G/SCM/Q2/CHN/68  
 
24 October  2016 
(16-5804) Page: 1/5 
Committee on Subsidies and Countervailing Measures  Original: English  
 
 SUBSIDIES  
FOLLOW -UP QUESTIONS F ROM THE UNITED STATE S REGARDING  
THE NEW AND FULL NOT IFICATION OF CHINA1 
The following communication, dated 21 October 2016 , is being ci rculated at the request of the 
Delegation of  the United States . 
 
_______________  
 
 
GENERAL  
1. The United States appreciates China's answers to our previous questions.2 However, we note 
that in several instances, China did not answer the question asked because, it appears, the 
program at issue was not included in China 's latest subsidy notificat ion. This would seem to be 
contrary to the practice of all other Members who routinely ask, and answer questions about 
programs not included in a notification.3 Refusing to answer questions simply because the program 
at issue was not included in a notifica tion would seem to be contrary to the intent of the 
transparency provisions of the Agreement on Subsidies and Countervailing Measures 
(Subsidies  Agreement) and the longstanding practice of Members and the Committee on Subsidies 
and Countervailing Measures (Subsidies Committee).  Is it China 's position that if a program was 
not notified, it has no obligation to answer any questions asked about the program?  If so, could 
China explain its understanding of the legal basis under the Subsidies Agreement for not 
answering such questions, as many Members routinely do?  
QUESTIONS REGARDING NOTIFIED PROGRAMS  
Program 28 -- Preferential VAT policies for enterprises that employ disabled people . 
2. Given that this program is available to a wide range of industries "regardle ss of ownership, 
types, industries or locations, " on what basis does China consider this program to be specific under 
Article 2 of the Subsidies Agreement?  
Program 30 -- Preferential tax treatment for imported products exclusively used by the 
disabled peop le. 
3. Given that this program is available for any product used exclusively by disabled people, on 
what basis does China consider this program to be specific under Article 2 of the Subsidies 
Agreement?  What industry in China receives a benefit under Artic le 1 of the Subsidies Agreement?   
                                                
1 G/SCM/N/220/CHN - G/SCM/N/253/CHN - G/SCM/N/284/CHN.  
2 G/SCM/Q2/CHN/57 . 
3 The United States, for example, currently has three sets of questions outstanding from three different 
Members. Two of the th ree sets of questions includes questions on programs not  notified by the United States.  
G/SCM/Q2/USA/67; G/SCM/Q2/USA/64.  We will answer all of the questions asked of us, as we have always 
done in the past.  G/SCM/Q2/CHN/68  
 
- 2 - 
 
  Program 60 -- Preferential tax treatment for endangered wild animals and plants as well 
as their government of Macao SAR, China to China.  
4. China states that the only beneficiary of this program is the Office of the Admin istration of 
Import and Export of Endangered Species.  Why is China notifying a program that only benefits a 
Chinese government entity?   
Program 86 -- Preferential tax treatment for anti -HIV-AIDS medicine.   
5. China states that both imported and domesticall y produced anti -HIV-AIDS products are 
exempt from payment of VAT.  If so, how does this program provide a specific benefit under 
Articles 1 and 2 of the Subsidies Agreement?  
OTHER PROGRAMMES  
Steel 
6. China maintains that the United States ' questions on ste el programs were responded to at 
the regular meeting of the Subsidies Committee in October 2015.  While China did state during that 
meeting that it did not have certain preferential tax programs, questions about several other 
aspects of the legal measures t he United States has counter notified under Article 25.10 of the 
Subsidies Agreement have not been answered.4 For example,  The Steel Industry Adjustment and 
Revitalization Plan , Guo Fa [2009] No. 6 (20 March 2009), issued by the State Council, states, 
inter alia , that "Special funds are available  for the investment in capital construction within the 
central budget … " (emphasis added).  The United States has reviewed the financial statements of 
several Chinese steel companies which reveals various government funds have been received.  
Leaving aside for the moment the steel measures counter notified by the United States at the 
sub-central levels of government (until China 's sub -central subsidy notification is reviewed next 
spring), please describe the nature of the special funds received under the Steel Industry 
Adjustment and Revitalization Plan . 
7. The following question was asked in the United States ' initial set of question but was not 
answered: "China has never notified a steel subsidy program at either the central or sub -central 
level. Is it China's position that it has never provided a specific subsidy to the steel industry since 
becoming a WTO Member? " If not, could China please explain when it will notify such subsidies?  
Non-Ferrous  
8. China maintains tha t the United States ' questions on non -ferrous programs were responded 
to at the regular meeting of the Subsidies Committee in October 2015.  However, we see no 
reference in China 's intervention to most of the non -ferrous measures the United States has 
count er notified under Article 25.10 of the Subsidies Agreement.5 For example, the State Council 
issued the Non-Ferrous Metals Industry Adjustment and Revitalization Plan , Guo Fa [2009] No. 14 
(12 May 2009).  In this plan, the State Council, inter alia , calls fo r: (1) "further  expanding the scale 
of state purchase and storage of non -ferrous metals " (Article 4.2; emphasis added); (2) "a special 
fund for the newly added central government investments … " (Article 4.3): and (3) "increased 
support to the financing of backbone non -ferrous metal enterprises " (Article 4.9).  Leaving aside for 
the moment the non -ferrous measures counter notified by the United States at the sub -central 
levels of government (until China 's sub -central subsidy notification is reviewed next spri ng), please 
describe the nature of, and support provided under: (1) the state purchase and storage of non -
ferrous metals; (2) the special fund for newly -added central government investments; and (3) the 
increased support to the financing of backbone non -ferrous metal enterprises, received under the 
Non-Ferrous Metals Industry Adjustment and Revitalization Plan .  
9. The following question was asked in the United States ' initial set of question but was not 
answered: "China has never notified a non -ferrous met al program at either the central or sub -
central level. Is it China's position that it has never provided a specific subsidy to the non -ferrous 
                                                
