CHINA’S SUPPORT PROGRAMS

FOR SELECTED INDUSTRIES:

TEXTILES AND APPAREL

Trade Lawyers Advisory Group

Terence P. Stewart, Esq.

Stewart and Stewart

June 2007
Copyright © 2007 by The Trade Lawyers Advisory Group LLC 

This project is funded by a grant from the U.S. Small Business Administration 

(SBA). SBA’s funding should not be construed as an endorsement of any 

products, opinions or services. All SBA-funded projects are extended to the public 

on a nondiscriminatory basis. 
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CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: TEXTILES AND APPAREL

TABLE OF CONTENTS 

PAGE

EXECUTIVE SUMMARY.............................................................................................. iii 

I. CHINA’S TEXTILES AND APPAREL INDUSTRY: AN OVERVIEW ............................ 1 

II. GOVERNMENT SUPPORT TO THE TEXTILES AND APPAREL INDUSTRY.............. 3 

A. MAJOR DEVELOPMENT PLANS AND POLICIES ........................................... 3 

1. Development Goals........................................................................... 3 

2. Policy Support Guidelines.............................................................. 5 

B. SUPPORT PROGRAMS OF THE CENTRAL GOVERNMENT............................ 5 

1. Grants Provided by the Central Government............................ 5 

a. The Special Fund to Support the Restructuring of 

the Textiles Industry and the Efforts of Chinese 

Textile Companies to “Go Global”........................................ 5 

b. The Trade Promotion Fund for Agriculture, Light 

Industry and Textile Products.............................................. 9 

c. The Special Fund for Brand Development......................... 9 

2. Tax Incentives Provided by the Central Government............. 12 

3. Priority Support Rendered by the Central Government 

to Selected Local Textile Industries............................................. 14 

C. SUPPORT PROGRAMS OF PROVINCIAL AND LOCAL GOVERNMENTS ........ 14 

1. Monetary Awards to Textiles and Apparel Companies 

Contingent Upon Export Performance and Brand 

Development ...................................................................................... 15 

2. Loan Interest Subsidies for Technology Renovation............... 16 

3. Incentives Provided by Local Textile Industrial Parks .......... 17 

D. THE MAGNITUDE OF GOVERNMENT SUBSIDIES RECEIVED AT THE 

ENTERPRISE LEVEL...................................................................................... 17 
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1. Youngor Group Co., Ltd.. ................................................................ 18 

2. Ningbo Shanshan Co., Ltd. ............................................................. 21 

3. Inner Mongolia Eerduosi Cashmere Products Co., Ltd........... 22 

4. Shanghai Haixin Group Co., Ltd................................................... 23 

5. Shanghai Kaikai Industry Co., Ltd............................................... 25 

6. Zhejiang Golden Eagle Co., Ltd..................................................... 26 

III. SUBSIDY PROGRAMS APPLICABLE TO THE TEXTILES AND APPAREL 

INDUSTRY NOTIFIED BY CHINA TO THE WTO...................................................... 28 

IV. CONCERNS OF WTO MEMBERS OVER CHINA’S SUBSIDIES TO THE 

TEXTILES AND APPAREL INDUSTRY ..................................................................... 35 
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CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: TEXTILES AND APPAREL

EXECUTIVE SUMMARY 

Since 1995, China has been the world’s largest textile and apparel exporter. 

In 2005, China’s share of global trade in textiles and apparel products reached 24 

percent. Its large market share demonstrates the present competitiveness of 

China’s textiles and apparel industry, 95 percent of which is now privately owned. 

This competitiveness is all the more remarkable in that it arose out of a period 

when the entire industry was on the edge of bankruptcy and underwent a painful 

restructuring program in the late 1990s that was funded by the Chinese 

government. 

Between 1997 and 2000, under the direction and support of the central 

government, the industry scrapped 110 million outmoded cotton spindles, 280,000 

wool spindles and one million silk spindles. As many as 1.4 million workers were 

laid off as a result. The government provided RMB 3.1 billion in public funds to the 

industry in the form of grants or tax forgiveness to facilitate its restructuring. 

Large quantities of foreign advanced textile and apparel equipment were imported 

to upgrade the technological level of the industry. A total of USD $18.9 billion was 

spent for this purpose in the five years following 2000. These measures, together 

with the improvement of the general economic situation in China, turned the 

industry into the world’s largest exporter of textiles and apparel products. 
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EXECUTIVE SUMMARY 

iv

2006 was a year for strategic planning in China. Besides the catchall 11th 5-

Year Guideline, several industry-specific development strategies were drafted. 

Early in April 2006, the State Development and Reform Commission (SDRC) 

released the Notice on Several Opinions on Accelerating Restructuring to Facilitate 

the Upgrading of the Textile Industry, which calls for further restructuring and 

technological upgrading of the industry. Again in July 2006, several State Council 

Ministers jointly issued the Circular on Relevant Policies to Promote Chinese Textile 

Industry to Shift to New Ways of Growth in Foreign Trade and Support Chinese 

Textile Enterprises to Go Global. This notice expressly promises to provide funds to 

assist Chinese textile enterprises to conduct technological innovation; to develop 

overseas textile industrial parks; and to assist the textile companies to establish 

overseas production bases. 

The 11th 5-Year Plan for the Textile Industry, issued by the State 

Development and Reform Commission in June 2006, lays out a comprehensive 

development strategy for the industry. Three policy objectives listed in the Plan are 

regarded as key to maintaining the competitiveness of the industry. These are (1) 

enhancing the industry’s independent innovation capacity, and developing brand 

names on the world market; (2) optimizing the industrial structure and upgrading 

the technologies and equipment of the industry; and (3) restricting inefficient, 

polluting, and energy-wasteful manufacturing facilities. The Plan also calls for 
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EXECUTIVE SUMMARY 

v

industry revenues to increase from RMB 3.3 trillion in 2005 to RMB 6 trillion in 

2010. 

In all these plans, technology and innovation capacity development were 

given the highest priority. The Circular on Relevant Policies to Promote Chinese 

Textile Industry to Shift to New Ways of Growth in Foreign Trade and Support 

Chinese Textile Enterprises to Go Global expressly authorized the allocation of 

government funds to support technology innovation. Reportedly, a special fund was 

established in 2006 in accordance with this notice, with RMB 560 million dedicated 

to projects related to technology innovation purposes. It has also been reported that 

local governments are providing loan interest subsidies to support technological 

innovation projects. Zhongshan City, for example, has provided loan interest 

subsidies that cover 30-40 percent of the actual interest payments on loans. 

The building of brand names is another priority for government support to 

the textiles and apparel industry. The government has launched a campaign titled 

“Ten Thousand Miles March for Brand Building,” under which companies whose 

brand names are certified as “famous” will be given free media publicity. Public 

funds are awarded to cover part of the brand-building expenditures. Local 

government assistance for brand name building is also available to textiles and 

apparel companies. For instance, Ningbo City, home to several leading textile 

manufacturers, has been providing awards to companies that export textiles and 

apparel products under their own foreign-registered brand names. 
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EXECUTIVE SUMMARY 

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WTO agreements generally prohibit export subsidies and import substitution 

subsidies and allow Members to seek recourse in the WTO (or through 

countervailing duty cases) regarding specific subsidies that cause adverse effects 

(material injury to a domestic industry for a countervailing duty case). The WTO 

Agreement on Subsidies and Countervailing Measures also obliges Members to 

notify the SCM Committee of existing government support programs. China 

submitted its first SCM Notification in April 2006, listing 78 government subsidy 

programs. Many of the notified programs are potentially usable by the textiles and 

apparel industry. 

A number of China’s trading partners (including both the United States and 

Mexico) have filed requests for consultations with China concerning some of its 

notified subsidy programs that are relevant to the textiles and apparel industry. 

Such programs include tax policies that favor purchasing domestic equipment, tax 

and social welfare payment benefits conditioned on export performance, export 

awards, and export loan interest subsidies. 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: 

TEXTILES AND APPAREL

I. CHINA’S TEXTILES AND APPAREL INDUSTRY: AN OVERVIEW

China’s textiles and apparel industry is a traditional pillar industry in the Chinese 

economy. Employment in the industry was 19.6 million in 2005, accounting for 14.2 percent of 

the total manufacturing workforce. Seventy percent of the employees in the industry come from 

rural areas and earn a total income of RMB 100 billion every year.1 The industry consumed 7.3 

million tons of domestic natural fibers in 2005, bearing significantly on the livelihood of 100 

million farmers.2 Since 1995, China has been the world’s largest textile and apparel exporter. 

China’s total textile and apparel exports in 2005 amounted to USD $117.5 billion, up 121.6 

percent from 2000. Over the same period, China’s trade surplus in textiles and apparel expanded 

from USD $39.2 billion in 2000 to $100.4 billion in 2005. At the same time, China’s share of 

global trade in textiles and apparel increased from 15 percent to 24 percent.3

In the late 1990s, the central government launched a massive campaign to restructure the 

industry and reform unprofitable and debt-ridden state-owned enterprises (SOEs).4

 

Major modernization and restructuring of the industry took place 

between 1997 and 2000, presumably in anticipation of China's 

accession to the WTO and the expiry of ATC quotas. During this 

period, 10 million outmoded cotton spindles, 280,000 wool 

spindles, and one million silk spindles were scrapped. Many state-

 

1

 See NDRC Circular on Distributing The 11th Five-Year Plan for the Textile Industry, Fa Gai Gong Yi [2006] 

No. 1072. See Exhibit T-22. 

2

 Id. 

3

 Id. 4

 The Textile Industry Development Plan for the 10th 5-Year Period, State Economic and Trade Commission 

(2002). See Exhibit T-18. See also State Council Circular on Certain Issues Regarding Deepening Structural 

Adjustment, Overcoming Difficulties and Stemming Loss of the Textile Industry, Guo Fa [1998] No. 2. See 

Exhibit T-19. 
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owned textiles enterprises went bankrupt or were forced to merge, 

leading to the unemployment or redeployment of 1.4 million 

workers. Over US$30 billion of state-of-the-art textiles machinery 

was imported during this period. Based on the number of spindles 

scrapped, the Central Government provided assistance to certain 

SOEs that were running at a loss. In 1997 and 1998, Y 1.6 billion 

and Y 1.5 billion were provided in the form of grants or tax 

forgiveness.5

The following five years, known as the 10th five-year period (2001-2005), witnessed 

considerable efforts in technology upgrading in the industry. During this period, China imported 

USD $18.9 billion of advanced equipment, accounting for 50 percent of the industry’s total 

equipment investment.6 Meanwhile, domestic textile machinery manufacturing capacity also 

expanded significantly. From 2000 to 2005, the industry’s sales revenue rose by 137.4 percent.7

Despite the advancements during the 10th five-year period, the Chinese government 

views the textile industry as facing many constraints going forward. Domestic enterprises on 

average are weak in innovation, with limited R&D activities. Today, the industry still relies 

heavily upon imports of high-end equipment and technologies. In terms of exports, most 

enterprises engage in OEM manufacturing for foreign brand names and are faced with a steep 

learning curve to develop brands of their own that will garner global recognition and acceptance. 

The industry is also fragmented; most enterprises are small in scale, competing against each 

other in labor-intensive and low-technology product processing. These are the major issues the 

Chinese government seeks to address in the 11th five-year period (2006-2010). 

