WORLD TRADE  
ORGANIZATION  G/SCM/Q2/CHN/29 
14 September 2007 
 (07-3831) 
Committee on Subsidies 
and Countervailing Measures Original:   English 
 
 
 
SUBSIDIES 
 
Replies to the Questions Posed by TURKEY1  
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.    
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GENERAL
 
 
Question 1 
  Can China please explain what criteria must be met in order to be listed in the following 
categories:   
 
• Catalogue of High and New Technology Products of China.   
 
Reply
 
 
 According to the Ministry of Science and T echnology (MOST) Circular Ke Ji Fa Huo 
Zi [2000] No.324, those listed in the Catalogue of  High and New Technology Products of China shall 
reflect the development trend of science and technol ogy in the world and be consistent with the 
scientific, technological, economic and social devel opment strategies of China.  Scope of high and 
new technologies is as follows:  (1) electronic and information technology;  (2) bioengineering and 
new medical and pharmaceutical technology;  (3) new 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.   
 
• Catalogue of the Industries, Products and Technologies Particularly Encouraged by the 
State.   
 
Reply  
 
 The Current Catalogue of Industries, Products and Technologies Particularly Encouraged by 
the State has been replaced by the Catalogue  for the Guidance of Industrial Structure 
Adjustment (2005) issued by National Developmen t and Reform Commission in its Decree No. 40 
of 2005.  The new Catalogue was effective on 2 December 2005.   
                                                      
1 G/SCM/Q2/CHN/20.   
2 G/SCM/N/123/CHN.   G/SCM/Q2/CHN/29 
Page 2  
 
   
• Catalogue for the Guidance of the Foreign Investment Industries.   
 
Reply
 
 
 According to the Provisions on Guiding Dir ection of Foreign Investment (State Council 
Decree No.346), foreign invested projects shall be clas sified into four categories:  projects to be 
encouraged, permitted, restricted or prohibited.  Fore ign invested projects to be encouraged, restricted 
or prohibited are listed in the Catalogue for the Gu idance of Industries for Foreign Investment.  Those 
other than foreign invested projects to be encouraged , restricted or prohibited shall be foreign invested 
projects to be permitted, which are not listed in the Catalogue for the Guidance of Industries for 
Foreign Investment.  The Provisions on Guiding Direction of Foreign Investment also stipulated in 
detail scope of the foreign investment projects which ar e to be encouraged, restricted and prohibited.   
 
• Catalogue for the imported products not subj ect to tax exemption in foreign invested 
projects.   
 Reply
 
 
 Products listed in the Catalogue for the Importe d Products not Subject to Tax Exemption in 
Foreign Invested Projects are mainly 20 categories of consumer products, for example, television, 
video camera, which are not allowed for import dut y exemption or reduction according to the State 
Council.   
 
Question 2 
  Can China please indicate how many comp anies and in which amount benefited under 
the following programmes per year? 
 
• Preferential Tax Policies for Foreign -Invested Export Enterprises.   
• Preferential Tax Policies for Chinese-Forei gn Equity Joint Ventures Engaged in Port 
and Dock Construction.   
• Preferential tax policies for foreign-invested enterprises engaged in agriculture, forestry 
or animal husbandry and foreign-invested enterprises established in remote underdeveloped areas.   
• Preferential tax policies for enterprises with foreign inv estment which are technology-
intensive and knowledge-intensive.   
• Preferential Tax Policies for Enterprises Making Little Profits.   
• Preferential Tax Policies for Enterprises which Provide Employment for Unemployed 
People.   
• Subsidy for purchasing agricultural machinery and tools.   
• Fund for international market exploration by  SMEs (both for SMEs and enterprises 
and organizations which provide services to SMEs.   
• Preferential tax policies for foreign invest ed enterprises and foreign enterprises which 
have establishments or place in China a nd are engaged in production or business 
operations purchasing domestically produced equipment.   
• Fund provided for agricultural industrialization.   
• Preferential tax policies for domestic ente rprises purchasing domestically produced 
equipment for technology upgrading purposes.    G/SCM/Q2/CHN/29 
 Page 3 
 