4 See G/SCM/Q2/CHN/51 . 
5 G/SCM/Q2/CHN/51 . G/SCM/Q2/CHN/68  
 
- 3 - 
 
  metal industry since becoming a WTO Member? " If not, could China please explain when it will 
notify such subsidie s? 
Semiconductors  
10. The United States acknowledges and appreciates that China has notified numerous 
semiconductor programs and legal measures in the past.  However, more recent measures have 
not been notified.  While China stated in its answers that it has  responded to Article 25.8 questions 
posed by the United States and the Article 25.10 counter -notification submitted by the United 
States during the April 2013 and October 2015 meetings of the Committee, we see no specific 
reference to semiconductor measur es in China 's interventions during those meetings.  Leaving 
aside the sub -central programs for the moment (until China 's sub -central subsidy notification is 
reviewed next spring), our primary concern is the actions of the State Council in 2014 
(i.e., the Guidelines to Promote National Integrated Circuit Industry issued in June 2014 and the 
approval of the establishment of  a National IC Investment Fund  Co. Ltd  (IC Fund)),  pursuant to 
the State Council Notification Regarding National Integrated Circuits Indust ry Investment Fund 
Establishment Approval (Guo Han [2014] No. 48).  The 2014  Guidelines to Promote National 
Integrated Circuit (IC) Industry Development  appear to provide a financial contribution and benefit 
under Article 1 of the Subsidies Agreement becaus e there is a provision of government funds and 
the government investment is based upon national policy goals for the development of the 
IC industry without the expectation of specific rates of return.  In addition, this program appears to 
be specific under Article 2 of the  Subsidies Agreement  because the funds are only provided to the 
IC industry.  Please explain why the measures issued by the State Council and related 
implementing measures was not included in China 's most recent notification.  
11. On July 28,  2016 the National IC Investment Fund Co, along with the Hubei Provincial 
Government, invested an unknown amount of capital into a newly established firm known as 
Yangtze River Storage Technology, which has a registered capital of 18.9 billion RMB6. Accord ing 
to public statements from officials associated with the National IC Fund when discussing their 
investment into Yangtze River Storage, the investment was to address "the issue of more than 
one-quarter of imports are memory chips " thus the need to "imple ment the national strategy " and 
make a "major investment in Wuhan. "7 Premier Li Keqiang subsequently visited Wuhan XMC, 
a wholly owned subsidiary of Yangtze River Storage, and stated, [these investments] "could 
change the situation of massively relying on imported chips ".8 Please explain the rationale and 
commercial justification for investing in Yangtze River Storage Technology.  
Investment and Interest Rate Subsidies  
12. China states in response to the United States ' questions on investment and interest ra te 
subsidies in China that the United States should refer to China 's latest subsidy notification 
(covering central government programs).  However, the measures cited in the United States ' 
questions and counter notification9 are not included in the reference d notification.  It appears that 
China did not answer the questions asked because the programs at issue were not included in 
China 's subsidy notification.  Is it China 's position that if a program was not notified, it has no 
obligation to answer any question s asked about the program?  Please explain.  
13. There appears to be a general investment system in China funded from the central budget of 
the central government (See, Interim Measures for the Administration of Central Budget 
Investment Subsidy and Interest  Discount Projects , National Development and Reform 
Commission, Order No. 31 (8  June 2005); Interim Measures for the Administration of Central 
Budget Investment Subsidy and Interest Discount Projects , National Development and Reform 
Commission, Order  No. 3  (15 June 2013).  
                                                
6 http://company.stcn.com/2016/0801/12818334.shtml . 
7 http://www.ccidcyt.com/bdtdt/62418.htm . 
8 http://www.xmcwh.com/news_detail/newsId=66.html . 
9 See G/SCM/Q2/CHN/51, program 42 and 43 . G/SCM/Q2/CHN/68  
 