 

5 See Trade Policy Review – People’s Republic of China; Report by the Secretariat, WT/TPR/S/161/Rev.1 (26 

June 2006) at 195, para. 102. 

6

 See NDRC Circular on Distributing The 11th Five-Year Plan for the Textile Industry, Fa Gai Gong Yi [2006] 

No. 1072. See Exhibit T-22. 7

 Id. 
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II. GOVERNMENT SUPPORT TO THE TEXTILES AND APPAREL INDUSTRY

A. MAJOR DEVELOPMENT PLANS AND POLICIES

1. Development Goals 

In The 11th Five-Year (2006-2010) Guideline for National Economic and Social 

Development (see Exhibit A-I-2), “optimizing and upgrading industrial structure” is laid out as a 

development focus. Under this overriding principle for industrial development, one of the 

priorities of the Guideline is to increase the value-added in the textile industry, specifically: 

To strengthen the technological capability of the textile industry 

and increase the number of Chinese-owned brand names; to 

develop high-tech, high-performance, differential, and 

environmental-friendly fibers and renewable fibers, and to enhance 

the development and utilization of textiles for industry-use, silk 

and non-cotton natural fibers; to advance the gradient shift of the 

textile industry. 

In the spirit of the Guideline, the central government mapped out a detailed development 

plan for the textile industry in The 11th Five-Year Plan for the Textile Industry (see Exhibit T22). The Plan sets forth the following goals: 

(1) To significantly enhance the independent innovation capacity of the textiles 

industry, develop influential technologies with intellectual property rights 

ownership and foster well-known global brand names; 

(2) To optimize the industrial structure and upgrade technologies and equipment; 

and 

(3) To effectively control inefficient low-level manufacturing which consumes 

excessive amounts of energy and is not environmentally-friendly. 

These goals echo the Guideline and are designed to address existing problems in the 

development of the textiles industry. The Plan also spells out specific targets to be met by 2010 

in production, consumption and exports. 
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2010 Targets Set Out in the 11th 5-Year Plan for the Textile Industry 

2005 2010 Annual 

Growth

Total amount of fiber processing 26.9 million tons 36 million tons 6%

Per capita fiber consumption 13 kilograms 18 kilograms 6.7%

Productivity RMB 51099 

per capita per year 

RMB 85000 

per capita per year 10.7%

Sales revenue RMB 3300 billion RMB 6000 billion 12.7%

Exports of textiles and apparel USD $117.5 billion USD $180 billion 9%

Employment 19.6 million 23 million 3.3%

With a view to better tackling challenges facing the textile industry, in 2006, the central 

government also issued a Notice on Several Opinions on Accelerating Restructuring to Facilitate 

the Upgrading of the Textile Industry (see Exhibit T-1). The Notice identified priorities of the 

restructuring efforts, which include manufacturing equipment and technologies, supply of raw 

materials, industry applications, utilization of natural resources, brand development, corporate 

organization, and geographic distribution of the industry. 

In the 2006 Opinions of the State Council on Revitalization of the Industrial Machinery 

Manufacturing Industries (see Exhibit T-2), which calls for the enhancement of independent 

innovation capacity and expansion of market shares of domestic companies in the industrial 

machinery manufacturing, textile machinery is listed as one of the 16 key fields. The specific 

plan targets the development of advanced textile machinery and upgrading of the textile industry, 

with priorities being given to the development and industrialization of core equipment and 

technologies, including the polyester short-fiber manufacturing equipment with daily output of 

over 200 tons, high-speed viscose filament spinning machines, high-efficiency cotton-spinning 

equipment, rapier looms and air-jet spinning machines featuring mechatronics. 
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2. Policy Support Guidelines 

To accomplish the various development goals, the above plans or opinions advocate a 

variety of preferential policies to support the textiles industry. Chief among them are: 

 To allocate special funds from the state fiscal budget to support the 

development of key equipment and technologies. 

 To use tax incentives to encourage R&D spending and technological 

innovation of textile companies. 

 To introduce the policy of increasing the magnitude of tax deductions for 

advertising expenses. 

 To aid the brand development and overseas investment of domestic textile 

companies, rendering support in the establishment of overseas 

manufacturing facilities, R&D centers, logistics and distribution centers, and 

the application for international certificates and registration of trademarks. 

 To implement preferential tax policies for the import of key spare parts and 

raw materials required for the manufacturing of textile machinery. 

 To encourage the procurement of major domestically-produced equipment. 

B. SUPPORT PROGRAMS OF THE CENTRAL GOVERNMENT

In accordance with government development goals and policy support guidelines, the 

central government has implemented many concrete programs and policies to subsidize textile 

companies and the textiles industry. The subsidies take the form of government grants and tax 

incentives, and include those available nationwide and those provided to selected regions. 

1. Grants Provided by the Central Government 

a. The Special Fund to Support the Restructuring of 

the Textiles Industry and the Efforts of Chinese 

Textile Companies to “Go Global” 

The 2006 Circular on Relevant Policies to Promote Chinese Textile Industry to Shift to 

New Ways of Growth in Foreign Trade and Support Chinese Textile Enterprises to Go Global
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(see Exhibit T-3), issued by the Ministry of Finance, the State Development and Reform 

Commission, and the Ministry of Commerce, authorized the allocation of a special government 

fund to support technology innovation and restructuring in the textiles industry and overseas 

investment by textile companies. More specifically, the fund is utilized as follows: 

 To support technology innovation and restructuring in the textile industry 

and facilitate the shift to the new growth mode in foreign trade. 

o To provide lump sum direct grants to projects of technology innovation, 

development and industrialization of core technologies and equipment, 

establishment of innovation services platforms, and brand development 

and promotion. 

 To support the establishment of overseas textile industrial parks, providing a 

favorable environment for textile companies in the course of “going global.” 

o To provide loan interest subsidies for the construction of overseas textile 

industrial parks. 

o To subsidize the provision of land, manufacturing facilities, 

infrastructure and services in overseas textile industrial parks. 

 To support textile companies in “going global” through overseas investment 

and diversifying their products origin through overseas manufacturing. 

o To subsidize the expenses of Chinese textile companies incurred in early 

stages of “going global” that may involve R&D, consulting services, 

feasibility study and project evaluation, and intellectual property rights 

protection. 

o To subsidize the expenses of Chinese textile companies in the 

establishment of distribution channels in overseas markets. 

o To support service companies and dragonhead textile companies in the 

organization of “going global” activities. 

The initial scale of the fund is about RMB 1.35 billion, with RMB 560 million dedicated 

to projects related to technology innovation and restructuring and RMB 800 million for the 

“going global” operation.8

 The portion for restructuring is administered at the central level by 

 

8

 See A Special Fund of RMB 1.36 Billion to Support the Restructuring of the Textile Industry; available at 

http://www.texnet.com.cn/news/2007/01/30/152680.html. See Exhibit T-31. 
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the Ministry of Finance and the State Development and Reform Commission, while the portion 

for “going global” is appropriated to provincial governments who are required to formulate their 

own measures on the administration of the fund in accordance with guidelines given by the 

central government. The amount of the fund for “going global” received by each province is in 

proportion to the exports and overseas investment of that province. 

Jiangsu Province, for example, received a total of RMB 110 million in 2006 as a major 

textiles and apparel exporter in China.9

 Pursuant to the Jiangsu Province’s Measures on the 

Administration of the Fund to Support Textile Companies to “Go Global” (October 26, 2006) 

(see Exhibit T-4), the fund is to support the establishment of overseas textile industrial parks, 

overseas investment by textile companies, set-up of overseas marketing and sales networks, and 

activities of service companies in facilitating overseas investment of textile companies. The 

following table presents the detailed standards for the provision of subsidies under this program. 

The amount of subsidies is specified on a single project basis. 

 

9

 See Jiangsu Province Obtained RMB 110 Million of the Special Fund for Textile Companies from the Central 

Government; available at http://www.sinotex.net/news/shownews.asp?id=64108. See Exhibit T-32. 
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End-uses Amount of subsidies Recipients 

Construction of overseas 

textiles processing zones 

or textile industrial parks 

A grant of up to 

RMB 2 million Project contractors 

Insurance for overseas 

project construction 

 Subsidization of 50% 

of the premium Project contractors 

Land leasing or purchasing, 

and construction of manufacturing 

facilities in overseas investment 

A grant of up to 

RMB 1 million Textile companies 

Insurance for overseas 

investment projects 

 Subsidization of 50% 

of the premium Textile companies 

Leasing office space for R&D 

activities, hiring designers, and 

purchasing relevant materials in 

overseas operations 

A grant of up to 

RMB 500,000 Textile companies 

Overseas trademarks registration 

and product certification 

 Subsidization of 50% 

of the expenses Textile companies 

Litigation and arbitration related to 

intellectual property rights protection 

in overseas operations 

 50% subsidization of 

expenses (not exceeding 

RMB 500,000) 

Textile companies 

Decoration and space leasing for 

boutique stores opened overseas 

 A grant of up to 

RMB 200,000 Textile companies 

Office and storage space leasing for 

after-sales service networks and 

logistics centers established overseas 

A grant of up to 

RMB 100,000 Textile companies 

Development or purchase of 

information management system 

software for after-sales service 

networks established overseas 

Subsidization of 50% 

of the expenses Textile companies 

Insurance for the overseas marketing 

and sales branches 

 Subsidization of 50% 

of the premium Textile companies 

Development of information service 

websites on overseas investment 

Subsidization of 50% 

of the expenses 

 Service companies 

or “dragonhead” 

textile companies 

Space leasing, advertising and 

translation services for 

investment fairs and briefings 

A grant of up to 

RMB 200,000 

 Service companies 

or “dragonhead” 

textile companies 
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b. The Trade Promotion Fund for Agriculture, Light 

Industry and Textile Products 

With a view to enhancing the export quality and competitiveness of the agriculture, light 

manufacturing and textiles industries, the central government operates a fund to promote trade in 

agriculture, light industry and textile products. Under the Provisional Measures on the 

Administration of the Trade Promotion Fund for Agriculture, Light Industry and Textile 

Products (see Exhibit T-5), issued by the Ministry of Commerce and the Ministry of Finance in 

2005, textile companies that have conducted R&D projects for new products or have been 

contracted for state or provincial research projects in the past three years, as well as textile 

industry associations with a membership of not less than 500 that have hosted national or 

international exhibitions, seminars and trainings in the past three years, are both eligible to 

receive grants from the fund. 

In 2006, the priority of the fund for textile products was the technology service platforms 

of the textiles industry, as stipulated in the Notice on the Application for the Trade Promotion 

Fund for Agriculture, Light Industry and Textile Products in 2006 (see Exhibit T-6). The 

platforms, individually or jointly run by industry associations or companies, serve exportoriented textile companies, providing technologies and equipment required in R&D, product 

design, quality control, and product testing. Each project related to the technology service 

platforms can be subsidized with a grant up to RMB 2 million. 

c. The Special Fund for Brand Development 

In its endeavors to build Chinese-owned global brand names, the Chinese government 

has launched a series of brand appraisal and brand promotion activities such as the “Ten 
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Thousand Miles March for Brand Building.” Fifty-five textile and apparel brands are listed as 

the 2005-2006 “Export Brand Names with Priority Support from the Ministry of Commerce”.10 

Twenty-four textile and apparel products were awarded with the title of “The Most Competitive 

Brand Names” in 2006.11 Companies owning these brand names can benefit from the Special 

Fund for Brand Development that the central government has earmarked from the Central 

Foreign Trade Development Fund. 

