G/SCM/Q2/CHN/94  
28 October  2020 
(20-7578) Page: 1/3 
Committee on Subsidies and Countervailing Measures  Original:  English  
 
  
SUBSIDIES  
REPLIES TO THE  FOLLOW -UP QUESTIONS1 POSED BY THE UNITED STATES  
REGARDING THE NEW AND FULL NOTIFICATION OF CHINA2 
The following communication, dated 2 7 October  2020, is being circulated at the request of the 
delegation of China . 
 
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Question 1  
It appears that none of the sub -central legal measures referenced in the sub -central 
section of China's notification have been published in the MOFCOM Gazette . Does China 
agree that normative documents that establish or implement a subsidy program at the 
sub-central level of government must be published in the MOFCOM Gazette pursuant to 
China's Protocol of Accession?  
Reply : 
China has been committed to en hancing transparency in practice.  
Question 2  
Although China maintains that the National Integrated Circuit Investment Fund (IC Fund) 
is "not affiliated with any government departments", based on public information, the IC 
Fund is nearly 100 % owned by various government departments and state -owned 
enterprises . Moreover, based on numerous legal measures that establish and regulate the 
IC Fund, such as the Guidelines for the Development and Promotion of the Integrated 
Circuit Industry, the government established the IC Fund to achieve certain governmental 
economic development objectives . Given these facts, please explain why the IC Fund 
should not be considered an entity that could provide subsidies under the Agreement on 
Subsidies and Count ervailing Measures (Subsidies Agreement)?  
Reply : 
Reply: National Integrated Circuit Investment Fund (IC Fund)  is managed strictly in accordance with  
related  laws and regulations on private equity. As it is required that each investment shall generate 
a certain proportion of returns, it is not the subsidy granted gratis to enterprises. The sources of IC 
Fund are diversified with 19 shareholders, including central fiscal funding , central  state-owned 
enterprises, local state -owned enterprises, financial enterp rises, and private enterprises. Judging 
from the structure, all corporate governance institutions, instead of subordinating to any government 
department s, function in accordance with  the Corporate Law, and the decisions, implementation, 
and supervision fall within the working scope of the general meeting of shareholders, the board of 
directors, the board of supervisors, and senior managers. As a shareholder of the IC Fund, whether 
it is the central government, or a state -owned or private enterprise, it work s in accordance with the 
Corporate Law and votes based on the proportion of the equity held in the general meeting of 
 
1 G/SCM/Q2/CHN/87.  
2 G/SCM/N/315/CHN.  G/SCM/Q2/CHN/94  
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  shareholders. After negotiat ion among all the shareholders, those eligible to nominate directors and 
supervisors set up a board of directo rs and a board of supervisors to implement the decisions made 
by the general meeting. The board of directors employs market -oriented senior managers to be 
responsible for implementing fund -related affairs. The five -year operation of the IC Fund has also 
fully proved that only matters in the interests of the company may be approved since all shareholders 
focus on investment returns. Therefore, it is by no means possible to adopt the government's way 
of thinking and practice to subsidize a company gratis.  
At the end of 2019, the IC Fund investment period ended and entered the exit period. As of now, in 
less than half a year, the  IC Fund has been partially withdrawn from 8 previous ly decided  projects 
in cumulative terms , with an exit amount of about RMB 2.8 billion. After deduct ing the investment 
costs, some investment projects have achieved an  overall yield  exceed ing 200%. With an i n-depth 
analysis of the entire fund operation  cycle, each process functions in line with the prevailing practices 
of market -based f unds. In particular when making  the invest ment decisions , the team and the 
decision -making committee would designate  rigid investment yields and exit methods as necessary 
conditions . Ineligible companies cannot obtain the investment. At present, some companies that 
have either received  the fund  or not are complaining that the threshold investment yield is too high 
or the exit method is too strict. This also indicates , from another aspect, that the IC Fund is not a 
governmen t subsidy at all.  
Question 3  
What is the difference between a "government investment fund" and a 
"government -invested industry investment fund" ? What type is the IC Fund?  
Reply : 
Please refer to the reply of Question 2.  
Question 4  
The measure that establish ed the National Strategic Emerging Industry Venture 
Investment Guidance Fund states that "when necessary, the State may promise to 
appropriately surrender profits of its investment by surrendering its distribution of excess 
profits" .3 Is this a common pro vision for all "guidance funds" ? Do "government 
investment funds" or "government -invested industry investment funds" also contain this 
same provision?  
Reply : 
China holds that the question list of subsidy notification shall be based on  the subsidy notification 
submitted by the member s. 
Question 5  
The United States previously asked about the Jiangxi Province Interim Measure on the 
Administration of the Strategic Emerging Industries Investment Guidance Fund , Jiangxi 
Provincial People's Go vernment (2 7 March  2012) .4 This provincial level SEI Guidance 
Fund appears to not only provide investment support, but also uses government 
regulatory agencies to encourage financial institutions to provide loans to target 
investment projects . For instanc e, the measure states "Article  12. Enhance cooperation 
with financial institutions, and encourage financial institutions to provide loan support . 
The Managing Commission5 Office will recommend the preferred projects to financial 
institutions . After financ ial institutions examine [the investment], they will reply to the 
 
