G/SCM/Q2/CHN/47  
 
19 April 2013  
(13-2093)  Page: 1/8  
Committee on Subsidies 
and Countervailing Measures 
 Original: English  
 
 SUBSIDIES 
REPLIES TO QUESTIONS POSED BY THE UNITED STATES1 REGARDING THE  
NEW AND FULL SUBSIDIES NOTIFICATION OF CHINA2 
The following communication, dated 19 April 2013, is being circulated at the request of the 
Delegation of China. 
 
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Program 18 – Fiscal fund to alleviate poverty 
 
Why is this program being notified if it provides "subsidies to individuals and 
organizations for individual subsidization, infrastructure construction and training 
programs in poverty stricken areas."?  
Reply 
 
China submits the subsidy notification pursuant to Article 21.5 of the Agreement on Subsidies and 
Countervailing Measures (the SCM Agreement) with the aim to observe the transparency obligation 
under this agreement. China does not prejudge the nature of the notified programs. It seems that 
program 18 constitutes a specific subsidy with in the meaning of the SCM agreement, for it 
provides support to producers and intermediary agencies in poverty-stricken areas. 
 
Program 50 – Fund for optimizing the import and export structure of mechanical and 
electrical products as well as high-tech products 
 1. Please provide all the eligibility criter ia by which enterprises or industrial 
associations are selected to re ceive funds under the program. 
 
Reply 
 This fund is provided to support projects for co nstruction of general platforms of common services 
that are related to mechanical, electrical products and hi-tech products, such as those concerning 
personnel training, certification services, and test centre.  
2. If the legal authority under which this program has been established is no longer 
in effect, please provide the name and cite of the successor legal measure.  
 
Reply 
 
This program was terminated in 2010. There is no successor legal measure.  
 
3. Are "financial appropriations" grants? If not, please clearly describe the form of 
the subsidy ( e.g., grant, loan, tax concession). If the appropriations are in the form of a 
loan, are the terms better than market terms? 
                                               
1 G/SCM/Q2/CHN/43 and G/SCM/Q2/CHN/43/Corr.1.   
2 G/SCM/N/155/CHN-G/SCM/N/186/CHN. G/SCM/Q2/CHN/47 
 
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  Reply 
 
"Financial appropriations” here in this program are grants.  
4. What is the difference between an "inno vation base" and "exp ort base"? What are 
the specific differences with re spect to eligibility criteria?  
 
Reply 
 
Nomination of the Innovation Base aims at enhancing the integration of science and technology with industries and trade, and promoting the formation of industry clusters that have the capability 
of making innovation, that can serve as examples for their respective sectors and regions, and 
that engage actively in international collaboration.  Approval of the Export Base aims at creating a 
fair and orderly environment for competition, promoting the exchanges and cooperation between 
domestic and overseas enterprises, protecting intellectual property rights, fostering innovation 
capability, thus paving the way for sustained and healthy development of the industry. In terms of conditions and standards necessary to get the support under program 50, there is no difference 
between the Innovation Base and the Export Base. 
 5. What is a collective/common/public se rvice platform and what is its purpose? 
What are the legal means by which such entities are organized and operated? Is an 
"intermediary organization" the same as a collective/common/public service platform? 
 Reply 
 Against the background of improving the capacity  of common services, common service platforms 
aim to provide services open to all enterprises in a bid to reduce the expenses of enterprises for 
some common practices such as experiments, tests, detection, certification and training etc. to 
avoid redundant construction of facilities and to improve efficiency of resources utilization. All 
enterprises equally have access to the above-ment ioned services. Public service platforms can be 
built by intermediary institutions. 
 
