RESTRICTEDWORLD TRADE
ORGANIZATIONWT/ACC/CHN/15
13 July 1998
(98-2770)
Working Party on the Accession
of ChinaOriginal:  English
COMMUNICATION FROM CHINA
The attached "Response to the Questions Raised by Working Party Members After the
Seventh Session of the Working Party Meeting on China's Accession to the WTO,  dated July 1998, isbeing circulated to members of the Working Party at the request of the People's Republic of China.WT/ACC/CHN/15
Page 2/3
RESPONSE TO THE QUESTIONS RAISED BY WORKING PARTY MEMBERS
AFTER THE SEVENTH SESSION OF THE WORKING PARTY MEETING
ON CHINA'S ACCESSION TO THE WTO
July 1998
AUSTRALIA
General
1. Programme discretionary and conditions to obtain approval.
A: China has notified all the subsidy programmes in Annex 5a. There are no discretionary and
other conditions with regard to the programmes.
2.  Item II covers only subnational subsidy programme?
A:   All the subnational subsidy programmes have been included in Annex 5a.
3. Subsidy programmes other than Item XV.A:   The subsidy of providing low-priced inputs to state owned enterprises has been notified. Such
subsidy is now under reform and will be eliminated in the future. In addition, the Chinese
Government has never provided low-priced cotton to State-owned textile enterprises.
Items I and II
3. So far, we have no plan to phase out the subsidy programmes provided by local governments.
Since some local governments are facing challenges  in reforming the state owned enterprises located
within their jurisdictions, such policy changes can only be made after thorough consultations with the
local governments and should not endanger social stability.
4. Basis for calculating the amount of subsidy.
A:   Since China's budget resources are far from enough to cover all the losses of the State-owned
enterprises and the government never wants to cove r all the losses, the figures for calculating the
amount of subsidy do not cover all the losses but merely the amount of subsidy given by the
government within its capability.
5. Approximate level of subsidy.A:   The subsidy level for metallurgic industry in 1996 is 1.35 per cent;  for ferrous-metal
industry, 2.6 per cent;  for machinery industry, 2.13 per cent;  for coal industry, 9.4 per cent; forchemical industry, 0.98 per cent;  for textile industry, 1.5 per cent;  for light industry, 0.3 per cent;  for
tobacco industry, 7.5 per cent.
Item III
6. To terminate the subsidy upon accession?A:   This subsidy will be phased out as notified in Annex 5b.WT/ACC/CHN/15
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Item IV
7. Preferential rates.
A:   The preferential rates are as 50 per cent deduction from the normal import tariff rates.
8. Localization rate and incorporate imported technology.A:   Localization rate refers to the rate of local content. And incorporate imported technology
refers to the usage of imported technology.
9. Cost of programme unavailable.
A:   There are no specific statistics for such evaluation.10. Why is the trade effect negligible?A:    The amount of the subsidy is so small that its impact on trade can be neglected. Moreover,
China has committed to phase it out by 2000.
Item IX
11. Subsidy element in export credit and export credit guarantee programme.A:    There is no subsidy element in these programmes.
Item XI
12. Technology renovation.
A:   The programmes of technology renovation are national science and technology development
programmes provided to State research institutio ns and universities nationwide for promoting key
research activities of technology and basic sciences in the country. The programmes have no
subsidizing investment to modernize plant.
Item XIII
13. Intend to terminate export subsidy aspects?A:    As to our understanding, the subsidy pr ogrammes in Item XIII has no export subsidy effect
for the following reasons:
     The refund of value-added tax for export products is a common practice consistent with the
WTO SCM Agreement and the refund rate is not higher than the value-added tax rate.
     The refund of tariff is only applied to imported materials that are used in manufacturing
products for re-export and the refund rate is not higher than the tariff rate.
