WORLD TRADE  
ORGANIZATION  G/SCM/Q2/CHN/28 
14 September 2007 
 (07-3833) 
Committee on Subsidies 
and Countervailing Measures Original:   English 
 
 
 
SUBSIDIES 
 
Replies to the Questions Posed by UNITED STATES1  
Regarding the New and Full Notification of CHINA2 
  
 The following communication, dated 7 September 2007, is being circulated at the request of 
the Delegation of China.    
_______________ 
 
GENERAL
 
 
Question 1 
 
 The United States appreciates China's effort s to notify its central government subsidy 
programmes.  However, we note that subsidie s provided at the sub-central government level 
were not included in China's notification.  Arti cle 25 specifically requires that Members include 
in their notification information on any subsidi es granted or maintained within their territory, 
which includes subsidies at both the central and sub-central levels.  Please indicate when China 
will notify subsidies provided at the sub-central level.    
Reply
 
  On notification on subsidies from local government, as indicated in the statement of the 
Chinese representative at the November 2006 WTO SCM Committee Special Meeting on Review of 
New and Full Subsidy Notifications, China is now in ternally discussing how to gather information in 
an efficient and an effective way.  Preparations for notification on local subsidies will entail education 
of local officials on the SCM Agreement in a more in-depth and technical approach.  It will also 
involve a lot of other preparatory work.  Therefore it is still difficult for China to propose a timetable 
at this stage.   
 
Question 2 
  The United States understands that the Chinese government established the State Policy Banks (the State Development Bank, the Export and Import Bank of China and the Agriculture 
Development Bank of China) in an effort to separate policy lending functions from the state-
owned commercial banks, so that state-owned commercial banks could focus on commercial lending and the State Policy Banks could focus on relatively more risky investment projects 
designed to achieve government policy objectives.   China did not include information on State 
Policy Bank loans in its notification, even though it notified these loans in part IX of Annex 5A to China's Protocol of Accession.   
                                                     
 
1 G/SCM/Q2/CHN/19.   
2 G/SCM/N/123/CHN.   G/SCM/Q2/CHN/28 
Page 2  
 
  (a) Please provide the information required by Article 25.3 of the SCM Agreement for 
policy lending from State Policy Banks.   
 
Reply
 
 
 China included lending from State Policy Banks  in Annex 5A of the Accession Protocol to 
observe the principle of transparency in the acc ession negotiations.  However, this does not mean 
China regards such lending as a specific subsidy defined by WTO which should be notified.  As introduced in Part IX of Annex 5A of the Accession Protocol, State Policy Banks raise funds through issuing bonds to commercial banks and the market.  The State budget does not provide them with 
interest rate subsidy.  As a matter of fact, Stat e Policy Banks have been running on a market-oriented 
principle, operating independently and taking full ri sks ever since their estab lishment in 1994.  There 
is no intervention from the Government in their opera tion, and there involves no subsidy at all.  In 
view of different understandings on whether lending from State Policy Banks belongs to the specific 
subsidy to be notified, China does not include inform ation in this regard in its subsidy notification, 
and neither does China believes it necessary to provid e information according to Article 25.3 of the 
SCM Agreement.    
(b) In part IX of Annex 5A to China's Protocol of Accession, China states:  "Generally, the 
State budget does not provide interest rate subsidy (sic) to the State Policy Banks.  The interest rates of the State Policy Bank loans are usually the same as market interest 
rates".  Please explain why the interest rat es of State Policy Bank loans are usually the 
same as market interest rates, given that  the State Policy Banks finance relatively more 
risky investment projects.   
 
Reply
 
 
 State Policy Banks in China operate in a market-oriented manner in their selection of projects.  
Like commercial banks, they have standard proj ect-evaluating procedures, strict credit granting 
authority mechanism, credit responsibility mech anism, cost-efficiency  mechanism and risk-
compensation mechanism.  The interest rates of th eir lending are determined by the market interest 
rates.  Therefore, the interest rates of State Polic y Bank loans are usually the same as market interest 
rates.   
 
Question 3 
  Part IX of Annex 5A to China's Protocol of Accession states that the State Policy Banks 
issue bonds to finance their lending.  The Unit ed States understands that, by law, only state-
owned commercial banks can buy these bonds and that the interest rate on these bonds is, by 
law, capped at 40 per cent of commercial bank de posit rates.  Given that these deposit rates 
currently are negative in real terms, this interest  rate cap appears to limit considerably the 
return that state-owned commercial banks can demand, particularly given the relatively more risky investment projects that the State Policy Banks finance.  Please explain why state-owned 
commercial banks continue to purch ase the bonds on these terms.   
 
Reply
 
  State Policy Banks raise fund mainly through issuing bonds in the market by taking the form 
of tendering, and the investors and interest rates of the bonds are all determined through tendering.  
The law does not stipulate state-owned commercia l banks the sole buyer of the bonds, nor does it 
stipulate the upper limit for the interest rates of the bonds of the State Policy Banks.     G/SCM/Q2/CHN/28 
 Page 3 
 
 
  Question 4 
  In paragraph 173 of the Working Party Report accompanying China's Protocol of Accession, Members of the Working Party expr essed concern because China had not included 
certain types of subsidies in Annexes 5A and 5B to the draft Protocol of Accession, including 
loans from state-owned commercial banks.  Members expressly referenced "state support 
through the banking system, notably government ow ned banks, in the form of policy loans, the 
automatic roll over of unpaid principal and int erest, forgiven and non-performing loans, and 
the selective use of below-market interest rates" .  China committed that it "would progressively 
work towards a full notification of subsidies,  as contemplated by Article 25 of the SCM 
Agreement".  Please provide the information req uired by Article 25.3 of the SCM Agreement 
for loans from state-owned commercial banks.   
 
Reply
 
 
 In China's view, loans from state-owned commerc ial banks are not subsidies as defined by the 
SCM Agreement and therefore are not subject to th e SCM notification obligation.  Commercial banks 
in China have long been operating based on commerc ial terms and considerations.  The government 
does own shares of some commercial banks.  However the role of the government in these banks is 
purely of a shareholder and there is no government interference to the independent operation of these 
banks.  In view of this, China believes there is  no necessity to incorporate loans from state-owned 
commercial banks in the subsidy notification.   
 QUESTIONS REGARDING NOTIFIED PROGRAMMES
 
 Programme I - P
REFERENTIAL TAX POLICIES FOR FOREIGN -INVESTED ENTERPRISES  
 
Question 5 
  According to China's notification, this programme provides a full refund on foreign-invested enterprise (FIE) income tax paid on reinvestments when those reinvestments are 
applied toward "the organization and expansio n of export-oriented enterprises or advanced 
technology enterprises...".  To the extent that these tax benefits are contingent upon 
exportation, they could constitute prohibited subsidies as provided under Article 3 of the SCM Agreement.   
 
(a) Please explain how this programme is consistent with China's obligations under 
Article 3 of the SCM Agreement.   
 
Reply
 
  This policy will be adjusted with the implem entation of the new Income Tax Law of the 
People's Republic of China for En terprises on 1 January 2008.   
 
Programme II
 - PREFERENTIAL TAX POLICIES FOR FOREIGN -INVESTED EXPORT ENTERPRISES  
 
Question 6 
 
 According to China's notification, expor t-oriented enterprises receive income tax 
deductions based on the amount of their export s.  Export-oriented enterprises in "special 
economic zones and economic and technological de velopment zones" receive similar benefits.  
To the extent that these benefits are continge nt upon exportation, they could constitute 
prohibited subsidies as provided under Article 3 of the SCM Agreement.  Please provide the 
following information:   G/SCM/Q2/CHN/28 
Page 4  
 
  (a) Please explain how this programme is consistent with China's obligations under 
Article 3 of the SCM Agreement.   
 
Reply
 
 
 This policy will be adjusted with the implem entation of the new Income Tax Law of the 
People's Republic of China for En terprises on 1 January 2008.   
 
(b) The notification indicates that export-orien ted FIEs are eligible for these benefits "after 
the period of enterprise income tax exemptio n or reduction".  Please explain what is 
meant by "the period of enterprise income tax exemption or reduction".   
 
Reply  
  According to the Income Tax Law of the Pe ople's Republic of China for Enterprises with 
Foreign Investment and Foreign Enterprises (1991), and Rules for the Implementation of the Income 
Tax Law of the People's Republic of China for En terprises with Foreign Investment and Foreign 
Enterprises (1991), any enterprise with foreign investme nt of a production nature scheduled to operate 
for a period of not less than ten years shall, from the year beginning to make profit, be exempted from income tax in the first and second years and allowed a fifty percent reduction in the third to fifth years.  The period of enterprise income tax exemp tion or reduction refers to these five years.   
 
Programme III - P
REFERENTIAL TAX POLICIES FOR FOREIGN -INVESTED ENTERPRISES ENGAGED IN 
AGRICULTURE , FORESTRY OR ANIMAL HUSBANDRY AND FOREIGN -INVESTED ENTERPRISES  
ESTABLISHED IN REMOTE  UNDERDEVELOPED AREAS  
 Question 7   According to China's notification, FIEs "may be allowed" to receive the fifteen to 
thirty per cent income tax reduction for locating  in underdeveloped regions.  Please provide the 
following information:    
(a) Describe the determining factors in decidi ng the precise amount of income tax reduction 
the FIE may receive;  and  
 
Reply
 
 
 There is no other stipulation in this regard besides those in the Income Tax Law of the 
People's Republic of China for Enterprises with Fo reign Investment and Foreign Enterprises, and 
Rules for the Implementation of the Income Ta x Law of the People's Republic of China for 
Enterprises with Foreign Investme nt and Foreign Enterprises.   
 
(b) Please list the eligible remote underdeveloped areas under this programme.   
 
Reply  
  Due to the fact that there is no definition of "remote underdeveloped area s" to implement this 
policy, no enterprise has received subsidies under this policy.    G/SCM/Q2/CHN/28 
 Page 5 
 
 
  Programme IV - P REFERENTIAL TAX POLICIES FOR FOREIGN -INVESTED ENTERPRISES ENGAGED IN 
ENERGY , TRANSPORTATION INFRASTRUCTURE  
 
Question 8 
 
 According to China's notification, FIE's that engage in energy and transportation 
infrastructure projects may receive a reduced income tax rate of fifteen per cent.  Please provide the following information:   (a) Please clarify what is meant by China's st atement that "the implementing scope of the 
policy ... is enlarged to nationwide".   
 
