G/SCM/Q2/CHN/49  
 
17 October 2013  
(13-5707)  Page: 1/7  
Committee on Subsidies and Countervailing Measures 
 Original: English  
 
 SUBSIDIES 
REPLIES TO QUESTIONS POSED BY JAPAN1 REGARDING THE 
NEW AND FULL NOTIFICATION OF CHINA2 
The following communication, dated 16 October 2013, is being circulated at the request of the 
Delegation of China.  
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General 
 
Question 1  
While we appreciate the second notification of China (G/SCM/N/155/CHN-
G/SCM/N/186/CHN), the second notification covers only those programmes granted or 
maintained at the central government level from 2005 to 2008. When does China plan to 
submit notification which covers the subs idies granted or maintained from 2009 
to 2010? Why do notifications by Ch ina always cover 5-year terms? 
 
Reply 
 
For China’s future subsidy notification for 2009 through 2012, it will not be too difficult if covering only central programs. However, if local programs are to be incorporated, it will be very much 
different and more complicated, requiring abundant information from local levels to be gathered 
and analyzed. As for the so-called 5-year term notification of China, it should be clarified that China in fact does not have such a concept. Subsidy notification entails huge amount of technical 
work and this has always been a tremendous challenge for China as a large developing country. 
China was in the arduous process of collecting, analyzing and assimilating information for its preparation of the first and second notifications, evidencing China’s efforts to fulfil the notification 
obligation. Now to work out a notification with local programs also covered would again never be 
an easy task. Nevertheless, China will continue its efforts for submission of a new notification.  Question 2 
 
At the Committee meeting in October 2011, the delegate of China explained to the 
Committee that China would work towards incorporating local programmes into the 
notification (G/SCM/M/79). When does China plan to submit notification which includes 
the programmes granted or maintained at bo th the central and the local government 
level?  
 
Reply 
 As mentioned above, subsidy notification entails huge amount of technical work on information 
gathering and analysis and this is particularly a challenge for China as a large developing country. 
China since its WTO accession has concentrated its efforts on notifying comprehensively central programs as a first step. Now based on the experiences gathered, China will work towards 
                                               
1 G/SCM/Q2/CHN/45.   
2 G/SCM/N/155/CHN-G/SCM/N/186/CHN. G/SCM/Q2/CHN/49 
 
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  incorporating those at the sub-central levels. At this stage it is still difficult for China to propose a 
specific timetable.    Preferential tax policies for enterprises with foreign investment recognized as high or 
new technology enterprises established in th e State high or new technology industrial 
development zones (No. 8) 
 
Preferential tax policies for enterprises recognized as high or new technology 
enterprises established in the State high or new technology industrial development 
zones (No. 9) 
 
Preferential tax policies for high or new technology enterprises (No. 10) 
 
Question 3 
 
Please explain what kind of 'high or new tec hnology' is subject to the subsidies. If there 
are any differences in the definition of 'h igh or new technology' between these three 
subsidies, please explain these differences. 
 Reply 
 
Program 8 is a tax preferential treatment applicable to foreign invested enterprises located in high-
tech industry development zones while Program 9 is applicable to domestic enterprises located in the same zones. In the reform of the enterprise income tax regime in 2008, Program 8 and 9 were 
adjusted and integrated into Program 10, which took effect from 1 January 2008. Accordingly, 
there has been no distinction between foreign-invested and domestic enterprises when applying this tax preferential treatment. 
 
As for the definition of the high or new technology enterprises, after the adjustment, it has been the one found in Article 2 of the Notice on Printing and Distributing the Administrative Measures for Authentication of High and New Technology Enterprises (Guo Ke Fa Huo [2008] No. 172) 
(hereinafter “the Notice”), which was issued jo intly in 2008 by the Ministry of Science and 
Technology, the Ministry of Finance and the State Administration of Taxation.   
In accordance with Article 2 of the Notice, high or new technology enterprises are resident 
enterprises that have been registered in China (excluding Hong Kong, China; Macao, China and Chinese Taipei) for at least one year, that have been continuously conducting R&D and turning 
scientific research achievements into productive forces, and possess core intellectual property 
rights and conduct business activities accordingly in areas of high and new technology particularly supported by the State (see annex of the Notice). Article 10 of the Notice specifies further the detailed requirements to be met in authentication of the high and new-tech enterprises.  
 
