WORLD TRADE  
ORGANIZATION  G/SCM/Q2/CHN/19 
26 July 2006 
 (06-3586) 
Committee on Subsidies 
and Countervailing Measures Original:   English 
 
 
  
SUBSIDIES  
 
Questions from the UNITED STATES Regarding the
 
New and Full Notification of CHINA1 
 
  The following communication, dated 24 July 2006, is being circulated at the request of the Delegation of the United States. 
 
_______________ 
 
 
GENERAL
 
 1. The United States appreciates China’s effo rts to notify its central government subsidy 
programmes.  However, we note that subsidies provi ded at the sub-central gove rnment level were not 
included in China’s notification.  Article 25 speci fically requires that Members include in their 
notification information on any subsidies granted or  maintained within thei r 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.  
 
2. The United States understands that the Ch inese 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 sep arate policy lending functions from the state-owned 
commercial banks, so that state-owned commercia l 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.    
(a) Please provide the information required by Article 25.3 of the SCM Agreement for policy 
lending from State Policy Banks. 
 (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 (s ic) 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 rates of State Polic y Bank loans are usually the same as market 
interest rates, given that the State Policy Banks finance relatively more risky investment 
projects.  
 3. Part IX of Annex 5A to Ch ina’s Protocol of Accession states that the State Policy Banks issue 
bonds to finance their lending.  The United States understands that, by law, only state-owned 
                                                     
 
1 G/SCM/N/123/CHN G/SCM/Q2/CHN/19 
Page 2  
 
  commercial banks can buy these bonds and that the inte rest rate on these bonds is, by law, capped at 
40 per cent of commercial bank deposit rates.  Give n 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 relativel y more risky investment projects that the State 
Policy Banks finance.   Please explain why stat e-owned commercial banks continue to purchase the 
bonds on these terms. 
 4. In paragraph 173 of the Working Party Repor t accompanying China’s Protocol of Accession, 
Members of the Working Party expressed concern because China had not included certain types of 
subsidies in Annexes 5A and 5B to the draft Prot ocol of Accession, including loans from state-owned 
commercial banks.  Members expres sly referenced “state support th rough the banking system, notably 
government owned banks, in the form of policy loan s, the automatic roll over of unpaid principal and 
interest, forgiven and non-performing loans, and th e 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 required by 
Article 25.3 of the SCM Agreement for loans from state-owned commercial banks. 
 QUESTIONS REGARDING NOTIFIED PROGRAMMES
 
 
Programme I - P REFERENTIAL TAX POLICIES FOR FOREIGN -INVESTED ENTERPRISES    
 5. According to China’s notification, this progr amme provides a full refund on foreign-invested 
enterprise (FIE) income tax paid on reinvestments wh en those reinvestments are applied toward “the 
organization and expansion of export-oriented enterprises or adva nced technology enterprises...”.  To 
the extent that these tax benefits are contingent  upon exportation, they c ould 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.   
 
Programme II
 - PREFERENTIAL TAX POLICIES FOR FOREIGN -INVESTED EXPORT ENTERPRISES  
 6. According to China’s notification, export-o riented enterprises receive income tax deductions 
based on the amount of their exports.  Export-oriented enterprises in “special economic zones and economic and technological development zones” receiv e similar benefits.  To the extent that these 
benefits are contingent upon exportation, they co uld constitute prohibited s ubsidies as provided 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. 
 (b) The notification indicates that export-oriented FIEs are eligible for these benefits “after the 
period of enterprise income tax exemption or reduction”.  Please explain what is meant by 
“the period of enterprise income tax exemption or reduction”.  
 