Item XIV
14. Elements of this programme to be terminated in or by 2000.WT/ACC/CHN/15
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A:   As far as we understand, the policies in Item XIV are policy measures conducive to the
reduction of import tariff rates and have no trade distortion effect on the trade between China and
other countries. Therefore these policies will not be phased out.
Item XV
15. When will this programme no longer be needed?A:   China is now reforming this mechanism and will liberalize the pricing system in the future.16. Which companies receive the subsidized inputs?
A:   At present, only the power generating sector  enjoys low-priced inputs, i.e. coal and crude oil.
Price of coal for power generating enterprises will be fully liberalized by the end of this year.
17. To notify the subsidies provided through consequent cheap electricity prices.
A:   The price for the most part of the electricity provided has been liberalized based on market
demand.  And the Chinese Government is going to fu lly liberalize the electricity price in the future.WT/ACC/CHN/15
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CANADA
Non-Tariff Measures
Tendering
1. Complete listing of tendering requirements.A:    Annex 3 covers all the products subject to NTMs and includes those subject to import
tendering requirements.
2. Tendering requirements exist beyond those set by the National Electronic and Machinery
Import and Export Office and the National Tendering Centre for Electronic and MachineryEquipment.
A:    No.
Statutory Inspection
Boilers and high-pressure vessels
1. ASME Standard.A:    There is no internationally recognized standard for boilers and high-pressure vessels at
present, and ASME is only the standard of the US . Conformity assessment is a mutual process. From
the technical aspect, standards and practices differ with each country and mutual recognition can only
be achieved through negotiations and coordination. Should the Canadian side wish, the Chinese side
is willing to discuss and coordinate for mutual recognition of the standards of both countries.
2. Fees for recognition.
A:   The recognition for China's domestic manufactures of boilers and high-pressure vessels
includes manufacturer survey, qualification test for non-destructive testing personnel, welder
qualification test and on-site inspection. The costs for each component are as follows:
- Manufacturer survey: 3500RMB per expert per day;- Qualification test for non-destructive testing personnel: 500RMB per item per person;- Welder qualification test: 600RMB per item per person;  and
- On-site inspection: 1 per cent of production cost.
As for manufacturer abroad, the recognition only includes manufacturer survey, which covers
pre-examination and re-examination. Since the proceeding differs in each case, the fees are different.
But in general, the fees for domestic enterprises are higher than those for foreign enterprises.
At present, stricter procedures for recognition are applied to domestic manufacturers than to
foreign manufactures and we will uniform these procedures in the future.WT/ACC/CHN/15
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3. Third party testing
A:   Third party testing is a mutual process and we welcome further discussions with the Canadian
side.
Telecommunication equipment
1. Technical regulations and standards for telecommunication switches.
A:    For telecommunication switches, the Standards of GB4706.1 and GB4706.19 must be met in
order to prevent causing damage to public telecommunication network. These two Standards are
based on IDT IEC335-1 and EQV IEC335-2-15.
2. Removal of Standards of GB4706.1 and GB4706.19.A:     China believes that these two Standard s are related to telecommunication network and cannot
be removed at the present stage.
3. YD/T 696 and GB/T 15942.A:    There are scores of Standards applied to telephone sets and portable radio telephones. And
YD/T 696 and GB/T 15942 are far from enough to represent all of these standards. Moreover, noteach of these Standards has equivalent international standards.
4. Technical regulations and standards for telecommunications radio equipment to ensure the
integrity of the radio spectrum wireless network.
A:  The definition and coverage of radio spec trum wireless network and telecommunication radio
equipment are not clear and further explanation is needed.
5. All of the entities performing conformity assessment.A:    Annex7a includes all the entities performing conformity assessment.
6. Purpose of Standard GB4706.19 for liquid heaters.
A:    The purpose of GB4706.19 is fireproofing and electric safety.Polyethylene
1. Justifications for technical regulations and standards for polyethylene.A:     In accordance with the PRC Law on Standardization, the compulsory standards, such as
GB11115, GB11116, GB1373 must be applied and met.
