for Chinese-Foreign Cooperation in Running Schools in January 1995 and the interim M.eusiires for the Administration of Examinations for Educational Purposes Held Jointly by Chinese and Foreign Institutions in May 1996. The latter is now still effective.

In March 2003, the State Council of the PR China promulgated the Regulation on Sino-Foreign Cooperation in Running Schools (hereinafter referred to as the "Regulation"), providing for policy and provisions on Sino-foreign cooperation in running schools by law. Afterward, the Ministry of Education of PR China developed and issued the Measures for the Implementation of Regulation oil Sine-Foreign Cooperation in Running Schools and a series of normative documents, which have further refined relevant management system and measures, and which have explicitly stipulated policy-related issues. The Regulation specifies that Sino-foreign educational institutions, as a component part of the socialist education cause, belong to public welfare undertakings; provides that the State applies the principles of opening wider to the outside world, running schools in a regulated way, administration according to law, and promoting development; and stresses that the introduction of duality education resources should be regarded as the core for developing and regulating Sino-foreign cooperation in education, so encouragement has been given to the import of quality education resources for Sino-foreign cooperation in education, the Sino-foreign cooperation in the areas of higher and vocational education, the cooperation in running schools between Chinese higher institutions and foreign famous higher institutions, and the introduction of domestically-demanded and internationally-advanced courses and textbooks by Sino-foreign educational institutions. In light of China's WTO accession commitments on education services, the Regulation also stipulates that Sino-foreign cooperators are allowed to establish various educational institutions, but are prohibited from establishment of Sino-foreign educational institutions engaged in Chinese compulsory education, military, police, political education, or any other educational institutions in special nature. In the educational fields described above, the Chinese government is not bound by the WTO rules, left to decide whether or not to liberalize them as well as the extent and progress of liberalization according to its actual needs. According to the principle of separating education from religion established by Chinese law, the Regulation expressly provides that foreign religious organizations, religious institutions, religious schools and clergies should not engage in Sino-foreign cooperation in running schools within PRC territory; religious education and activities should not be carried out in Sino-foreign educational institutions. It also states that foreign educational institutions, other organizations or individuals are prohibited from the establishment of wholly-owned schools and other educational institutions which are primarily designed to recruit Chinese citizens. In addition, the Regulation and its implementation measures set forth the procedural requirements to establish such educational institutions. including applicant's qualification, establishing condition, application procedure, power of examination and approval, organization and management issues, education-related recluirements, asset and finance management, and change and termination issues, etc.

As far as study abroad is concerned, the Chinese government adheres to the guideline "supporting students and scholars studying abroad, encouraging them to return to China upon completion of studies, and guaranteeing them the freedom of coming and going". After China's WTO entry, favorable policies and measures for Chinese citizens to study abroad have been adopted. In November 2002, the Ministry of Education abolished the higher education training fee collection system for self-financed applicants for studying abroad; since 2003, outstanding self-financed students abroad have been awarded by the Chinese government. The funds for this award are available for self-financed Chinese students in 28 countries, and over 500 self-financed students abroad are awarded every year. The State Administration of Foreign Exchange of PR China has also enlarged the scope of supplying foreign exchanges to those who study abroad at their own expenses, and further increased the amount of foreign exchange  payment for studying abroad. In order to help self-financed applicants for studying abroad choose foreign language schools and safeguard their lawful rights and interests, the Ministry of Education of PR China released the list of a part of schools in 33 countries via the two websites: www.jsj.edu.cn and www.cscse.edu.cn. To address the violations of intermediary organizations engaged in self-financed overseas study services and the cases concerning illegal recruitment in China by overseas agencies, the Ministry of Education and related departments have intensified the efforts to investigate these cases, and established an early warning system for studying abroad. The past three years witnessed that this early warning system was being improved continuously, covering foreign schools' qualification, information about dishonest intermediaries engaged in studies abroad services, and new changes in policies on studies abroad, etc. This early warning system has earned its fame "a wind vane for studying abroad" for its authoritative, authentic and reliable information. The foreign-related education supervision and administration information web (www.jsj.edu.cn) has served as one of the most efficient channels and approaches, by which the Ministry of Education of PR China gets in touch with the public, renders services to those who whish to pursue their studies abroad, and exercises routine supervision and administration over intermediary organizations engaged in overseas study services.