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  
 
7. According to China’s notification, FIEs “may be  allowed” to receive the fifteen to thirty per 
cent income tax reduction for locating in underd eveloped regions.  Please provide the following 
information:   G/SCM/Q2/CHN/19 
 Page 3 
 
 
  (a) Describe the determining factors in decidi ng the precise amount of income tax reduction the 
FIE may receive;  and   
 (b) Please list the eligible remote unde rdeveloped areas under this programme. 
 Programme IV - P
REFERENTIAL TAX POLICIES FOR FOREIGN -INVESTED ENTERPRISES ENGAGED 
IN ENERGY , TRANSPORTATION INFRASTRUCTURE  
 
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”. 
 Programme VI -P
REFERENTIAL TAX POLICIES FOR ENTER PRISES WITH FOREIGN INVESTMENT 
WHICH ARE TECHNOLOGY -INTENSIVE AND KNOWLEDGE -INTENSIVE  
 
9. According to China’s notification, this progr amme provides an income tax rate reduction to 
“technology-intensive and knowledge-intensive” FIEs that produce products listed in the Ministry of 
Science and Technology’s (MOST’s) “Catalogue of High and New Technology Products of China”.  
Please provide the following information: 
 (a) Please list the products that are classi fied in the MOST’s catalogue as high and new 
technology; and 
 
(b) Are any of the incentives provided under this program contingent upon export or the use of 
domestic over imported goods? 
 
Programme VII - P
REFERENTIAL TAX POLICIES FOR ENTER PRISES WITH FOREIGN INVESTMENT 
IN THE BORDER CITIES  
 10. According to China’s notification, this progr amme provides an income tax rate reduction for 
FIEs “of a production nature” established 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, clar ify the meaning of “a production nature”;  and 
 (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. 
 
Programme VIII - P
REFERENTIAL TAX POLICIES FOR ENTERPRISES WITH FOREIGN INVESTMENT 
RECOGNIZED AS HIGH OR NEW TECHNOLOGY ENTERPRISES ESTABLI SHED IN THE STATE HIGH OR 
NEW TECHNOLOGY INDUSTRIAL DEVELOPMENT ZONES , AND FOR ADVANCED TECHNOLOGY 
ENTERPRISES INVESTED IN AND OPERATED BY FOREIGN BUSINESSES  
 
11. According to the notification, this programme  provides reduced income tax rates for FIEs  
that are “recognized as high or new technology ente rprises” and which locate to specific industrial 
development zones.  Please provide answers to the following questions:  (a) Please describe the industries that qualify as “high or new technology” under this programme;   
(b) Please provide a list of the names of the citi es where these zones are lo cated in China;  and G/SCM/Q2/CHN/19 
Page 4  
 
  (c) Are any of the incentives provided to compan ies locating in these zones contingent upon 
export or the use of domestic over imported goods? 
 
Programme IX
 - PREFERENTIAL TAX POLICIES FOR ENTERPR ISES RECOGNIZED AS HIGH OR NEW 
TECHNOLOGY ENTERPRISES ESTABLISHED IN  THE STATE HIGH OR NEW TECHNOLOGY 
INDUSTRIAL DEVELOPMENT ZONES   
 
12. According to the notification, this progr amme provides reduced income tax rates for 
enterprises that are “recognized as high or new t echnology enterprises” and which locate to specific 
industrial development zones.  Please provide the following information: 
 
(a) Please provide a list of the names of the citi es where these zones are lo cated in China;  and 
 (b) Are any of the incentives provided to compan ies locating in these zones 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  
 
13. According to China’s notification, China offe rs 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  
 
(b) Are any of the incentives provided to compan ies locating in these zones contingent upon 
export or the use of domestic over imported goods? 
 
Programme XIII - P
REFERENTIAL TAX POLICIES FOR ENTERPRISES WITH FOREIGN INVESTMENT 
ESTABLISHED IN THE THREE GORGES OF YANGTZE RIVER ECONOMIC ZONE  
 14.    According to China’s notification, among the types of projects that qualify for preferential 
enterprise income tax rates under this programme are “p rojects encouraged by th e 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 
 (b) Are any of the incentives provided to compan ies locating in these zones contingent upon 
export or the use of domestic over imported goods? 
 Programme XIV - P
REFERENTIAL TAX POLICIES IN THE WESTERN REGIONS  
 
15. According to China’s notification, there are various catalogues such as the “Catalogue for the 
Guidance of the Foreign Investment Industries” wh ich list those industries/sectors that qualify as 
“encouraged” and investors investing in those areas are e ligible to receive an income tax reduction.  It 
is the United States’ understanding that some of  the catalogues, such as the “Catalogue for the 
Guidance of the Foreign Investment Industries”, include an “encouraged” category described as 
“Permitted foreign-funded projects whose products are to be wholly exported directly” (see provision 
XIII of the Catalogue for the Guidance of the Forei gn 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.  G/SCM/Q2/CHN/19 
 Page 5 
 
 
   
(a) Please explain how this programme is with cons istent China’s obligations under Article 3 of 
the SCM Agreement. 
 
