WORLD TRADE  
ORGANIZATION  G/SCM/Q2/CHN/25 
13 September 2007 
 (07-3825) 
Committee on Subsidies 
and Countervailing Measures Original:   English 
 
 
 
SUBSIDIES 
 
Replies to the Questions Posed by the EUROPEAN COMMUNITIES1  
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.    
_______________ 
 
 
I. QUESTIONS CONCERNING SUBSIDIES THAT ARE INCLUDED IN THE 
NOTIFICATION 
Question 1 (I) Preferential tax policies for foreig n invested enterprises, and (II) Preferential 
tax policies for foreign-invested export enterprises: 
(a) The condition of "export oriented enterpri ses", appears to be contingent upon export 
performance in the sense of Article 3 ASCM.  Could China please indicate when its tax 
laws will be brought into full conformity with the obligations resulting from its WTO accession?   
 
Reply
 
 
 These policies 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) What is the total amount of these subsidy programmes (i.e. the amount in state revenue 
foregone due to the preferential tax policy) per year?  
 
Reply
 
 
 The amount of tax forgone as a result of the im plementation of preferential tax policies is not 
available because currently China does not have a sta tistics system for tax expenditure.  It is still in 
the process of being established.    
(c) What are the precise rules that govern the award of these subsidies for companies 
besides those mentioned in the notificati on?  Are there ceilings on how much an 
enterprise can benefit from these programme s?  Could China provide the total number 
of companies that have benefited from them?   
                                                     
 
1 G/SCM/Q2/CHN/16.   
2 G/SCM/N/123/CHN.   G/SCM/Q2/CHN/25 
Page 2  
 
  Reply
 
 
 Legislation concerning policies in I and II has been provided in China's Subsidy Notification.  
The margin of the preferential tax treatment fo r enterprises benefiting from these policies has also 
been provided in the notification.  Except for provi sions on the margin of the preferential tax policies, 
the legislation has no stipulations on the upper limit for the benefits to be obtaine d by FIEs.  Statistics 
on the total number of companies that have be nefited from these policies are not available.   
 
(d) Please provide a complete list of all econo mic sectors that have benefited from these 
programmes in the order of the amount received?   
 
Reply  
  On the question regarding sectors that have bene fited from the policies, China is not able to 
provide information because these policies are not speci fic to any particular industry or sector.  They 
are applicable generally to foreign invested ente rprises regardless which industries or sectors they 
are in.    
(e) There is no time-limit defined for these subsidy programmes.  Does this mean that there 
is no intention by the Chinese government to terminate them?   
 Reply
 
 
 With the further reform of the tax regime in  China, these policies will be adjusted while 
implementing the new Income Tax Law of the People's Republic of China for Enterprises on 
1 January 2008.   
 
(f) Are preferential tax policies for export enterp rises just limited to foreign-invested firms 
or may domestic companies also benefit from  them?  If they are also for domestic 
enterprises, we request the Chinese government  to provide the precise rules that govern 
the award of these subsidies to the domestic industry.   
 Reply
 
 
 The preferential tax policies for foreign invest ed enterprises and preferential tax policies for 
foreign-invested export enterprises are only applicable to FIEs.    Question 2 (III, IV, V, VI, VII, VIII, IX, X, XI, XII, XIII, XIV, XV) Several further programmes involving preferential tax policies  
(a) Could China please provide the total amount (foregone tax revenue) available under 
each of these programmes?   
 
Reply
 
 
 As just explained, the amount of tax for gone as a result of the implementation of the 
preferential tax policies is not available because Ch ina currently does not have a statistics system for 
tax expenditure.  It is still in th e process of being established.   
 
(b) How many companies have benefited from  these programmes?  What is the average 
amount of subsidy under these programmes per company?  What is the maximum amount of subsidy awarded under these programmes to a company?   
  G/SCM/Q2/CHN/25 
 Page 3 
 
 
  Reply  
 
 China does not have such statistics.  Also, these policies do not have  stipulations on the 
maximum amount of benefits that an enterprise may get under them.    (c) With regard to programmes promoting co mpanies in special eco nomic zones, could 
China please specify the conditions under whic h foreign investments can locate in these 
areas, in particular whether there is any ex port or local content requirement for foreign 
investors in order to locate in these zones?   
 Reply
 
  There are no such requirements as export or lo cal content for foreign investments to locate in 
special economic zones.    (d) Are the preferential tax policies also ava ilable for firms operating on the domestic 
market, in particular when such firms are situated in special economic zones?  
 