6. To the extent this program provides su pport contingent upon export performance, 
please explain how China plans to bring this program into compliance with its 
obligations under Article 3 of the Subsidies Agreement. 
 Reply 
 This program is not implemented contingent up on export performance. The support provided 
under this program is to compensate partially the expenses for the purchase of related equipment, technology and common resources, for system tech nology development and for rent expenses for 
public demonstration and training. Therefore, it is in compliance with Article 3 of the Subsidies 
Agreement.  
Program 51 – Fund for promoting the trade of  agricultural, light industry and textile 
products 
 
1. Please describe all the eligibility criteria  by which projects are selected to receive 
funding under the program.  Reply 
 Projects selected to receive funding under this  program need to meet the following criteria: 
(1) foreign trade operators having obtained the lega l person status as an enterprise, registered in 
the customs territory of China and recorded in accordance with relevant laws in China, or industry 
organizations having obtained the legal person status as a social organization in the territory of China; (2) having independent and sound financ ial record and internal management system; 
(3) observing relevant laws or regulations in China without serious illegal behaviors in foreign 
trade activities; (4) for an industry organization, it should have held national or international exhibitions, seminars or trainings in recent three years and should have more than 1000 member enterprises. 
 G/SCM/Q2/CHN/47 
 
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  2. Are "financial appropriations" grants? If not, please clearly describe the form of 
the subsidy. If the appropriations are in th e form of a loan, are the terms better than 
market terms?  
Reply 
 
“Financial appropriations” here in this program are grants. 
 
3. Does funding of this program come from the foreign trade development fund? 
 Reply 
 The funding of this program comes from central foreign trade development fund. This program was terminated in 2009.  
 
Program 52 – Fund for promotion of coor dinated development of foreign trade and 
economic relations among regions 
 
Please describe the eligibility criteria by wh ich projects are selected to receive funding 
under the program. To the extent this progra m is contingent upon export performance, 
please explain how China plans to bring this program into compliance with its 
obligations under Article 3 of the Subsidies Agreement. 
 Reply 
 There is no export performance or import substitu tion requirement associated with this program.  
 
Program 87 – Fund for development of  electrical information industry 
 
1. Please explain what sectors or types of products the "electrical information 
industry" encompasses. 
 
Reply 
 
The electronic information industry, as referred to in the program, consists of software, integrated 
circuit, computer, telecommunication, network, digital audio-visual devices, etc.  
2. Please explain how the "interest disco unt" operates. For example, does a company 
receive a loan from a bank an d then receive a grant after making an interest payment? 
Or does the government provide a grant to the bank that provides the loan to the company? Does the "interest discount" me chanism operate in the same manner across 
all support programs? 
 Reply 
 The interest discount under the program refers to support given to cover the interest of loans for projects of public demonstration and promotion of innovative information technologies and for 
projects of typical application and utilization in industries or sectors of mature information 
technologies. The beneficiaries are enterprises that have utilized information technology to renovate processes of design, production, management, marketing and etc. and have resulted in impressive efficiency improvement. Enterprises submit application after completing relevant 
projects, and those projects meeting criteria will  be given the support after approval. The support 
is given only to projects that have received bank loans and have paid interest, and the amount of the support should be no more than the total amount of the interest paid. The program does not 
intervene in the process of loan application or project implementation. In practice the interest 
discount has not been implemented in the last few years.  
3. Please explain how the "venture invest ment" operates. Does a government entity 
purchase an equity share of the beneficiar y company? What government entity makes 
the investment and holds the equity share? Generally, how do the terms of the investment differ from commercial terms? Is there another form of investment? Please 
explain. G/SCM/Q2/CHN/47 
 
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  Reply 
 
Venture investment in this program refers to the practice that the government entrusts certain professional management agencies to invest in enterprises at the seed or startup stage in 
accordance with market conditions so as to provide certain guidance for the direction of social 
investment.    
Program 88 – Fund for high technology R&D for packaging industry 
 
Please describe how the intere st discounts are provided.  
 
Reply 
 
Under this program, enterprises will receive interest  subsidy after they have paid for the interest.  
 
Program 22 – Preferential tax treatment for building material products produced with 
integrated utilization of resources 
Program 23 – Preferential tax treatment for building material products produced with 
integrated utilization of resources 
 
Why do these two programs have the same title? How do the programs differ? 
 