Reply
 
  "The implementing scope of the policy .... is en larged to nationwide" means that the policy 
was no longer limited to the costal economic ope n areas, the special economic zones and the old 
urban districts of the cities where economic a nd technological development zones are located, as 
originally stipulated in Art. 73.1.1.3 of the Ru les for the Implementation of the Income Tax Law of 
the People's Republic of China for Enterpri ses with Foreign Investment and Foreign 
Enterprises (1991).  According to State Council Circul ar Guo Fa No.13 of 1 999, from 1 January 1999 
on the policy was implemented nationwide.  The Circ ular is mentioned in Item 5 "Legislation under 
which it is granted" of IV.   
 Programme VI -P
REFERENTIAL TAX POLICIES FOR ENTERPRISES WITH FOREIGN INVESTMENT WHICH 
ARE TECHNOLOGY -INTENSIVE AND KNOWLEDGE -INTENSIVE  
 Question 9   According to China's notification, this programme provides an income tax rate reduction to "technology-intensive and knowledge-i ntensive" FIEs that produce products listed 
in the Ministry of Science and Technology's (M OST's) "Catalogue of High and New Technology 
Products of China".  Please provide the following information:   
 
(a) Please list the products that are classified  in the MOST's catalogue as high and new 
technology;  and 
 
Reply
 
 
 Ministry of Science and Technology, Ministry of Finance and State Administration of 
Taxation in September 2006 jointly issued a re vised 2006 Catalogue of Hi gh and New Technology 
Products of China, which replaced the previous Catalogue of High and Ne w Technology Products of 
China issued in 2000.  This 2006 Catalogue is the currently applicable one and is available at the 
website of the Ministry of Science and Technolog y http://ctpep.chinatorch.gov .cn/productmulu.asp.   
 
(b) Are any of the incentives provided under this program contingent upon export or the 
use of domestic over imported goods? 
 
Reply  
 
 The incentives provided under this policy are NOT contingent upon export or the use of 
domestic over imported goods.   G/SCM/Q2/CHN/28 
Page 6  
 
  Programme VII - P
REFERENTIAL TAX POLICIES FOR ENTERPRIS ES WITH FOREIGN INVESTMENT IN THE 
BORDER CITIES  
 
Question 10 
 
 According to China's notification, this programme provides an income tax rate 
reduction for FIEs "of a production nature" est ablished in 12 border areas.  Please provide the 
following information:    (a) Please describe the criteria that must be  met in order to receive the income tax 
reduction under this programme and, in particular, clarify the meaning of "a 
production nature";  and 
 
Reply
 
 
 The criteria that must be met in order to recei ve the income tax reduction under this policy are 
firstly, the FIEs shall be of production nature, and secondly, the FIEs shall be established in the 
12 border areas.  Definition of "FIEs of production na ture" is found in Article 72 of the Rules for the 
Implementation of the Income Tax Law of the People's Republic of China for Enterprises with 
Foreign Investment and Foreign Enterprises (1991), which reads:  "Enterprises with foreign investment of a production nature" mentioned in Artic le 7, paragraph 1 and pa ragraph 2 and Article 8, 
paragraph 1 of the Income Tax Law of the People' s Republic of China for Enterprises with Foreign 
Investment and Foreign Enterprises means enterprises with foreign investment engaged in the following industries:  (1) machine manufacturing and electronics industries;  (2) energy resource industries (not including exploitation of oil and natu ral gas);  (3) metallurgical, chemical and building 
material industries;  (4) light industries, and tex tiles and packaging industries;  (5) medical equipment 
and pharmaceutical industries;  (6) agriculture, forestry, animal husbandry, fisheries and water 
conservation;  (7) construction industries;  (8 ) transportation industries (not including passenger 
transport);  (9) development of science and technol ogy, geological survey and industrial information 
consultancy directly for services in respect of production, and services in respect of repair and 
maintenance of production equipment and precision inst ruments;  (10) other industries as specified by 
the tax authorities under the State Council".   
 
(b) Are any of the incentives provided to comp anies in the 12 border areas contingent upon 
export or the use of domestic over imported goods. 
 
Reply
 
 
 The incentives provided to FIEs in the 12 borde r areas are NOT contingent upon export or the 
use of domestic over imported goods.    Programme VIII - P
REFERENTIAL TAX POLICIES FOR ENTER PRISES WITH FOREIGN INVESTMENT 
RECOGNIZED AS HIGH OR NEW TECHNOLOGY ENTERPRIS ES ESTABLISHED IN THE STATE HIGH OR NEW 
TECHNOLOGY INDUSTRIAL DEVELOPMENT ZONES , AND FOR ADVANCED TECHNOLOGY ENTERPRISES  
INVESTED IN AND OPERATED BY FOREIGN BUSINESSES  
 
Question 11 
 
 According to the notification, this programme provides reduced income tax rates for 
FIEs that are "recognized as high or new tec hnology enterprises" and which locate to specific 
industrial development zones.  Please provi de answers to the following questions:   
 (a) Please describe the industries that qualify as "high or new technology" under this 
programme;    G/SCM/Q2/CHN/28 
 Page 7 
 
 
  Reply  
  Definition of "high or new technology" is found in  Article 4 of Circular of the Ministry of 
Science and Technology (MOST) Huo Zi [2000] No .324 issued on 23 July 2000, which is the 
currently applicable Circular.  According to Artic le 4 of the Circular, the scope of high and new 
technologies is as follows:  (1) electronic and info rmation technology;  (2) bioengineering and new 
medical and pharmaceutical technology;  (3) ne w material technology and its application;  
(4) advanced manufacturing technology;  (5) ae ro/space technology;  (6) modern agriculture 
technology;  (7) new energy and efficient ener gy-saving technology;  (8) new environmental 
protection technology;  (9) marine engineering technology;  (10) nucle ar technology and its 
application;  (11) other new processes and technologies applied in re novation and updating of 
traditional industries.    
(b) Please provide a list of the names of the ci ties where these zones are located in China;  
and 
 
Reply
 
  List of State Development Zones for High or New Technology Industries (by 1 June 2005):   
 
1 Zhong Guan Cun Technic Park 
2 Wu Han Dong Hu Hi-Tec Development Zone 
3 Nan Jing Hi-Tec Development Zone 4 Shen Yang Hi-Tec Development Zone 5 Tian Jin Hi-Tec Development Zone 6 Xi'an Hi-Tec Development Zone 
7 Cheng Du Hi-Tec Development Zone 
8 Wei Hai Torch Hi-Tec Development Zone 9 Zhong Shan Torch Hi-Tec Development Zone 10 Chang Chun Hi-Tec Development Zone 11 Harbin Hi-Tec Development Zone 12 Chang Sha Hi-Tec Development Zone 
13 Fu Zhou Hi-Tec Development Zone 
14 Guang Zhou Hi-Tec Development Zone 15 He Fei Hi-Tec Development Zone 16 Chong Qing Hi-Tec Development Zone 17 Hang Zhou Hi-Tec Development Zone 
18 Gui Lin Hi-Tec Development Zone 
19 Zheng Zhou Hi-Tec Development Zone 20 Lan Zhou Hi-Tec Development Zone 21 Shi Jia Zhuang Hi-Tec Development Zone 22 Ji Nan Hi-Tec Development Zone 23 Shang Hai Hi-Tec Development Zone 
24 Da Lian Hi-Tec Development Zone 
25 Shen Zhen Hi-Tec Development Zone 26 Xia Men Torch Hi-Tec Development Zone 27 Hai Nan International Hi-Tec Development Zone 28 Su Zhou Hi-Tec Development Zone 
29 Wu Xi Hi-Tec Development Zone 
30 Chang Zhou Hi-Tec Development Zone 31 Fo Shan Hi-Tec Development Zone 32 Hui Zhou Hi-Tec Development Zone 33 Zhu Hai Hi-Tec Development Zone 
34 Qing Dao Hi-Tec Development Zone G/SCM/Q2/CHN/28 
Page 8  
 
  35 Wei Fang Hi-Tec Development Zone 
36 Zi Bo Hi-Tec Development Zone 37 Kun Ming Hi-Tec Development Zone 38 Gui Yang Hi-Tec Development Zone 39 Nan Chang Hi-Tec Development Zone 
40 Tai Yuan Hi-Tec Development Zone 
41 Nan Ning Hi-Tec Development Zone 42 Urumchi Hi-Tec Development Zone 43 Bao Tou Xi Tu Hi-Tec Development Zone 44 Xiang Fan Hi-Tec Development Zone 
45 Zhu Zhou Hi-Tec Development Zone 
46 Luo Yang Hi-Tec Development Zone 47 Da Qing Hi-Tec Development Zone 48 Bao Ji Hi-Tec Development Zone 49 Ji Lin Hi-Tec Development Zone 
50 Mian Yang Hi-Tec Development Zone 
51 Bao Ding Hi-Tec Development Zone 52 An Shan Hi-Tec Development Zone 53 Yang Lin Agricultural and Hi-Tec Development Demonstration Zone 
 
(c) Are any of the incentives provided to companies locating in these zones contingent upon 
export or the use of domestic over imported goods?   
 
Reply
 
  The incentives provided to companies locati ng in these zones are NOT contingent upon 
export or the use of domestic over imported goods.   
 Programme IX
 - PREFERENTIAL TAX POLICIES FOR ENTER PRISES RECOGNIZED AS HIGH OR NEW 
TECHNOLOGY ENTERPRISES ESTABLISHED IN TH E STATE HIGH OR NEW TECHNOLOGY INDUSTRIAL 
DEVELOPMENT ZONES  
 
Question 12 
  According to the notification, this programme provides reduced income tax rates for enterprises that are "recognized as high or ne w technology enterprises" and which locate to 
specific industrial development zones.  Pl ease provide the following information:   
 
(a) Please provide a list of the names of the ci ties where these zones are located in China;  
and 
 
Reply
 
 
 Please refer to the answer to question 11(a).  The Circular of the Ministry of Science and 
Technology (MOST) Huo Zi [2000] No.324 mentioned in answer to question 11(a) is applicable to all 
enterprises located in the State Development Zones for High or New Technology Industries, including 
both domestic and foreign-invested enterprises.    (b) Are any of the incentives provided to companies locating in these zones contingent upon 
export or the use of domestic over imported goods?    G/SCM/Q2/CHN/28 
 Page 9 
 
 
  Reply  
  The incentives provided to companies locati ng in these zones are NOT contingent upon 
export or the use of domestic over imported goods.    
Programme XI
 - PREFERENTIAL TAX POLICIES FOR ENTERPRISES WITH FOREIGN INVESTMENT 
ESTABLISHED IN THE COSTAL ECONOMIC OPEN  AREAS AND IN THE ECONOMIC AND TECHNOLOGICAL 
DEVELOPMENT ZONES  
 
Question 13 
 
 According to China's notification, China offers preferential tax policies under this 
programme to, among other things, expand the "open-up policy".    (a) Please provide a list of the names of th e cities where these economic and technology 
development zones are located in China;  and  
 