Reply
 
  The preferential tax policies mentioned in questio n 2 are available for either foreign invested 
or domestic firms as specified in each of the program  in the notification regardless whether or not they 
operate on the domestic market.    
Question 3 (XVI and XVII) Fiscal funds to alleviate poverty 
(a) Could China please provide the total amount available under each of these 
programmes?   
 
Reply
 
 
 The total amount available under these two po licies has already been provided in the 
notification.  Please refer to the notification for details.   
 
(b) How many companies have benefited from  these programmes?  What is the average 
amount of subsidy under these programmes per company?  What is the maximum amount of subsidy awarded under these programmes to a company?  
 Reply
 
  The purpose of the two policies is to impr ove the production and living conditions of the 
poverty stricken population, to increase their in come and to promote the economic and social 
development of the poverty stricken areas.  The funds are provided rather for specific poverty alleviation projects instead of  supporting enterprises.   
 Question 4 (XIX) Preferential tax policies fo r enterprises which utilise waste materials 
 
(a) We request the Chinese government to provide clarifications on the exact scope of this 
subsidy programme.  We are particularly interested to know if it includes metals 
recycling operations.  
 G/SCM/Q2/CHN/25 
Page 4  
 
  Reply
 
 
 According to Circular Cai Shui No. 001 of 1999,  the preferential tax policies for enterprises 
which utilise waste materials are as follows:  firstly , for an enterprise producing products other than 
those originally designed for with waste material s generated in its own production which are also 
listed in the Catalogue for Comprehensive Utilization of Resources, the income of the said enterprise 
from these products shall be exempt from income ta x for five years since the beginning date of the 
production;  secondly, for an enterprise producing construction material products with such raw 
materials as coal gangue and ash from sources other than  itself, the income of the said enterprise from 
these construction material products shall be exempt from income tax for five years since the 
beginning date of its production;  thirdly, for a ne w enterprise set up for the purpose of dealing with 
and utilizing waste materials from other enterp rises which are listed in the Catalogue for 
Comprehensive Utilization of Resources, the said en terprise may be exempt from income tax for one 
year subject to approved by taxation authorities.  This policy covers metals recycling operations.   
 (b) Could China please explain the relation of the programme with the subsidy program 
"solid waste" initially notified under numb er XVIII of Annex 5A to the Protocol of 
Accession of China to the WTO?  
 
Reply
 
 
 This policy is the same one of that in XVIII of Annex 5A to the Protocol of Accession of 
China to the WTO.    
Question 5 (XXXI, XXXII, XXXIII) Various programmes for SMEs 
 
(a) Could China please indicate how many SM Es benefited from these programmes and the 
average amount attributed to the participating companies?   
 
Reply
 
 
 The total amount available under these three po licies has already been provided in the 
notification.  However, China does not have any statistics on numbers of SMEs benefiting from these 
policies.  
(b) What is the definition of SME's for the purpose of these programmes? 
 Reply
 
 
 The definition of SMEs in China is based on several indexes including number of employees, 
annual turnover and total assets etc., taking into account characteristics of the sector where the 
enterprise is in.  Detailed information can be foun d in the Provisional Rules for Standards of SMEs 
(State Economic and Trade Commission Circular G uo Jing Mao Zhong Xiao Qi No. 143 of 2003) 
issued in February 2003.   
 
(c) Do some or all of these programmes make  the award of the subsidy contingent upon 
export performance or the use of domestic over imported goods in the sense of Article 3 
ASCM?  
 
Reply  
  These policies are not contingent upon export pe rformance or use of domestic over imported 
goods in the sense of Article 3 of the SCM Agreement.    G/SCM/Q2/CHN/25 
 Page 5 
 
 
  Question 6 (XL, XLI) Subsidy programmes fo r purchasing agricultural machinery and 
tools and for actualizing agricultural technology 
 
 Can China please indicate if these subs idy programmes are also available for the 
purchase of foreign produced agricultural mach inery and tools as well as foreign produced 
agricultural technology?    
Reply
 
 
 These policies are available also for the purchase of foreign produced agricultural machinery 
and tools and foreign agricultural technology.   
 