Pursuant to the Circular on the Administration of the Special Fund for Brand 

Development (see Exhibit T-7), issued by the Ministry of Commerce and the Ministry of Finance 

in 2006, the fund should serve the following purposes: 

• To support companies in implementation of brand development programs. 

• To support companies in participation of national and international 

exhibitions. 

• To support brand promotion activities. 

• To support international exchanges, trainings and seminars related to brand 

building. 

• To support other public services that facilitate brand building. 

The Ministry of Commerce and the Ministry of Finance appropriate the fund to 

provincial governments who are required to formulate their own measures on the administration 

of the fund. The following is an example of how the fund is used in Fujian Province:12

 

10 MOFCOM, The 2005-2006 List of Export Brand Names with Priority Support from the Ministry of Commerce, 

Gong Gao [2005] No. 3; available at http://news.xinhuanet.com/zhengfu/2005-03/18/content_2714035_1.htm. 

See Exhibit T-33. 11 MOFCOM, The 2006 List of the Most Competitive Brand Names, Gong Gao [2007] No. 6; available at 

http://www.mofcom.gov.cn/aarticle/b/g/200702/20070204386506.html. See Exhibit T-34. 

12 See Provisional Measures on the Administration of the Special Fund for Export Brand Development of Fujian 

Province. See Exhibit T-20. 
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Grants for corporate development projects provided to textile and apparel 

companies with brand names that are awarded with the titles of “Export 

Brand Names with Priority Support from the Ministry of Commerce” and 

“The Most Competitive Brand Names”: 

• To subsidize the exhibition and shipping expenses for major trade fairs 

organized by the Ministry of Commerce and the provincial government. 

• To subsidize the expenses for the establishment of R&D centers of 

export brand names recognized by the provincial government or agencies 

of a higher level. 

• To subsidize the certification fees for quality and environmental 

management systems and the testing fees for product certification. 

• To subsidize the expenses for the opening of boutique stores and aftersales branches in overseas markets. 

• To subsidize the expenses for trademark registration and patent 

application in overseas markets, and the legal expenses for dealing with 

intellectual property rights infringement cases. 

• To subsidize the expenses for acquiring foreign well-known brand 

names. 

• To subsidize the expenses for advertising via major media in domestic 

and overseas markets. 

Grants for public services projects provided to intermediaries and service 

companies: 

• To subsidize the expenses for promoting and advertising brand names in 

domestic and international trade fairs and exhibitions. 

• To subsidize the expenses for coordinating the participation of 

companies in domestic and international trade fairs. 

• To subsidize the expenses for preparing and distributing advertising 

materials. 

• To subsidize the expenses for brand development planning, exchange 

programs, seminars, research, and training. 

• To subsidize the expenses for the development and maintenance of 

export brand names network that provides information services to 

companies. 

• To subsidize the expenses for brand appraisal. 

• To subsidize the expenses for other public services that facilitate brand 

development. 
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With respect to the amount of the grants, for corporate development projects, each project 

can receive a grant up to RMB 200,000 or 50 percent of the actual expenses required by the 

project; public services projects, if covered under the public services project plan jointly 

determined by the provincial foreign trade bureau and finance bureau, can be fully subsidized. 

2. Tax Incentives Provided by the Central Government 

The Central Government provides various tax incentives to textiles and apparel 

companies that are designed to support brand promotion efforts, stimulate technology innovation 

and encourage both domestic and foreign investment. Major types of benefits include income 

tax deductions and reductions, and refunds of import tariff and value-added taxes (VAT). 

According to the 2006 Circular of the State Administration of Taxation on the Adjustment 

of the Income Tax Deductibility of Advertising Expenses of Apparel Manufacturing Companies

(see Exhibit T-8), since January 1, 2006, advertising expenses of apparel companies, within the 

limit of 8 percent of the sales revenue, can be fully deducted from the income tax; if the 

advertising expenses exceed 8 percent of the sales revenue, the amount in excess can be deducted 

from the income tax of the next year, and the postponement of such deductibility is infinite. This 

new regulation represents a significant increase in the deductible amount of advertising expenses, 

compared to the original 2 percent of the sales revenue stipulated in the 2000 Circular of State 

Administration of Taxation Measures on Corporate Income Tax Deduction (see Exhibit T-9). 

Pursuant to the 2003 Circular of the Ministry of Finance (MOF) and the State 

Administration of Taxation (SAT) on Expanding the Application of Tax Deduction for 

Technology Development Expenditure by Enterprises (see Exhibit T-10), industrial enterprises, 
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including textile and apparel manufacturing enterprises, regardless of ownership, are not only 

able to fully deduct the expenses incurred for research and development of new products, new

technologies and new crafts from their income taxes, but are also allowed an additional 50 

percent deduction of R&D expenses, if such expenses increase 10 percent or more from the 

previous year. The 2006 Circular of MOF and SAT on Preferential Corporate Income Tax 

Policies for Technological Innovation (see Exhibit T-21) reaffirms the above practice. In 

addition, the 2006 Circular provided for an income tax deduction for employee educational 

expenses and the acceleration of R&D equipment depreciation. 

Pursuant to the 2007 Notice of the Ministry of Finance, the State Development and 

Reform Commission, the General Customs Administration, and the State Administration of 

Taxation on Relevant Import Tax Policies to Implement the Opinions of the State Council on 

Revitalization of the Industrial Machinery Manufacturing Industries (see Exhibit T-11), 

companies engaged in the manufacturing of advanced textile machinery are eligible to receive 

refund of customs duties and import VAT for the imports of key spare parts and raw materials 

that cannot be produced domestically. 

Under China’s newly-enacted Enterprise Income Tax Law (see Exhibit F-15), which 

equalizes the income tax rate for domestic and foreign enterprises at 25 percent, state-encouraged 

new- and high-technology enterprises can enjoy a favorable 15 percent income tax rate. This 

benefit would encourage domestic and foreign companies to invest in the manufacturing of 

advanced textile machinery. 
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3. Priority Support Rendered by the Central Government 

to Selected Local Textile Industries 

In January 2006, the Chinese National Textile and Apparel Industry Council (CNTAC) 

and the Hangzhou Municipal Government signed a cooperation agreement under which CNTAC 

will give priority support to the upgrading of the textile industry in Hangzhou, a textile 

powerhouse in China. As part of the cooperation, the two sides will join hands to establish a 

textile circulation and innovation service platform with a total investment of RMB 320 million in 

the Xiaoshan district of Hangzhou City, the largest polyester manufacturing base in the world. 

The platform will consist of six service centers, i.e., an exhibition center, an information release 

center, a product testing center, a product development center, an e-commerce and modern 

logistics center, and a personnel training and communication center. According to the Vice 

Chairman of CNTAC, this support program is expected to generate additional annual revenue of 

RMB 4 billion for the polyester industry alone in Hangzhou.13 

C. SUPPORT PROGRAMS OF PROVINCIAL AND LOCAL GOVERNMENTS

At the sub-central governments, there is an array of benefits available to textiles and 

apparel companies, including monetary awards, loan interest subsidies, preferential treatment in 

land use and energy use, and tax incentives. 

 

13 See CNTAC Giving Support to the Upgrading of the Textile Industry in Hangzhou: One Meter of Cloth to 

Generate An Additional Revenue of RMB One Yuan, HANGZHOU DAILY (January 15, 2006); available at 

http://www.gd51.com/info/viewfile/2006/01/15/1520_1658226.html. See Exhibit T-35. 
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1. Monetary Awards to Textiles and Apparel Companies 

Contingent Upon Export Performance and Brand 

Development 

Many local governments provide monetary incentives to boost textiles and apparel 

exports and encourage brand building. The following reviews such incentives adopted in three 

municipalities that are at the forefront of the textiles and apparel industry in China. 

Ningbo City of Zhejiang Province has been subsidizing certain textiles and apparel 

exporters since 1999. Under the Measures on Awarding Brand Name Textile and Apparel 

Exports (see Exhibit T-12), issued in 1999, exporters of textile and apparel products with 

trademarks registered overseas and annual exports of over USD $200,000 can receive monetary 

awards for the increment in exports over the previous year; to be more specific, an award of 

RMB 0.03 for every U.S. dollar of textile exports and an award of RMB 0.05 for every U.S. 

dollar of apparel exports. 

Hangzhou City of Zhejiang Province has a slightly different subsidy mechanism. 

Pursuant to the Notice on Applying for the Awards for Brand Name Textile and Apparel Exports

in 2004 (see Exhibit T-13), benefits are extended to exporters on the basis of the total amount of 

exports. The standards are as follows: 

Exports in 2004 

(in USD)

Amount of the Award 

(in RMB)

1-5 million 10,000 

5-10 million 30,000 

10-50 million 60,000 

Over 50 million 100,000 
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Instead of giving export-contingent awards, Shishi City of Fujian Province offers 

monetary incentives based on achievements in brand building. Under the city’s most recent 

award measures (see Exhibit T-14), textiles and apparel companies with well-known brand 

names recognized by the State Administration of Industry and Commerce or the Administration 

of Quality Supervision, Inspection and Quarantine can receive a lump-sum award of RMB 

500,000; for companies with well-known export brand names, the award is RMB 400,000. In 

addition, companies that have received quality inspection waivers from the national government 

are eligible for awards of RMB 100,000 from the Shishi City government. 

2. Loan Interest Subsidies for Technology Renovation 

Another major type of incentive offered to the textiles and apparel industry at the 

provincial and local level is loan interest subsidies for technology renovation. Provincial and 

municipal governments administer a fund used to subsidize loan interest for upgrading 

technologies and equipment across a range of key industries. As spelled out in the Measures of 

Liaoning Province on the Administration of the Fund for Loan Interest Subsidies for Technology 

Upgrading (see Exhibit T-15), the fund serves to encourage banks and other financial institutions 

to increase the magnitude of support to enterprises in technology upgrading. As a common 

practice, the textiles and apparel industry is identified as one of the key industries that enjoy

priority support from this type of program. With regard to the amount of the subsidies, in the 

example of Zhongshan City of Fujian Province, as stipulated in the Provisional Measures of 

Zhongshan City on the Administration of the Fund for Loan Interest Subsidies for Technology 
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Upgrading of Industrial Enterprises (see Exhibit T-16), each project can receive subsidies up to 

RMB 3 million or 30-40 percent of the total amount of interest in a year. 

3. Incentives Provided by Local Textile Industrial Parks 

To boost local competitiveness, many provincial and local governments have established 

textile industrial parks where various preferential policies are adopted to attract both domestic 

and foreign investment. Zhejiang Province, for example, started the operation of textile 

industrial parks in the late 1990s and provided investors with reduced energy costs, preferential

land prices, and tax incentives.14 A more recent example is the Northeast Footwear Industrial 

Park located in Liaoyuan City of Jilin Province. Incentives provided to investors include:15 

• Tax benefits: local income taxes can be refunded to the enterprises in full 

within 5 years; enterprises with annual VAT payments above RMB 1 million 

and sales taxes of RMB 500,000 may receive a 20 percent refund of the 

portion of the tax allocated to the industrial park. 