 
  Reply  
 
 Reponses to the above questions are as follows:   
  On the amount of tax forgone as a result of th e implementation of preferential tax policies as 
well as number of enterprises benefiting from thes e policies, statistics are not available because 
current China does not have a statistics system for tax expenditure.     On the fund for international market exploration by SMEs, there were 880 projects (not enterprises) benefiting from the fund from 2004 to 2006.  The total amount  will be provided in future 
notification of China.   
  On subsidy for purchasing agricultural machin ery and tools, as said in the notification 
submitted, it is provided to individual farmers or agricultural machinery and tools services providers 
rather than enterprises manufacturing agricultural m achinery and tools.  Therefore, no enterprise 
manufacturing agricultural machinery and tools receives the fund.   
 
Question 3 
  Can China please indicate otherwise (in the absence of the programme) applicable income tax rate for foreign-invested export  enterprises for the following programmes? 
 
• Preferential Tax Policies for Foreign -Invested Export Enterprises.   
• Preferential Tax Policies for Chinese Forei gn Equity Joint Ventures Engaged in Port 
and Dock Construction.   
• Preferential tax policies for foreign-in vested enterprises established in remote 
underdeveloped areas.   
• Preferential tax policies for enterprises with foreign inv estment which are technology-
intensive and knowledge-intensive.   
• Preferential Tax Policies for Enterprises making Little Profits.   
• Preferential Tax Policies for Enterprises which Provide Employment for Unemployed 
People.   
• Preferential tax policies for foreign invest ed enterprises and foreign enterprises which 
have establishments or place in China a nd are engaged in production or business 
operations purchasing domestically produced equipment.   
• Preferential tax policies for domestic ente rprises purchasing domestically produced 
equipment for technology upgrading purpose.   
 
Reply
 
 
 Regarding the preferential tax polices mentioned in the above questions, some are applicable 
to foreign invested enterprises while others are app licable to domestic enterprises.  According to the 
Income Tax Law of the People's Republic of Chin a for Enterprises with Foreign Investment and 
Foreign Enterprises and the Interim Regulations of the People's Republic of China on Income Tax for 
Enterprises, in absence of preferential treatment, th e income tax rate for both foreign-invested and 
domestic enterprises is 33 percent.  However, this tax rate will be changed following the 
implementation of the new Income Tax Law of the People's Republic of China for Enterprises on 
1 January 2008.   G/SCM/Q2/CHN/29 
Page 4  
 
  Preferential Tax Policies for Fo reign-Invested Export Enterprises
 
 
Question 1 
  Can China please explain the tax rate applicab le under this programme, if an enterprise 
reinvests its share of profit obtained from th e enterprise directly into that enterprise and 
thereby increasing its registered capital after the ex piration of "period of enterprise income tax 
exemption or reduction"? 
 
Reply
 
 
 The case mentioned in the question is entitled to  the policy in I.2 of the notification China 
submitted, instead of II.  According to I.2 of the no tification, foreign investor of an foreign-invested 
enterprise who reinvests his share of profit obtained fro m the enterprise directly into that enterprise by 
increasing its registered capital, or uses the prof it as capital investment to establish other foreign-
invested enterprises to operate for a period of not l ess than five years, shall be refunded 40 percent of 
the income tax already paid on the reinvested amount.  However, this policy will be adjusted 
following the implementation of the new Income Tax Law of the People's Republic of China for 
Enterprises on 1 January 2008.    
Question 2 
 
 In the "New and Full Notification of China" dated 13 April 2006, it is mentioned that export-oriented development zones and other such  enterprises subject to enterprise income tax 
at the rax rate of fifteen per cent  that qualify under the above-mentioned conditions shall pay 
enterprise income tax at the tax rate of ten per cent.  Can China please explain the criteria 
governing the eligibility to benefit from reduced  fifteen per cent tax rate, other than being 
located in the special economic zones and eco nomic and technological development zones? 
 
Reply  
 
 Firstly, China does not have such a concept as "export-oriented development zones" as 
mentioned in the question.  Secondly, cases where enterprises are already entitled to the preferential 
rate of 15 percent and the criteria thereof are also in corporated in the notification, for example IV, V, 
VI, VIII, to name a few.    
Preferential Tax Policies for Chinese-Foreig n Joint Ventures Engaged in Port and Dock 
Construction  
 
Question 1 
  Can China please explain the minimum foreign equity share in the joint venture allowed 
to benefit from this programme? 
 