- 4 - 
 
  Article 3 of the 2013 measure states:  
Investment subsidies mentioned in these measures refer to investment subsidies 
given to local governments and investment subsidy projects given by the National 
Development and Reform Commission to qua lifying enterprises.  
Interest discounts mentioned in these measures refer to loan interest subsidies given 
by the National Development and Reform Commission to qualifying investment 
projects that utilize mid - to long -term bank loans.  
Investment subsidies a nd investment discounts are gratis investments.  
Article 4 of the 2013 measure lists as one of the focuses of this program as "Investment projects 
for … industrialization of high and new technologies." Article 23 states that projects that do not 
have confi dentiality requirements "shall be open to the public".  
a. Please explain why this program and other related implementing measures have not 
been notified pursuant to Article 25 of the Subsidies Agreement.  
b. Please describe the industries and sectors that have be nefitted under these measures.  
c. Article 7 of the 2005 measure placed limits on the amount of the investment subsidy. 
The 2013 measure does not have similar limits described. Are there limits on the 
amount of the investment subsidy under the 2013 measure? If  so, please describe.  
14. There also appears to be an investment system for China's state -owned enterprises. 
In 2013, Article 2.1 of the Interpretation on 2013 Central State -owned Capital 
Management Budget  states:  
Expenditures for structural adjustment of the state -owned economy [account for] 
37.988 billion yuan, [which is] used to support strategic mergers and reorganizations 
between central enterprises, sort out equity relations in companies with multiple 
investor entities, sustain and strengthen central enterprises' controlling force on major 
subsidiaries that affect national security and national economy lifelines, as well as 
resolve the historical legacy problem of central enterprises.  
Article 2.3 of the same 2013 budget document states:  
Expenditures fo r industrial upgrading and development [account for] 17.676 billion 
yuan, [which is] used to enhance central enterprises' indigenous innovation ability, 
push forward major technology innovation and industrialization of scientific and 
technological achievem ents, carry out the "12th  Five-Year" energy saving and 
emission reduction targets and tasks, support central enterprises' energy saving and 
emission reduction work, and support central enterprises' internal industrial 
integration. …  
For 2014, Article 2.1 o f the Interpretation on 2014 Central State -owned Capital 
Management Budget  states:  
Expenditures for structural adjustment of the state -owned economy [account for] 
61.51 billion yuan, [which is] used to provide key support to major structural 
adjustment mai nly in the areas of optimizing industrial structure and capital layout, 
including central enterprises' strategic mergers and reorganizations and equity 
restructuring.  G/SCM/Q2/CHN/68  
 
- 5 - 
 
  Article 2.3 of the same 2014 budget document states:  
Expenditures for industrial upgradin g and development [account for] 15.425 billion 
yuan, [which is] used mainly to support important industries involving the lifeline of 
the national economy and industrial upgrading and development  projects in key areas, 
including breakthroughs in industrial  development bottlenecks,  breakthroughs  in 
technology bottlenecks, integration of industry and research, and development of new 
industries.  
Although outside of the relevant reporting period, in 2015, Article 3.4 of the Interpretation 
on 2015 Central State -owned Capital Management Budget  states:  
State -owned capital injections [account for] 53.6 billion yuan, including: 26.5 billion 
yuan expenditures for structural adjustment of the state -owned economy, [which is] 
used to sort out equity relations and support  enterprise structural adjustment.  
Moreover, Article 3.5 describes an 8.8 billion yuan subsidy policy for state -owned enterprises.  
a. Please explain why the programs described above (excluding the 2015 measure) have 
not been notified.  
b. What type of subsidy ( e.g., grant, equity infusion) was provided under the subsidy 
policy described in Article 3.5 of the 2015 measure? What types of industries have 
received support under this policy?  
c. What state -owned companies received capital injections and funds for restruct uring in 
2009-2014 under the measures described above?  
d. Are any of the funds under the measures described above provided under the  Ministry 
of Finance Notice on Issuing the Measure for the Administration of the Central State -
Owned Capital Management Budget  Key Industries Transformation Upgrading and 
Development Fund , Ministry of Finance, Cai Qi [2013] No. 389 (29  November 2013)?  
Please identify any measures relevant to the distribution of funds under the budget 
provisions cited above. What industries benefi ted from these funds?  
Wild Capture Fisheries  
15. The United States has counter notified forty -four fisheries subsidies measures.10 Many of 
these measures were first raised in the context of China 's trade policy review in 2014.  In response, 
China has noted that one measure is a commercial agreement; one measure is not specific; and 
two programs has been notified.  When will China notify the remaining forty measures in the 
United  States counter notification?  
16. As with other programs, China appears to be of t he opinion that if it has not notified a certain 
program, it is not obligated to answer any questions about that program.  Please explain.  
17. China has never notified a wild capture fisheries subsidies program at either the central or 
sub-central level  (with the possible exception of a preferential tax policy for a fish fries breeding 
program) . Is it China's position that it has never provided a specific subsidy to the wild capture 
fisheries industry since becoming a WTO Member?  If not, could China please e xplain when it will 
notify such subsidies?  
 
__________  
                                                
10 G/SCM/Q2/CHN/52 .