• Preferential treatment in land use: enterprises with a fixed asset investment of 

above RMB 10 million and annual tax payments of RMB 1 million can 

receive a waiver of the land leasing fee for 20 years. 

• Preferential treatment in administrative fees: enterprises with a fixed asset 

investment of above RMB 5 million can receive a waiver of administrative 

fees during the construction period and within 5 years of operation. 

D. THE MAGNITUDE OF GOVERNMENT SUBSIDIES RECEIVED AT THE 

ENTERPRISE LEVEL

The annual reports of some textiles and apparel companies listed on China’s stock 

exchanges shed some light on some of the amounts identified by Chinese companies as 

potentially subsidies. The subsidies listed in the annual reports are not necessarily complete, nor 

 

14 See Report on the Textile Industry Development in Zhejiang Province; available at http://www.gdet.gov.cn/ 

jmzc/hyjj/fzfz/fwngw/detail.jsp?recid=28182. 15 See http://www.dbwy.cn/main/zhengce_index1.html. 
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are the amounts listed as subsidies in the reports necessarily indicative of whether they are either 

actionable or prohibited subsidies. Nonetheless, the information does provide some insight into 

the types of programs being used by selected Chinese textiles and apparel companies. The 

following is a review of the subsidy amounts received by six major Chinese textiles and apparel 

companies between 1999 and 2006 based on information disclosed in their annual reports. For 

these companies, the average ratio of subsidies, including VAT export rebates in some cases, 

calculated by comparing the total amount of subsidies actually received with the total sales 

revenue, ranges from 2.01 percent to 0.12 percent. The weighted-average ratio of subsidies for 

these six companies is 0.8753 percent.16

1. Youngor Group Company, Ltd. 

Youngor Group Company, Ltd. is the leading company in China’s textiles and apparel 

industry. It ranks first in the industry with regard to both sales revenue and net profits in the 

most recent 6 years. Its men’s suits, marketed under the Youngor brand, have had the largest 

market share since 1994. The company’s principal business includes garment manufacturing, 

textiles production, and real estate development, accounting for 41 percent, 32 percent and 20 

percent, respectively, of the company’s revenue. The company is also a large textiles and 

apparel exporter. In 2006, 27 percent of its revenue stemmed from sales in foreign markets.17 Its 

stock is listed on the Shanghai Stock Exchange. 

 

16 The weighted-average subsidies ratio is calculated by dividing the aggregate subsidies received by the six 

companies during the entire period under review by the aggregate sales revenue for the same period. 

17 Google Finance Public Company Profile: Youngor Group Company, Ltd.; available at http://finance.google. 

com/finance?q=Youngor+Group+Co.%2C+Ltd. (accessed May 16, 2007). 
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Youngor Group Company, Ltd. 

Subsidies Received: 1999 to 2006 

Year Subsidy 

(RMB) 

Revenue 

(RMB) 

Subsidies as 

% of Revenue 

2006 50,367,519.40 5,975,663,895.34 0.84288 

2005 81,007,176.20 4,628,151,622.29 1.75031 

2004 85,282,253.91 4,155,210,902.92 2.05242 

2003 82,469,252.68 2,703,068,207.91 3.05095 

2002 82,594,331.83 4,155,210,902.92 1.98773 

2001 64,900,933.29 2,703,068,207.91 2.40101 

2000 55,491,875.50 1,437,739,642.57 3.85966 

1999 35,593,090.73 1,040,912,020.47 3.41941 

TOTAL 537,706,433.54 26,799,025,402.33 2.00644 

Source: Youngor Group annual reports 1999-2006 (see Exhibit T-25). 

Youngor Group 

Breakdown of Subsidies Received18

Subsidy Year Amount 

(RMB) 

2006 41,034,568.40 

2005 54,379,613.19 

2004 44,907,853.80 

2003 37,801,867.42 

2002 35,841,751.43 

2001 37,017,845.29 

VAT rebate 

2000 55,491,875.50 

2004 2,259,963.51 

2003 2,330,997.26 

2002 748,580.40 Export loan interest subsidy 

2001 3,089,088.00 

Local subsidy for efforts to attract investment 2006 250,000.00 

2006 1,072,000.00 

2005 3,000,000.00 

2004 8,593,000.00 

2003 5,242,000.00 

2002 11,420,000.00 

Technological renovation grants 

2001 12,240,000.00 

2006 620,000.00 

2005 9,910,000.00 

High-Tech project support grants 

2004 11,000,000.00 

 

18 No information was found on the specifics of the subsidies received by Youngor Group in 1999. 
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Subsidy Year Amount 

(RMB) 

2003 24,000,000.00 

2002 21,000,000.00 

2001 9,000,000.00 

2006 196,000.00 

2005 5,603,760.00 

2004 1,640,800.00 

2003 6,077,000.00 

2002 584,000.00 

Technological renovation loan interest subsidy 

2001 3,554,000.00 

2006 3,123,911.00 

2005 1,978,000.00 

2004 6,702,400.00 Local grants 

2003 6,200,000.00 

2006 100,000.00 

Digital technology demonstration program assistance 2004 1,452,000.00 

2003 622,000.00 

2006 587,400.00 

Export development fund distribution 2005 22,190.00 

2004 5,760,000.00 

Award on export performance 2003 190,388.00 

Award for engaging in processing trade 2006 432,400.00 

Electricity & energy price adjustment allowance and 

electric power generation award 2005 3,479,000.00 

Model enterprises allowance 2005 740,000.00 

Brand name enterprise award 2006 1,010,000.00 

2005 440,000.00 Technological activity allowance 2006 600,000.00 

Compensation for expenditures related to 

acquisition of land use right 2004 2,500,236.60 

Investment assistance 2002 13,000,000.00 

2006 1,340,500.00 

2005 1,454,613.01 

2004 466,000.00 Miscellaneous 

2003 5,000.00 

Source: Youngor Group annual reports 1999-2006 (see Exhibit T-25). 
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2. Ningbo Shanshan Company, Ltd. 

Ningbo Shanshan Company, Ltd. ranks fifth in China’s apparel industry in terms of sales 

revenue. The company is principally engaged in the manufacture and sale of garments and 

chemical materials used in batteries. The company’s brand name “Shanshan” has been certified 

by various authorities as a “famous brand.” Its suit products, marketed under the Shanshan 

brand, have the second largest market share. Its stock is listed on Shanghai Stock Exchange. 

Ningbo Shanshan Company, Ltd. 

Subsidies Received: 1999 to 2006 

Year Subsidy 

(RMB) 

Revenue 

(RMB) 

Subsidies as 

% of Revenue 

2006 13,777,485.95 1,543,823,311.15 0.89243 

2005 12,234,422.33 1,241,371,633.48 0.98556 

2004 13,136,004.64 1,000,739,388.05 1.31263 

2003 18,039,512.91 860,404,079.46 2.09663 

2002 9,454,147.89 894,813,987.06 1.05655 

2001 18,501,312.76 730,459,982.81 2.53283 

2000 16,138,231.22 807,048,429.71 1.99966 

1999 11,609,262.16 782,382,081.00 1.48384 

TOTAL 112,890,379.86 7,861,042,892.72 1.43607 

Source: Ningbo Shanshan Co., Ltd., annual reports for 1999-2006 (see Exhibit T-26). 
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Ningbo Shanshan Company, Ltd. 

Breakdown of Subsidies Received19

Subsidy Year Amount 

(RMB) 

2006 9,496,585.98 

2005 10,198,426.33 

2004 11,763,488.64 

2003 13,544,501.81 

2002 7,592,822.89 

2001 14,235,312.76 

Various VAT rebates 

2000 16,138,231.22 

2006 1,311,000.00 

2005 1,925,000.00 

2004 1,206,000.00 Local authority special purpose subsidy 

2003 4,453,611.10 

2006 2,969,900.00 Technological project subsidy 2005 111,000.00 

2004 166,516.00 Export subsidy 2003 41,400.00 

2002 1,636,600.00 Local fiscal aid 2001 4,266,000.00 

Source: Ningbo Shanshan Co., Ltd., annual reports for 1999-2006 (see Exhibit T-26). 

3. Inner Mongolia Eerduosi Cashmere Products Company, 

Ltd. 

Inner Mongolia Eerduosi Cashmere Products Company, Ltd. is China’s largest producer 

of cashmere textile products. It claims to have 40 percent of the Chinese cashmere market share. 

Its products include de-haired cashmere, cashmere yarn, sweaters, coats, and silk/cashmere 

blended products. Its stock is listed on the Shanghai Stock Exchange. 

 

19 No information was found on the specifics of the subsidies received by Ningbo Shanshan Co., Ltd. in 1999. 
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Inner Mongolia Eerduosi Cashmere Products Company, Ltd. 

Subsidies Received: 1999 to 200620

Year Subsidy 

(RMB) 

Revenue 

(RMB) 

Subsidies as 

% of Revenue 

2006 18,611,428.00 4,002,706,259.00 0.46497 

2005 6,883,030.00 2,939,924,055.00 0.23412 

2004 4,185,549.00 3,097,504,326.00 0.13513 

2003 317,057.00 2,917,197,868.00 0.01087 

2002 10,093.00 2,215,020,454.00 0.00046 

2001 50,620.00 2,427,947,819.00 0.00208 

2000 0.00 1,821,818,156.00 0.00000 

1999 608,337.00 1,479,731,279.00 0.04111 

TOTAL 30,666,114.00 20,901,850,216.00 0.14671 

Source: Inner Mongolia Eerduosi Cashmere Products Co., Ltd., annual reports for 1999-2006 

(see Exhibit T-27).

4. Shanghai Haixin Group Company, Ltd. 

Shanghai Haixin Group Company, Ltd. is principally engaged in textiles, toy, and 

pharmaceutical manufacturing. The company is a major producer of chemical yarns/fabrics, 

blended yarns/fabrics, carpets, garments and other textile products. Main products include high

grade jacquard and transfer printing plush, high-pile, warp-knitting fabrics and high-density 

plush fabrics. Its stock is listed on the Shanghai Stock Exchange. 

 

20 The company did not specify in its annual reports the type of subsidies it received for the years 2004, 2002, 

and 1999. For the other years, all of the subsidies received were VAT export rebates. 
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Shanghai Haixin Group Company, Ltd. 

Subsidies Received: 1999 to 2006 

Year Subsidy 

(RMB) 

Revenue 

(RMB) 

Subsidies as 

% of Revenue 

2006 2,016,132.66 1,863,681,123.03 0.10818 

2005 290,671.00 1,902,968,116.88 0.01527 

2004 2,688,782.11 1,933,561,092.40 0.13906 

2003 2,538,504.00 1,828,578,540.30 0.13882 

2002 657,704.57 1,629,164,338.45 0.04037 

2001 4,176,810.98 1,090,956,908.34 0.38286 

2000 448,295.50 964,915,421.59 0.04646 

1999 234,136.67 758,344,591.42 0.03087 

TOTAL 13,051,037.49 10,108,489,009.38 0.12911 

Source: Shanghai Haixin Group Co., Ltd., annual reports for 1999-2006 (see Exhibit T-28).

Shanghai Haixin Group Company, Ltd. 