IV. Analysis on Trade in Education Services

(I) International

According to the statistics and analysis of global trade data, education services as a whole have a relatively small share in international trade in services, and it was 4.6% in 1995, and 5% or so in recent years. Of which, higher education services have a larger share, and it was approximately 2%. Upon analysis using the prevailing statistical approach, the international trade in education services is now mainly concentrated in the consumption abroad of higher education, namely receiving higher education abroad. Since relevant statistics of education services mainly focused on direct expenditures on receiving higher education abroad, not taking into account commercial presence, cross- border supply and presence of natural persons, etc., the universally- accepted volume of trade in education services is obviously smaller than it is.

At present, Australians export of education services as the percentage of trade in services was up to 11.8% in 2000, ranked number one in the world, followed by 4.9% for Venezuela. 4.7% for New Zealand, 3.2K for the UK, and 2.1% for both Canada and Italy. As far as export volume is concerned, the US was in the first place, followed by the UK, Australia, Italy and Canada.

As far as student mobility in tertiary education is concerned, in 2004 there were 2.7 million international students in tertiary education in the world, 50% of them studied in France, Germany, the UK and the US, China and India were the two largest exporting countries with regard to student mobility.

(II) China's Trade in Education Services

Since the statistical data as to China's trade in education services are now not complete, education services are not incorporated in the balance of payments of PR China. China's import and export of education services will be analyzed from the perspectives of student and teacher mobility, Sino-foreign cooperation in running schools, and spreading Chinese as a foreign language, etc.

1. Studying abroad and studying in China

According to the Ministry of Education's statistics, there were 118.500 Chinese students and scholars studying abroad in 2005, of which there were 106.500 self-financed ones. From 1978 through late 2005, the number of Chinese students and scholars studying abroad was 933.400. Now there are 700.500 Chinese people staying abroad for educational purposes, of which 512.800 are studying, working together with foreign partners for research projects, and paying academic visits abroad.

From 1950 through late 2005, there were altogether 884.315 international students studying in China. In 2005, a year when the number of international students studying in China, the number of source countries, and the number of schools offering courses for international students hit an all-time high since the founding of the PR China, there were altogether 141.087 international students, up 27.28% over 2004, of which 133,869 were self-financed ones. a 28.56% rise. According to statistics by country, the top five countries are ROK, Japan, the US, Vietnam and Indonesia in terms of the number of international students studying in China, from which there were 54 079, 18 874, 10 343, 5 842 and 4 616 respectively.

2. Teacher and trainee mobility

At present, there are 3.000 units qualified for engaging culture and education foreign experts. In 2005, there were 18.698 long and short-term foreign teachers employed by higher institutions directly under the Ministry of Education.

3. Sino-foreign cooperation in running schools

According to the Ministry of Education's incomplete statistics, by the end of 2002 - there were altogether 712 Sino-foreign educational institutions and projects approved. established and run across the country, 9 times that of 1995, which were distributed across 28 provinces, autonomous regions and municipalities.

According to the statistics by country and region of cooperators, foreign cooperators were mainly from economically developed and technologically and educationally advanced countries and regions. The top 10 countries and regions were: the US (154), Australia (146), Canada (74), Japan (58), Hong Kong (56), Singapore (46), the UK (40), Taiwan (31), France (24), Germany (14), and ROK (12), etc.

4. Spreading Chinese as a foreign language

By late (October 2006. there were 116 Confucius Institutes in 50 countries and regions; 159 HSK testing centers in 38 countries and regions, where more than 60.000 examinees took the HSK exam in 2006. In 2006, there were 187 Chinese teachers sent by the Chinese government to 80 countries and regions for teacliing purpose; 1.027 volunteers as Chinese teachers sent to 34 countries and regions, increased by 38.97% over the previous year.

V. Prospect of the Education Industry

The internationalization of education is one of the development trends of twenty- first century education. In the future global economy, mutual exchange will become more frequent between countries, so the cultivation of globally competitive intellectuals will rely on the internationalization of education.

While increasing fiscal expenditures on education, developed countries are more likely to raise funds for education by means of market, namely by industrial application of S&T results of higher institutions. Australia and New Zealand, etc. are taking the initiative in exploring international education market. Education in future tends to be an open internationalized system, so both developed countries and developing countries have to actively pursue international exchanges and cooperation in education, to approach international standard.

With the rapid development of education services, the quality of cross-border education services is arousing more and more concerns in the world, and quality assurance capability has been further improved. An export country of education services may hardly safeguard its reputation for education and promote the sustained and healthy development of education services unless it is strict with the quality of cross-border education services it provides. An import country of education services may hardly prevent the interests of its students from infringement unless it controls the quality of imported education services.