Reply
 
  List of State Economic and Technological Development Zones (by 1 June 2005):   
 
1 Da Lian Economic-Technological Development Zones 
2 Qin Huang Dao Economic-Tec hnological Development Zones 
3 Yan Tai Economic-Technological Development Zones 4 Qing Dao Economic-Technological Development Zones 5 Ning Bo Economic-Technological Development Zones 
6 Zhan Jiang Economic-Technological Development Zones 
7 Tian Jin Economic-Technological Development Zones 8 Lian Yun Gang Economic-Technological Development Zones 9 Nan Tong Economic-Technological Development Zones 10 Guang Zhou Economic-Technological Development Zones 11 Fu Zhou Economic-Technological Development Zones 
12 Min Hang Economic-Technological Development Zones 
13 Hong Qiao Economic-Technological Development Zones 14 Cao He Jing Economic-Tec hnological Development Zones 
15 Wen Zhou Economic-Technological Development Zones 16 Kun Shan Economic-Technological Development Zones 
17 Ying Kou Economic-Technological Development Zones 
18 Wei Hai Economic-Technological Development Zones 19 Fu Qing Rong Qiao Economic-Technological Development Zones 20 Dong Shan Economic-Technological Development Zones 21 Shen Yang Economic-Technological Development Zones 22 Hang Zhou Economic-Technological Development Zones 
23 Xiao Shan Economic-Technological Development Zones 
24 Nan Sha Economic-Technological Development Zones 25 Hui Zhou Da Ya Wan Economic-Technological Development Zones 26 Beijing Economic-Technological Development Zones 27 Nan Jing Economic-Technological Development Zones 
28 Wu Han Economic-Technological Development Zones 
29 Wu Hu Economic-Technological Development Zones 30 Chang Chun Economic-Technol ogical Development Zones 
31 Harbin Economic-Technological Development Zones 32 Chong Qing Economic-Technological Development Zones 
33 Urumchi Economic-Technological Development Zones G/SCM/Q2/CHN/28 
Page 10  
 
  34 He Fei Economic-Technological Development Zones 
35 Zheng Zhou Economic-Technological Development Zones 36 Cheng Du Economic-Technological Development Zones 37 Chang Shang Economic-Technological Development Zones 38 Xi'an Economic-Technological Development Zones 
39 Kun Ming Economic-Technological Development Zones 
40 Gui Yang Economic-Technological Development Zones 41 Shi He Zi Economic-Technological Development Zones 42 Nan Chang Economic-Technological Development Zones 43 Xi Ning Economic-Technological Development Zones 
44 Hu He Hao Te Economic-T echnological Development Zones 
45 Nan Ning Economic-Technological Development Zones 46 Tai Yuan Economic-Technological Development Zones 47 Yin Chuan Economic-Technological Development Zones 48 Lhasa Economic-Technological Development Zones 
49 Lan Zhou Economic-Technological Development Zones 
50 Xia Men Hai Cang Tai Wan-Investment Area 51 Shang Hai Jin Qiao Export Processing Zone 52 Hai Nan Yang Pu Economic-T echnological Development Zones 
53 Ning Bo Da Xie Economic-Technological Development Zones 54 Su Zhou Industrial Park 
 
(b) Are any of the incentives provided to companies locating in these zones contingent upon 
export or the use of domestic over imported goods?   
 
Reply
 
 
 The incentives provided to companies locati ng in these zones are NOT contingent upon 
export or the use of domestic over imported goods.    Programme XIII - P
REFERENTIAL TAX POLICIES FOR ENTER PRISES WITH FOREIGN INVESTMENT  
ESTABLISHED IN THE THREE GORGE S OF YANGTZE RIVER ECONOMIC ZONE  
 
Question 14 
  According to China's notification, among the types of projects that qualify for preferential enterprise income tax rates under th is programme are "projects encouraged by the 
State".  In addition, a criteria to receive incentives under this programme includes projects with 
"foreign investments over US$ 30 million and having  long periods for return on investment".   
 (a) Please explain what criteria must be met in order to qualify as an "encouraged" project 
under this programme;  and 
 Reply
 
  Definition of foreign investment projects whic h are "encouraged" is found in Article 4 and 5 
of the Provisions on Guiding Direction of Foreig n Investment (State Council Decree No.346) which 
was promulgated on 11 February 2002 and became effective on 1 April 2002.   
 
 Article 4 of the Provisions reads:  Foreign i nvested projects shall be classified into four 
categories:  projects to be encouraged, permitted, restricted or prohibited.     Foreign invested projects to be encouraged, rest ricted or prohibited are listed in the Catalogue 
for the Guidance of Industries for Foreign Investment .  Those other than foreign invested projects to  G/SCM/Q2/CHN/28 
 Page 11 
 
 
  be encouraged, restricted or prohibited shall be fo reign invested projects to be permitted, which are 
not listed in the Catalogue for the Guidance of Industries for Foreign Investment.     Article 5 of the Provisions reads:  Foreign invested projects under one of the following circumstances shall be listed as encouraged ones:   
 
(1) projects applying new agricultural technology,  for comprehensive agricultural development, 
and for development of energy, communicati ons or industry of key raw materials;   
 (2) projects employing new high technology and advanced practical technology which can 
improve performance of products, increase tech-economic efficiency of enterprises, or 
manufacture new equipment or new materials wh ile the domestic productivity is deficient;   
 (3) projects that can meet the demands of ma rket, raise the grade of products, open up new 
markets or increase the competitive strength of  products in international market;   
 
(4) projects adopting new technology or equipment that can conserve energy and raw materials, 
utilize resources and renewable resources in a co mprehensive way or prevent environmental 
pollution;   
 (5) projects that can make full use of the superi ority in human and natural resources in the Mid-
west regions and that are in conformity with  the industrial policies of the State ;  or 
 (6) other circumstances provided for in la ws and administrative regulations.   
  Regarding the Catalogue for the Guidance of I ndustries for Foreign Investment mentioned in 
the Provisions, the currently applicable versi on was promulgated on 30 November 2004 by a joint 
Decree No.24 of the State Development and Refo rm Commission (NDRC) and the Ministry of 
Commerce (MOFCOM).  It became effective on 1 Janua ry 2005.  Further revision of the Catalogue is 
now under way.     Apart from that, there was a Catalogue of Pr iority Industries for Foreign Investment in 
Central and Western Region promulgated jointl y by NDRC and MOFCOM for the central and 
western region of China according to the Provisions on Guiding Direction of Foreign Investment.  Projects covered by the Catalogue are also encouraged  by the State.  The currently applicable version 
of the Catalogue was promulgate d on 23 July 2004 by a joint Decree No.13 of NDRC and MOFCOM.  
It became effective on 1 September 2004.   
 
(b) Are any of the incentives provided to companies locating in these zones contingent upon 
export or the use of domestic over imported goods? 
 
Reply
 
 
 The incentives provided to companies locati ng in these zones are NOT contingent upon 
export or the use of domestic over imported goods.    Programme XIV - P
REFERENTIAL TAX POLICIES IN THE WESTERN REGIONS  
 Question 15   According to China's notification, there are various catalogues such as the "Catalogue for the Guidance of the Foreign Investment Indu stries" which list those industries/sectors that 
qualify as "encouraged" and investors investing in  those areas are eligible to receive an income 
tax reduction.  It is the United States' understanding that some of the catalogues, such as the G/SCM/Q2/CHN/28 
Page 12  
 
  "Catalogue for the Guidance of the Foreign Investment Industries", include an "encouraged" 
category described as "Permitted foreign-funded pr ojects whose products are to be wholly 
exported directly" (see provision XIII of th e Catalogue for the Guidance of the Foreign 
Investment Industries).  To the extent that be nefits under this programme are contingent upon 
exportation, it would appear to constitute a pr ohibited subsidy within the meaning of Article 3 
of the SCM Agreement.   
 (a) Please explain how this programme is with consistent China's obligations under 
Article 3 of the SCM Agreement.   
 Reply
 
  This policy is to be adjusted along the re vision of the Catalogue for the Guidance of 
Industries for Foreign Investment which is now under way.    
Programme XXVI - P
REFERENTIAL TAX POLICIES FOR THE RESEARCH AND DEVELOPMENT OF 
ENTERPRISES  
 
Question 16 
  According to China's notification, this programme allows companies to offset taxable 
income for increased R&D spending for new pro ducts, new technology and new crafts.  Please 
provide the following information:    (a) Please explain whether the "offset" is a deduc tion from taxable income or a credit from 
actual tax liability;  and 
 
Reply
 
  The "offset" is a deduction from taxable income.    
(b) Please describe whether the offset appli es to the total R&D expenses for the year, or 
only to the 10 per cent increase in ex penses from the previous year.   
 
Reply
 
  The "offset" applies to the total actual expenses of domestic industrial enterprises on research 
and development of new products, ne w technologies and new crafts.   
 Programme  XXVII - P
REFERENTIAL TAX POLICIES FOR TH E RESEARCH AND DEVELOPMENT OF  
FOREIGN -INVESTED  ENTERPRISES  
 
Question 17 
 
 According to China's notification, this progr amme allows FIEs to offset taxable income 
for increased R&D spending.    (a) Please explain whether the "offset" is a deduc tion from taxable income or a credit from 
actual tax liability;  and  G/SCM/Q2/CHN/28 
 Page 13 
 
 
  Reply  
  The "offset" is a deduction from taxable income.    
(b) Please describe whether the offset appli es to the total R&D expenses for the year, or 
only to the 10 per cent increase in ex penses from the previous year.   
 
Reply
 
  The "offset" applies to the total actual expen ses of foreign-invested enterprises on research 
and development.   
 Programme XLII - F
UND PROVIDED FOR AGRICULTURAL INDUSTRIALIZATION  
 
Question 18 
 
 According to China's notification, this programme provides funding to "qualified enterprises", subject to Ministry of Finance (MOF) review of application by local governments.  
Please provide the following information:    (a) Please explain what criteria must be met by an enterprise to qualify for funding under 
this programme;  and 
 
Reply
 
  Criteria to be met by an enterprise to qualify for funding under this subsidy is found in the 
Circular of the Ministry of Finance Cai Nong No.88 of 2004, which was promulgated on 
16 July 2004.  According to the Circular, the criteria that should be met are:  (1) having registered for more than three years, with profits made in the previous year;  (2) the income from agriculture or 
processing of agricultural products and by-product s covering more than 60 per cent of the total 
income;  (3) being able to mobilize a considerab le number of farmers to engage in production, 
processing, storage, transportation and distribution of  agricultural products, or to enrol a considerable 
number of farmers as their employees, so as to promote employment and effectively increase the 
income of farmers.    
(b) Please clarify what form of funding is provided.   
 Reply
 
  Form of the funding is grant from the central budget.   
 Programme LVII - 
PREFERENTIAL TAX POLICIES FO R INTEGRATED CIRCUIT INDUSTRY  
 Question 19   According to China's notification, China provides numerous preferential tax incentives to enterprises in the integrated circuit industry.    
(a) With respect to the tax policies listed under LVII.7.(3), please clarify if the integrated 
circuit producing enterprises must be an FIE in order to qualify for the preferential tax treatment;   G/SCM/Q2/CHN/28 
Page 14  
 
  Reply
 
  The integrated circuit enterprise mentioned in LV II.7.(3) does not have to be an FIE in order 
to qualify for the same preferential tax treatment as  granted to the foreign investors in energy and 
transportation sectors.   
 