Breakdown of Subsidies Received 

Subsidy Year Amount 

(RMB) 

2006 316,760.66 

VAT rebate 2002 21,992.89 

2000 203,200.00 

2006 1,400,000.00 Income tax rebate 2000 117,620.32 

2006 2,420.00 

2002 553,651.68 

2001 699,560.98 

2000 11,970.00 

Export loan interest subsidy 

1999 234,136.67 

2005 282,671.00 

2004 2,297,126.00 

2003 2,348,496.00 

2001 3,477,250.00 

Local fiscal grants 

2000 115,505.18 

Miscellaneous 2002 82,060.00 

Source: Shanghai Haixin Group Co., Ltd., annual reports 1999-2006 (see Exhibit T-28). 
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5. Shanghai Kaikai Industry Company, Ltd. 

Shanghai Kaikai Industry Company, Ltd. is a major producer and retailer of shirts, 

woolen sweaters, cotton knitted goods, apparels, shoes, hats and other textile goods. Its stock is 

listed on the Shanghai Stock Exchange. 

Shanghai Kaikai Industry Company, Ltd. 

Subsidies Received: 1999 to 2006 

Year Subsidy 

(RMB) 

Revenue 

(RMB) 

Subsidies as 

% of Revenue 

2006 2,673,900.00 693,945,460.08 0.38532 

2005 2,150,355.00 833,679,230.08 0.25794 

2004 2,113,813.12 1,886,944,340.34 0.11202 

2003 3,440,818.47 2,179,799,385.38 0.15785 

2002 3,198,132.00 1,688,875,980.55 0.18936 

2001 1,962,623.54 1,114,928,182.95 0.17603 

2000 2,447,973.78 575,200,781.00 0.42559 

1999 677,077.90 390,526,500.00 0.17338 

TOTAL 18,664,693.81 9,363,899,860.38 0.19933 

Source: Shanghai Kaikai Industry Co., Ltd., annual reports 1999-2006 (see Exhibit T-29).

Shanghai Kaikai Industry Company, Ltd. 

Breakdown of Subsidies Received 

Subsidy Year Amount 

(RMB) 

2006 2,390,000.00 

2005 1,760,000.00 

2002 3,070,000.00 VAT export rebate 

2001 1,400,000.00 

2006 226,700.00 

2005 329,180.00 

2004 1,219,812.69 

2003 2,740,702.45 

2002 93,940.88 

Local tax rebate 

2001 456,107.69 

VAT local allowance 2001 106,515.85 

SARS allowance 2006 39,200.00 
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Subsidy Year Amount 

(RMB) 

Export award 2006 18,000 

Equipment purchase subsidy 2004 50,000.00 

Reemployment support 2004 100,994.43 

Local government grants 2004 743,000.00 

2003 700,116.02 

Export loan interest subsidy 2002 34,191.00 

Source: Shanghai Kaikai Industry Co., Ltd., annual reports 1999-2006 (see Exhibit T-29). 

6. Zhejiang Golden Eagle Company, Ltd. 

Zhejiang Golden Eagle Company, Ltd. is a major manufacturer for textiles and apparel 

products as well as for textile equipment. Its main products include silk, flax, wool silk, reeling 

machines, flax wet-spinning frames, and apparel. Its stock is listed on the Shanghai Stock 

Exchange. 

Zhejiang Golden Eagle Company, Ltd. 

Subsidies Received: 1999 to 2006 

Year Subsidy 

(RMB) 

Revenue 

(RMB) 

Subsidies as 

% of Revenue 

2006 2,821,653.47 1,508,145,310.90 0.18709 

2005 2,006,364.00 1,306,889,446.77 0.15352 

2004 2,165,323.00 1,292,180,620.49 0.16757 

2003 1,273,000.00 1,055,554,282.90 0.12060 

2002 5,564,853.00 714,050,800.00 0.77934 

2001 10,676,284.29 629,816,900.00 1.69514 

2000 1,333,090.00 571,462,400.00 0.23328 

1999 295,000.00 461,359,222.12 0.06394 

TOTAL 26,135,567.76 7,539,458,983.18 0.34665 

Source: Zhejiang Golden Eagle Co., Ltd., annual reports 1999-2006 (see Exhibit T-30). 
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Zhejiang Golden Eagle Company, Ltd. 

Breakdown of Subsidies Received 

Subsidy Year Amount 

(RMB) 

2006 2,821,653.47 

2005 2,006,364.00 

2004 1,722,700.00 

2003 1,273,000.00 

2002 5,200,000.00 

Government grants 

2001 6,139,000.00 

2004 442,623.00 

Export loan interest subsidy 2002 364,853.00 

2001 837,810.00 

Export VAT rebate 2004 2,685,251.67 

Subsidy for laid-off workers settlement 2003 3,659,474.21 

Environmental projects loan interest subsidy 2003 40,000.00 

Technological renovation grants 2000 633,500.00 

Loan interest subsidy 2000 669,590.00 

2000 30,000.00 Awards for contributions to waterworks Projects 1999 295,000.00 

Source: Zhejiang Golden Eagle Co., Ltd., annual reports 1999-2006 (see Exhibit T-30). 
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III. SUBSIDY PROGRAMS APPLICABLE TO THE TEXTILES AND APPAREL 

INDUSTRY NOTIFIED BY CHINA TO THE WTO 

On April 13, 2006, China filed its long-awaited subsidies notification to the WTO as 

required under Article 25.1 of the WTO Subsidies and Countervailing Measures Agreement.21

The notification is considered to be incomplete, as it contained information only on programs 

granted at the central government level, not on programs provided by state-owned banks or by 

provincial and local government authorities. 

Many of the notified programs, though not intended for the textiles and apparel industry 

specifically, are applicable to the textiles and apparel industry, including those designed to 

encourage foreign investment, 22 domestic investment, 23 high- and new-technology 

development,24 regional development,25 research and development,26 transfer of technology,27

purchase of domestically-produced equipment,28 technological innovation,29 and technological 

upgrading.30 Benefits provided under these programs take the form of preferential tax treatment, 

direct grants, and loan interest discounts. The following table reviews the 16 programs 

applicable to the textiles and apparel industry. 

 

21 People's Republic of China – New and Full Notification Pursuant to Article XVI:1 of the GATT 1994 and 

Article 25 of the SCM Agreement, G/SCM/N/123/CHN (13 April 2006). 

22 See G/SCM/N/123/CHN at programs I, II, VI, X, XI, XIII, LVIII, and LX. 

23 See G/SCM/N/123/CHN at programs LIX and LX. 24 See G/SCM/N/123/CHN at programs VI, VIII, and IX. 25 See G/SCM/N/123/CHN at programs X, XI, XIII, and XIV. 

26 See G/SCM/N/123/CHN at programs XXVI and XXVII. 27 See G/SCM/N/123/CHN at program XXVIII. 

28 See G/SCM/N/123/CHN at programs LVIII and LIX. 

29 See G/SCM/N/123/CHN at program XXXI. 30 See G/SCM/N/123/CHN at program LIX. 
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Support Programs Notified by China That are Applicable to the Textiles and Apparel Industry 

G/SCM/N/123/CHN (13 April 2006) 

I. Preferential tax policies for foreign-invested enterprises (FIEs). 

Legislation: 

Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign 

Enterprises (see Exhibit F-4); Rules for the Implementation of the Income Tax Law of the People’s Republic of 

China for Enterprises with Foreign Investment and Foreign Enterprises (see Exhibit F-5).

Benefits: 

(1) Two years of income tax exemption and three years of 50% reduction for production-oriented FIEs 

scheduled to operate for not less than ten years from the first profit-making year. 

(2) Refund of 40% of income tax paid on reinvestment for increasing the registered capital of the existing 

enterprise or establishing other enterprises, to operate for not less than five years. 

(3) Full refund of the income tax paid on the reinvestment in China for the organization and expansion of 

export-oriented enterprises or advanced-technology enterprises. 

(4) Reduced income tax rate of 10% for the royalty received for the supply of technical know-how in scientific 

research and the development of important technologies.

II. Preferential tax policies for foreign-invested export enterprises. 

Legislation: 

Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign 

Enterprises (see Exhibit F-4); Rules for the Implementation of the Income Tax Law of the People’s Republic of 

China for Enterprises with Foreign Investment and Foreign Enterprises (see Exhibit F-5).

Benefits: 

After the expiration of the normal income tax exemption and reduction, foreign-invested export-oriented 

companies can pay income tax at a rate reduced by one half, if 70% of their products are exported. Such 

companies located in special economic zones and economic and technological development zones and other 

such companies subject to a 15% income tax rate that comply with the foregoing conditions shall pay income tax 

at 10%.

VI. Preferential tax policies for enterprises with foreign investment which are technology 

intensive and knowledge intensive. 

Legislation:

Circular on the Preferential Tax Treatment to Foreign Invested Companies That Are Technology- and 

Knowledge-Intensive, Guo Shui Fa [1995] No. 139 (see Exhibit F-79); Circular on the Preferential Tax 

Treatment to Foreign-Invested Companies That Are Technology- and Knowledge-Intensive, Guo Shui Fa [2003] 

No. 135 (see Exhibit F-48). 

Benefits: 

A reduced income tax rate of 15% for FIEs that are technology-intensive and knowledge-intensive and whose 

major products are listed in the “Catalogue of High and New Technology Products of China” promulgated by 

MOST, provided that the sales revenue of these products accounts for over 15% of total annual sales revenue.
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Support Programs Notified by China That are Applicable to the Textiles and Apparel Industry 

G/SCM/N/123/CHN (13 April 2006) 

VIII. Preferential tax policies for (1) enterprises with foreign investment recognized as high or 

new technology enterprises established in the State high or new technology industrial 

development zones, and for (2) advanced technology enterprises invested in and operated 

by foreign businesses.

Legislation: 

Rules for the Implementation of the Income Tax Law of the People’s Republic of China for Enterprises with 

Foreign Investment and Foreign Enterprises (see Exhibit F-5).

Benefits: 

(1) Reduced income tax rate of 15%, and income tax exemption for the first two years since profit-making. 

(2) Extension of an income tax rate reduced by half for an additional three years after the expiration of tax 

exemption and reduction.

IX. Preferential tax policies for enterprises recognized as high or new technology enterprises 

established in the State high or new technology industrial development zones.

Legislation: 

Circular on Several Preferential Corporate Income Tax Policies, Cai Shui Zi [1994] No. 1 (see Exhibit F-50). 

Benefits: 

Reduced income tax rate of 15%, and income tax exemption for the first two years of production.

X. Preferential tax policies for enterprises with foreign investment established in special 

economic zones (excluding Shanghai Pudong area).

Legislation: 

Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign 

Enterprises (see Exhibit F-4); Rules for the Implementation of the Income Tax Law of the People’s Republic of 

China for Enterprises with Foreign Investment and Foreign Enterprises (see Exhibit F-5).

Benefits: 

(1) Reduced income tax rate of 15% for FIEs established in Shenzhen, Zhuhai, Shantou, Xiamen and Hainan 

special economic zones. 

(2) Reduced income tax rate of 24% for FIEs established in the old urban districts of cities where the above 

special economic zones are located. 

