China will increase national research and development expenditures year by year until expenditures are equal to 2.5 percent of the gross domestic product in 2020.

According to its incentive policies encouraging scientific and technological innovation, the State Council said in Beijing on Sunday that overall investment in research and development needs to be enhanced significantly in order to make China one of the world's most innovative research powers by the year 2020.

The incentive policies are targeted at creating a friendly environment for carrying out the National Guidelines on Medium-and Long-term Plans for Science and Technology Development.

Although the guidelines are not law, the State Council said year-on-year increased spending on research and development is a requirement.

After technological and economic feasibility studies, the State Council will allocate funds for key scientific and technological innovation projects.

The State Council expects state investment in research and development to encourage investment from enterprises and private financiers.

The State Council also plans to build better mechanisms to encourage hi-tech start-ups.

Also included in the plan are preferential tax policies for the nation's knowledge-based enterprises.

R&D spending is tax-deductable at a rate of 150 percent.

Hi-tech start-ups in national hi-tech zones will be exempt from taxes for two years. After which, they need only pay 15 percent of what other industries have to pay.

The State Council also urged the state taxation authorities to study and draft a uniform taxation policy that stimulates further coordination between research institutes and the industrial sector, and to encourage the export of hi-tech products.

To further strengthen domestic research capabilities, the State Council has exempted key State labs and private R&D centers from tariffs and value-added taxes on research equipment.

Favorable taxation rates for venture capitalists, science and technology intermediaries, non-profit organizations and individuals working on innovation-related activities have also been introduced.

The State Council also announced that it is encouraging state and local governments and their affiliates to set up venture capital firms to finance innovation-oriented start-ups.

It added that it is considering setting up an innovation-related stock market for hi-tech start-ups, similar to the NASDAQ in the US.

Securities authorities are expected to ease requirements and waiting periods for corporate applicants wanting to be listed on the stock market.

The State Council has urged the State Development Bank to grant loans to hi-tech enterprises, the Export and Import Bank to finance hi-tech imports, and the Agricultural Development Bank to support commercialization of new agricultural technologies.

It also encouraged commercial banks to actively finance state hi-tech projects and forge partnerships with hi-tech start-ups.

(Xinhua News Agency February 28, 2006)