China is developing the Outline, of China's Education Development Program (2006-2020) and the Eleventh-Five Year Program for the Cause of National Education, to sketch a blueprint for the reform and development of education in the next five through fifteen years. In the next five years, endeavors will be made to attain the overall coordinated and sustainable development of educational undertakings by fully implementing scientific overlook on development and adhering to the principle of attaching paramount importance to man; strengthen moral education, deepen educational and instructional reform, and build a favorable environment for quality- oriented education so as to advance education for all-round development: accelerate the development of education in rural areas, complete the project for making breakthroughs in "two basics" in western China, and universalize and consolidate the nine-year compulsory education; vigorously develop vocational education, expand the scale of vocational education, and expedite the cultivation of qualified labors and skillful workers; strive to improve the quality of higher education, appropriately control higher institution enrollment, place the improvement of educational quality on a priority status, continue to carry out the "985 Project" and "211 Project", push forward the construction of high-level universities and priority fields of study, and effectively raise the technical innovation and public service provision capabilities of higher institutions; continue to steadily develop regular secondary education, actively develop preschool education, attach importance to special education, vigorously develop modern remote education, actively develop diversified continuing education and adlilt education, and expedite the construction of a learning-oriented society.

In the context of economic globalization, China's education industry presents both grave challenges and great opportunities. Education in rural areas will be further straightened, the regional economy will develop in a coordinated way, and the gap between urban and rural areas will be narrowed. The pattern of educational growth will be changed. Quality-oriented education will further gain a new momentum. New achievements will be scored in diverse forms of continuing education and training. New breakthroughs will be made in vocational education. The application, of information technology in education will develop to a higher level. Especially, international cooperation and exchanges in education will be carried out in a wider area. As a significant component of China's opening policy, international cooperation and exchanges in education are strategic measures for advancing the educational reform and development in China, and are also a fundamental strategy for China's participation in international education. After China's WTO entry, with the continued improvement of international education laws and regulations, excellent research results, intellectuals and capitals, particularly high-level talents and duality educational resources will be introduced through international cooperation and by absorbing and drawing upon the successful experiences of other countries in educational development and management. Meanwhile, efforts will be intensified to spread Chinese as a foreign language in the world, taking the initiative in exploring international education services. With China's international status growing, the number of C'hinese students studying abroad and international students studying in China will constantly go up with its educational duality and level to be continuously improved.

Transportation

I. Development of Transportation Services

(I) International

With the economic globahzation and world integration process accelerating, countries are cooperating more closely in trade with each other, and the global transportation sector is consequently developing faster. Over 75% of the total freight volume in international trade is seaborne. According to the WTO statistics, in 2004 the global sea freight volume reached 6.76 billion tons, 4.3% higher than that in 2003 (see Table 3-1); the gross tonnage of the global merchant ships was 896 million deadweight tons, of which 336 million belonged to oil tankers, 321 million belonged to bulk ships, and 98 million belonged to container ships. In 2003, the global turnover of freight transport by air was 129.57 billion ton/km, and air passenger traffic attained 1.68 billion person/times. The United States was the world's No.1 air transport country, whose turnover of airfreight transport in 2003 was 34.21 billion ton/km, and whose air passenger traffic attained 590 million person/times.

(II) Domestic

In 2005, China's total freight volume amounted to 18.37 billion tons, a 7.7% increase over the year 2004; the turnover of freight transport was 7.833 trillion ton/km, a 12.8% rise. The total passenger traffic was 18.42 billion person/times, a 4.2% rise; and the turnover of passenger traffic was 1.7473 trillion person/km, a 7.1% increase.

In 2005, the railway passengers carried, the turnover of passenger traffic, the freight volume and the turnover of freight transport were 1.16 billion person/times, 606. 19 billion person/km, 2.7 billion tons and 2.07265 trillion ton/km respectively; the highway passengers carried, the turnover of passenger traffic, the freight volume and the turnover of freight transport were 16.92 billio person/times. 929.91 billion person/km. 13.29 billion tons and 857.38 billion ton/km respectively; the water borne passengers carried, the turnover of passenger traffic, the freight volume and tlie turnover of freight transport were 200 million person/times. 6.71 billion person/km. 2.11 billion tons and 4.80576 trillion ton/km respectively; the civil air total turnover, the passengers carried. the turnover of passenger traffic, the freight volume and the turnover of freight transport were 26.13 billion ton/km. 138.27 million person/km. 204.49 billion person/km, 3.067 million tons and 7.89 billion ton/km respectively, and the total turnover of CAAC's regular flights ranked No.2 in 2005 from the No.9 in 2000 among the International Civil Aviation Organization Member countries, thus it had become the world's second largest air transportation system next only to the United States.