(b) With respect to the tax policies listed under programme LVII.7.(5), the notification 
indicates that the VAT rebate on sales of independently designed IC products has been terminated effective 1 April 2005.  Explain whether this VAT program is the same as that referenced under Articles 5 and 41 of the Policies For Encouraging the Development 
of Software and Integrated Circuit Industry (State Council 2000);   
 
Reply
 
  Article 5 from the State Council Circular Guo Fa No.18 of 2000 is on VAT policy for 
software.  China believes that this falls into trade in services, and ther efore has nothing to do with the 
SCM Agreement.     Article 41 of the State Council Circular is im plemented through Circulars issued jointly by 
Ministry of Finance and State Administration of Ta xation.  In September 2004, with the authorization 
from the State Council, Ministry of Finance and State Administration of Taxation jointly issued a 
Circular.  It is according to this Circular that  provisions concerning implementation of Article 41 in 
other previously issued Circulars were terminated on 1 April 2005.    
(c) With respect to the tax policies listed under LV II.7.(6), the notification indicates that the 
import VAT rebate on domestically designed integrated circuits was in effect from 
1 July 2000 through 1 October 2004.  Please explain whether this tax policy is still in 
effect; if not, provide the date of the termination for this policy;  and  
 
Reply
 
  As reflected in the notification, this po licy was terminated on 1 October 2004.   
 
(d) With respect to the tax policies listed under LVII.7.(7), please explain whether the tariff 
and import VAT exemptions under this programme are consistent with Annexes I, II and III of the SCM Agreement, including the requirement that limits duty remission and rebate schemes to "inputs that are consum ed in the production of the exported 
product (making allowances for waste)". 
 
Reply
 
  The policy mentioned in LVII. 7.(7) does not limit exemption from tariff and import duty 
only to "inputs that are consumed in the production of the exported product".  Rather, all the imported 
raw materials for self production and expendables of the eligible enterprises are entitled the 
exemption.  The policy is therefore not contingent  upon export, neither is it in anyway related to 
import substitution.  China does not see any inconsis tency with the SCM Agreement, including its 
Annex I, II and III.     G/SCM/Q2/CHN/28 
 Page 15 
 
 
  Programme  LVIII  - PREFERENTIAL TAX POLICIES FOR FOREIG N INVESTED ENTERPRISES AND FOREIGN 
ENTERPRISES WHICH HAVE ESTABLISHMENTS OR PLACE IN CHINA AND ARE ENGAGED IN PRODUCTION 
OR BUSINESS OPERATIONS PURCHASING DOMESTICALLY PRODUCED EQUIPMENTS  
 
Question 20 
 
 According to China's notification, this programme provides inco me tax deductions to 
FIEs that purchase domestically-produced equipm ent.  To the extent that this programme 
provides incentives contingent upon export or th e use of domestic over imported goods, this 
program appears to be a prohibited subsidy, pursuant to Article 3 of the SCM Agreement.  
Please provide the following information:   
 (a) Please explain how this programme is consistent with Article 3 of the SCM Agreement 
which prohibits the provision of subsidies contingent upon the use of domestic over imported goods.   
 
Reply
 
  This policy will be adjusted with the implem entation of the new Income Tax Law of the 
People's Republic of China for En terprises on 1 January 2008.   
 (b) It is the United States' understanding that the "Catalogue for the Guidance of the 
Foreign Investment Industries" includes an "encouraged" category described as "Permitted foreign-funded projects whose produc ts are to be wholly exported directly" 
(see provision XIII of the Catalogue for the Guidance of the Foreign Investment 
Industries).  Please explain how this programme  is consistent with Article 3 of the SCM 
Agreement which prohibits the provision of subsidies contingent upon export 
performance.   
 
Reply
 
  This policy is to be adjusted along the re vision of the Catalogue for the Guidance of 
Industries for Foreign Investment which is now under way.   
 
(c) Please explain the export performance criteri a for benefits under this program if an FIE 
purchases domestic equipment "outside their investment total" (see, MOF Circular Cai 
Shui No. 49.1, paragraph 3).   
 
Reply
 
  1 paragraph 3 of the Ministry of Finance Circ ular Cai Shui No. 49 of 2000 is on the situation 
when purchase by a FIE of domestic equipment goes beyond its total investment.  In this situation, the 
paragraph says that the criterion for the FIE to en joy the income tax deduction is that the purchase of 
the FIE should be for the purpose of upgrading the existing equipments and crafts.  There is no export 
performance criteria involved.     G/SCM/Q2/CHN/28 
Page 16  
 
  Programme
 LIX  - PREFERENTIAL TAX POLICIES FOR DOMESTIC ENTERPRISES PURCHASING  
DOMESTICALLY PRODUCED EQUIPMENTS FOR TECHNOLOGY UPGRADING PURPOSE  
 
Question 21 
 
 According to China's notification, this programme provides inco me tax deductions to 
domestic enterprises based on the purchase of domestically produced equipment for upgrading 
projects that are "consistent with the state industr ial policies of the domest ic enterprises".  To 
the extent that this programme provides incenti ves contingent upon export performance or the 
use of domestic over imported goods, this prog ramme appears to be a prohibited subsidy, 
pursuant to Article 3 of the SCM Agreement.  Please answer the following questions:   
 (a) Please explain how this programme is consistent with China's obligations under 
Article 3 of the SCM Agreement which prohibits the provision of subsidies contingent upon the use of domestic over imported goods;  
 
Reply
 
  This policy will be adjusted with the impl ementation of the new Income Tax Law of the 
People's Republic of China for Enterprises on 1 January 2008. 
 (b) Please describe the criteria for determining whether a project is "consistent with the 
state industrial policies".   
 
Reply
 
 
 According to Article 6 and 7 of the Ministry of Finance Circular Cai Shui No. 290 of 1999, 
projects consistent with state industr ial policies refer to those consiste nt with the Current Priorities for 
Fixed Assets Investment in Industrial and Commercial Sectors issued by State Economic and Trade Commission (SETC) in its Circular Guo Jing Mao Tou Zi No.256 of 1999.  However, the Current 
Priorities for Fixed Assets Investment in Industrial and Commercial Sectors issued by SETC in 1999 has been replaced by the Catalogue for the Guidance of Industrial St ructure Adjustment (2005), which 
was issued by National Development and Reform  Commission in its Decree No. 40 of 2005.   
 
(c) Please explain the export performance cri teria under Article 6 of MOF Circular Cai 
Shui No. 290.   
 Reply
 
  What was stipulated in the Ci rcular Cai Shui No. 290 of 1999 jointly issued by Ministry of 
Finance (MOF) and State Administration of Taxati on (SAT) was that domestic enterprises may enjoy 
income tax deductions when purchasing domestically  produced equipments on the condition that 
purchase of the domestically produced equipments must be for the purpose of technology upgrading 
of existing facilities, equipments and crafts.  Anot her Circular (Cai Shui No. 49 of 2000) jointly 
issued by MOF and SAT stipulated on the cases wh en a foreign invested enterprise may enjoy the 
income tax deduction, that is, the investment of  the FIE in purchasing the domestically produced 
equipments should either be within the total invest ment of its investment project, or if it goes beyond 
the total investment, should be for the purpose of technology upgrading of current facilities, 
equipments and crafts.  Article 6 in Circular Ca i Shui No. 290 of 1999 and Ar ticle 1 paragraph 3 in 
Circular Cai Shui No.49 of 2000 used the same wo rding, which said that the domestically produced 
equipments must be purchased for the purpose of  technology upgrading of existing facilities, 
equipments and crafts.  Neither of them  is related to export performance.   
 
  G/SCM/Q2/CHN/28 
 Page 17 
 
 
  Programme LX- R EFUND OF TARIFF AND IMPORT VAT FOR THE IMPORTED TECHNOLOGY AND 
EQUIPMENT  
 
Question 22 
 
 According to China's notification, FIEs receive tariff and VAT refunds or rebates for 
imported technology and equipment.  It is th e United States' understanding that the "Catalogue 
for the Guidance of the Foreign Investment Industries", includes an "encouraged" category described as "Permitted foreign-funded projects wh ose products are to be wholly exported 
directly" (see provision XIII of the Catalogue for the Guidance of the Foreign Investment 
Industries).  To the extent that benefits under this programme are contingent upon exportation, 
it would appear to constitute a prohibited subsidy within the meaning of Article 3 of the SCM Agreement.    (a) Please explain how this programme is consistent with China's obligations under 
Article 3 of the SCM Agreement.   
 
Reply
 
  This policy is to be adjusted along the re vision of the Catalogue for the Guidance of 
Industries for Foreign Investment which is now under way.   
 
(b) Has this programme been terminated or modified?  If so, please explain.   
 
Reply
 
 
 This policy is currently still effective.   
 Programme LXXV - R
EFUND OF IMPORT VAT OF RAW COPPER MATERIALS  
 
Question 23 
 
 According to China's notification, companies with production or refining capacity of 
electrolytic copper over 30,000 tons and which "m eet the criteria of environmental protection" 
receive a 30 per cent refund of VAT on copper co ncentrate, waste copper and unrefined copper 
imported within the "approved quantitative scope".   The policy objective and/or purpose of this 
subsidy is to "promote technology upgrading of  enterprises".  Please provide the following 
information:   
 (a) Please explain whether the receipt of bene fits under this programme is contingent upon 
subsequent exportation of further-produced copper products.  If so, please explain how 
China ensures that VAT refunds provided to eligible enterprises are not excessive;   
 Reply
 
  Receipt of benefits under this policy is not c ontingent upon subsequent exportation of further-
produced copper products.    (b) Please define the "approved quantitative sco pe" for the raw materials covered by this 
programme.   G/SCM/Q2/CHN/28 
Page 18  
 
  Reply
 
  The "approved quantitative scope" for the ra w materials means the total annual import 
volume of a copper refinery which may enjoy this 30 per cent import VAT refund has to be approved 
in advance.   
 
