In the first year of the 11th Five-Year Plan China failed to meet the target of cutting its unit gross domestic product (GDP) energy consumption by 4 per cent. China plans to cut its unit GDP energy consumption by 20 per cent by the end of 2010 to improve energy efficiency. Clearly, this target is a challenge for the Chinese government.

Substantive measures have been taken by the government to solve the energy consumption issue. Another 10 billion yuan has been set aside this year to improve energy efficiency and cut pollutant discharges.

The money is to be used to continue eliminating outdated production methods in industry and to help upgrade production technologies and the management of high energy-consuming and polluting industries.

According to the General Work Plan for Energy Conservation and Pollutant Discharge Reduction, issued by the State Council in May this year, China will implement 10 energy-saving projects during the period of the 11th Five-Year Plan. The aim is to produce 240m tons of standard coal energy-saving capacity.

The government will step up energy conservation and pollution reduction efforts in industries such as steel, non-ferrous metal, petrochemicals and construction.

Preferential tax treatment policies for energy conservation were introduced in the new Enterprise Income Tax Law. Companies that engage in projects involving environmental protection, energy saving and water conservation will enjoy a deduction or exemption of income tax. Investment in the purchase of specialised equipment used in those projects can be set off against income tax at specified percentages.

In addition, other tax benefits have been put in place, such as deduction of value-added tax for some energy efficiency activities. It is anticipated that more detailed tax and fiscal policies will be issued to promote energy efficiency.

Michelle Thomas, head of renewable and clean energy, notes that 'these measures can only serve to help make China a more attractive investment forum by enhancing the security of the sector and China's commitment to it. Notwithstanding this, however, it will be the way in which projects play out over the next 24 months which will impact the way the rest of the world perceives China's investment opportunities in this sector'.

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