Programme XXVI - P REFERENTIAL TAX POLICIES FOR TH E RESEARCH AND DEVELOPMENT OF 
ENTERPRISES  
 
16. According to China’s notification, this progra mme allows companies to offset taxable income 
for increased R&D spending for new products, new technology and new crafts.  Please provide the 
following information:  
 
(a) Please explain whether the “offset” is a deduction from taxable income or a credit from actual 
tax liability;  and 
 (b) Please describe whether the offset applies to  the total R&D expenses for the year, or only to 
the 10 per cent increase in expenses from the previous year.  
 
Programme  XXVII - P
REFERENTIAL TAX POLICIES FOR TH E RESEARCH AND DEVELOPMENT OF 
FOREIGN -INVESTED  ENTERPRISES  
 
17. According to China’s notification, this progra mme allows FIEs to offset taxable income for 
increased R&D spending.   
 (a) Please explain whether the “offset” is a deduction from taxable income or a credit from actual 
tax liability;  and 
 
(b) Please describe whether the offset applies to  the total R&D expenses for the year, or only to 
the 10 per cent increase in expenses from the previous year.   
 
Programme XLII - F
UND PROVIDED FOR AGRICULTURAL INDUSTRIALIZATION  
 
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 
 
(b) Please clarify what form of funding is provided.  
Programme LVII - 
PREFERENTIAL TAX POLICIES FOR INTEGRATED CIRCUIT INDUSTRY  
 
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 LV II.7.(3), please clarify if the integrated circuit 
producing enterprises must be an FIE in order to qualify for the preferential tax treatment; 
 
(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);  
 G/SCM/Q2/CHN/19 
Page 6  
 
  (c) With respect to the tax policies listed under LVII.7.(6), the notification indicates that the 
import VAT rebate on domestically designed integr ated 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  
 
(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 consumed in the production of the exported product (making allowances for waste)”. 
 
Programme
 LVIII  - 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 
EQUIPMENTS  
 
20. According to China’s notification, this pr ogramme provides income tax deductions to FIEs 
that purchase domestically-produced equipment.  To the extent that this programme provides 
incentives contingent upon export or the use of domestic over imported goods, this program appears 
to be a prohibited subsidy, pursuan t to Article 3 of the SCM Agreement.  Please provide the following 
information:   
 
(a) Please explain how this programme is consiste nt with Article 3 of the SCM Agreement which 
prohibits the provision of subsidies continge nt upon the use of domestic over imported goods. 
 (b) It is the United States’ understanding that  the “Catalogue for the Guidance of the Foreign 
Investment Industries” includes an “encourag ed” category described as “Permitted foreign-
funded projects whose products 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 th e SCM Agreement which prohibits the provision 
of subsidies contingent upon export performance. 
 
(c) Please explain the export performance criteria 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).   
 
Programme
 LIX  - PREFERENTIAL TAX POLICIES FOR DOMESTIC ENTERPRISES PURCHASING 
DOMESTICALLY PRODUCED EQUIPMENTS FOR TECHNOLOGY UPGRADING PURPOSE  
 
21. According to China’s notification, this programme provides income tax deductions to 
domestic enterprises based on the purchase of dom estically produced equipment for upgrading 
projects that are “consistent with the state industr ial policies of the domestic enterprises”.  To the 
extent that this programme provides incentives c ontingent 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 an swer 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;  
 (b) Please describe the criteria for determining whether a project is “consistent with the state 
industrial policies”. 
  G/SCM/Q2/CHN/19 
 Page 7 
 
 
  (c) Please explain the export performance criteria under Article 6 of MOF Circular Cai Shui No. 
290.   
 