(c) Please explain how the provision of ref unds for raw materials supports the policy 
objective of promoting "technology upgrading of enterprises";  and 
 
Reply
 
 
 The Circular of the Ministry of Finance and the State Administration of Taxation granting this 
import VAT refund also stipulated that the import VA T refunds to eligible enterprises must be used 
only for the purpose of technology upgrading and that the use of the refunds was subject to supervision and verification of the offices of the Co mmissioners of the Ministry of Finance stationed 
in relevant Provinces.   
 
(d) Please confirm whether this programme ended as of 2005, as indicated in the 
notification, and whether the programm e been replaced by any other program 
providing similar benefits with regard to these products.   
 Reply
 
  This policy ended at the end of 2005.    Programme
 LXXVI  - PREFERENTIAL TAX TREATMENT FOR CASTING AND FORGING PRODUCTS  
 
Question 24 
  According to China's notification, this programme provides a refund of 35 percent of the VAT collected on casting and forging products "manufactured and sold by the 
284 specialized casting and forging enterprises" listed in the annex to MOF Circular Cai Shui 
No. 96 of 2003.  Because the benefits provided under this programme are contingent upon the 
purchase of goods from domestic manufacturers, it  may be a prohibited subsidy under Article 3 
of the SCM Agreement.  Please provide the following information:    (a) Please explain how this programme is consistent with China's obligations under 
Article 3 of the SCM Agreement;   
 
Reply
 
  After reform of the tax regime in 1994, the casting and forging enterp rises turned to pay VAT 
instead of the previous product tax.  As a result, their tax burden was heavier.   To reduce to certain 
extent the tax burden of these enterprises for smooth adaptation to the new tax regime, the 
Government decided to refund them a certain percen tage of their VAT paid.  The criteria for selection 
of the applicable enterprises include output of th e enterprise, added value of the products, technology 
level, energy consumption level, environment protect ion standards, etc.  This policy allows refund to 
284 enterprises meeting the above criteria of a certa in percentage of the VAT they paid for their 
casting and forging products.  It is not refund to buyers, and there is no problem of import 
substitution.  This policy therefore should not be classified as the prohibited subsidy as defined in 
Article 3 of the SCM Agreement.      G/SCM/Q2/CHN/28 
 Page 19 
 
 
  (b) Please explain who receives the VAT refund, e.g., the producer or the buyer of these 
casting and forging products;   
 
Reply  
 
 As said in the answer to Question (a), this policy refunds 284 enterprises meeting the criteria 
a certain percentage of the VAT th ey paid for their casting and forging products. It is not refund to 
buyers.    
(c) Did this program end as of 31 December 2005?  If so, has the program been replaced by 
any other programme providing similar benefits with regard to these products?   
 
Reply
 
  A Circular had been issued by the Ministry of Finance and State Administration of Taxation, 
extending the policy to the end of 2008.   
 Programme LXXVII - P
REFERENTIAL TAX TREATMENT TO DIES PRODUCTS  
 
Question 25 
 
 According to China's notification, this programme provides a refund of 70 per cent of 
the VAT collected on "dies products manufac tured and sold by the 160 specialized dies 
manufacturing enterprises" lis ted in the annex to MOF Circulars Cai Shui No. 139 of 1998 and 
Cai Shui No. 95 of 2003.  Because the benefits provided under this programme are contingent 
upon the purchase of goods from domestic manufac turers, it may be a prohibited subsidy under 
Article 3 of the SCM Agreement.  Please provide the following information:   
 (a) Please explain how this programme is consistent with China's obligations under 
Article 3 of the SCM Agreement;  
 
Reply
 
 
 Background of the policy concerning the dies produc ts was basically the same as that of the 
casting and forging products.  After reform of  the tax regime in 1994, the dies manufacturing 
enterprises turned to pay VAT instead of the previous  product tax.  As a result, their tax burden was 
heavier.  To reduce to certain extent the tax bur den of these enterprises for smooth adaptation to the 
new tax regime, the Government decided to refund th em a certain percentage of their VAT paid.  The 
criteria for selection of the applicable enterprises in clude output of the enterprise, added value of the 
products, technology level, energy consumption level,  environment protection standards, etc.  This 
policy allows refund to 160 enterprises meeting the a bove criteria of a certain percentage of the VAT 
they paid for their dies products.  It is not ref und to buyers, and there is no problem of import 
substitution.  This policy therefore should not be classified as the prohibited subsidy as defined in 
Article 3 of the SCM Agreement.   
 
(b) Please explain who receives the VAT refund,  the producer or the buyer of these dies 
products;   
 Reply
 
  As explained in the answer to Question (a), this policy refunds 160 enterprises meeting the 
criteria a certain percentage of the VAT they paid for their dies products.  It is not refund to buyers.   
 G/SCM/Q2/CHN/28 
Page 20  
 
  (c) Did this programme end as of 31 Decemb er 2005?  If so, has the programme been 
replaced by any other programme providing similar benefits with regard to these 
products?   
 
Reply
 
 
 Before expiration of this policy on 31 Decembe r 2005, a Circular had been issued by the 
Ministry of Finance and State Administration of Taxation, extending the policy to the end of 2008.  
The Circular also reduced the refund percentage from 70 per cent to 50 per cent.    
Programme
 LXXVIII  -PREFERENTIAL TAX TREATMENT TO NUMERICALLY CONTROLLED MACHINE 
TOOL PRODUCTS  
 
Question 26 
 
 This programme provides a full refund of the VAT collected on "numerically controlled 
machine tool products produced and sold by certain numerically controlled machine tool 
manufacturing enterprises".  Because the benefits provided under this programme are contingent upon the purchase of goods from dom estic manufacturers, it may be a prohibited 
subsidy under Article 3 of the SCM Agreement.  Please provide the following information: 
 
(a) Please explain how this program is consiste nt with China's obligations under Article 3 of 
the SCM Agreement;  
 
Reply
 
 
 Background of the policy concerning the numerical ly controlled machine tool products was 
basically the same as that of the casting and forg ing products and the dies pr oducts.  After reform of 
the tax regime in 1994, the numerically controlled machine tool manufacturing enterprises turned to 
pay VAT instead of the previous product tax.  As a result, their tax burden was heavier.  To reduce to 
certain extent the tax burden of these enterprises for smooth adaptation to the new tax regime, the 
Government decided to refund them a certain percen tage of their VAT paid.  The criteria for selection 
of the applicable enterprises include output of the enterprise, added value of the products, energy 
consumption level, environment prot ection standards, etc.  This policy allows refund to enterprises 
meeting the above criteria of a certain percentage  of the VAT they paid for their numerically 
controlled machine tool products.  It is not ref und to buyers, and there is no problem of import 
substitution.  This policy therefore should not be classified as the prohibited subsidy as defined in 
Article 3 of the SCM Agreement.   
 
(b) Please explain who receives the VAT refund,  the producer or the buyer of these machine 
tool products;  and 
 
Reply  
 
 As reflected in the answer to Question (a), th is policy refunds qualified enterprises a certain 
percentage of the VAT they paid for their numerica lly controlled machine tool products.  It is not 
refund to buyers.    (c) Did this programme end as of 31 Decemb er 2005?  If so, has the programme been 
replaced by any other programme providing similar benefits with regard to these 
products?    G/SCM/Q2/CHN/28 
 Page 21 
 
 
  Reply  
  Before expiration of this policy on 31 Decembe r 2005, a Circular had been issued by the 
Ministry of Finance and State Administration of Taxation, extending the policy to the end of 2008.  
The refund percentage was also changed to 50 per cent.   
 
OTHER PROGRAMMES
  
 
Question 27 
 
 Certain publicly available information indicates that China maintains subsidy 
programmes that meet the requirements for notifi cation under Article 25.  Please explain why 
the programmes listed in paragraphs 28-54 below have  not been notified.  If they do qualify as 
programmes that should be notified, and to the ex tent they have not yet been notified, please 
provide the information required under Article 25.3 of the SCM Agreement and other 
program-specific information as requested below.    
Reply
 
  China believes that apart from the fact that the notification China submitted in April 2006 did 
not include those from the local governments, the notification is complete based on the information 
gathered on subsidies maintained at the central government level.  If there are other policies and 
measures to be found in future which according to the SCM Agreement fall in the scope of subsidies 
to be notified, they will be incorporated in fu ture notifications from China. Responses and comments 
to US questions in paragraphs 28-54 are found below.    Financial Support to Larg e Auto Export Enterprises
 
 
Question 28 
  Information available to the United States indicates that the Ministry of Commerce (MOFCOM) is in the process of selecting 100 Chinese auto or parts manufacturers to be 
designated as "state-level auto and part export ers" who will be targeted for "financial and 
export credit support" in the form of loans an d export credits.  The selected enterprises, are 
required to have defined trademarks, efficien t production methods and a large amount of 
existing exports.  In addition to the info rmation requested above, please explain how this 
programme is consistent with China's obligations under Article 3 of the SCM Agreement.   
 
Reply
 
  In 2006, Ministry of Commerce and National Development and Reform Commission jointly 
identified 160 enterprises as "state-level auto or part exporters", yet no subsidy in the form of fiscal or 
credit support or others was given to these enterpri ses.  Therefore there is no such a problem as 
whether it is consistent with China's obligation un der Article 3 of the SCM Agreement.  Apart from 
that, in terms of the period covered by the notificatio n, it is natural that the situation of 2006 was not 
included in the notification because the notifica tion China submitted covers the period from 2001 
to 2004.    Export Contingent Support to the Software and Integrated Circuit (IC) Industries
 
 
Question 29 
  Article 12 of the "Policies For Encouraging The Development of Software and 
Integrated Circuit (IC) Industries", issued 14 July 2000 by the State Council, provides that G/SCM/Q2/CHN/28 
Page 22  
 
  exports of software will be incorporated into the import and export banking business in China 
with credits of favourable interest rates.  In a ddition to the information requested above, please 
explain how this program is consistent with China's obligations under Article 3 of the SCM Agreement.   
 Reply
 
  In its notification submitted in April 2006, China has included policies concerning the IC 
industries which should be notified according to th e SCM Agreement.  In respect of policies on 
software, China believes that they fall in the scope of trade in services, and therefore have nothing to 
do with the SCM Agreement.   
 