Question 7 (LVII) Preferential tax policies for the integrated circuit industry 
(a) Could China please provide the total amo unt (foregone tax revenue) available under this 
programme?   
 
Reply  
 
 As explained above, the amount of tax forg one as a result of the implementation of 
preferential tax policies is not available because curr ent China does not have a statistics system for tax 
expenditure.  It is still in the process of being established.   
 
(b) How many companies have benefited from th is scheme?  What is the average amount of 
subsidy under this programme per company?  What is the maximum amount of subsidy awarded under this programme to a company?   
 
Reply
 
 
 China does not have such statistics.  Also, these policies do not have  stipulations on the 
maximum amount of benefits that an enterprise may get under them.    
(c) Does this programme make the award of the subsidy contingent upon export 
performance or the use of domestic over imported goods in the sense of Article 3 
ASCM? 
 
Reply
 
 
 These policies are not contingent upon export pe rformance or use of domestic over imported 
goods in the sense of Article 3 of the SCM Agreement.     
Question 8 (LVIII) Preferential tax policies for foreign invested enterprises purchasing 
domestically produced equipments;  and (LIX) P referential tax policies for domestic enterprises 
purchasing domestically produced equipm ents for technology upgrading purpose 
 
(a) These tax advantages clearly appear to be  contingent upon the use of domestic over 
imported goods in the sense of Article 3 AS CM.  Could China please indicate when its 
tax laws will be brought into full conformi ty with the obligations resulting from its 
WTO accession?   G/SCM/Q2/CHN/25 
Page 6  
 
  Reply
 
 
 These policies 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) What is the amount (foregone tax revenue) of these subsidy programmes?   
 
Reply
 
 
 As explained earlier, the amount of tax forgone as a result of the implementation of 
preferential tax policies is not available because curr ent China does not have a statistics system for tax 
expenditure.  It is still in the process of being established.    
(c) What are the precise rules that govern the award of these subsidies for companies 
besides those mentioned in the notificati on?  Are there ceilings on how much an 
enterprise can benefit from these programm es?  Could China provide the number of 
companies that have benefited from these schemes?   
 
Reply
 
 
 Legislation concerning policies mentioned in  Question 8 has been provided in China's 
Subsidy Notification.  The margin of the prefer ential tax treatment for enterprises benefiting from 
these policies has also been provided in the notifica tion.  Except for provisions on the margin of the 
preferential tax policies, the legislation has no stip ulations on the upper limit for the benefits to be 
obtained by FIEs.  Statistics on the total number of companies that have benefited from these policies 
are not available.   
 
(d) Please provide a complete list of economic  sectors that have benefited from these 
programmes in the order of the amount received?   
 
Reply  
 
 Such statistics are not available.   
 
(e) There is no time-limit defined for these s ubsidy programmes.  Does this mean that they 
there is no intention by the Chinese gov ernment to terminate these subsidy 
programmes?   
 
Reply  
 
 What was indicated in the notification was that  the policies were still valid at the time of 
submission of the notification.  However, this does not mean that the policies will not be changed or 
terminated.   
 
(f) Are preferential tax policies for export enterp rises just limited to foreign-invested firms 
or may the domestic companies also benefit fr om them?  If they are also for domestic 
enterprises, we request the Chinese government  to provide the precise rules that govern 
the award of these subsidies to the domestic industry.   
  G/SCM/Q2/CHN/25 
 Page 7 
 
 
  Reply  
  These two policies in LVIII and LIX are not pref erential tax policies for export enterprises as 
understood by EU in the question.  What was stipulated in the Circular Cai Shui No. 290 of 1999 jointly issued by Ministry of Finance (MOF) and St ate Administration of Taxation (SAT), i.e. in LIX, 
was that domestic enterprises may enjoy income tax deductions when pu rchasing domestically 
produced equipments on the condition that purchase of the domestically produced equipments must be 
for the purpose of technology upgrad ing of existing facilities, equipm ents and crafts.  Another two 
Circulars (Cai Shui No. 49 of 2000 and Guo Shui Fa No. 90 of 2000) jointly issued by MOF and SAT, i.e., in LVIII, stipulated on the cases when a fore ign invested enterprise ma y enjoy the income tax 
deduction, that is, the investment of the FIE in purchasing the domestically produced equipments 
should either be within the total investment 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.  Neither of these two policies is based on export performance.    Question 9 (LXXV) Refund of import VAT of raw copper materials 
 
(a) Could China please provide the total amo unt (foregone tax revenue) available under this 
programme?   
 