2. Specific technical regulations and standardsA:     The specific technical regulations and standards are included in Annex 7a.
Pulp
A:    Deceiving behaviours regarding water content of pulp were found in the past. Therefore,
compulsory inspections are required according to the TBT Agreement.WT/ACC/CHN/15
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Road graders (H.S.84292090) and cellulose diacetate filament tow (H.S.55020010)
1. Technical regulations and standards.
A:    Road grader: GB4486-88 (exhaust emission standard for diesel engine) and GB14097-93
(noise limit for small and medium power diesel engines)
2. Cellulose diacetate filament tow: YC/T 26-1995 (hygiene).Sulphur
A:     Sulphur is not subject to statutory inspection.
Subsidies
1. The subsidy programmes notified represent subsidies pursuant to Article XVI:1 of the
GATT 1994 and Article 25.2 of the Subsidies Agreement?
A:    The subsidy programmes notified in Annex 5a represent all subsidy programmes that ought to
be notified within the framework of the WTO rules.
2. Notification represents an inventory of all main assistance programmes.
A:    Annex 5a includes all subsidy programmes provided by the central and local governments of
China.
3. Export financing.A:    We have already notified all export assistance programmes to exporters and committed to
phase out export subsidies and import substitute subsidies by 2000.
4. Normal income tax rate.
A:    The normal income tax rate for enterprises is 33 per cent.
5. Rate of interest charged for loans.
A:    Since the reform of China's financial system started in 1994, we have eliminated the
concessional rate of loans. And the rate of interest charged for loans is market rate.
6. Programme IX Loans from the State Policy Banks.
A:    Since most of the money in the State policy banks are raised by selling bonds at China's
capital market, the loan rates of these banks are usually the same as those of commercial banks. But
the State policy banks can provide long-term loans to such programmes as infrastructure constructionprogrammes.
7. Programme XI Funds for Technology Renovation, Research and Development.A:    We have no classified data for grants and loans.WT/ACC/CHN/15
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8. Programme XV Provision of Low-price Inputs for Special Industrial Sectors.
A:     The purpose of the State pricing for coal and oil is to ensure sufficient supplies for public
utilities by curbing price rises for products which are closely related to the daily life of Chinese
citizens. But the product coverage and the shares of State-priced products to the total production arevery limited and declining as the reform to the pricing system is going on.
9. Subsidies to telecommunication equipment, apparel and footwear industries.A:    We do not have any subsidy programmes to support the telecommunications equipment
manufacturing, apparels and footwear industries.WT/ACC/CHN/15
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EUROPEAN UNION
1. Normal rate of taxation
A:    The normal income tax rate to enterprises in China is 33 per cent. There are no specific
programmes in China's current statistic collecting system for calculating the foregone revenue caused
by the preferential income tax rate to foreign funded investment entities. The central government is
now considering unifying the deviated income tax rate system so as to provide national treatment to
all enterprises in China.
2. Local governments' power to confer additional benefits to investors
A:     After the unification of China's tax administration system, the authority of local governments
given by the central government in determining th e income tax rate for investors has already been
suspended and will not be given again by the central government. According to the current regime of
taxation in China, only the central government has the power to make or change tax policies and local
governments only has the authority to implement these policies and submit suggestions for policies
adjustment in the future.
3. Benefits for exporting a certain amount of production or using domestic goods
A:     There is no preferential tax treatment specifically provided to both foreign invested or
domestically invested enterprises for exporting a certain amount of their production or for using
domestic goods. The only exception is the policies measures included in the State AutomobileIndustrial Policy which has been notified in Annex 5a and will be eliminated by 2000 according to
China's commitment in the Annex 5b. As mentione d above, local governments in China have no
authority to formulate such policies.
4. Other subsidies to industry granted at subfederal level
A:     Local governments in China are not permitted to provide subsidy to the specific industries
located within their jurisdiction.
