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China Promises Tax Breaks To Encourage Tech-Based Economy

China will offer tax breaks to technologically innovative companies and boost spending to promote scientific breakthroughs as part of a new program to create an "innovation-oriented country," an official said Friday.

The plan, announced last month by the Cabinet, calls for China to raise spending on research to 2 percent of economic output by 2010 and 2.5 percent by 2020.

In 2005, China allocated 131.5 billion yuan (US$16.3 billion; euro13.7 billion) to science and technology spending, said Zhang Shaochun, an assistant to China's Minister of Finance. The outlay amounted to less than 1 percent of last year's nearly 16 trillion yuan (US$2 trillion; euro1.6 trillion) gross domestic product.

In order to meet its target, China's finance ministry will cut import taxes for enterprises that "undertake important national projects for major science and technology breakthroughs," Zhang said at a press conference on the sidelines of the annual session of parliament.

New enterprises in high-tech industrial parks will be given a two-year exemption of corporate income tax beginning from the year they make profit and will pay 15 percent instead of the standard 33 percent income tax after that, Zhang said.

He also said government departments would be encouraged to buy homegrown technology.

Direct investment will be put into technologies ranging from genetics to energy-efficient cars in an effort to spur economic growth and improve environmental protection, the government said earlier.

"Exploration is to be encouraged, failure tolerated, and a fine culture favorable for innovation shall be cultivated," the Ministry of Science and Technology said in a statement distributed at the news conference.

Communist leaders have tried with limited success to nurture scientific development over the past decade, hoping to profit from new industries and to reduce China's reliance on foreign technology.

The government has expanded university labs, encouraged companies to invest in research and tried to lure home Chinese scientists working abroad. The number of patents awarded to Chinese inventors has grown, but the government says the pace of development is still too slow.

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