Reply
 
 
 As explained earlier, the amount of tax forgone as a result of the implementation of preferential tax policies is not available because curr ent China does not have a statistics system for tax 
expenditure.  It is still in the process of being established.    (b) How many companies in total have benefite d from this scheme?  What is the average 
amount of subsidy under this programme pe r company?  What is the maximum amount 
of subsidy awarded under this programme to a company? 
 
Reply
 
 
 Statistics as such are not available.   
 
(c) Is the award of the subsidy contingent upon export performance or the use of domestic 
over imported goods in the sense of Article 3 ASCM?   
 Reply
 
 
 The policy is not contingent upon export performan ce or use of domes tic over imported goods 
in the sense of Article 3 of the SCM Agreement.    
(d) This subsidy programme was presumed to have been discontinued in 2006.  Can we 
consider that the programme has been definitively discontinued for the future? 
 
Reply
 
  This policy terminated at the end of 2005.  
 
Question 10 (LXXVI, LXXVII, LXXVIII) Preferential tax treatment for casting and forging, 
to dies products and to numerically  controlled machine tool products 
 
(a) Could China please provide the total amount available under this programme?   G/SCM/Q2/CHN/25 
Page 8  
 
   
Reply
 
 
 As explained earlier, the amount of tax forgone as a result of the implementation of 
preferential tax policies is not available because curr ent China does not have a statistics system for tax 
expenditure.  It is still in the process of being established.   
 
(b) How many companies in total have benefite d from this scheme?  What is the average 
amount of subsidy under this programme pe r company?  What is the maximum amount 
of subsidy awarded under this programme to a company? 
 
Reply  
 
 Numbers of the enterprises benefiting from the po licies were reflected in the notification.  
Legislation concerning these preferential tax treatments did not stipulate on the maximum amount that 
an enterprise may benefit under these policies.   
 
(c) Do some or all these programmes make the award of the subsidy contingent upon export 
performance or the use of domestic over imported goods in the sense of Article 3 ASCM?  
 Reply
 
  These policies are not contingent upon export pe rformance or use of domestic over imported 
goods in the sense of Article 3 of the SCM Agreement.    
 
II. QUESTIONS CONCERNING SUBSIDIES THAT ARE NOT INCLUDED IN THE 
NOTIFICATION 
Question 1 
  The notification appears to focus on subsid ies provided at the federal government level.  
However, subsidies provided at the regional an d local government level also fall under the 
ASCM agreement.  This includes for example, the provision of land to enterprises at below 
market rates, tax reductions or tax waivers and direct financial transfers at the local/regional 
level.  We request the Chinese government to  notify all of these subsidy programmes and 
measures as soon as possible.   
 
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.  China will continue its work in order to submit a notification 
to WTO on policies and measures of lo cal governments in this respect.   
  G/SCM/Q2/CHN/25 
 Page 9 
 
 
  Question 2 
 
 Many state-owned Chinese banks have been bailed-out or recapitalised in recent years 
by the cancellation of debts arising from non-performing loans.  We request the Chinese government to provide a full overview of the s ubsidies provided to state-owned or state- 
controlled banks.  Again, this should include non-commercial lending on a regional and local 
level.  What happened to the enterprises that ca used the need for such bail-out by not repaying 
their loans?  Did they go bankrupt or did they receive new loans from the recapitalised banks?   
 