5. Industries and enterprises benefit from low-priced coal, oil or electricity
A:     China started its price reform in the early 1980's and only electricity generating industry and
gas industry are still enjoying the benefits of St ate-priced inputs. These two industries are closely
related to public utilities undertakings. At present, only a very limited portion of the inputs for thesetwo industries is still subject to State pricing, 15 per cent for coal and 55 per cent for crude oil in
1997. Since the Chinese Government is now considerin g to fully liberalize the remaining State pricing
system, the mechanism of providing low-priced  inputs will be reformed in the future.
6. Relationship between Scheme 15 and Schemes I and II
A:    There might be some overlapping regarding the subsidies provided to loss making enterprises
in coal and oil industries.
7. Phase-out scheme XIV by 2000
A:     The policies notified in Item XIV are specific treatments to foreign investors and certain
foreign entities, such as foreign embassies in China. These policies are conducive to China's tariff
reduction and will not be a barrier to trade. Therefore these policies will not be phased out by 2000.WT/ACC/CHN/15
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8. Transitional periods for prohibited subsidies
A:     China is a developing country and therefore should be allowed to enjoy transitional periods
for its subsidy programmes under the framework of the SCM Agreement.WT/ACC/CHN/15
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POLAND
1. Source of the negative value of the domestic support
A:     The negative value of the domestic support is calculated on the basis of statistics from the
Domestic Trade Year Book of China  published by the Ministry of Domestic Trade, China Agriculture
Development Report of 1996  issued by Ministry of Agriculture, the Financial Year Book of China
published by the Ministry of Finance, Customs Statistics by Customs Administration General of
China and  the Foreign Economic and Trade Yearbook of China  of Ministry of Foreign Trade and
Economic Cooperation.
2. Export subsidies
A:      Mr. Long Yongtu, Chief Representative for Trade Negotiations announced at the Fifth
Session of the Working Party Meeting held on August 1, 1997 that the Chinese Government has
decided to give up the right to reintroduce export subsidies for agricultural products. That meansChina will not apply export subsidies on agricultural products in the future.WT/ACC/CHN/15
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UNITED STATES
1. Draft industrial policies
A:     The former State Planning Commission has completed drafting the Industrial Policies for
Machinery, Electronics, and Construction and Building Materials and has submitted the drafts to the
State Council. However, these policies have not been approved due to the debate among government
agencies as well as the reform of state owned enterprises. China's new Government will not approve
these policies until some revisions are made. The Law on Telecommunications is now under
consideration but the draft has not been finished so far. As for transportation and energy industries,
the competent authorities have never drafted any specific policies. And the State Council promulgatedthe Policy for Water and Irrigation in 1997.
2. Adverse effects of subsidies to SOEsA:     So far, China has not established necessary social security systems and enterprises, the SOEs
in particular, have to take too many social responsibilities which should be covered by social security
system. Therefore, a subsidy to the loss making SOEs in China is a temporary measure during the
transitional period when social security system is being established. Before the reform started in 1984,
all the SOEs had to submit all the profits to the State budget, which seriously weakened the capability
of the SOEs to upgrade their equipment and tec hnologies necessary for enhancing competitiveness.
Thus the subsidies now provided to the loss making SOEs are compensations for the excessive
submission of profits in the past. We want the memb ers of the working party to understand that these
subsidies are not trade protection oriented and the amount is not large compared with the subsidies
provided by some WTO Members. With the deepening of the SOEs reform by the new Government,
the subsidies given to the loss making SOEs will be fully eliminated.
2(a). Specific nature and progress of the recent SOE reformA:     The ongoing SOE reform of China will be carried out in three steps. The first step is to
establish a social security system covering social pension system, social welfare system,
unemployment security system and social Medicare insurance system. The purpose is to alleviate the
social burden of the SOEs. The second step is to make loss making SOEs go bankrupt or be merged
by other expanding enterprises, i.e. private comp anies, foreign companies or State-owned companies.
