WORLD TRADE  
ORGANIZATION  G/SCM/Q2/CHN/16 
25 July 2006 
 (06-3576) 
Committee on Subsidies 
and Countervailing Measures Original:   English 
 
 
 
SUBSIDIES 
 
Questions from the EUROPEAN COMMUNITIES  
Regarding the New and Full Notification of CHINA1 
 
  The following communication, dated 24 July 2006, is being circulated at the request of the Delegation of the European Commission.  
_______________ 
 
 
I. QUESTIONS CONCERNING SUBSIDIES THAT ARE INCLUDED IN THE 
NOTIFICATION 
1. (I) Preferential tax policies for foreign inv ested enterprises, and (II) Preferential tax 
policies for foreign-invested  export enterprises: 
(a) The condition of “export oriented enterpri ses”, appears to be contingent upon export 
performance in the sense of Article 3 ASCM. C ould China please indicate when its tax laws 
will be brought into full conf ormity with the obligations resulting from its WTO accession? 
 
(b) What is the total amount of these subsidy programmes (i.e. the amount in state revenue 
foregone due to the preferential tax policy) per year?  
 (c) What are the precise rules that govern the award of these subsidies for companies besides 
those mentioned in the notification? Are there ceilings on how much an enterprise can benefit 
from these programmes? Could China provide the total number of companies that have 
benefited from them?  
 (d) Please provide a complete list of all econom ic sectors that have benefited from these 
programmes in the order of the amount received? 
 
(e) There is no time-limit defined for these subsidy programmes. Does this mean that there is no 
intention by the Chinese government to terminate them? 
 (f) Are preferential tax policies for export enterpri ses just limited to foreign-invested firms or 
may domestic companies also benefit from them ? If they are also for domestic enterprises, we 
request the Chinese government to provide the pr ecise rules that govern the award of these 
subsidies to the domestic industry.  
 
                                                     
 
1 G/SCM/N/123/CHN G/SCM/Q2/CHN/16 
Page 2  
 
  2. (III, IV, V, VI, VII, VIII, IX, X, XI, XII, XIII, XIV, XV) Several further programmes 
involving preferential tax policies  
(a) Could China please provide the total amount (fo regone tax revenue) available under each of 
these programmes?  
 
(b) How many companies have benefited from th ese programmes? What is the average amount of 
subsidy under these programmes per company? What is the maximum amount of subsidy 
awarded under these programmes to a company? 
 (c) With regard to programmes promoting comp anies in special economic zones, could China 
please specify the conditions under which foreign investments can locate in these areas, in 
particular whether there is any export or local  content requirement for foreign investors in 
order to locate in these zones? 
 (d) Are the preferential tax policies also availabl e for firms operating on the domestic market, in 
particular when such firms are s ituated in special economic zones?  
 
3. (XVI and XVII) Fiscal funds to alleviate poverty 
(a) Could China please provide the total amount  available under each of these programmes?  
 (b) How many companies have benefited from the se programmes?  What is the average amount 
of subsidy under these programmes per company?   What is the maximum amount of subsidy 
awarded under these programmes to a company?  
 
4. (XIX) Preferential tax policies for en terprises which utilise waste materials 
(a) We request the Chinese government to provide clarifications on the exact scope of this 
subsidy programme. We are particularly interest ed to know if it includes metals recycling 
operations.  
 (b) Could China please explain the relation of th e programme with the subsidy program "solid 
waste" initially notified under number XVIII of Annex 5A to the Protocol of Accession of 
China to the WTO?  
 
5. (XXXI, XXXII, XXXIII) Various programmes for SMEs: 
(a) Could China please indicate how many SMEs benefited from these programmes and the 
average amount attributed to the participating companies? 
 
(b) What is the definition of SME' s for the purpose of these programmes? 
 (c) Do some or all of these programmes make th e award of the subsidy contingent upon export 
performance or the use of domestic over impor ted goods in the sense of Article 3 ASCM?  
 
6. (XL, XLI) Subsidy programmes for purchasing agricultural machinery and tools and 
for actualizing agricultural technology: 
 Can China please indicate if these subsidy programmes are also available for the purchase of 
foreign produced agricultural machinery and tools as well as foreign produced agricultural 
technology? 
  G/SCM/Q2/CHN/16 
 Page 3 
 
 
  7. (LVII) Preferential tax policies for the integrated circuit industry 
(a) Could China please provide the total amount  (foregone tax revenue) available under this 
programme?  
 (b) How many companies have benefited from th is scheme?  What is the average amount of 
subsidy under this programme per company?  What is the maximum amount of subsidy 
awarded under this programme to a company? 
 (c) Does this programme make the award of th e subsidy contingent upon export performance or 
the use of domestic over imported goods in the sense of Article 3 ASCM? 
 
8. (LVIII) Preferential tax policies for foreign in vested enterprises purchasing domestically 
produced equipments;  and (LIX) Preferenti al tax policies for domestic enterprises 
purchasing domestically produced equipmen ts for technology upgrading purpose:  
(a) These tax advantages clearly appear to be contingent upon the use of domestic over imported 
goods in the sense of Article 3 ASCM. Could Chin a please indicate when its tax laws will be 
brought into full conformity with the obligations resulting from its WTO accession? 
 (b) What is the amount (foregone tax re venue) of these subsidy programmes?  
 (c) What are the precise rules that govern the award of these subsidies for companies besides 
those mentioned in the notification?  Are ther e ceilings on how much an enterprise can benefit 
from these programmes?  Could China provide th e number of companies that have benefited 
from these schemes?   
 (d) Please provide a complete list of economic  sectors that have benefited from these 
programmes in the order of the amount received? 
 (e) There is no time-limit defined for these subsidy programmes.  Does this mean that they there 
is no intention by the Chinese government to terminate these subsidy programmes? 
 (f) Are preferential tax policies for export enterpri ses just limited to foreign-invested firms or 
may the domestic companies also benefit fro m them?  If they are also for domestic 
enterprises, we request the Chinese government to provide the precise rules that govern the 
award of these subsidies to the domestic industry. 
 