Reply 
 
Translation of the title of program 22 in G/SCM/N/ 186(155)/CHN is wrong. The correct translation 
should be “Preferential tax treatment for enterprises utilizing resources in a comprehensive way”. China reformed its enterprise income tax regime  in 2008. The new Law on Enterprise Income Tax 
went into effect on 1 January 2008 with adjustments to preferential policies concerning enterprise 
income tax. Program 21 was the preferential enterprise income tax policy to encourage comprehensive use of resources before the reform of the enterprise income tax regime. After the 
reform it was adjusted to program 22. Program 23 is one of the preferential value-added tax 
policies to encourage comprehensive use of resources.   
 Program 28 – Preferential tax policies for enterprises making little profits 
Program 29 – Preferential tax policies for enterprises making little profits 
 
Why do these programs have the same title?  How do the programs differ?  
 
Reply 
 Program 28 and 29 are both preferential tax policies for enterprises making little profits. 
Program 28 is the preferential policy before the reform of the enterprise income tax regime 
in 2008, which was adjusted to program 29 after the reform.   
Program 31 – Preferential tax policies for enterprises that employ disabled people 
Program 32 – Preferential tax policies for enterprises that employ disabled people 
Program 33 – Preferential tax policies for enterprises that employ disabled people 
Program 34 – Preferential tax policies for enterprises that employ disabled people 
 
1. Why do these programs have the same  title? Please explain whether these 
programs are related in any way, either in terms of authorizing legal measures or in 
what the programs seek to achiev e. How do the programs differ?  
 Reply 
 These programs have the same title, for they all provide preferential tax treatments for enterprises that employ disabled people. Program 31 and 32 are preferential value-added tax policies. 
Program 33 and 34 are preferential enterprise in come tax policies. Preferential value-added tax 
policies for enterprises that employ disabled people were adjusted in July 2007. Program 31 was implemented before the adjustment, while program 32 was the succeeding measure after the adjustment. Preferential enterprise income tax policies for enterprises that employ disabled people G/SCM/Q2/CHN/47 
 
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  were also adjusted in July 2007. Program 33 was implemented before the adjustment, while 
program 34 was the succeeding measure after the adjustment.    2. Are these programs specific to certain en terprises in particular sectors or regions? 
If not, why are they being notified?  
 Reply 
 China submits the subsidy notification pursuant to  Article 21.5 of the SCM Agreement with the aim 
to observe the transparency obligation under this agreement. China does not prejudge the nature 
of the notified programs. The eligibility criteria of program 31, 32, 33 and 34 are objective and are 
not specific to certain enterprises in particular  sectors or regions. Any enterprises employing 
disabled people can benefit from these preferential tax policies if they meet those objective criteria. China will consider deleting these programs from future subsidy notification. 
 
Program 35 – Preferential tax treatment for im ported products exclusively used by the 
disabled people 
Program 36 – Preferential tax treatment for products for the disabled people 
 
These programs appear to provide tax benefi ts to disabled individuals. Why are these 
programs being notified? 
 
Reply 
 
These programs provide tax benefits to specific products, i.e. products used by disabled individuals 
rather than disabled individuals.  
Program 40 – Preferential tax policies for th e research and development of enterprises 
Program 41 – Preferential tax policies for th e research and development of enterprises 
Program 42 – Preferential tax policies for th e research and development of enterprises 
 
Why do these programs have the same titl e? Please explain how these programs are 
related in any way, either in terms of au thorizing legal measur e s  o r  i n  w h a t  t h e  
programs seek to achieve. How do the pr ograms differ? Did one or more of these 
programs replace others? 
 Reply 
 These programs are preferential enterprise income tax policies to encourage enterprises to carry out research and development activities. Prog ram 40 in this notification corresponds to 
program 26 and 27 of the subsidy notification G/ SCM/N/123/CHN, which provided preferential 
enterprise income tax policies to encourage respectively domestic and foreign enterprises to carry 
out research and development activities. Program 40 was terminated in 2005 and adjusted to program 41 from 2006 which was applied uniformly to both domestic and foreign enterprises. 
Program 41 again was adjusted to program 42 on 1 January 2008 due to the reform of the 
enterprise income tax regime in 2008.  
Program 45 – Research and development fund for industrial technologies 
 
What is the form of the subsidy (i.e., grant,  loan, tax concession, etc.)? What is the 
meaning of "financial appropriations"? 
 