The third step is to transform State-owned enterprises into private companies or shareholding
companies.
2(b). Policies for promoting mergers and acquisitions2(c). Fund for the promotion of mergersA:  The policy for promoting mergers and acquisitions is implemented through providing
"bankruptcy and merger reserve fund" to commercial banks for covering the liability losses caused bybankruptcy of the loss making SOEs and mergers. The amounts of the bankruptcy reserve funds in
1996 and 1997 were 20 billion RMB and 30 billion RMB respectively and the amount for 1998 is
expected to be 40 billion RMB.
2(d). New types of corporate ownershipA:     In the SOE reforms, some SOEs have been  fully privatized, some restructured as shareholding
corporations and also listed in domestic and fo reign stock markets, and some transformed into
partnership companies owned by company staffs. Although the Corporation Law has not been
changed so far, some suggestions have been made to revise the law in a bid to meet the changingWT/ACC/CHN/15
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circumstances. So far, more than 800 State-owned companies have been transformed into
shareholding companies and listed in China's stock market. And another 80-odd have been listed in
foreign stock markets.
2(e). Government control of the companyA:     Currently there are some SOEs for which the Government is still the largest shareholder. But
that does not mean that the Government controls everything. The company managers can carry out
operation on the basis of market standard while the Government only supervises the company's
financial performance.  One of the purposes of the reform is to de-link the SOEs with the
Government.
2(f). List of enterprise that the central government owns, controls or maintains shares
A:      The central government of China never maintains such a list.2(g). Plan for SOE reform in the upcoming yearA:     There is no detailed plan for SOE reform in the upcoming year. However, the reform will be
carried out on the basis of the experiences of the reforms in the past.
3. Influence of recent and ongoing restructuring of central government ministriesA:     One of the purposes of the ongoing restructure of government ministries is to reduce the
administrative intervention towards business operation of state owned enterprises. The restructured
government ministries that are responsible for economic affairs will focus more on macroeconomic
management.
4. Grants and other forms of financial support from the central government off recordA:    According to China's Law of Budget, all subsidy programmes should be recorded in the State
budget or local budget. So, there are no subsidies off record.
5. Grants and other forms of financial support from local government off recordA:    Same as the answer to Question 4.6. Local government support for strategic industries
A:   Local governments are not encouraged to formulate local industrial policies for specific
industries in China. Since China's tax system has been unified in 1994, local governments do not have
the authority to formulate their local tax policies differently from policies made by the central
government. The Chinese delegation has already notified all forms of subsidy programmes including
tax exemptions and tax forgiveness figures either from central budget or from local budgets.
7. Influence of the reform in the banking sector on SOEsA:    The Chinese Government attaches great importance to the reform of the banking system. The
goal of the reform is to make China's commercial  banking system fully independent of the guidance
of the Government. The first step that has already been taken is to remove the policy function of the
commercial banks to policy banks, i.e. State De velopment Bank, State Agricultural Development
Bank and State Export & Import Bank. The second step is to reduce the reliance of SOEs on bank
loans, and finally to secure healthy banking assets . The third step is to reform the banking system
strengthening the supervision capability of the centra l bank, restructuring local branches of the centralWT/ACC/CHN/15
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bank and raising the management skills of commerci al banks. The fourth step is to increase the
number of local commercial banks so as to break up the existing monopoly by national commercial
banks. The fifth step is to gradually open China's financial sector to foreign financial institutions.
8. State support for SOEs other than central budgetA:    Since the establishment of the State policy banks, China's commercial banks have ceased
providing policy loans and low interest loans to SOEs. There is also no financial support from the
banks to SOEs in the forms of automatic rollover of SOEs' unpaid principal and interest, forgiven or
non-performing loans, and the selective use of below- market interest rates. All enterprises must pay
interest at market-based interest rates.