Programme LX- R EFUND OF TARIFF AND IMPORT VAT FO R THE IMPORTED TECHNOLOGY AND 
EQUIPMENT  
 
22. According to China’s notification, FIEs receive tariff and VAT refunds or rebates for 
imported technology and equipment.  It is the Un ited States’ understanding that the “Catalogue for the 
Guidance of the Foreign Investment Industries”, includes an “encouraged” category described as 
“Permitted foreign-funded projects whose products are to be wholly exported directly” (see provision 
XIII of the Catalogue for the Guidance of the Forei gn 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. 
 (b) Has this programme been terminated or modified?  If so, please explain.   
Programme LXXV - R
EFUND OF  IMPORT VAT OF RAW COPPER MATERIALS  
 23. According to China’s notification, comp anies with production or refining capacity of 
electrolytic copper over 30,000 tons and which “meet the criteria of environmental protection” receive 
a 30 per cent refund of VAT on copper concentrat e, 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 benef its under this programme  is contingent upon 
subsequent exportation of further-produced c opper products.  If so, please explain how China 
ensures that VAT refunds provided to el igible enterprises are not excessive;   
 (b) Please define the “approved quantitative scop e” for the raw materials covered by this 
programme. 
 (c) Please explain how the provision of refunds fo r raw materials supports the policy objective of 
promoting “technology upgrading of enterprises“;  and 
 
(d) Please confirm whether this programme ended as of 2005, as indicated in the notification, and 
whether the programme been replaced by any other program providing similar benefits with 
regard to these products.   
 
Programme
 LXXVI  - PREFERENTIAL TAX TREATMENT FOR CASTING AND FORGING PRODUCTS  
 24. According to China’s notification, this pr ogramme provides a refund of 35 percent of the 
VAT collected on casting and forging products “manuf actured 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 pr ogramme are contingent upon the purchase of goods from domestic 
manufacturers, it may be a prohibited subsidy under Ar ticle 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;  
 G/SCM/Q2/CHN/19 
Page 8  
 
  (b) Please explain who receives the VAT refund, e.g., the producer or the buyer of these casting 
and forging products; 
 (c) Did this program end as of 31 December 2005?  If so, has the program been replaced by any 
other programme providing similar bene fits with regard to these products? 
 
Programme LXXVII - P
REFERENTIAL TAX TREATMENT TO DIES PRODUCTS  
 
25. According to China’s notification, this programme provides a refund of 70 per cent of the VAT collected on “dies products manufactured and sold by the 160 specialized dies manufacturing 
enterprises” listed in the annex to MOF Circulars Ca i 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 manufacturers, it may be a pr ohibited 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;  
 (b) Please explain who receives the VAT refund, the producer or the buyer of these dies products;  (c) Did this programme end as of 31 December 2005?  If so, has the programme been replaced by 
any other programme providing similar be nefits with regard to these products? 
 
Programme
 LXXVIII  -PREFERENTIAL TAX TREATMENT TO NUMERICALLY CONTROLLED 
MACHINE TOOL PRODUCTS  
 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 pr ovided under this progra mme are contingent upon 
the purchase of goods from domestic manufacturers, it may be a prohibited subs idy under Article 3 of 
the SCM Agreement.  Please provide the following information:  
(a) Please explain how this program is consistent with China’s obligations under 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 
 
(c) Did this programme end as of 31 December 2005?  If so, has the programme been replaced by 
any other programme providing similar be nefits with regard to these products? 
 
OTHER PROGRAMMES
  
 27.  Certain publicly available information i ndicates that China maintains subsidy programmes 
that meet the requirements for notification under Article 25.  Please explain why the programmes 
listed in paragraphs 28-54 below ha ve not been notified.  If they do qualify as programmes that should 
be notified, and to the extent they have not yet been notified, please provide the information required 
under Article 25.3 of the SCM Agreement and ot her program-specific information as requested 
below.  
 