Reply
 
 
 Under the Law of the People's Republic of Ch ina on Chinese-Foreign Equity Joint Ventures, 
enterprises with foreign equity share less than 25 per cent are subject to the treatment of domestic 
enterprises and shall not be regarded as foreign inv ested enterprises in terms of taxation.  Therefore, 
foreign equity share in a Chinese-foreign equity jo int venture engaged in port and dock construction 
shall stand at 25 per cent at least to benefit from this notified policy.      G/SCM/Q2/CHN/29 
 Page 5 
 
 
  Preferential tax policies for foreign-invested en terprises engaged in agriculture, forestry or 
animal husbandry and foreign-invested enterprises  established in remote underdeveloped areas  
 
Question 1 
 
 Can China please explain what criteria must be met in order to be "remote 
underdeveloped areas"?   
 
Reply  
 
 There is no explicit definition of "remote unde rdeveloped areas".  Therefore no enterprise has 
received subsidy under this policy.    
Question 2 
 
 Can China please indicate otherwise applicab le income tax rate for agriculture, forestry 
or animal husbandry industries?   
 
Reply
 
 
 According to the Income Tax Law of the Pe ople's Republic of China for Enterprises with 
Foreign Investment and Foreign Enterprises, in absen ce of preferential treatment, the income tax rate 
for foreign-invested enterprises is 33 percent.  Ho wever, this tax rate w ill be changed following the 
implementation of the new Income Tax Law of the People's Republic of China for Enterprises on 
1 January 2008.  Preferential tax policies for enterprises with fo reign investment which are technology-intensive 
and knowledge-intensive  
 
Question 1 
  Can China please explain what criteria must be met in order to be technology-intensive 
and knowledge-intensive investment"?  
Reply
 
 
 In order to be a technology-intensive and know ledge-intensive enterprise, the enterprise 
should make an application to the science and technol ogy authorities at the provincial level, who will 
verify according to the criteria promulgated by  the Ministry of Science and Technology on 
recognition of high or new technology enterprises and then issue a confirmation.    
Preferential Tax Policies for Enterprises  making Little Profits
 
 
Question 1   Can China please indicate the regional breakdown of the number of companies benefited under this programme? 
 Reply
 
 
 As explained earlier, on the amount of tax for gone as a result of the implementation of 
preferential tax policies as well as number of enterp rises benefiting from these policies, statistics are 
not available because currently China does not have  a statistics system for tax expenditure.   
 G/SCM/Q2/CHN/29 
Page 6  
 
  Preferential Tax Policies for Enterprises which Provide Employment for Unemployed People
 
 
Question 1 
  Can China please indicate the regional breakdown of the number of companies 
benefited under this programme?  
Reply
 
 
 As explained earlier, on the amount of tax for gone as a result of the implementation of 
preferential tax policies as well as number of enterp rises benefiting from these policies, statistics are 
not available because currently China does not have  a statistics system for tax expenditure.   
 
Question 2 
 
 Can China please explain whether certain co nditions are applicable regarding the 
employment period of the unemployed people necessary to receive this benefit? 
 
Reply  
 
 It is the enterprise employing unemployed peopl e that will benefit from this policy, not the 
unemployed people as mentioned in the question.   
 
Subsidy for purchasing agricultural machinery and tools  
 
Question 1 
 
 Can China please indicate the regional breakdown of the number of companies benefited under this programme? 
 
Reply
 
 
 As explained earlier, subsidy for purchasing agri cultural machinery and tools, as indicated in 
the notification submitted, is provided to individu al farmers or agricultural machinery and tools 
services providers rather than enterprises manufacturing agricultural machinery and tools.  Therefore, 
no enterprise manufacturing agricultural mach inery and tools receives the fund.   
 Question 2   Can China please elaborate on the criteria governing the approval of the applications? 
 