Export Contingent Support for Famous Name Brand Products
 
 
Question 30 
 
 According to the "Ninth Five-Year Plan on  National Economic and Social Development 
and Compendium on Long Range Goals in 2010",  China's development of its export strategy 
includes the "creation of famous brands  and improvement in added value." On 
26 January 2005, MOFCOM identified 190 Chinese famous brands in six industrial fields 
eligible for export promotion for years 2005-20 06.  In order to increase Chinese name brand 
exports and limit its reliance on foreign name  brand exports, the Chinese Government is 
offering, among others, the following incentives:    
- an Export Brands Development Fund to de velop and promote designated exports;   
 
- preferential funding for research and development products;   
 
- support for technology to strengthen the comp etitiveness of famous brand exports;   
 
- special assistance for domestic brand name en terprises to establish state-level research and 
development centres;  and 
 
- simplified loan application procedures and easy access to export credit insurance.   
  We have noted similar or im plementing programmes offered at the central or sub-central 
government levels.  Examples include: 
 
- According to a circular issued on March 24, 2005 by the State Administration for Quality 
Supervision, Inspection and Quarantine (AQS IQ), AQSIQ requested that local bureaus 
provide benefits to firms that apply for designation as a Chinese-made world famous brand such as "honorific titles", financial support a nd export credit guarantees.  Designated firms 
must be the top producer and exporter with in their industry, export to multiple foreign 
markets and have annual expor ts of over US$50 million.   
 
- Information available to the United States indi cates that in early December 2005, MOFCOM 
announced a program called "Six Initiatives to Promote Domestic Name  Brand Exports".  
Some aspects of the initiatives include:  choosing specific domestic name brands to support; 
creating policies to support those firms;  helping those firms expand abroad;  and working 
with the Ministry of Finance to appropriate  RMB 700 million to support these firms' research 
and development activities;   
  G/SCM/Q2/CHN/28 
 Page 23 
 
 
  - A programme was announced in 3 February 2005 by The Jiangsu Province Famous Brand 
Strategy Promotion Committee which selected 515 products as "Jiangsu Province Famous Brand Products";   
 
- The Wuxi government allows enterprises obtaini ng the "famous Export Brands to be Nurtured 
and Supported" to receive incentives from Wuixi city;  and 
 
- The government of Shishi County in Fujian province announced an initiative including a one-
time prize to any Shishi company accorded th e central government's "famous export brand" 
designation.   
 
 In addition to providing the information requested above, please also answer the following questions:    
(a) Please explain how these programmes are co nsistent with China's obligations under 
Article 3 of the SCM Agreement.   
 (b) Please explain the relationship between and among the various programs described 
above and how they differ.   
 
Reply
 
 
 In terms of period covered by the notificati on, the notification China has submitted covered 
the period between 2001 and 2004 .  Since 2005, the Chinese government has proposed a series of 
guidelines to encourage enterprise innovation and atta ining of intellectual property rights, and to 
support the famous brand products to strengthen the protection for intellectual property rights and 
further enhance the sense of intellectual propert y of the whole society.  These guidelines do not 
constitute subsidies themselves.  They reflect only policy direction.  Further information is to be 
collected to see whether concrete subsidy measures  are thereby implemented by central or local 
governments.  If such subsidies were indeed implem ented, and were subject to the SCM obligation of 
notification, they will be included in the future subsidy notification from China.   
 
 Regarding the questions of the US in and fo llowing Paragraph 30, China believes that its 
obligation to respond should be limite d only within the submitted notification itself.  However, in the 
spirit of cooperation it has also endeavoured to provide answers for those questions beyond the notification scope in this document as long as th ere is definite information available.   
 
 In respect of the "Export Brands Development Fund" mentioned in the question, verification 
shows that it should be "Specific Fund for Brand De velopment".  The name has no such wording as 
"export".  This fund is mainly to impulse enterprises in their brand-building, support their activities of 
brand promotion, demonstration,  presentation and communication, a nd also public services which are 
beneficial for brand-building of enterprises.  This fu nd is not "specific fund to promote the export of 
appointed brands" as mentioned in the Questions of the US.  Its support is neither specific nor 
contingent upon export performance.   
  Regarding the "simplified loan applicati on procedures" and "easy access to export credit 
insurance", in China's view, it is a natural market behaviour if a fi nancial institution provides clients it 
deems qualified with preferential treatment afte r evaluating profits and risks according to the 
condition of its business.  Enterprises with famous bra nds are usually top players in their fields with 
great strength and reliable credit and debt paying ability.  It is certainly common practice for finance institutions to offer them preferential treatment.  Such  treatment offered by financial institutions out of 
their commercial considerations has nothing to  do at all with government subsidy.   
 G/SCM/Q2/CHN/28 
Page 24  
 
   In respect of the circular of AQSIQ, i.e. the Circular on Electing World-famous Chinese 
Brands issued by the AQSIQ on 24 March 2005, the circ ular itself clearly stated that the activity was 
to elect the "World-famous Chinese Brands" th rough uniform evaluating procedures on basis of 
voluntary participation of enterprises.  The circular did not require local governments to provide preferential treatment, financial support or export credit guarantee.  It has nothing to do with subsidy.   
 
 In terms of issues concerning the subsidi es of local governments, as mentioned above, 
currently it is not yet possible for China to propose a timetable for the notification of subsidies of 
local governments.  We will endeavour to provid e Members of WTO with information of local 
subsidies, yet before the notification of local subsidies to WTO is available, such provision of 
information can only be individua lly case-based and also depends on whether definite and accurate 
information is already available.  China cannot veri fy piece by piece of the information put forward in 
the questions of the US concerning the subsidie s of local governments, nor does it have such 
obligation.    
 Concerning the "Jiangsu Province Famous-brand Pr oducts", information available shows that 
just like the above-mentioned "World-famous Chinese Brands Election", it is an activity to elect 
"Famous-brand Products of Jiangsu" in the Jiangs u Province.  The government of the province does 
not provide subsidies to the elected products.     In respect of the policies of Wuxi and Shishi , information available shows that both of them 
were abolished in 2006.   
 
Wuxi Aid to Exporters
 
 
Question 31 
 
 Information available to the United States indicates that under this programme the Wuxi government will provide grants up to RM B 100,000 to high-technology companies which 
have an export value of over US$5 million.  In addition to providing the information requested 
above, please explain how this programme is cons istent with China's obligations under Article 3 
of the SCM Agreement.   
 
Reply
 
  On questions concerning policies and measures of  local governments, China would firstly like 
to revert to the general comments made in the answ er to the question in paragraph 30.  However, on 
this specific question, information we have gath ered indicated that the policy had already been 
abolished in 2006.    
Ningbo City Export Contingent Aid fo r Textile Exporters - "Export Branding"
 
 
Question 32 
 
 Information available to the United States i ndicates that the Ningbo City International 
Trade and Economic Cooperation Bureau provides be nefits to the city's top eight textile and 
apparel brand enterprises which export ov er US$20 million, have ISO9000 certification and 
have authentication of an internationally-regis tered trademark.  The top eight brand companies 
which meet these qualifications will receive an awar d of RMB 50,000.  In addition to providing 
the information requested above, please explain ho w this programme is consistent with China's 
obligations under Article 3 of the SCM Agreement.    G/SCM/Q2/CHN/28 
 Page 25 
 
 
  Reply  
 
 On questions concerning policies and measures of  local governments, China would firstly like 
to revert to the general comments made in the answ er to the question in paragraph 30.  However, on 
this specific question, information we have gath ered indicated that the policy had already been 
abolished in 2004.   
 
Ningbo City's Jiangdong District Export Contin gent Award for Increasing Exports of Textile 
and Apparel Goods  
 
Question 33   Information available to the United States indicates that a program in Ningbo City's Jiangdong District offers benefits to certain text ile and apparel companies.  For example, textile 
and apparel companies that export over US$1 million p er year in this district are eligible for an 
award for each dollar of textile and apparel export s which exceeds the previous year's total.  In 
addition to providing the information requested  above, please explain how this programme is 
consistent with China's obligations under Article 3 of the SCM Agreement.   
 
Reply
 
 
 On questions concerning policies and measures of  local governments, China would firstly like 
to revert to the general comments made in the answ er to the question in paragraph 30.  However, on 
this specific question, information we have gath ered indicated that the policy had already been 
abolished.    Other Local Export-related Awards
 
 
Question 34 
  Information available to the United States indicates that various Chinese government 
entities at the sub-central government levels ma intain awards and direct payments for exports 
from a wide-range of industries.  Our understandi ng is that there are regional programs that tie 
monetary awards solely to the amount exported  or to a percentage growth above the previous 
year's export totals.  Examples of tho se types of programmes are as follows:   
 (a) Awards Tied to Amount Exported or Export Growth  - The Xiamen City government 
awards a one-time monetary award to all companies with Chinese brand name exports 
over US$100 million as well as year -on-year percentage growth of at least five per cent.   
 
(b) Direct Benefits to Processing Trade Exporters.   A Changxing County government 
programme in Zhejiang in which the pr ovince provides monetary awards to all 
processing trade export enterprises for trade of over US$3 million per year.   
 
(c) Award for High Year-on-Year Export Growth .  A programme in Zibo City's Zhoucun 
District based on percentage export growth over the previous year.   
 (d) Awards to Year's Top 10 Exporters.   A program in Yueqing City in Zhejiang Province 
awards the city's top 10 exporters (exp orts of over US$10 million) prizes of 
RMB 100,000.   
 (e) Reward for Each Dollar Exported.   An export programme detailed on the website of 
Lishui City in Zhejiang Province establishes a monetary award for each dollar exported.   
 G/SCM/Q2/CHN/28 
Page 26  
 
   In addition to providing the informatio n requested above, please explain how these 
programmes are consistent China's obligations under Article 3 of the SCM Agreement.   
 
Reply
 
 
 On questions concerning policies and measures of  local governments, China would firstly like 
to revert to the general comments made in the answ er to the question in paragraph 30.  However, on 
these specific questions, information collected shows that the measure of Zibo City was abolished as 
early as in 2003, while others are difficult to be verified one by one at this stage.   
 Huzhou City's Wuxing District Export Cont ingent 2005 Notice No. 9 for Encouraging Foreign 
Trade Development  
 
Question 35 
 
 According to Huzhou City's Wuxing Distri ct 2005 Notice No. 9 fo r Encouraging Foreign 
Trade Development, the government offers severa l "prizes" that are contingent upon export.  
For example, new processing firms exceeding ex ports of US$500,000 per year are given a one-
time grant of RMB 10,000, while an established processing company which exports at least 
US$5 million per year, is eligible for an award of  RMB 20,000.  In addition to providing the 
information requested above, please explain how this programme is consistent with China's 
obligations under Article 3 of the SCM Agreement.  
Reply
 
  China would firstly like to revert to the gene ral comments made in the answer to the question 
in paragraph 30 on questions concer ning policies and measures of local governments.  On this specific 
issue of Huzhou City, China is currently not in a position to verify the details.  
Export Contingent Funds for Audio-Visual Products
 
 
Question 36 
 
 Information available to the United States indi cates that in early 2005, the Ministry of 
Finance and the Ministry of Culture set up a dedicated fund to provide incentives for relevant exports.  The Department of Cultural Markets under the Ministry of Culture will manage the 
funds and provide funds for awards granted to th ose with outstanding export performance.  In 
addition to providing the information requested  above, please explain how this programme is 
consistent with China's obligations under Article 3 of the SCM Agreement.   
 