9. Why grants and tax forgiveness?
A:     In the previous version of Annex 5a, the subsidies from central budget to certain State-owned
enterprises were mistaken as grants from the central budget. But the fact is the subsidies have two
forms, one is direct grant from the government and the other is tax forgiveness by the Government.Tax forgiveness means the central government's special treatment of exempting the taxes that a loss
making enterprise should pay to the Government, and this treatment can be treated as providing
subsidies. The figures notified in Item I of Annex 5a contain both grants and tax forgiveness.
10. Programme I in Annex 5b includes tax forgiveness?A:     Programme I of Annex 5b includes both grants and tax forgiveness.11(a). Programme II supports the restructuring of SOEs?
A:     The purpose of the subsidies provided to loss making SOEs is to help them to restructure
according to market power while free from too much social unsuitability caused by laid-off workers.
With the deepening of pricing system reform, most of the subsidies support the restructuring of SOEs.
From this point of view, Programme I in Anne x 5a also support the restructuring of SOEs.
11(b). Data on subsidy amount on sector-specific basis
A:     We do not have the database of local subsidy on industrial sectors and therefore could not
provide such data.
11(c). End Programme II subsidies for the end of 2000?
A:     As we cannot expect that the restructuring of local SOEs can be concluded by the end of
2000, therefore we can not determine the time for phasing out the subsidy programmes provided by
the local governments.
12(a). Why item 7 description of the tax benefits available are significantly different?A:     The description of preferential policies in item 7 is the revised policies issued by the central
government in 1996.
12(b). Why was the statement removed?A:     The authority of the governments in the special economic zones for deciding further tax
reduction and exemption preferences for the investors providing capital or equipment with favorable
conditions, or transferring advanced technologies was suspended in 1996 after the central governmentWT/ACC/CHN/15
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adjusted the preferential policies for special economic zones. Therefore Annex 5a was revised
accordingly.
12(c). Requirements for investing in special economic zones
A:     There is no export requirement provision in the laws governing the establishment of
foreign-invested enterprises.
13. Revisions to item 7 of Programme VIIIA:    The differences between the new version and old version are the results of legislative
changes.
14. Programme XI
A:     We do not have the data of industrial sectors' allocation to research programmes, since most
of the research programmes are basic research programmes carried out by research institutions under
China Academy of Science as well as universities and research institutions under differentgovernment ministries. All of these institutions have no direct relations with enterprises. The
dissemination of most of the research results is in the form of commercial contracts between research
institutions and enterprises. The Government encourages commercializing the research results but
much work needs to be done in this regard.
15. Programme XVII
A:     High-tech enterprises mostly belong to information technology industry, machinery industry,
pharmaceutical industry, electronics industry and chemical industry.  There are now 52 high-tech
economic zones approved by the State Council. No specific requirements are imposed for enjoyingthe preferential policies by high-tech enterprises located in high-tech economic zones.
16. Plan for 512 large SOEs for continued State ownership and 130,000 SOEs for a variety of
ownership
A:      The State Economic and Trade Comm ission plans to select 1,000 SOEs as backbone
enterprises of the national economy and to give support to them. The criterion for selection is profitmaking. So far, 512 SOEs have been selected, but no special treatments have been provided. The only
measure approved by the State Council is to esta blish "main bank'' relations between the enterprises
selected and commercial banks, which means that each enterprise selected should combine all of its
bank accounts at different banks into one account at one bank - the main bank. The purpose is to
facilitate the central bank and other supervision agencies to supervise the capital flow of theseenterprises and to evaluate assets quality of these en terprises. The main bank is responsible to provide
loans at standard market rates.
17. Six big companies singled out to become worldwide leaders
A:     This plan is formulated by the SETC. The six big companies singled out are the best in
different sectors as far as technology renovation is concerned. The preferential treatment they have
enjoyed is exemption of import tariffs for equipment used in technology renovation.
18. 56-city comprehensive capital optimization experiment programmeA:     More information is needed for the Chinese side to clarify this programme.
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