Before the adjustment, the definition of the high  or new technology enterprises in Programs 8 
and 9 is found first in the annex of the State Council Circular on Approving State High and 
New Technology Industry Development Zones and Relevant Policies (Guo Fa [1991] No.12) and 
later in the Notice on Printing and Distributing the Conditions and Measures for Authentication of High and New Technology Enterprises in State High and New Technology Industry Development 
Zones issued by the Ministry of Science and Technology (Guo Ke Fa Huo [2000] No. 324).  
 Question 4  
Please explain the details of the eligibility cr iteria to receive these subsidies other than 
those described in paragraph 7. "To wh om and how the subsidy is provided". 
 
Reply 
 
As said in the answer to question 3, Article 10 of the Notice on Printing and Distributing the 
Administrative Measures for Authentication of Hi gh and New Technology Enterprises issued in 2008 
(Guo Ke Fa Huo [2008] No. 172) by the Ministry  of Science and Technology, the Ministry of 
Finance and the State Administration of Taxati on specifies the requirements to be met for 
recognition of high-tech enterprises, which are as follows: G/SCM/Q2/CHN/49 
 
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   Enterprises, registered in China (excluding Hong Kong China, Macao China, and Chinese 
Taipei), shall acquire proprietary intellectual property rights for their major products or services through R&D, transfer, gift, merger and acquisition and other ways within the last three years, or through possessing exclusive license for more than five years;  
 
 Their products or services shall be included within the scope of Areas of High and New 
Technology Eligible for Primary Support of the State; 
 
 Technical staff with college degrees or above shall account for over 30% of the total 
employees on the payroll and R&D personnel shall account for over 10%. 
 
Enterprises shall conduct R&D continually for the purpose of acquisition of new scientific 
knowledge (excluding the knowledge in the field of humanities and social sciences), creative application of new technologies or substantial improvement of techniques, products or services. 
The proportion of total R&D expenses to total amount of sales revenue within the last three 
accounting years shall meet the following criteria:  
 The proportion shall not be lower than 6% for enterprises with sales revenue less than 
50 million in the last year; 
 
 The proportion shall not be lower than 4% for enterprises with sales revenue totalling 
50 million to 200 million yuan; 
 
 The proportion shall not be lower than 3% for enterprises with sales revenue of over 
200 million yuan; 
 
 An enterprise’s R&D expenses incurred in China shall not be less than 60% of the total 
amount of R&D expenses. R&D expenses of enterprises that have been registered for less 
than three years shall be calculated according to its actual years in operation; 
 
 An enterprise’s revenues from high-tech products or services shall account for 60% or 
above of the total revenues in the year; 
 
 An enterprise shall meet the requirements of the Guidelines on the Administrative 
Measures for Authentication of High-Tech Enterprises (separately formulated) in terms of 
its organization and management of R&D, capacity for turning R&D achievements into productive forces, number of proprietary intellectual property rights, the growth of sales 
and total assets and other indicators. 
 Question 5  
Were the enterprises benefited from programmes No.8 -1) and No.9 -1) also eligible for 
programme No. 10 after January 2008?   
Reply 
 
Commencing from 1 January 2008, Program 8 and Program 9 have been unified and integrated 
into Program 10. Accordingly, there is no distinction between the foreign-invested and domestic 
enterprises when applying this tax preferential trea tment. If the qualification of an enterprise as a 
high-tech enterprise under Program 8/9 remained valid by the end of 2007, this enterprise may continue to enjoy the tax preferential treatment under Program 8/9 in accordance with the 
transitional arrangement as found in State Council Circular Guo Fa [2007] No. 39. Alternatively, 
such enterprise may choose to be re-recognized as a high-tech enterprise following the new procedures as stipulated in the Notice on Printing and Distributing the Administrative Measures for 
Authentication of High-Tech Enterprises issued in 2008 (Guo Ke Fa Huo [2008] No. 172) and thus 
enjoy the enterprises income tax preferential treatment under Program 10.   
Question 6 
 With regard to programme No. 8, there is seemingly the same programme in the previous notification (G/SCM/N/123/CHN), 'P referential tax policies for enterprises 
with foreign investment recognized as high or new technology enterprises established in G/SCM/Q2/CHN/49 
 