Financial Support to Larg e Auto Export Enterprises  
 
28. Information available to the United Stat es indicates that the Ministry of Commerce 
(MOFCOM) is in the process of selecting 100 Chinese auto or parts manufacturers to be designated as  G/SCM/Q2/CHN/19 
 Page 9 
 
 
  "state-level auto and part exporte rs" who will be targeted for “financial and export credit support” in 
the form of loans and export credits. The select ed enterprises, are required to have defined 
trademarks, efficient production methods and a larg e amount of existing exports.  In addition to the 
information requested above, please explain how th is programme is consistent with China’s 
obligations under Article 3 of the SCM Agreement. 
 
Export Contingent Support to the Software and Integrated Circuit (IC) Industries 
 
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 exports of software 
will be incorporated into the import and export ba nking business in China with credits of favourable 
interest rates.  In addition to the information requested above, please explain how this program is 
consistent with China’s obligations un der Article 3 of the SCM Agreement. 
 
Export Contingent Support for Famous Name Brand Products 
 
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 a nd improvement in added value. " On 26 January 2005, MOFCOM 
identified 190 Chinese famous brands in six industria l fields eligible for export promotion for years 
2005-2006.  In order to increase Chinese name bran d exports and limit its reliance on foreign name 
brand exports, the Chinese Government is offe ring, among others, the following incentives:  
  - an Export Brands Development Fund to  develop and promote designated exports; 
  - preferential funding for research and development products; 
 
 - support for technology to strengthen the competitiveness of famous brand exports;   - special assistance for domestic brand name enterprises 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”, financia l support and export credit guarantees.  
Designated firms must be the top producer a nd exporter within their industry, export to 
multiple foreign markets and have annual exports of over US$50 million. 
 
 -  Information available to the United St ates indicates that in early December 2005, 
MOFCOM announced a program called “Six  Initiatives to Promot e 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’ r esearch and development activities; 
  -  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”; G/SCM/Q2/CHN/19 
Page 10  
 
     
 -  The Wuxi government allows enterprises obtaining the “famous Export Brands to be 
Nurtured and Supported” to receive incentives from Wuixi city;  and 
  -  The government of Shishi County in Fu jian province announced an initiative including a 
one-time prize to any Shishi company accord ed the 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 consiste nt with China’s obligations under Article 3 
of the SCM Agreement. 
 (b) Please explain the relationship between and among the various program s described above and 
how they differ. 
  
Wuxi Aid to Exporters  
 
31. Information available to the United States indicates that under this programme the Wuxi government will provide grants up to RMB 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 consistent with China’s obliga tions under Article 3 of the SCM 
Agreement.  
Ningbo City Export Contingent Aid fo r Textile Exporters - “Export Branding” 
 
32. Information available to the United States i ndicates that the Ningbo City International Trade 
and Economic Cooperation Bureau prov ides benefits to the city’s top eight textile and apparel brand 
enterprises which export over US$20 million, have ISO9000 certification and have authentication of 
an internationally-registered trademark.  Th e top eight brand companies which meet these 
qualifications will receive an award of RMB 50, 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.  
Ningbo City’s Jiangdong District Export Contin gent Award for Increasing Exports of Textile 
and Apparel Goods 
 
33. Information available to the United States indicates that a program in Ningbo City’s Jiangdong District offers benefits to certain textile and apparel companies.  For example, textile and 
apparel companies that export over US$1 million per year  in this district are eligible for an award for 
each dollar of textile and apparel exports which exceed s the previous year’s total.  In addition to 
providing the information requested above, please expl ain how this programme is consistent with 
China’s obligations under Article 3 of the SCM Agreement. 
 
Other Local Export-related Awards 
 
34. Information available to the United States indicates that various Chinese government entities 
at the sub-central government levels maintain awar ds and direct payments for exports from a wide-
range of industries.  Our understanding is that ther e 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 those types of programmes are as follows:     G/SCM/Q2/CHN/19 
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  (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 province 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 (exports 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.  
  In addition to providing the informati on requested above, please explain how these 
programmes are consistent China’s obligations  under Article 3 of the SCM Agreement. 
 