Reply 
 
The support under the programme is provided in the form of grants and venture capital (VC) 
investment. “Financial appropriations” is used in China’s subsidy notification to indicate that the fund of a program is from fiscal funds co vered by the budget management system. 
 G/SCM/Q2/CHN/47 
 
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  Program 46 – Fund for supporting the techno logical innovation of the technological 
small and medium sized enterprises 
 
1. Please explain how the "interest disco unt" operates. For example, does a company 
receive a loan from a bank an d then receive a grant after making an interest payment? 
Or does the government provide a grant to the bank that provides the loan to the beneficiary company?   
 
Reply 
 Interest discount under this program is used to support innovative projects with initial small scale 
production that have received bank loans or have intention confirmed from bank to offer loans. 
Interest subsidies are granted to the enterprises directly in the presence of effective loan contract and instruments confirming payment of the interest.  
 
2. Please explain how "capital investme nt" operates. Does a government entity 
purchase an equity share of the beneficiar y company? What government entity makes 
the investment and holds the equity share? Generally, how do the terms of the 
investment differ from market terms? Is there another form of investment? Please 
explain.  
Reply 
 
“Capital investment” under this program operates in the form of venture capital, which makes 
equity investment periodically in target enterprises. The equity participation period is usually no 
more than 5 years and the shareholding ratio no t exceeding 25% of the paid-in capital of the 
invested enterprises. Also, it will not be the largest shareholder and will not get involved in the 
daily operation and management of the enterprise s. Such an approach is to encourage more 
venture capital to invest in start-up high-tech small and medium sized enterprises.  3. How is "capital investment" differe nt from "venture investment" (see 
Program 87)?   
 Reply 
 Capital investment mentioned in the notification of China operates mainly by way of venture capital investment. 
 
Program 48 – Special fund for establishment of service systems for SMEs 
  
Under "To whom and how the subsidy is provided," the notification states: 
The fund is provided as grant to enti ties which provide services to SMEs.  
For those who provide training servic es to the SMEs, rent charges of 
training venue, payments to the le cturers and expenses on teaching 
materials may be fully subsidized by the fund, and accommodations 
incurred by the training services may be subsidized at a maximum of RMB 
150 person/day.  For those who provide credit services to SMEs, the 
actual expenses may be subsidized as appropriate.  For those who provide 
services for SMEs to start busine ss, the actual expenses may be 
subsidized as appropriate.  For those  who provide management consulting 
services for SMEs, the actual expenses  may be subsidized as appropriate. 
 
1. Please explain more fully how the subsid y is provided under this program? Does 
the service provider or the SME apply for the subsidy? 
 
Reply 
 
The fund for establishment of service systems for SMEs was established in accordance with the 
requirement of the Law of the People's Republic of China on Promotion of Small and Medium-sized Enterprises. The fund was earmarked for institutions providing services to SMEs. The institutions, after providing such services as training, busine ss starting-up, management consultation etc. to 
SMEs, may apply to provincial-level authorities in charge of SMEs affairs for the support. The G/SCM/Q2/CHN/47 
 
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  authorities, after reviewing the applications jointly with finance authorities, will forward the 
applications to the Ministry of Industry and Information Technology and the Ministry of Finance for final approval.  
2. Is the subsidy always paid directly to  the service supplier? If so, how does the 
benefit accrue to the SME? Does the govern ment require that a lower price be charged 
to the SME? 
 