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  the State high or new technology industri al development zones, and for advanced 
technology enterprises invested in and oper ated by foreign busine ss', hereinafter called 
"No. 8 of G/SCM/N/123/CHN". In programme No. 8 of G/SCM/N/123/CHN, advanced technology enterprises invested in and oper ated by foreign businesses were provided 
with preferential tax treatment. This pr eferential treatment does not appear in 
programme No. 8 of G/SCM/N/155/CHN. Was th is part of the preferential treatment 
terminated before April 2006, when China made the notification G/SCM/N/123/CHN?  
 
Reply 
 The tax preferential policies for advanced technology enterprises, or Program 8 in 
G/SCM/N/123/CHN, is included in G/SCM/N/155/CHN-G/SCM/N/186/CHN. It is Program 6 in 
G/SCM/N/155/CHN-G/SCM/N/186/CHN.  
 
Special fund for the industrializatio n of wind power equipment (No. 26) 
 
Question 7 
 
Please explain the details of 'domestically controlled enterprises' (paragraph 7).   
 Reply 
 The program was terminated in 2009.  
Preferential tax policies for the research and development of enterprises (No. 40) 
Preferential tax policies for the research and development of enterprises (No. 41) 
Preferential tax policies for the research and development of enterprises (No. 42) 
 
Question 8  According to the notification, the duration of  No. 40 is from 2003 to the end of 2005, and 
that of No. 41 is from 2006 to the end of 2007. No. 42 is from 1 January 2008 to 
'present'. Are these three the same series of  subsidies? Please explain the relationship 
between these three. 
 
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 provide preferential 
enterprise income tax policies to encourage domestic and foreign enterprises to carry out research 
and development activities. Program 40 was terminated in 2005 and adjusted to program 41 
since 2006 which was equally applied to both domestic and foreign enterprises. Program 41 was then adjusted to program 42 on January 1 2008 due to the reform of the enterprise income tax 
regime in 2008. 
 Question 9 
 
Please explain what kind of research and development is subject to these three subsidies. Please explain the details incl uding the differences between the three. 
 
Reply 
 
According to Article 4 of Guo Shui Fa [2008] 116, which is the legal basis of Program 42, research 
and development activities under these three programs mean those in Areas of High and New 
Technology with Primary Support of the State (Guo Ke Fa Huo [2008] No. 172) and in areas listed in the Guideline on Key Areas of High Technology Industrialization with Development Priority 
(Announcement [2011] No. 10 of the National Deve lopment and Reform Commission, Ministry of 
Industry and Information Technology, Ministry of Science and Technology, Ministry of Commerce and State Intellectual Property Office).   G/SCM/Q2/CHN/49 
 
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  Question 10 
 Please explain the details of the eligibility criteria to receive these three subsidies 
including the differences between the three. 
 
Reply 
 
China believes that the information provided und er Programs 40, 41 and 42 in G/SCM/N/155/CHN-
G/SCM/N/186/CHN is clear enough to understand th e eligibility criteria to receive these three 
subsidies including the differences between the three.  
 
Question 11 
 What is the meaning of 'intangible assets'?  When the new technologies, new products 
and new techniques fail to become 'intangi ble assets', to what extent could an 
enterprise receive preferential treatment?  
Reply 
 
The definition of intangible assets is found in Article 65 of the Regulations on Implementation of 
the Law on Enterprise Income Tax (State Council Decree No. 512) promulgated in 2008, which 
means the non-material and non-currency long-term assets possessed by the enterprise for the 
purpose of producing commodities, providing labour  services, leasing or managing businesses.  
 
Fund for international market exploration by SMEs (No. 49) 
 
Question 12 
 
What is the definition of "SMEs"? Please expl ain the details of the eligibility criteria to 
receive the subsidy.   
Reply 
 
For information on the currently effective criteria for SMEs in China, see the Notice on Printing and 
Distributing the Criteria for Dividing the Types of SMEs (Gong Xin Bu Lian Qi Ye [2011]No.300) 
issued by the Ministry of Industry and Informatio n Technology, the National Bureau of Statistics, 
the National Development and Reform Commission and the Ministry of Finance.  
 