Huzhou City’s Wuxing District Export Cont ingent 2005 Notice No. 9 for Encouraging Foreign 
Trade Development  
35. According to Huzhou City’s Wuxing District 2005 Notice No. 9 for Encouraging Foreign Trade Development, the government offers severa l “prizes” that are contingent upon export.  For 
example, new processing firms exceeding exports 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 th e information requested 
above, please explain how this programme is consiste nt with China’s obligations under Article 3 of 
the SCM Agreement.  
Export Contingent Funds for Audio-Visual Products  
 
36. Information available to the United States indicates that in early 2005, the Ministry of Finance and the Ministry of Culture set up a dedicated f und 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 those with outstanding  export performance.  In addition to providing the 
information requested above, please explain how th is programme is consistent with China’s 
obligations under Article 3 of the SCM Agreement. 
 
Opinions Concerning Promoting Export of Pharmaceutical Products  
 
37. Information available to the United States i ndicates that this programme, announced in early 
December 2005 by the Ministry of Commerce and seven others ministries, provides the following 
benefits: assistance in establishing international pharmaceutical export bases, creating famous export 
brands that hold certain market sh are in the international market, encouraging risk fund to enter the 
pharmaceutical R&D, and promoting intellectual proper ty 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. 
 
Income Tax Reduction for Certain Encouraged Enterprises 
 
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 G/SCM/Q2/CHN/19 
Page 12  
 
  enterprises with foreign investment engaged in proj ects “encouraged” by the State.  As noted above, it 
is the United States understanding that one “enc ouraged” category is “P ermitted foreign-funded 
projects whose products are to be wholly exported dir ectly”.  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. 
 
Tax Deduction for Purchasing Domestically-Produced Equipment. 
 
39. Information available to the United States i ndicates that foreign enterprises in the Shanghai 
Chemical Industrial Park that purchase 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 y ear.  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. 
 
Provisional Measures for the Administration of the Specific Project Funds for Research and 
Development of the Integrated Circuit (IC) Industry; Caijian [2005] No. 132; 23 March 2005 
 
40. According to the above-mentioned legislation, issued by MOFCOM; the Ministry of Information and the National Development and Refo rm 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.   
Hynix Large Scale Integrated Circuit Project in Wuxi, China 
 41. Information available to the United States i ndicates that Hynix, the Korean semiconductor 
manufacturer, received approval in 2004 to build a semiconductor manufacturing plant in the Wuxi 
Export Processing Zone in Jiangsu Province, China.   Chinese banks will finance US$1 billion or half 
of the investment through debt a nd long-term leasehold.  In add ition 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 circum stances companies manufacturing in the Wuxi 
Export Processing Zones are allowed to sell ma nufactured goods into the domestic Chinese 
market. 
 
(c) Were any state-owned bank loans provided on  terms better than terms that were available 
commercially?     
 
“Five-Plus-Five” Income Tax Incentive for Inte grated Circuit Companies in Certain Locations 
 42. Information available to the United States i ndicates 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 elig ible for a full income tax exemption for their first 
five years of operation, followed by a 50 percent in come tax reduction for the next five years.  The 
exemptions and reductions begin in the compan y’s first profitable year.  Please provide the 
information requested above. 
 
Beijing Economic Technological Investment Development Corp. 
 
43. Information available to the United States indicates that the government-owned Beijing 
Economic Technological Investment Development Corp. has provided an estimated US$3 million  G/SCM/Q2/CHN/19 
 Page 13 
 
 
  interest-free, dollar-denominated, short-term loan  to Semiconductor Manufacturing International 
Corporation (SMIC), a Chinese semiconductor manufactur er.  In addition to the information requested 
above, please provide a description of the Beijing Economic Technological Development Corp. and 
the types of assistance it provides to manufacturers/companies.  Policies to Promote the Paper Industry  
 
44. According to the China Paper Industry Yearbook for 2003-2004, the Chinese government 
issued new policies to promote the paper industry including national bond interest subsidized loans, 
special funds for technology upgrades and support for planting trees.  Please provide the information 
requested above. 
 