Reply
 
 
 The approval of application mentioned in the no tification refers to confirmation of the budget 
proposed by the provincial governments to be arranged for implementation of the notified policy.  It is 
not approval of assistance in individual cases.    
Fund for international market exploration by SMEs
 
 
Question 1   Can China please explain the criteria govern ing the determination of the financial 
support given to the companies? 
  G/SCM/Q2/CHN/29 
 Page 7 
 
 
  Reply  
 
 According to the Ministry of Finance Circular Cai Qi No. 467 of 2000 as indicated in the 
notification as the legislation granting the fund, enterprises applying for the fund should meet 
conditions as follows:  (1) having legitimately obtaine d legal person status as an enterprise and also 
import and export trading right;  (2) exporting in  the previous year less than USD 15 million 
according to Customs statistics, and having sou nd financial record and management system;  
(3) having personnel specializing in foreign economic  and trade business with basic skills, and a clear 
plan with implementing details for in ternational market exploration.   
 Question 2   Can China please explain the type of activities supported under the subheading 
"exploring a new market"? 
 Reply
 
  The subheading of "exploring a new market " covers mainly travel expenses.   
 
Preferential tax policies for foreign invested enterprises and foreign enterprises which have 
establishments or place in China and are engaged in production or business operations 
purchasing domestically produced equipment  
 
Question 1 
  Can China please indicate whether an app lication process exists with regard to this 
programme and the criteria governing the e ligibility and receipt of the benefit? 
 
Reply
 
 
 The process under the notified policy goes as follows : the foreign-invested enterprise shall, 
within two months of its purchase of domestically produced equipments, submit an application for the 
VAT deduction to the taxation administration in charge, and provide rele vant proving documents 
including invoices;  the taxation administration in charge, after receiving the application, shall then 
report it to the provincial taxation administration;  the provincial taxation administration shall review 
the application and approve within one month after r eceipt of the application.  A copy of the approval 
document shall also be sent to the applicant.   
 
 Criteria to be met to enjoy this preferential tax treatment are found in the legislation granting this preferential treatment, i.e. Ministry of Fina nce Circular Cai Shui No. 49 of 2000, and have been 
reflected in the notification.  That is, for the inv estment projects listed as encouraged category in the 
"Catalogue for the Guidance of the Foreign Investment  Industries" of foreign invested enterprises and 
foreign enterprises which have establishments or  place in China engaged in production or business 
operations, forty per cent of the expenses on purchasi ng domestically produced equipments within the 
total investment of the project, or beyond the total investment of the project but for the purpose of 
upgrading the existing equipments and crafts, shall be  deducted from the increment of income tax of 
that year compared to the previous year.  Th e "domestically produced equipments" do not include 
those imported directly by other enterprises, or those produced by processing trade and compensatory 
trade, or those falling in the Catalogue of Import Products in Foreign Investment Projects not Subject 
to Import Duty Exemption as stipulated in the State Council Circular No. 37 of 1997.   G/SCM/Q2/CHN/29 
Page 8  
 
  Fund provided for agricultural industrialization
 
 
Question 1 
  Can China please elaborate on the criteria governing the approval of the applications?   
 Reply
 
 
 Criteria to be met by an enterprise to qualify for funding under this subsidy is found in the 
Ministry of Finance Circular 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 y ear;  (2) the income from agriculture or processing of 
agricultural products and by-products covering more th an 60 per cent of the total income;  (3) being 
able to mobilize a considerable number of farmer s to engage in production, processing, storage, 
transportation and distribution of agricultural produc ts, or to enrol a considerable number of farmers 
as their employees, so as to promote employment and e ffectively increase the income of the farmers.   
 
Preferential tax policies for domestic enterpri ses purchasing domestically produced equipment 
for technology upgrading purpose  
 
Question 1 
 
 Could China please provide further details regarding the policy objectives of this programme?  
Reply
 
 
 As said in the notification, the policy is to encourage domestic investment and support 
technology upgrading of domestic enterprises.    
Question 2 
 
 Can China please indicate how many comp anies and in which amount benefited under 
this programme per year?   
 
Reply
 
 
 As explained earlier, on the amount of tax for gone as a result of the implementation of 
preferential tax policies as well as number of enterp rises benefiting from these policies, statistics are 
not available because current China does not have  a statistics system for tax expenditure.   
  
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