Under the programme, small and medium-sized enterp rises shall register as operators conducting 
foreign trade in accordance with law, and their import and export volumes of the previous year shall be US$45 million or less. The programme is in force. There is no restriction with regard to the 
industry in which the enterprises are engaged. Nor is there any requirement with regard to export 
performance or import substitution.  
Question 13 
 According to paragraph 7, "To whom and how the subsidy is provided", "the grant is 
allocated on the basis of the approved app lication for fund after market exploration 
activities are completed". Please explain how the allocation of the grant works in this 
programme. What is the "marke t exploration activities" and what kind of information is 
required for an enterprise to have the grant allocated?  
 
Reply 
 
Market exploration activities refer to holding or participating in overseas exhibitions, accreditation 
for quality management system, environment management system or product certification, promotion in international market or exploration in new market, organizing trainings and 
workshops, overseas biddings, etc.  
 After completion of a market exploration project, the enterprise can file a fund application. After examination, a fund will be allocated and paid though local competent authorities where this G/SCM/Q2/CHN/49 
 
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  enterprise is located, which is a certain percentage of the actual expenditure incurred (normally up 
to 50%, and maybe 70% for SMEs located in the central and west regions).  Generally speaking, when filing an application for support by this fund, the enterprise is supposed 
to provide introductions on the implementation and completion of the relevant market exploration 
project and the expenditure incurred, together with  the legitimate vouches for such expenditure, 
etc.  
 
Fund for promotion of coordinated developmen t of foreign trade and economic relations 
among regions (No. 52) 
 
Question 14 
 What does "coordinated development of fore ign trade and economic relations" mean?  
 
Reply 
 
The wording “Coordinated development of foreign trade and economic relations” mentioned in this 
program means to accelerate the development of foreign trade and economic relations in undeveloped areas in China, to narrow the gap between the undeveloped areas and other relatively more developed areas in China, to promote economic and social development in these 
regions and to increase people’s living standards with the development of foreign trade and 
economic relations, and to gradually achieve the coordinated, synchronous and sustainable 
development of the economy and society throughout the country.  
 
Question 15  
What kind of projects are subsidised under this programme? 
 Projects eligible for this program should be those for international market exploration, for promotion of innovations, for construction of public information service system for foreign trade 
and economic cooperation, for trade facilitation an d for international economic and trade academic 
and personnel exchanges and cooperation, etc. in order to accelerate development of foreign trade 
and economic cooperation in underdeveloped areas.  
 
Reply 
 
Question 16 
 To whom is this subsidy provid ed? Please explain the details of  the eligibility criteria to 
receive the subsidy; who runs the projects  aimed at exploration of international 
markets? 
 Reply 
 Local government departments for foreign trad e and economic cooperation, enterprises and 
institutions located in undeveloped areas are eligible for the support under this program. The 
program provides support for development of foreign trade and economic cooperation in relatively 
underdeveloped areas.  Question 17 
 
According to the notification, this programme started in 2000. Why does this programme not appear in the previous notifi cation of China, G/SCM/N/155/CHN? 
 
Reply 
 
This program issued in 2008 is a combination of three funds for promotion of coordinated 
development of foreign trade and economic cooperation which were established before 2008 respectively for the western region, the central region and the north-east China. These programme aimed at supporting the development in undeveloped areas by means of enhancing trading 
capacities rather than product or sector specific competitiveness. China was not sure whether G/SCM/Q2/CHN/49 
 
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  these programs constituted specific subsidies within the meaning of the SCM agreement and 
subject to notification. They therefore were not included in the 2001-2004 notification. Notifying 
this program in 2005-2008 notification or G/SCM/N/155/CHN-G/SCM/N/186/CHN is merely to make it more transparent as it to certain extent may constitute a specific subsidy under the 
SCM Agreement. However this does not mean that China now has a clear or different position on 
the nature of this program.   
 
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