3 State Council Reply Letter on Establishment of the National Strategic Emerging Industry Venture 
Investment Guidance Fund (Guo Han [2015] No.  131), Section 9(2).  
4 G/SCM/Q2/CHN/74.  
5 The Managing Commission is composed of various provinc ial government officials, including the 
Executive Deputy Governor of the Jiangxi Provincial Government, see Jiangxi Province Interim Measure on the 
Administration of the Strategic Emerging Industries Investment Guidance Fund, Jiangxi Provincial People's 
Government (27  March  2012), Article 5.  G/SCM/Q2/CHN/94  
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  Managing Commission Office with the projects passed by the loan committee and the 
credit line amount . For financial institutions that provide loan support to the enterprise 
taking up the pro ject in the amount 6 times or more compared to the guiding funds 
invested, the Managing Commission, having examined and agreeing, may provide it [the 
lending financial institution] a onetime award, the award amount will be equivalent to 5 % 
of the loan prin ciple, and will come out of the listed expenditures of the guidance fund for 
that year ." Is this a common provision for all "guidance funds" ? Do "government 
investment funds" or "government -invested industry investment funds" also contain this 
same provisi on? 
Reply : 
China holds that the question list of subsidy notification shall be based on  the subsidy notification 
submitted by the member s. 
Question 6  
In replying to a question concerning the Central State -Owned Capital Management 
Budget, China appears to be stating that injections of capital by the government into 
state -owned enterprises "is beyond the scope of subsidies defined by the WTO" . However, 
Article 1 of the Subsidies Agreement clearly includes government equity investments as 
a "financ ial contribution" . And Article 14 clearly considers that a government equity 
investment that is inconsistent with the usual investment practice (including for the 
provision of risk capital) of private investors provides a benefit . Does China agree that 
government equity investments inconsistent with the usual investment practice of private 
investors (including for the provision of risk capital) should be considered a subsidy under 
the Subsidies Agreement?  
Reply : 
First, the Central State -Owned Capital Manage ment Budget is the revenue and expenditure budget 
that the state obtains and distribute s the returns of  state-owned capital as the owner in accordance 
with the law. The State -owned Assets Supervision and Administration Commission  provide the 
capital as the  investors ' representative rather than the government 's public administration 
department, and the injected capital is thus not a  financial assistance. Second , as the state is a 
shareholder of state -owned enterprise s, it is fulfilling the rights and obligat ions of a shareholder  
increas ing the capital in the invested enterprise by injecting the capital from state-owned capital 
management budget. This is identical with other shareholders increasing capital in enterprise s, not 
inconsistent with t he usual practices of private investors . Therefore, it should not be regarded as a 
subsid y. 
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