(3) Reduced income tax rate of 15% for FIEs defined under (2) that are engaged in (a) technology-intensive or 

knowledge-intensive projects, (b) projects with foreign investments of over USD $30 million which have 

long periods for return on investment, and (c) energy resource, transportation and port construction 

projects.
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Support Programs Notified by China That are Applicable to the Textiles and Apparel Industry 

G/SCM/N/123/CHN (13 April 2006) 

XI. Preferential tax policies for enterprises with foreign investment established in the coastal 

economic open areas and in the economic and technological development zones. 

Legislation: 

Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign 

Enterprises (see Exhibit F-4); Rules for the Implementation of the Income Tax Law of the People’s Republic of 

China for Enterprises with Foreign Investment and Foreign Enterprises (see Exhibit F-5).

Benefits: 

(1) Reduced income tax rate of 15% for production-oriented FIEs established in the economic and 

technological development zones. 

(2) Reduced income tax rate of 24% for production-oriented FIEs established in the coastal economic open 

areas and in the old urban districts of cities where the economic and technological development zones are 

located. 

(3) Reduced income tax rate of 15% for FIEs defined under (2) that are engaged in (a) technology-intensive or 

knowledge-intensive projects, (b) projects with foreign investments of over USD $30 million which have 

long periods for return on investment, and (c) energy resource, transportation and port construction 

projects.

XIII. Preferential tax policies for enterprises with foreign investment established in the Three 

Gorges of Yangtze River Economic Zone. 

Legislation: 

Circular on the Tax Policy for Relocation of Residents in the Three Gorges Area and Regional Development, Cai 

Shui Zi [1995] No. 034 (see Exhibit F-51).

Benefits: 

(1) Reduced income tax rate of 24% for production-oriented FIEs established in the Three Gorges Economic 

Zone. 

(2) Reduced income tax rate of 15% for the above FIEs engaged in energy resources, transportation, harbor 

and wharf projects or other projects encouraged by the State. 

(3) Reduced income tax rate of 24% for FIEs established in the old urban districts of the open cities along the 

Yangtze River. 

(4) Reduced income tax rate of 15% for FIEs defined under (3) that are engaged in (a) technology-intensive or 

knowledge-intensive projects, (b) projects with foreign investments of over USD $30 million which have 

long periods for return on investment, and (c) energy resource, transportation and port construction 

projects.
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Support Programs Notified by China That are Applicable to the Textiles and Apparel Industry 

G/SCM/N/123/CHN (13 April 2006) 

XIV. Preferential tax policies in the western regions. 

Legislation:

Circular on Several Policies on the Development of Western Region, Guo Fa [2000] No. 33 (see Exhibit F-52); 

Circular on the Implementation of New Policies for the Development of Western Region, Guo Ban Fa [2001] No. 

73 (see Exhibit F-53); Circular on Preferential Tax Treatment for Western Regions Development Program, Cai 

Shui [2001] No. 202 (see Exhibit F-54); Circular on Extending 15% Preferential Income Tax Rate for Three 

Years to Foreign Invested Companies in Central and Western Regions, Guo Shui Fa [1999] No. 172 (see Exhibit 

F-55). 

Benefits: 

(1) Reduced income tax rate of 15% for domestic and foreign-invested enterprises established in the western 

regions which are engaged in industries encouraged by the State from 2001 to 2010. For domestic 

enterprises, industries encouraged by the State refer to those listed in the “Catalogue of the Industries, 

Products and Technologies Particularly Encouraged by the States.” For these enterprises, the items 

included in the Catalogue must be its major business and must account for over 70% of total revenue. For 

FIEs, industries encouraged by the State refer to those listed as encouraged in the “Catalogue for the 

Guidance of the Foreign Investment Industries” and listed in the “Catalogue for the Guidance of the 

Advantageous Industries in Central and Western Regions for Foreign Investment.” For these enterprises, 

the items listed in the two Catalogues must be its major business and must account for over 70% of total 

revenue. 

(2) Tariff and import VAT exemption for equipment imported by domestic and foreign-invested enterprises, as 

defined in (1), for self use that is within the total amount of the investment, excluding such equipment 

listed in the “Catalogue for the Imported Products Not Subject to Tax Exemption in Foreign Investment 

Projects” and the “Catalogue for the Imported Products Not Subject to Tax Exemption in Domestic 

Investment Projects.” 

(3) Since 2000, reduced income tax rate of 15% for an additional three years following the expiration of the 

two years of tax exemption and three years of 50% tax reduction for FIEs established in 19 provinces, 

autonomous regions and municipalities in central and western regions which are engaged in industries 

encouraged by the State as listed in the “Catalogue for the Guidance of Foreign Investment Industries” as 

well as in the advantageous industries and projects approved by the State Council.

XXVI. Preferential tax policies for the research and development of enterprises. 

Legislation: 

Circular on Expanding the Application of Tax Deduction for Technology Development Expenditure by 

Enterprises, Cai Shui [2003] No. 244 (see Exhibit T-10). 

Benefits: 

Domestic industrial enterprises, regardless of ownership, may deduct from their taxable income 150% of the 

actual expenses incurred on research and development of new products, new technologies and new crafts, 

provided such expenses have increased 10% or more from the previous year.
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Support Programs Notified by China That are Applicable to the Textiles and Apparel Industry 

G/SCM/N/123/CHN (13 April 2006) 

XXVII. Preferential tax policies for the research and development of foreign-invested 

enterprises. 

Legislation: 

Circular on Granting Income Tax Deduction to Foreign-invested Enterprises for Technology Development 

Expenditure, Guo Shui Fa [1999] No. 173 (see Exhibit F-63). 

Benefits: 

Foreign-invested enterprises may deduct from their taxable income 150% of the actual expenses incurred on 

research and development conducted in China, provided such expenses have increased 10% or more from the 

previous year.

XXVIII. Preferential tax policies for enterprises transferring technology. 

Legislation: 

Circular on Several Preferential Corporate Income Tax Policies, Cai Shui Zi [1994] No. 1 (see Exhibit F-50). 

Benefits: 

Income tax exemption for enterprises profiting from technology transfers as well as from technology 

consultation, technology services and technology training provided as part of the transfer, where the annual net 

income is less than RMB 300,000; net income above RMB 300,000 is subject to the regular tax rate.

XXXI. Funds for supporting technological innovation for the technological small and 

medium-sized enterprises.

Legislation: 

Circular on the Interim Administrative Rules of the Technological Innovation Fund for the Technological Smalland Medium-Sized Enterprises, Guo Ban Fa [1999] No. 47 (see Exhibit F-64). 

Benefits: 

Science- and technology-oriented SMEs are eligible to receive two types of support – grants and loan interest 

discounts. Support is provided in two stages. Initially, SMEs receive 70% of the grant and 80% of the interest 

discount. The remaining portions of the grant and interest discount are paid after the project is completed, 

checked, and accepted. Each project can receive no more than RMB 1 million and, in particular cases, no more 

than RMB 2 million. 

The total and annual amount budgeted for the subsidy (in million RMB): 

2001 2002 2003 2004 Total 

800 500 500 500 2300 
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Support Programs Notified by China That are Applicable to the Textiles and Apparel Industry 

G/SCM/N/123/CHN (13 April 2006) 

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 equipment. 

Legislation: 

Circular Concerning the Issue of Tax Credit for Business Income Tax for Homemade Equipment Purchased by 

Enterprises with Foreign Investment and Foreign Enterprises, Cai Shui [2000] No. 49 (see Exhibit F-75); 

Circular on Printing and Distributing the Measures Concerning Business Income Tax Credit on the Investment of 

Enterprises with Foreign Investment and Foreign Enterprises by Way of Purchasing Homemade Equipment, Guo 

Shui Fa [2000] No. 90 (see Exhibit F-76). 

Benefits: 

40% of the expenses incurred to purchase domestically-produced equipment that is within the total investment of 

the project, or beyond the total investment of the project but for the purpose of upgrading existing equipment, 

may be deducted from the increment in income tax in the year the equipment is purchased compared to the 

previous year. The deductible amount in a given year should not exceed the increment in income tax. If the 

deductible amount exceeds the income tax increment, the amount in excess may be deducted from the next 

year’s increment in income tax. Such postponement of deductibility shall not last more than five years.

LIX. Preferential tax policies for domestic enterprises purchasing domestically-produced 

equipment for technology upgrading purpose. 

Legislation: 

Circular on Distribution of Interim Measures Concerning Reduction and Exemption of Enterprise Income Tax for 

Investment in Domestically Made Equipment for Technological Renovation, Cai Shui [1999] No. 290 (see Exhibit 

F-76). 

Benefits: 

For technology renovation projects consistent with national industrial policies, 40% of the expenses incurred to 

purchase domestically-produced equipment required in the projects may be deducted from the increment in 

income tax in the year the equipment is purchased compared to the previous year. The deductible amount in a 

given year should not exceed the increment in income tax. If the deductible amount exceeds the income tax 

increment, the amount in excess may be deducted from the next year’s increment in income tax. Such 

postponement of deductibility shall not last more than five years.

LX. Exemption of tariff and import VAT for imported technologies and equipment. 

Legislation: 

Circular of the State Council Concerning the Adjustment in the Taxation Policy of Imported Equipment, Guo Fa 

[1997] No. 37 (see Exhibit F-78). 

Benefits: 

Tariff and import VAT exemption for equipment purchased for self-use that is within the total investment of the 

project, excluding such equipment listed in the “Catalogue for the Imported Products Not Subject to Tax 

Exemption in Foreign Investment Projects” and the “Catalogue for the Imported Products Not Subject to Tax 

Exemption in Domestic Investment Projects.”
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IV. CONCERNS OF WTO MEMBERS OVER CHINA’S SUBSIDIES TO THE 

TEXTILES AND APPAREL INDUSTRY

China’s trading partners have been closely monitoring China’s subsidy practice since its 

accession to the WTO. Subsidies to the textiles and apparel industry are among the high-profile 

subsidy concerns. WTO Members have availed themselves of many platforms to raise concerns 

over a wide range of subsidy issues, including the annual Transitional Review Mechanism (TRM) 

(a review of China’s WTO compliance efforts), submissions of requests for information prior to 

China's subsidies notification, submissions of follow-up questions in response to China's 

subsidies notification, and the dispute settlement mechanism. Subsidy programs identified by 

WTO Members include those that are specific or applicable to the textiles and apparel industry. 

Many of these programs appear to conflict with China’s WTO commitments not to provide

subsidies contingent upon export performance or the use of domestic over imported goods, and 

have not been properly notified by China. On February 2, 2007, the United States filed a formal 

request at the WTO for consultation with China with regard to certain subsidies prohibited under 

the WTO SCM Agreement.31 In the request, the United States identified nine measures granting 

refunds, reductions, or exemptions from taxes or other payments, which are designed to 

subsidize exports of manufactured goods and encourage the purchase of domestic over imported 

equipment and manufacturing inputs. In March 2007, China announced that it had repealed a 

subsidy measure identified in the U.S. request for consultation that grants discounted lending 

 

31 China – Certain Measures Granting Refunds, Reductions or Exemptions from Taxes and Other Payments – 

Request for Consultations by the United States, WT/DS358/1 (7 February 2007). 
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rates to companies contingent upon export performance.32 Around the same time, China adopted

the new Enterprise Income Tax Law at the Fifth Session of the Tenth National People’s 

Congress.33 To reflect these new developments, on April 27, 2007, the United States filed a 

request for further consultation that modified its earlier identification of the measures at issue.34

The following tables identify Chinese subsidies that have been raised by WTO Members 

and are relevant to the textiles and apparel industry. Table A concerns subsidies that are specific 

to the textiles and apparel industry. Table B concerns subsidies that are applicable to the textiles 

and apparel industry. 