Reply
 
 
 The policy US referred to was initiated in 2005, so it is natural that it was not covered by 
the 2001-2004 notification China submitted.  China' s obligation here should be limited to providing 
answers to issues within the notification it has submitted.  However, in respect of this policy, 
information available shows that the main function of  the fund by Ministry of Culture and Ministry of 
Finance is to:  (1) support the dubbing, overseas prom otion, distribution channel building, copyright 
registration, etc. of audiovisual products;  (2) organize such activities as overseas market 
investigations, symposiums, expert witness etc. regarding promotion of Chinese culture and cover 
expenses for projects in this regard.  The primary c onclusion of the Chinese side is that this fund is 
relevant rather to trade in service,  instead of the SCM Agreement.    G/SCM/Q2/CHN/28 
 Page 27 
 
 
  Opinions Concerning Promoting Export of Pharmaceutical Products  
 
Question 37 
  Information available to the United States i ndicates that this programme, announced in 
early December 2005 by the Ministry of Comme rce and seven others ministries, provides the 
following benefits:  assistance in establishing  international pharmaceutical export bases, 
creating famous export brands that hold certai n market share in the international market, 
encouraging risk fund to enter the pharmaceuti cal R&D, and promoting intellectual property 
rights protection.  In addition to providing the information requested above, please explain how 
this program is consistent with China's obligations under Article 3 of the SCM Agreement.  
Reply
 
 
 It is natural that preparation of the 2001-2004 notification from China did not touch upon 
policy initiatives of 2005.  While China's obligati on should be limited to providing answers to issues 
within the notification it has submitted, in respect of  this question, information available shows that 
the Certain Opinions on Supporting the Pharmaceuti cal Export issued by Ministry of Commerce, 
Ministry of Health and others was only statement of general principles for guidance, and no specific 
subsidy measures have been implemented since the issuing of the Opinions.    Income Tax Reduction for Certain Encouraged Enterprises
 
 
Question 38 
  According to Article 73.6 of the Rules for the Implementation of the Income Tax Law 
(Decree [1991] No. 85 of the State Council), an income tax reduction is available to foreign 
enterprises with foreign investment engaged in pr ojects "encouraged" by the State.  As noted 
above, it is the United States understanding th at one "encouraged" category is "Permitted 
foreign-funded projects whose products are to be wholly exported directly".  In addition to 
providing the information requested above, please explain how this program is consistent with 
China's obligations under Article 3 of the SCM Agreement. 
 
Reply
 
 
 This policy is to be adjusted along the re vision of the Catalogue for the Guidance of 
Industries for Foreign Investment which is now under way.   
 
Tax Deduction for Purchasing Domestically-Produced Equipment  
 
Question 39 
  Information available to the United States indicates that foreign enterprises in the 
Shanghai Chemical Industrial Park that purcha se domestically made equipment listed in the 
Circular of the State Council on Adjustment of Imported Equipment Taxation Policies are entitled to receive a deduction of 40 per cent of  the amount of investment in such equipment 
from the enterprise income tax exceeding the income  tax paid the previous year.  In addition to 
providing the information requested above, please  explain how this programme is consistent 
with China's obligations under Article 3 of the SCM Agreement. G/SCM/Q2/CHN/28 
Page 28  
 
  Reply
 
  The policy mentioned in the question is LVIII of China's notification, and the US may refer to 
the notification for detailed information.  This polic y will be adjusted with the implementation of the 
new Income Tax Law of the People's Republic of  China for Enterprises on 1 January 2008.   
 
 Provisional Measures for the Administration of the Specific Project Funds for Research and 
Development of the Integrated Circuit (IC) Indus try;  Caijian [2005] No. 132;  23 March 2005.   
 
Provisional Measures for the Administration of the Specific Project Funds for Research and 
Development of the Integrated Circuit (IC) I ndustry;  Caijian [2005] No. 132;  23 March 2005  
 
Question 40 
  According to the above-mentioned legislatio n, issued by MOFCOM;  the Ministry of 
Information and the National Development a nd Reform Commission, Chinese firms in the 
integrated circuit industry may receive grants equal to 50 per cent of their research and development expenditures.  Please provide the information requested above.   
 
Reply
 
 
 The policy US referred to was initiated in 2005, so  it is natural that it was not covered by the 
2001-2004 notification China submitted.  As said ear lier, China's obligation should be limited to 
providing answers to issues within the notification it has submitted.  However, in respect of this 
policy, information currently available shows that the fund is arranged in the central budget to support 
the R&D of IC industry.  More specifically, it is  to cover certain expend iture related to human 
resources (training and awarding professionals), use of specialized equipments, consulting in R&D, 
and other relevant services.    
Hynix Large Scale Integrated Circuit Project in Wuxi, China
 
 
Question 41 
 
 Information available to the United St ates indicates that Hynix, the Korean 
semiconductor manufacturer, received appr oval in 2004 to build a semiconductor 
manufacturing plant in the Wuxi Export Process ing Zone in Jiangsu Province, China.  Chinese 
banks will finance US$1 billion or half of the inve stment through debt and long-term leasehold.  
In addition to the information requested  above, please answer the following:   
 (a) Is the assistance under this program contingent upon export performance?  (b) Please explain whether and under what ci rcumstances companies manufacturing in the 
Wuxi Export Processing Zones are allowed to sell manufactured goods into the domestic 
Chinese market. 
 (c) Were any state-owned bank loans provided on terms better than terms that were 
available commercially?   
 Reply
 
 
 On questions concerning policies and measures of  local governments, China would firstly like 
to revert to the general comments made in th e answer to the question in paragraph 30.   
  G/SCM/Q2/CHN/28 
 Page 29 
 
 
   However, on the Hynix Project in Wuxi, information we have gathered indicated that the 
project received loan from a bank consortium led by the China Development Bank.  The term of the loan was not preferential compared with other comme rcial loans.  China therefore does not think there 
was any assistance in this case as defined by the SC M Agreement.  Normal commercial loans as such 
have nothing to do with subsidies defined by the WTO.   
 
 There is an export processing zone in Wuxi.  The export processing zone in China is similar 
to the foreign-trade zone in the US.  For an enterp rise allowed to be established in the zone, if it wants 
to sell its products to domestic market, it should  firstly get approval and then go through import 
procedures including paying the import duty.   
 
"Five-Plus-Five" Income Tax Incentive for Inte grated Circuit Companies in Certain Locations
 
 
Question 42 
 
 Information available to the United States indicates that integrated circuit 
manufacturing companies located in Hainan  Island, Shanghai Pudong New District and 
Western China, with operational terms not less than fifteen years, are eligible for a full income tax exemption for their first five years of operation, followed by a 50 percent income tax 
reduction for the next five years.  The exemptions and reductions begin in the company's first profitable year.  Please provide the information requested above.   
 
Reply
 
 
 The situation mentioned in the US question see ms to be 7.(3) of LVII "Preferential tax 
policies for IC industry" of the notification China submitted, that is the situation where the same 
preferential tax treatment as those encouraging the fo reign investment in the energy and transportation 
sectors is applicable.    
Beijing Economic Technological Investment Development Corp.
 
 
Question 43 
 
 Information available to the United States i ndicates that the government-owned Beijing 
Economic Technological Investment Deve lopment Corp. has provided an estimated 
US$3 million interest-free, dollar-denominate d, short-term loan to Semiconductor 
Manufacturing International Corporation (SMI C), a Chinese semiconductor manufacturer.  In 
addition to the information requested above, please provide a description of the Beijing 
Economic Technological Development Corp. a nd the types of assistance it provides to 
manufacturers/companies.   
 
Reply  
 
 On questions concerning policies and measures of  local governments, China would firstly like 
to revert to the general comments made in th e answer to the question in paragraph 30.   
 However, on the specific issue of Beijing Economic  Technological Investment Development Corp., 
our understanding is that it should be an indepe ndent company established according to the Company 
Law, rather than a financial institution.  It s hould not be able to carry out loan business.   G/SCM/Q2/CHN/28 
Page 30  
 
  Policies to Promote the Paper Industry
 
 
Question 44 
  According to the China Paper Industry Yearbook for 2003-2004, the Chinese 
government issued new policies to promote the pa per industry including national bond interest 
subsidized loans, special funds for technology upgrades and support for planting trees.  Please 
provide the information requested above.   
 
Reply
 
 
 The concepts such as national bond interest s ubsidized loans mentioned in the US question 
are not accurate.  In order to support the technological transformation of enterprises to control pollution and improve environmental protection, th ere was budget allocated for interest discount for 
loans in this respect.  However,  because this interest discount was not limited only to certain 
industries or enterprises, it did not constitute a speci fic subsidy.  Neither should it be subject to the 
notification obligation under the SCM Agreement.    
Preferential Loans to Anshan Steel Group
 
 
Question 45 
 
 Information available to the United States indicates that in 2005, the China Development Bank provided the Anshan Steel Gro up with RMB 10 billion in preferential loans.  
Please provide the information requested above.   
 Reply
 
 
 Information available shows that State De velopment Bank and Anshan Steel Group signed 
in 2005 an agreement of intention for future po ssible borrowing by the Anshan Steel Group of loans 
up to RMB 10 billion at commercial interest rates.  Such an intentional ag reement only outlined room 
for future cooperation of the two sides, and did not  contain detailed terms a nd conditions of the loan 
and its repayment.  It was therefore not a lending co ntract.  China does not consider that in this case 
there was assistance in the definition of subs idy under the SCM Agreement involved.  Normal 
commercial loan as such has nothing to do with subsidy in the WTO definition.    
Interest Subsidized Loans for Handan Iron & Steel Group
 
 
Question 46 
  Information available to the United States indicates that between 2003-2005, Handan Iron & Steel Group received interest-subsidized loans worth RMB 2.4 billion to fund a 1.3 million-ton cold-rolled steel sheet project.  Pl ease provide the information requested above.   
 