9. (LXXV) Refund of import VAT of raw copper materials 
(a) Could China please provide the total amount  (foregone tax revenue) available under this 
programme?  
 (b) How many companies in total have benefited from this scheme?  What is the average amount 
of subsidy under this programme per company?   What is the maximum amount of subsidy 
awarded under this programme to a company? 
 
(c) Is the award of the subsidy contingent upon export performance or the use of domestic over 
imported goods in the sense of Article 3 ASCM? 
 (d) This subsidy programme was presumed to have been discontinued in 2006.  Can we consider 
that the programme has been defin itively discontinued for the future? 
 G/SCM/Q2/CHN/16 
Page 4  
 
  10. (LXXVI, LXXVII, LXXVIII) Preferential tax trea tment for casting and forging, to dies 
products and to numerically controlled machine tool products:  
(a) Could China please provide the total amount available under this programme?  
 (b) How many companies in total have benefited from this scheme?  What is the average amount 
of subsidy under this programme per company?   What is the maximum amount of subsidy 
awarded under this programme to a company? 
 (c) Do some or all these programmes make the award of the subsidy contingent upon export 
performance or the use of domestic over impor ted goods in the sense of Article 3 ASCM?  
 
II. QUESTIONS CONCERNING SUBSIDIES THAT ARE NOT
 INCLUDED IN THE 
NOTIFICATION 
1.  The notification appears to focus on subsid ies provided at the federal government level.  
However, subsidies provided at the regional and local government level also fall under the ASCM 
agreement.  This includes for example, the provision  of land to enterprises at below market rates, tax 
reductions or tax waivers and direct financial transf ers at the local/regional level.  We request the 
Chinese government to notify all of these subsid y programmes and measures as soon as possible.  
 2.  Many state-owned Chinese banks have been ba iled-out or recapitalised in recent years by the 
cancellation of debts arising from non-performing loans.  We request the Chinese government to 
provide a full overview of the subsidies provided to  state-owned or state- controlled banks.  Again, 
this should include non-commercial lending on a re gional and local level.  What happened to the 
enterprises that caused the need for such bail-out by  not repaying their loans?  Did they go bankrupt 
or did they receive new loans from the recapitalised banks?  
3.  Policy banks have a role of economic promo tion in China by lending to certain enterprises or 
economic sectors.  Such lending can constitute a subs idy in the sense of Article 1 of the ASCM.  We 
request the Chinese government to include the le nding activities of Chinese policy banks to the 
enterprises or industrial sectors in their subsidy notification.   4.  Steel subsidies: Recent studies suggest that the Chinese government provides direct and 
indirect benefits to the steel industry.  These are al leged  to include direct cash grants, land grants, 
transfer of ownership interest on terms inconsistent with commerc ial considerations , conversion of 
debt to equity in steel companies on non-market terms, debt forgiveness, preferential loans, tax 
incentives, including a variety of income tax exem ptions and reductions.  We request the Chinese 
government to notify the different subsidy progra mmes which benefit the steel sector and related 
sectors.  
 5.  Several non-notified programmes of the Ch inese government have recently come to our 
attention:  -  Foreign invested Enterprises that buy new domestic equipment instead of new imported 
equipment receive VAT refunds on the domestic equipment purchased.  
 -  Profits distributed to foreign investors by Fore ign invested Enterprises that export more than 50% 
of their products, or that utilise foreign advan ced technology to produce products for exports are 
exempt from income tax.  
  G/SCM/Q2/CHN/16 
 Page 5 
 
 
  -  Foreign invested Enterprises that export more th an 50% of their products, or that utilise foreign 
advance technology to produce products for expor t, are exempt from mandatory contributions 
that help the Chinese government pay for workers/staff benefits.  
 -  By-products, substandard products , and leftover industrial surplus generated by Foreign invested 
Enterprises while producing goods for export ar e exempt from repayment tax when sold 
domestically.  Such products, if generated while  producing goods for domestic consumption, are 
not exempt.  
 -  Foreign invested Enterprises that meet certain  export criteria receive a 10 percent discount on 
lending rates from the People's Bank of China.  
 -  Based on our experience in Anti-Dumping cases it seems that certain levels of production are 
exempt from paying VAT and that traders were ab le to deduct VAT expenses even though their 
suppliers did not charge and pay VAT.  
 
 We would also ask the Chinese government to c onfirm that these programmes exist.  If they 
exist, we request China to include them in their notification.  These tax and social security payment 
advantages, as well as the reduced lending rates, ap pear to be contingent upon on export performance 
or the use of domestic over imported goods in the sense of Article 3 ASCM.  Could China please indicate when the respective laws and regulations will be brought into full conformity with the 
obligations resulting from its WTO accession if these programmes indeed exist? 
 6.  China appears to be operating a complex system  of VAT refunds on exports.  This system is 
not transparent as refunds seem to be given on a discr iminatory basis.  Discriminatory refunds could 
make the system a subsidy instrument.  It also  appears that changes to the VAT rebates are 
implemented retroactively and apply to companies in  free trade zones which should not be subject to 
VAT.  We request China to clarify their system of VAT refunds for exports and to include the scheme in their subsidy notification if it involves the provision of subsidies.   
__________