Table A 

Chinese Subsidies Specific to the Textiles and Apparel Industry

No. Subsidy Issue Raised By 

1 

Reported subsidies in the textile industry in connection with manufacturing 

of raw materials, the financing of mill establishments, and the purchase and 

selling of raw materials, e.g., certain tax incentives and preferential rents 

provided to textile companies located in Changzhou City of Jiangsu 

Province. 

United States 

2003 TRM; 2004 U.S. 

request for information 

2 

Ningbo Export Contingent Aid for Textile Exporters - “Export 

Branding” - Information available to the U.S. indicates that the Ningbo City 

International Trade and Economic Cooperation Bureau provides benefits to 

the city’s top eight textiles and apparel brand enterprises which export over 

USD $20 million, have ISO9000 certification, and have authentication of an 

internationally-registered trademark. The top eight brand companies which 

meet these qualifications will receive an award of RMB 50,000 --- WTO 

consistency is questioned.

United States 

2006 U.S. submission in 

response to China’s 

subsidies notification 

 

32 See Notice No. 7 [2007] of the People's Bank of China, the State Administration of Foreign Exchange, the 

Ministry of Commerce and the State Administration of Taxation. See Exhibit T-17. The repealed measure is 

discussed in Table B at item 8, infra.

33 The new law will take effect as of January 1, 2008. The 1991 Income Tax Law of the People’s Republic of 

China for Enterprises with Foreign Investment and Foreign Enterprises, as referenced in the U.S. request for 

consultation, and the 1993 Provisional Regulations on Income Tax Law for Enterprises are annulled. 

34 China – Certain Measures Granting Refunds, Reductions or Exemptions from Taxes and Other Payments – 

Request for Further Consultations by the United States, WT/DS358/1/Add.1 (2 May 2007). 
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Table A 

Chinese Subsidies Specific to the Textiles and Apparel Industry

No. Subsidy Issue Raised By 

3 

“Excessive lending to the textile industry” noted by the secretary-general of 

the China Cotton Association and that “the Chinese Government will loosen 

up credit lending controls to textile companies” as reported on a 2004 China 

Daily article. 

United States 

2006 TRM 

4 Benefits under the 2006 program “Ten Thousand Miles March for Brand 

Building” for 45 types of products including apparel products. 

United States 

2006 TRM 

5 

Benefits under the 2006 Notice of Relevant Policies to Promote Chinese 

Textile Enterprises to Shift to New Ways of Growth and Support Them to Go 

Global --- WTO consistency is questioned.

United States 

2006 TRM 

6 A special VAT refund scheme for silk to be exported. European Communities 

2006 TRM 

7 

Government assistance to increase fabric exports – Measures under the 

program of upgrading the textiles industry through accelerating technical 

reforms and strategic restructuring of textile enterprises, including 

substituting imported fabrics or expanding fabric exports --- WTO 

consistency is questioned.

United States 

2004 U.S. request for 

information 

8 

Assumption of Interest on Loans for Technology Upgrades – 

Government payment of interest on bank loans for the technology upgrades 

of state-owned enterprises, including textile enterprises. 

United States 

2004 U.S. request for 

information 

9 

Ningbo City’s Jiangdong District Export Contingent Award for 

Increasing Exports of Textiles and Apparel Goods - Information available 

to the U.S. indicates that a program in Ningbo City’s Jiangdong District 

offers benefits to certain textiles and apparel companies. For example, 

textile and apparel companies that export over USD $1 million per year in 

this district are eligible for an award for each dollar of textiles and apparel 

exports which exceeds the previous year’s total --- WTO consistency is 

questioned.

United States 

2006 U.S. submission in 

response to China’s 

subsidies notification 

Sources for “Issues Raised By” Column: 

United States: 

2003 TRM US: G/SCM/Q2/CHN/6 (27 October 2003) 

2004 U.S. request for information: G/SCM/Q2/CHN/9 (6 October 2004) 

2006 TRM: G/SCM/Q2/CHN/23 (16 October 2006) 

2006 U.S. submission in response to China’s subsidies notification: G/SCM/Q2/CHN/19 (26 July 2006) 

European Communities: 

2006 TRM: G/SCM/Q2/CHN/24 (20 October 2006) 
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Table B 

Chinese Subsidies Applicable to the Textiles and Apparel Industry

No. Subsidy Issue Raised By 

1 

Full VAT refund available to foreign-invested companies for the 

purchase of Chinese-produced equipment --- WTO consistency is 

questioned. 

Legislation: 

Circular of the State Administration of Taxation Concerning Transmitting 

the Interim Measure for the Administration of Tax Refunds to Enterprises 

with Foreign Investment for Their Domestic Equipment Purchases (see 

Exhibit F-35). 

United States 

2007 U.S. consultation 

with China; 2004 U.S. 

request for information 

European Communities; 

Canada 

2006 EC and Canada 

submissions in response to 

China’s subsidies 

notification 

2 

Income tax reduction available to foreign-invested companies for the 

purchase of Chinese-produced equipment. 

Foreign-invested companies may deduct 40% of the cost of purchasing 

domestically-produced equipment that is within the total investment of the 

project, or beyond the total investment of the project but for the purpose of 

upgrading the existing equipment, from the increment in income tax in the 

year the equipment is purchased compared to the previous year. The 

deductible amount in a given year should not exceed the increment in 

income tax. If the deductible amount exceeds the income tax increment, the 

amount in excess may be deducted from the next year’s increment in income 

tax. Such postponement of deductibility shall not last more than five years. -

-- WTO consistency is questioned. 

Legislation: 

Circular of the Ministry of Finance and the State Administration of Taxation 

Concerning the Issue of Tax Credit for Business Income Tax for Homemade 

Equipment Purchased by Enterprises with Foreign Investment and Foreign 

Enterprises (see Exhibit F-75), read in conjunction with Circular of the State 

Administration of Taxation on Printing and Distributing the Measures 

Concerning Business Income Tax Credit on the Investment of Enterprises 

with Foreign Investment and Foreign Enterprises by Way of Purchasing 

Homemade Equipment (see Exhibit F-34). 

United States 

2007 U.S. consultation 

with China; 2004 U.S. 

request for information 

3 

Income tax reduction available to Chinese companies for the purchase 

of Chinese-produced equipment. 

For technology renovation projects consistent with the national industrial 

policies, 40% of the cost to purchase domestically-produced equipment 

required in the projects can be deducted from the increment in income tax in 

the year the equipment is purchased compared to the previous year. The 

deductible amount in a given year should not exceed the increment in 

income tax. If the deductible amount exceeds the income tax increment, the 

United States 

2007 U.S. consultation 

with China 
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Table B 

Chinese Subsidies Applicable to the Textiles and Apparel Industry

No. Subsidy Issue Raised By 

amount in excess may be deducted from the next year’s increment in income 

tax. Such postponement of deductibility shall not last more than five years. -

-- WTO consistency is questioned. 

Legislation: 

Circular on Distribution of Interim Measures Concerning Reduction and 

Exemption of Enterprise Income Tax for Investment in Domestically Made 

Equipment for Technological Renovation (see Exhibit F-38). 

4 

Income tax reduction available to foreign-invested companies that 

satisfy certain export performance requirements. 

After the expiration of the normal reduction or exemption of income tax (i.e., 

two-free and three-half) for production-oriented FIEs, foreign-invested 

exporting companies can pay income tax at one-half of the present rate, 

provided 70% of their products are exported. Companies located in special 

economic zones and economic and technological development zones and 

other companies subject to the 15% income tax rate that comply with the 

foregoing conditions, shall pay income tax at 10%. After the normal 

reduction or exemption of income tax (i.e., two-free and three-half) expires, 

technologically-advanced companies may enjoy for an additional three years 

the rate reduced by one-half. --- WTO consistency is questioned. 

Legislation: 

Articles 75(7) and 75(8) of the Rules for Implementation of the Income Tax 

Law of the People's Republic of China on Enterprises with Foreign 

Investment and Foreign Enterprises (see Exhibit F-5), read in conjunction 

with Articles 8 and 9 of the Provisions of the State Council on the 

Encouragement of Foreign Investment (see Exhibit F-39) and Articles 6 and 

8 of the Income Tax Law of the People's Republic of China on Enterprises 

with Foreign Investment and Foreign Enterprises (see Exhibit F-4). 

United States 

2007 U.S. consultation 

with China

Mexico 

2002 TRM 

European Communities

2005 TRM 

5 

Income tax reduction available to foreign-invested companies that 

satisfy certain export performance requirements. 

Foreign-invested companies engaged in industries allowed by the State that 

export all of their products may pay a reduced income tax of 15%. --- WTO 

consistency is questioned. 

Legislation: 

Article 73(6) of the Rules for Implementation of the Income Tax Law of the 

People's Republic of China on Enterprises with Foreign Investment and 

Foreign Enterprises (see Exhibit F-5), read in conjunction with Articles 6 

and 7 of the Income Tax Law of the People's Republic of China on 

Enterprises with Foreign Investment and Foreign Enterprises (see Exhibit F5) and Section XIII of the Catalogue for the Guidance of Foreign Investment 

United States 

2007 U.S. consultation 

with China; 2006 U.S. 

submission in response to 

China’s subsidies 

notification 
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Table B 

Chinese Subsidies Applicable to the Textiles and Apparel Industry

No. Subsidy Issue Raised By 

Industries (see Exhibit F-26). 

6 

Income tax refund available to foreign-invested companies that reinvest 

profits in certain qualified projects in China. 

Foreign investors who reinvest their profits to establish or expand exporting 

companies or technologically-advanced companies for a period of operation 

of not less than five years shall be refunded the total amount of income tax 

already paid on the reinvested portion. --- WTO consistency is questioned. 

Legislation: 

Article 81 of the Rules for Implementation of the Income Tax Law of the 

People's Republic of China on Enterprises with Foreign Investment and 

Foreign Enterprises (see Exhibit F-5), read in conjunction with Articles 6 

and 10 of the Income Tax Law of the People's Republic of China on 

Enterprises with Foreign Investment and Foreign Enterprises (see Exhibit F4) and Article 10 of the Provisions of the State Council on the 

Encouragement of Foreign Investment (see Exhibit F-39). 

United States 

2007 U.S. consultation 

with China; 2004 U.S. 

request for information 

7 

Exemptions from mandatory worker benefit contributions available to 

foreign-invested companies that satisfy certain export performance 

requirements. 

Foreign-invested “product export enterprises” and technologically-advanced 

enterprises shall be exempt from payment to the State of all subsidies to staff 

and workers, except for the payment or allocation of funds for labor 

insurance, welfare expenses and housing subsidies for Chinese staff and 

workers in accordance with the provisions of the State. "Product Export 

Enterprises" are defined as enterprises "whose products are mainly export" 

that also have a foreign exchange surplus. --- WTO consistency is 

questioned. 