Preferential Loans to Anshan Steel Group   
 
45. Information available to the United States indicates that in 2005, the China Development 
Bank provided the Anshan Steel Group with RMB 10 billion in preferential loans.  Please provide the 
information requested above.  
Interest Subsidized Loans for Handan Iron & Steel Group  
 
46. Information available to the United Stat es 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.  Please provide the information requested above.    
Preferential Loans Provided by the Chinese Government 
 47. According to a document posted by the Ji angsu 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 th e Chinese government” will be “given approval to 
reimburse or exempt VAT or consumption tax due to  some special features such as . . . turnover 
linkages and settlement methods, etc”.  Please provide the information requested above.  Free Land Given as Part of Foreign Investment Projects 
 
48. The Yinchuan government grants foreign i nvestors, which meet certain investment 
conditions, land worth double the amount of an inv estor’s original investment.  Please provide the 
information requested above. 
 
Ningbo City Key Industry Technological Development Fund  
 
49. According to the MOFCOM website, Ningbo city in the Zhejiang province set up a RMB one billion special fund to support four fast-growing ke y 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 bra nd.  A qualified enterprise or a project can get a 
maximum subsidy of RMB five million.  Pl ease provide the information requested above. 
 
VAT Deductions for Qualified Fixed Assets in the Northeast Region 
 
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 equi pment, manufacturing, petrochemical, metallurgy, 
shipbuilding, auto manufacturing, and agricultura l processing industries to deduct the VAT paid on G/SCM/Q2/CHN/19 
Page 14  
 
  qualified fixed asset purchases from the VAT payable increase from 2003 to 2004.  In addition to the 
information requested above, please explain whether th is programme will be extended to the rest of 
China.  
Incentives to Pillar Industries in Tianjin 
 
51. Information available to the United States i ndicates that Tianjin city plans to allocate RMB 
160 billion (US$19.2 billion) of investment to 560 pr ojects related to six pillar industries in 2005.  
The six pillar industries are the IT industry, 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. 
 
Subsidies to SINOPEC from the Ministry of Finance (Caiqi [2005] No. 298) 
 
52. Information available to the United States i ndicates that at the end of December 2005, the 
Ministry of Finance provided China Petroleu m & Chemical Corporation (parent company of 
SINOPEC) with a RMB 10 billion subsidy as compensati on 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 pare nt company.  Please provide the information 
requested above.   Subsidies to the Agricultural Machinery Industry  
 
53. According to the China International Agricultu ral Machinery Industry Association, the large 
increase in the rate of growth for the agricultura l 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 
agricultural machinery industry.  Please pr ovide the information requested above.  
 
Provisional Measures for the Administration of  State High Technology Development Projects 
 
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 subsidi es will be provided to high technology industries in 
the form of grants.  Please provide the information requested above.  
RMB 5 Billion Bailout of Worldbest Group 55. 
 
55. In September 2005, the State Developmen t Bank granted the Chengtong Group a RMB 5 
billion loan to cover outstanding loans in a compa ny that it was purchasing, China Worldbest.  China 
Worldbest is a large industrial group with unpaid loans totaling RMB 25 billion.  Please provide the 
information requested above.   INFORMATION REQUESTED UNDER ARTICLE 25.8
 
 
56. In October 2004, the United States filed a request (G/SCM/Q2/CHN/9) pursuant to Article 25.8 of the SCM Agreement for information from China concerning the nature and extent of 
numerous programmes that appear to provide subsid ies.  The United States noted at that time that, 
pursuant to Article 25.9, Members receiving requ ests for information under Article 25.8 “shall 
provide such information as quickly as possible and in  a comprehensive manner . . . ”.  In subsequent 
meetings of the 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 notificatio n, please provide the information  G/SCM/Q2/CHN/19 
 Page 15 
 
 
  required by Article 25.3 or, alternatively, the info rmation sought in the United States’ Article 25.8 
request.  
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