Reply
 
 
 It is very much likely that the case mentioned in the question of Handan Iron & Steel Group 
was the interest discount mentioned in the answer to question paragraph 44, which was to support the 
technological transformation of enterprises to contro l pollution and improve environmental protection.  
As explained above, because this interest discount  was not limited only to certain industries or 
enterprises, it did not constitute a specific subsidy.  Neither should it be subject to the notification 
obligation under the SCM Agreement.    G/SCM/Q2/CHN/28 
 Page 31 
 
 
  Preferential Loans Provided by the Chinese Government  
 
Question 47 
  According to a document posted by the Jiangsu Province Tax Bureau in September 2004 
entitled "Tax Reimbursement Regime on Exported Goods in China", exported goods that are 
"manufactured by using preferential loans of the Chinese government" will be "given approval 
to reimburse or exempt VAT or consumption t ax due to some special features such as . . . 
turnover linkages and settlement methods, etc".  Please provide the information requested 
above.   
 
Reply
 
 
 On questions concerning policies and measures of  local governments, China would firstly like 
to revert to the general comments made in th e answer to the question in paragraph 30.   
 
 However, on the specific document of Jiangs u Province Tax Bureau, information collected 
shows that there is no such document.  We would be  grateful if the US side could double-check their 
source of information.    
Free Land Given as Part of Foreign Investment Projects
 
 
Question 48 
  The Yinchuan government grants foreign investors, which meet certain investment conditions, land worth double the amount of an in vestor's original investment.  Please provide 
the information requested above.  
Reply
 
 
 On questions concerning policies and measures of  local governments, China would firstly like 
to revert to the general comments made in th e answer to the question in paragraph 30.   
 
 However, on the specific question regarding Yinc huan City, information available shows that 
there is no such measure.  We would be grateful if the US side could double-check their source of 
information.    Ningbo City Key Industry Technological Development Fund
 
 
Question 49 
  According to the MOFCOM website, Ningbo  city in the Zhejiang province set up a 
RMB one billion special fund to support four fa st-growing key industries, namely electronic 
information, new materials, auto/auto parts and machinery production industries.  The purpose 
of the fund is to assist key industries in their technological upgrading projects, expand their sales and assist companies in applying to be considered a national famous brand.  A qualified 
enterprise or a project can get a maximum subsidy of RMB five million.  Please provide the information requested above.   
 
Reply
 
 
 On questions concerning policies and measures of  local governments, China would firstly like 
to revert to the general comments made in th e answer to the question in paragraph 30.   
 G/SCM/Q2/CHN/28 
Page 32  
 
   On the issue mentioned in the question,  there is no information available.   
 
VAT Deductions for Qualified Fixed Assets in the Northeast Region 
 
Question 50 
 
 Information available to the United States indicates that in September 2004, MOF and SAT jointly issued Circular 156 (or Cai Shui  [2004] 156), Provisions on Expanding the 
Qualifications of Fixed Asset Input VAT Deductions in the Northeast Region.  The Circular essentially allows six sectors in Northeast China,  specifically the equipment, manufacturing, 
petrochemical, metallurgy, shipbuilding, au to manufacturing, and agricultural processing 
industries to deduct the VAT paid on qualified fixed asset purchases from the VAT payable increase from 2003 to 2004.  In addition to th e information requested above, please explain 
whether this programme will be extended to the rest of China.   
 Reply
 
 
 Relevant agencies of the Chinese government ar e now studying the experience of the pilot 
project of VAT reform in Northeast China.  The reform will be implemented nationwide when appropriate.  Since 1 July 2007 it has been extended to relevant sectors in another 26 cities in the 
central region of China.   
 
Incentives to Pillar Industries in Tianjin
 
 
Question 51 
 
 Information available to the United States indi cates that Tianjin city plans to allocate 
RMB 160 billion (US$19.2 billion) of investment to 560 projects related to six pillar industries 
in 2005.  The six pillar industries are the IT i ndustry, the chemical and metallurgical sector, the 
automotive industry, biotechnology and modern  pharmaceutical industry, and the energy and 
environmental protection sector.  Please provide the information requested above.   
 Reply
 
 
 On questions concerning policies and measures of  local governments, China would firstly like 
to revert to the general comments made in th e answer to the question in paragraph 30.   
 
 On this issue mentioned in the question,  there is no information available.   
 
Subsidies to SINOPEC from the Ministry of Finance (Caiqi [2005] No. 298)  
 
Question 52 
 
 Information available to the United States indicates that at the end of December 2005, 
the Ministry of Finance provided China Petrol eum & Chemical Corporation (parent company 
of SINOPEC) with a RMB 10 billion subsidy as co mpensation for artificially lower refined oil 
prices.  China Petroleum Corporation, in turn, announced that RMB 9.415 billion of the subsidy 
would go to SINOPEC, with the remainder staying with the parent company.  Please provide 
the information requested above.    
Reply
 
 
 As explained by the Chinese delegation in the WTO SCM Committee Special Meeting on 
Review of New and Full Subsidy Notifications in October 2006, China's notification did not cover the  G/SCM/Q2/CHN/28 
 Page 33 
 
 
  subsidy to China Petroleum & Chemical Corporatio n because the notification covers only the period 
between 2001 and 2004.     In December 2005 decision was made to  give the subsidy to SINOPEC because 
throughout 2005 price of the processed oil in China which is subject to state pricing was generally 
lower than that in the international market, leadi ng to much loss of the refining business of SINOPEC.  
It was a one-time subsidy to partially making up the policy-oriented loss of SINOPEC and relieving 
the burden of the oil refining enterprises of SINOPEC.  It also aimed at maintaining the stability of 
domestic price of processed oil and ensuring the supply  in the domestic market.  Relevant agencies of 
the Chinese government are now working on plans to reform the pricing mechanism of processed oil, 
so as to resolve fundamentally the policy-oriented losses of oil refining enterprises.   
 
Subsidies to the Agricultural Machinery Industry
 
 
Question 53 
 
 According to the China International Agricultural Machinery Industry Association, the large increase in the rate of growth for the agr icultural machinery industry in 2005 was due to 
subsidies from the central government to  this industry worth over RMB 300 million 
(US$37.5 million) during that period.  Furthermore, local governments gave an additional RMB 800 million in subsidies to the agricultura l machinery industry.  Please provide the 
information requested above.    
Reply
 
  The subsidy US referred to is XL in the notif ication China submitted.  The total amount of 
subsidy in 2005 is to be verified a nd will be provided in future notifica tion.  It should be noted that as 
mentioned in the notification, this policy subsid izes individual farmers or services providers who 
purchase agricultural machinery and tools, rather than the agricultural machinery industry.   
 
Provisional Measures for the Administration of  State High Technology Development Projects
 
 
Question 54   Information available to the United States indicates that on 2 March 2006, the NDRC posted the "Provisional Measures for the Administration of State High Technology Development Projects", under which investment and interest loan subsidies will be provided to 
high technology industries in the form of gran ts.  Please provide the information requested 
above.   
 
Reply
 
 
 National Development and Reform Co mmission promulgated on 28 February  2006 
Provisional Measures for the Administration of Stat e High Technology Development Projects in its 
Decree No. 43.  As a 2006 policy, it is natural th at it is not included in the 2001-2004 notification 
China submitted.  As to whether specific subsidy as defined in the SCM Agreement has been arranged 
under the Provisional Measures which should be subject to the notification obligation, it remains to be 
verified.  If the answer is yes, detailed information in respect of such a subsidy will be provided in 
China's future subsidy notification.    G/SCM/Q2/CHN/28 
Page 34  
 
  RMB 5 Billion Bailout of Worldbest Group 55
 
 
Question 55 
  In September 2005, the State Development Bank granted the Chengtong Group a 
RMB 5 billion loan to cover outstanding loans in a company that it was purchasing, China 
Worldbest.  China Worldbest is a large i ndustrial group with unpaid loans totalling 
RMB 25 billion.  Please provide the information requested above.   
 
Reply
 
 
 Information available shows that at the end of  2005 when the State- owned Assets Supervision 
and Administration Commission was planning to re organize the Worldbest Group, State Development 
Bank contacted Chengtong Group to explore the possi bility of establishing cooperation relationship.  
The contact, however, did not involve the unpaid loans of the Worldbest Group.  The two sides did 
not continue the contact because of the changing of  the plan of the State-owned Assets Supervision 
and Administration Commission.    
INFORMATION REQUESTED UNDER ARTICLE 25.8
 
 
Question 56 
 
 In October 2004, the United States file d a request (G/SCM/Q2/CHN/9) pursuant to 
Article 25.8 of the SCM Agreement for inform ation from China concerning the nature and 
extent of numerous programmes that appear to provide subsidies.  The United States noted at 
that time that, pursuant to Article 25.9, Members receiving requests for information under 
Article 25.8 "shall provide such information as quickly as possible and in a comprehensive 
manner . . . ".  In subsequent meetings of th e Subsidies Committee, China stated that it would 
submit its responses in 2005.  While some of the programs have been included in China's notification, many of them have not.  For each  of the programs that have not been included in 
China's notification, please provide the informat ion required by Article 25.3 or, alternatively, 
the information sought in the United States' Article 25.8 request.   
 
Reply
 
 
 In April 2006, China submitted its new and full  subsidy notification which, based upon the 
information collected in the past several years, c ontains policies or measures at the level of central 
government that may be considered as subsidy accord ing to the SCM Agreement.  In our point of 
view, the notification is complete.  During the process of preparing the notification, Chinese 
government referred to all the questions on China's s ubsidy previously raised by the United States and 
other WTO Members, including questions of  the United States under Article 25.8 of the 
SCM Agreement.  Except for policies and meas ures of the local government, China's subsidy 
notification should have given responses to these ques tions.  In our information collection process, we 
find that a lot of questions from the United States, including some in this document which we have 
tried to respond with great efforts, are either not s ubsidy at all due to misunde rstandings about news in 
the media, or are not specific subsidy as defi ned by the SCM Agreement after looking for and 
verification of details.    
 With regard to the subsidies granted by local  government, China would like to repeat its 
position expressed in the answer to qu estion in paragraph 30.  In the p ast few years, China focused the 
information collection of subsidies very much on  policies or measures at the level of central 
government.  At present, China is now studying on  how to launch the work of collecting subsidy 
information with local governments.  China at this stage is not capable, nor does it have the 
obligation, to verify one by one the questions on subsidies granted by local government and provide  G/SCM/Q2/CHN/28 
 Page 35 
 
 
  answers.  In preparation for notification on local government subsidy, the local government will not 
only have to double check details of the related po licies and measures, but also should analyze and 
make judgment on the relationship between the said policies and measures and the subsidy as defined 
in the SCM Agreement.  This means that apart fro m other heavy preparatory work, more in-depth and 
more technical training to local officials are also inevitable.  In view of the situation, before 
submitting the notification on local subsidies, China w ill provide information with  regard to subsidies 
concerning local governments to the best of its cap abilities and based on the information available in 
individual cases.     
__________