By the end of 2005. the total operation mileage of China's railways reached 75.000 kilometers, of which those covered by electrified railways were 20,000 kilometers; the total operation mileage of China's highways reached 41,000 kilometers, ranking the world's No.2. China's seaports had 1,030 working berths above 10.000-ton class. with a goods throughput capacity of 4.85 billion tons; and their container throughput was 75.64 million TEU, keeping its No. I position in the world. China's ocean shipping fleet had 2.082 vessels, with a net deadweight of 36.494 million tons. providing carrying capacity for 147,000 passengers, and 670,000 box locations for containers. China had a total of 142 certified civil airports, and 863 transport airplanes, which was a net increase of 336 over the year 2000.

II. WTO Accession Commitments

When joining the WTO. China made the following commitments concerning transportation services:

Sea transport (international freight and passenger transportation, exclusive of the coastal and inland waterway transport ): establishing registered companies to operate fleets flying the national flag of the People's Republic of China: permitting foreign service providers to establish joint venture shipping companies, with the foreign, capital not exceeding 49% of the joint-venture's registered capital, and the chairman of the BOD and the general manager of the joint venture being appointed by the Chinese side.

Inland waterway transport (freight) : international shipping permitted at ports open to foreign vessels. 

Air transport ( aircraft maintenance ): permitting the establishment of joint ventures, provided that the Chinese side is in the holding or dominating position. According to economic demand test, there will be quantitative limits on licenses issued.

Rail transport (freight): permitting the establishment of joint ventures, with the foreign stake not exceeding 49%; foreign investor allowed to be in holding position within 3 years after China's accession to the WTO; solely foreign owned subsidiaries allowed within 6 years after China's WTO accession.

Road transport ( trucks and goods vehicles ): foreign capital allowed to be in a holding position in highway goods transportation joint-ventures within one year after China's WTO) entry: solely foreign owned subsidiaries allowed within 3 years.

Freight transport agent service ( not including goods inspection service ): upon WTO accession, foreign goods forwarders having been in operation for more than 3 consecutive years will be permitted to establish Sino-foreign joint ventures in forwarding business, with the foreign investment not exceeding 50%; foreign investment allowed to be in holding position within 1 year after China's WTO accession: solely foreign owned subsidiaries are allowed to be established within four years upon China's WTO entry; the minimum registered capital of the joint venture should not be less than USD 1 million. The operating period of the joint venture should not be more than 20 years.

China has fulfilled its commitments regarding air, sea and road transport. Starting from 1 January 2005. solely foreign owned road freight transport enterprises were allowed in China.

III. Relevant Policies and Regulations

In January 2000, the Ministry of Communications and the former Ministry of Foreign Trade and Economic Cooperation promulgated the Administrative Measures for the Examination and Approval of Wholly Foreign-funded Shipping Companies ("the Measures"). According to the Measures, when establishing wholly foreign- funded shipping companies, the applicant should satisfy the following conditions: having more than 15 years of experience in shipping business; having had a representative office approved by the Ministry of Communications for no less than 3 years in the port city where the wholly foreign-funded shipping company is to be established; its liners stopping at least once per month at the port city where the wholly foreign-funded shipping company is to be established; foreign shipping companies running non- scheduled operations should have stable cargo sources in China; no behavior in violation of China's laws, administrative regulations and rules during 2 consecutive years of operation in China. The Measures also provided for the establishment of branches of the wholly foreign-funded shipping companies.

The Regulations of the People's Republic of China on international Maritime Transportation ("the Regulations") enforced on 1 January 2002 stipulated that running international shipping business should satisfy the following requirements: among the vessels fit for international sea transport there must be China-registered vessels; vessels put in operation are in compliance with the safety technology standards for maritime traffic specified by the State: having B/Ls, passenger tickets or multimodal transport vouches: having senior managerial personnel with qualification specified by the State Council Authorities for transportation. International marine transportation operators running liner services in and out of Chinese ports are required to obtain lousiness qualification in international liner services according to the stipulations of the Regulations. According to the Regulations, in Sino-foreign equity joint-ventures and contractual joint-ventures running international marine transportation and international shipping agent business the foreign partner's capital contribution should not exceed 49%.

On 1 August 2002, the Provisions on Foreign Investment in Civil Aviation promulgated by the General Administration for Civil Aviation, the former Ministry of Foreign Trade and Economic Cooperation and the former State Development and Planning Commission came into force. According to the Provisions, the range for foreign investment in China's civil aviation (basically cov