Reply
 
 
 In China's view, reform measures taken by th e Chinese government in the banking sector are 
not subsidies as defined by the SCM Agreement.  Reform of the state-owned commercial banks does 
not mean cancellation of debts of NPLs.  NPLs ar e in fact sold through bidding to institutions 
specialized in dealing with NPLs such as assets ma nagement companies (AMC).  The latter continue 
the claim for the debts.  During this process, some  of the debtors declare bankruptcy, while others 
continue their business operation after debt restructur ing.  Whether the latter could obtain new loans is 
decided by commercial banks themselves based  on their judgments according to commercial 
principles and criteria including for example credit rating of the enterprise.    
Question 3 
 
 Policy banks have a role of economic pr omotion in China by lending to certain 
enterprises or economic sectors.  Such lending ca n constitute a subsidy in the sense of Article 1 
of the ASCM.  We request the Chinese government to include the lending activities of Chinese policy banks to the enterprises or industrial sectors in their subsidy notification.   
 
Reply
 
  China included lending from State Policy Banks  in Annex 5A of the Accession Protocol to 
observe the principle of transpar ency in the accession negotiations.  This does not mean China regards 
such lending as a specific subsidy defined by th e SCM Agreement 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, State Policy Banks have been running on a market-oriented 
principle, operating independently and taking full risks ever since their establishment in 1994.  
Without intervention from the Government in their operation, there is no such a question of specific 
subsidy.  In view of different  understandings on whether lending fr om State Policy Banks belongs to 
specific subsidy, which is the one to be notif ied, China does not believe it necessary to include 
information in this regard in  its subsidy notification.   
 
Question 4 
 
 Steel subsidies:  Recent studies suggest that the Chinese government provides direct and 
indirect benefits to the steel industry.  These are alleged  to include direct cash grants, land grants, transfer of ownership interest on terms inconsistent with commercial considerations, 
conversion of debt to equity in steel compan ies on non-market terms, debt forgiveness, 
preferential loans, tax incentives, including a var iety of income tax exemptions and reductions.  
We request the Chinese government to notify the different subsidy programmes which benefit 
the steel sector and related sectors.   G/SCM/Q2/CHN/25 
Page 10  
 
  Reply
 
  There is no subsidy specific to the steel industry in China.    
Question 5 
 
 Several non-notified programmes of the Chin ese government have recently come to our 
attention:   
 
- Foreign invested Enterprises that buy new do mestic equipment instead of new imported 
equipment receive VAT refunds on the domestic equipment purchased.   
 
Reply
 
  The policy was not included in China's notifi cation because it does not intend to subsidize 
domestic equipments.  In fact, the purpose of the policy is to equalize the tax burden of domestic 
equipments and imported equipments when they are purchased by a foreign-invested enterprise.  In 
respect of the tax refund to foreign-invested ente rprises for their imported equipments, please refer to 
Item 60 of China's notification.  This policy, which exempted the foreign-invested enterprises 
satisfying certain terms and conditions from the im port tariff and VAT for the imported equipments 
they purchased, was implemented before the policy rai sed by EC in the question in order to encourage 
foreign investment.  As a result, the policy raised by EC in the question only equalized the tax burden 
between domestic equipments and imported equipm ents, and China believes that it should not be 
regarded as a subsidy for domestic equipments.    
- Profits distributed to foreign investors by Fo reign invested Enterprises that export more 
than 50 per cent of their products, or that utilise foreign advanced technology to 
produce products for exports are exempt from income tax.   
 
Reply
 
 
 This policy was replaced by paragraph 3.1 of the Article 19 of 1991 Income Tax Law of the 
People's Republic of China for Enterprises with Fo reign Investment and Foreign Enterprises.  The 
said Article provides that the profits derived by a foreign investor from an enterprise with foreign investment shall be exempted from income tax, wh ich means that the exemption has been applied to 
all foreign investors instead of only investors of fo reign-invested enterprises that export more than 
50 per cent of their products, or that utilize forei gn advanced technology.  China believes that the 
policy as provided in Article 19 paragraph 3.1 of 1991 Income Tax Law of the People's Republic of 
China for Enterprises with Foreign Investment and Foreign Enterprises is a policy to encourage and 
attract foreign investment.  It is not a specific subsidy as defined in the SCM Agreement which is 
subject to notification.  Therefore it is not incl uded in the subsidy notifi cation China submitted.   
 
- Foreign invested Enterprises that export more than 50 per cent of their products, or that 
utilise foreign advance technology to produ ce products for export, are exempt from 
mandatory contributions that help the Chinese government pay for workers/staff 
benefits.   
 