Reply 
 The support under this notified programme is given to institutions that provide services to SMEs. 
China notifies the program to present a comprehensive picture of its subsidies for SMEs. China 
believes that establishment of the program will encourage various institutions to provide services to SMEs, thus indirectly promoting the growth of  SMEs, in particular small and micro businesses. 
The government does not require those service prov iders to charge less for their services provided 
to SMEs.  
3. What does it mean that "the actual ex penses may be subsidized"? For example, is 
a lower price charged by the servic e supplier who then is reimbursed? 
 Reply 
 “The actual expenses may be subsidized” means that the government by way of subsidy will compensate a certain percentage of the expenses of the institutions occurred for their provision of 
services to SMEs. 
 Program 75 – Interest Discount for poultry industry 
 What is the precise mechanism by which "the interest rate ... may be subsidized"? Does 
the farmer receive a grant after making an in terest payment, or does the bank receive a 
grant to charge a lower interest rate?  
 
Reply 
 
Interest discount under the program refers to grant from the fiscal fund of the State to qualified 
enterprises which amounts to half of the interest payable for certain period of time for one-year term working capital loan from a bank. The bank charges interest from these enterprises at normal 
interest rate in the first place. After the enterprises pay the interest, they receive the grant as 
subsidy.  Program 86 – Fund for research and development of integrated circuit industry 
 What is the form of the subsidy (i.e. grant,  loan, tax concession, etc.)? For each form, 
please describe fully the nature of the subsidy and exactly how it is provided. 
 
Reply 
 
The subsidy provided under this program is in the form of grants.  
 Program 90 – Preferential Tax Treatmen t for Casting and Forging Products 
 
We understand from China's response to our questions on China's first subsidy 
notification that a list of 284 casting an d forging products manufacturers receive a 
refund of a certain percentage of their VAT paid on inputs.  
 
1. Do enterprises on this list receive a ref und on all purchases they make, or only on 
inputs used in manufacturing casting and forging products? 
 
Reply 
 Enterprises on this list receive refund of the sp ecified percentage of the VAT paid for the casting 
and forging products manufactured and sold by them.  G/SCM/Q2/CHN/47 
 
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  2. How is the value-added portion of the criteria for this program fulfilled? For 
example, is it fulfilled through the purcha se of a certain amount of inputs, e.g., 
domestically-produced inputs?  
Reply 
 
We could not understand the question “How is the value-added portion of the criteria for this 
program fulfilled?” China has made clear in its noti fication that “35% of the actually collected VAT 
shall be refunded”. As to how VAT is calculated, please refer to Provisional Regulations of the People's Republic of China on Value-Added Tax (State Council Decree 538, promulgated on 10 November 2008). Calculation of VAT has nothing to do with domestically-produced inputs. 
 
Program 91 – Preferential Tax Treatment to Dies Products 
 
We understand from China's response to our questions on China's first subsidy 
notification that a list of 160 dies manufacturers receive a re fund of a certain percentage 
of their VAT paid on inputs. 
 
1. Do enterprises on this list receive a ref und on all purchases they make, or only on 
inputs used in manufacturing dies products?  
Reply 
 
Enterprises on this list receive refund of the sp ecified percentage of the VAT paid for the dies 
products manufactured and sold by them.  
 2. How is the value-added portion of the criteria for this program fulfilled? For 
example, is it fulfilled through the purcha se of a certain amount of inputs, e.g., 
domestically-produced inputs?  Reply 
 We could not understand the question “How is the value-added portion of the criteria for this program fulfilled?” China has made clear in its no tification that “70% (35% after 2006) of the 
actually collected VAT shall be refunded”. As to how to calculate VAT, please refer to Provisional 
Regulations of the People's Republic of China on Value-Added Tax (State Council Decree 538, promulgated on 10 November 2008). Calculation of  VAT has nothing to do with domestically- 
produced inputs. 
   
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