Reply
 
 
 This policy was not included in the subsid y notification China submitted because it was 
terminated as early as on 1 January 2002.     G/SCM/Q2/CHN/25 
 Page 11 
 
 
  - By-products, substandard products, and le ftover industrial surplus generated by 
Foreign invested Enterprises while produc ing goods for export are exempt from 
repayment tax when sold domestically.  Suc h products, if generated while producing 
goods for domestic consumption, are not exempt.   
 Reply
 
 
 The policy mentioned by EC was terminated by Public Notice No. 6 of 2004 issued by the 
General Administration of Customs.  Besides, from the wording of the question it seems that the 
policy is misunderstood by EC.  The original word ing of the policy was:  "by-products, substandard 
products, and leftover industrial raw materials of foreign invested enterpri ses while producing goods 
for export shall pay tax (import duty) after approve d by the Customs for selling domestically; and the 
wastes confirmed to be of no commercial value may be exempt from paying such tax (import duty)".  
The reason behind the policy is that the raw mate rials, fuels, parts, components, mechanical 
components and packing materials imported by FI Es for producing goods for export are imports in 
bond subject to the supervision of the Customs.  By-products, substandard  products, and industrial 
surplus left over by foreign inv ested enterprises while producing goods  for export, which was in bond, 
therefore shall pay import duty when sold domestically .  However, EC seems to regard this payment 
of import duty as a type of tax of "repayment tax", which in fact does not exist. In China's view, in this case there involves on subsidy at all.    
- Foreign invested Enterprises that meet cert ain export criteria receive a 10 per cent 
discount on lending rates from the People's Bank of China.   
 
Reply
 
 
 According to Circular Yin Fa No. 250 of 2003 issued by the People's Bank of China in 
December 2003, the interest rate of loans of co mmercial banks may fluctuate downward to 90 per cent 
of the benchmark rate issued by the People's Bank of  China.  Therefore when the subsidy notification 
was prepared, China believed that the said policy was not a subsidy.  Furthermore, according to Public 
Notice No. 7 of 2007 jointly issued by the People's Bank of China, State Foreign Exchange Administration, Ministry of Commerce and State Administration of Taxation, the said policy was 
abolished in March 2007.   
 
- Based on our experience in Anti-Dumping cases it seems that certain levels of 
production are exempt from paying VAT and that traders were able to deduct VAT expenses even though their suppliers did not charge and pay VAT.  
 
 We would also ask the Chinese government to confirm that these programmes exist.  If 
they exist, we request China to include them in  their notification.  These tax and social security 
payment advantages, as well as the reduced lend ing rates, appear to be contingent upon on 
export performance or the use of domestic over imported goods in the sense of Article 3 ASCM.  Could China please indicate when the respective laws and regulations will be brought into full 
conformity with the obligations resulting from its WTO accession if these programmes indeed 
exist?   
 
Reply
 
 
 China does not understand what this refers to a nd would like to request that EC verify the 
information it is based upon.   G/SCM/Q2/CHN/25 
Page 12  
 
  Question 6 
  China appears to be operating a complex sy stem of VAT refunds on exports.  This 
system is not transparent as refunds seem to be given on a discriminatory basis.  Discriminatory 
refunds could make the system a subsidy instrument .  It also appears that changes to the VAT 
rebates are implemented retroactively and apply to  companies in free trade zones which should 
not be subject to VAT.  We request China to clarify their system of  VAT refunds for exports 
and to include the scheme in their subsidy notificati on if it involves the provision of subsidies.  
 
Reply
 
 
 On VAT rebate upon export, China believes that its practice is in consistency with the WTO 
rules, because the rebate rates in China are no hi gher than the VAT rates levied.  The VAT rebate 
system is transparent.  All the announcements c oncerning the rebate system including rebate rate 
adjustments are publicized and available in th e China Foreign Trade and Economic Cooperation 
Gazette, as well as the official websites of releva nt government agencies and through public media.  
China does not agree that the VAT rebate for exports in Chin a is subsidy as defined in the SCM 
Agreement.  In our view, it is a general practic e in countries adopting VAT.  As to the point 
mentioned in the question that VAT rebates apply to enterprises in free trade zones which should not 
be subject to VAT, China does not understand what this  refers to and would like to request that EC 
verify the information it is based upon.   
 
 
__________