Legislation: 

Article 3 of the Provisions of the State Council on the Encouragement of 

Foreign Investment (see Exhibit F-39). 

United States 

2007 U.S. consultation 

with China 

European Communities; 

Canada 

2006 EC and Canada 

submissions in response to 

China’s subsidies 

notification 

8 

Discounted lending rates available to companies that satisfy certain 

export performance requirements. 

"Honorable Enterprises for Collection of Export Receipts of Foreign 

Exchange" may receive up to a 10% reduction in lending rates of RMB loans 

extended by commercial banks based on the lending rates fixed by the 

United States 

2007 U.S. consultation 

with China; 2004 U.S. 

request for information 

 

35 China abolished this measure in March 2007. See Exhibit 17. The measure was not included in the second 

U.S. request for consultation. See China – Certain Measures Granting Refunds, Reductions or Exemptions 

from Taxes and Other Payments – Request for Further Consultations by the United States, WT/DS358/1/Add.1 

(2 May 2007).
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Table B 

Chinese Subsidies Applicable to the Textiles and Apparel Industry

No. Subsidy Issue Raised By 

People's Bank of China. "Honorable Enterprises” are defined as enterprises 

with annual exports exceeding USD $200 million in value and that meet 

certain other conditions related to foreign exchange and export receipt 

verification forms. --- WTO consistency is questioned. 

Legislation: 

Articles 3 and 6 of the Circular of the People's Bank of China, the State 

Administration of Foreign Exchange, the Ministry of Foreign Trade and 

Economic Cooperation and the State Administration of Taxation Concerning 

Printing and Distribution Detailed Rules on Rewarding and Punishment 

Concerning Provisional Regulations over Examination of Export Collections 

of Foreign Exchange (see Exhibit T-23).35

European Communities; 

Canada 

2006 EU and Canada 

submissions in response to 

China’s subsidies 

notification 

9 

VAT and tariff exemption available to foreign-invested companies that 

satisfy certain export performance requirements. 

For foreign-invested companies engaged in industries allowed by the State 

that export all of their products, equipment purchased for self-use shall be 

exempt from tariff and import VAT. --- WTO consistency is questioned. 

Legislation: 

Circular of the State Council Concerning the Adjustment in the Taxation 

Policy of Imported Equipment (see Exhibit F-48), read in conjunction with 

Section XIII of the Catalogue for the Guidance of Foreign Investment 

Industries (see Exhibit F-50).

United States 

2007 U.S. consultation 

with China; 2004 U.S. 

request for information 

10 

Benefits under new Enterprise Income Tax Law. 

The government may extend tax benefits to companies engaged in industries 

the development of which is supported and encouraged by the State. --- 

WTO consistency is questioned.

The existing tax benefits may be granted a grace period of up to 5 years. --- 

WTO consistency is questioned. 

Legislation: 

Articles 25 and 57 of the Enterprise Income Tax Law of the People’s 

Republic of China (see Exhibit F-15). 

United States 

2007 U.S. request for 

further consultation with 

China 

11 

Export Contingent Support for Famous Name Brand Products. 

On January 26, 2005, MOFCOM identified 190 Chinese famous brands in 

six industrial fields eligible for export promotion for years 2005-2006. In 

order to increase Chinese name brand exports and limit its reliance on 

foreign name brand exports, the Chinese Government is offering the 

following incentives: 

• An Export Brands Development Fund to develop and promote 

United States 

2006 U.S. submission in 

response to China’s 

subsidies notification 
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Table B 

Chinese Subsidies Applicable to the Textiles and Apparel Industry

No. Subsidy Issue Raised By 

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 R&D centers. 

• Simplified loan application procedures and easy access to export credit 

insurance. 

Similar or implementing programs offered at the central or sub-central 

government levels include: 

• According to a circular issued on March 24, 2005 by the State 

Administration for Quality Supervision, Inspection and Quarantine 

(AQSIQ), AQSIQ requested that local bureaus provide benefits to firms 

that apply for designation as a Chinese-made world famous brand such 

as “honorific titles,” financial support and export credit guarantees. 

Designated firms must be the top producer and exporter within their 

industry, export to multiple foreign markets and have annual exports of 

over USD $50 million. 

• Information available to the U.S. indicates that in early December 2005, 

MOFCOM announced a program called “Six Initiatives to Promote 

Domestic Name Brand Exports.” Some aspects of the initiatives 

include: choosing specific domestic name brands to support; creating 

policies to support those firms; helping those firms expand abroad; and 

working with the Ministry of Finance to appropriate RMB 700 million 

to support these firms’ research and development activities. 

• A program was announced on February 3, 2005, by the Jiangsu Province 

Famous Brand Strategy Promotion Committee which selected 515 

products as “Jiangsu Province Famous Brand Products.” 

• The Wuxi government allows enterprises obtaining the “Famous Export 

Brands to be Nurtured and Supported” to receive incentives from Wuxi 

City. 

• The government of Shishi County in Fujian Province announced an 

initiative including a one-time prize to any Shishi company accorded the 

central government’s “famous export brand” designation. 

--- WTO consistency is questioned.

12 

Certain local export-related awards. 

Information available to the U.S. indicates that various Chinese government 

entities at the sub-central level provide awards and direct payments for 

exports by a wide-range of industries. There are regional programs that tie 

monetary awards solely to the amount exported or to a percentage growth 

above the previous year’s export totals. Examples include: 

• Awards Tied to Amount Exported or Export Growth. The Xiamen City 

government awards a one-time monetary award to all companies with 

United States 

2006 U.S. submission in 

response to China’s 

subsidies notification 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: TEXTILES AND APPAREL

Trade Lawyers Advisory Group 

June 2007

43

Table B 

Chinese Subsidies Applicable to the Textiles and Apparel Industry

No. Subsidy Issue Raised By 

Chinese brand name exports over USD $100 million as well as year-onyear percentage growth of at least 5%. 

• Direct Benefits to Processing Trade Exporters. A Changxing County 

government program in Zhejiang in which the province provides 

monetary awards to all processing trade export enterprises for trade of 

over USD $3 million per year. 

• Award for High Year-on-Year Export Growth. A program in Zibo 

City’s Zhoucun District provides awards based on the percentage of 

export growth over the previous year. 

• 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 

USD $10 million) prizes of RMB 100,000. 

• Reward for Each Dollar Exported. An export program detailed on the 

website of Lishui City in Zhejiang Province establishes a monetary 

award for each dollar exported. 

--- WTO consistency is questioned.

13 

Free Land Given as Part of Foreign Investment Projects. 

The Yinchuan government grants foreign investors, which meet certain 

investment conditions, land valued at twice the amount of an investor’s 

original investment. 

United States 

2006 U.S. submission in 

response to China’s 

subsidies notification 

14 

Ningbo City Key Industry Technological Development Fund. 

According to the MOFCOM website, Ningbo City has set up an RMB one 

billion special fund to support four fast-growing key industries, namely, 

electronic information, new materials, auto/auto parts, and machinery 

production industries. The purpose of the fund is to assist key industries in 

their technological upgrading projects, expand their sales and assist 

companies in applying to be considered a national famous brand. The 

maximum subsidy for a qualified enterprise or project is RMB five million.

United States 

2006 U.S. submission in 

response to China’s 

subsidies notification 

15 

Preferential Loans Provided by the Chinese Government. 

According to a document posted by the Jiangsu Province Tax Bureau in 

September 2004 entitled “Tax Reimbursement Regime on Exported Goods 

in China,” exported goods that are “manufactured by using preferential loans 

of the Chinese government” will be “given approval to reimburse or exempt 

VAT or consumption tax due to some special features such as . . . turnover 

linkages and settlement methods, etc.” 

United States 

2006 US submission in 

response to China’s 

subsidies notification 

16 

Income tax exemption on profits made by certain FIEs. 

Profits distributed to foreign investors by foreign-invested enterprises that 

export more than 50% of their products, or that utilize foreign advanced 

technology to produce products for export, are exempt from income tax, 

according to Article 7 of the Provisions of the State Council on the 

European Communities; 

Canada 

2006 EC and Canada 

submissions in response to 

China’s subsidies 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: TEXTILES AND APPAREL

Trade Lawyers Advisory Group 

June 2007

44

Table B 

Chinese Subsidies Applicable to the Textiles and Apparel Industry

No. Subsidy Issue Raised By 

Encouragement of Foreign Investment (see Exhibit F-39). --- WTO 

consistency is questioned.

notification 

17 

Consolidated and commercial tax exemption on products exported by 

FIEs 

Export products of enterprises with foreign investment, except crude oil, oil 

products, and other products subject to special State provisions, shall be 

exempt from the consolidated and commercial tax, according to Article 11 of 

the Provisions of the State Council on the Encouragement of Foreign 

Investment. --- WTO consistency is questioned.

Canada 

2006 submission in 

response to China’s 

subsidies notification 

18 

Import licensing exemption on products imported by FIEs to produce 

goods for export. 

This subsidy is provided for in Article 13 of the Provisions of the State 

Council on the Encouragement of Foreign Investment. --- WTO consistency 

is questioned.

Canada 

2006 submission in 

response to China’s 

subsidies notification 

19 

Repayment tax exemption on certain products generated by FIEs. 

By-products, substandard products and leftover industrial surplus generated 

by FIEs while producing goods for export, are exempt from repayment tax 

when sold domestically. Such products, if generated while producing goods 

for domestic consumption, are not exempt. This subsidy is provided for in 

Article 20 of the Measures of the Customs of China on the Control over and 

the Levy and Exemption of Tax for Import and Export Goods of Enterprises 

with Foreign Investment, Decree of the General Administration of Customs 

[1992] No. 29 (see Exhibit T-24). --- WTO consistency is questioned.

European Communities; 

Canada 

2006 EC and Canada 

submissions in response to 

China’s subsidies 

notification 

20 

VAT expenses exemption and deduction. 

Based on the EC’s 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. --- WTO consistency is questioned.

European Communities 

2006 EC submission in 

response to China’s 

subsidies notification 

21 

The Central Foreign Trade Development Fund. 

Information available to Canada shows that the Central Foreign Trade 

Development Fund, established in 1996, is managed by the provinces under 

the direction of MOFCOM and that a Chinese bank, the ICBC, is responsible 

for managing the transactions under this Fund. The alleged purpose of the 

Fund is: to regulate and promote foreign trade; to encourage the 

development and export of new electronic, deep-processing, high-tech and 

high value-added products; and to increase Chinese export capacity and 

competitiveness.

Canada 

2006 submission in 

response to China’s 

subsidies notification 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: TEXTILES AND APPAREL

Trade Lawyers Advisory Group 

June 2007

45

Table B 

Chinese Subsidies Applicable to the Textiles and Apparel Industry

No. Subsidy Issue Raised By 

22 

Guangdong Grants Provided for Export Performance. 

The Guangdong provincial government has introduced a program to provide 

RMB 25 million in grants over five years to export-oriented companies 

meeting specific export targets --- WTO consistency is questioned.

United States 

2004 U.S. request for 

information 

23 Subsidies to state-owned enterprises operating at a loss. --- WTO 

consistency is questioned.

United States 

2002, 2003, 2004 and 2005 

TRM 

24 

Continued use of state-owned banks to keep non-viable SOEs afloat by 

writing off non-performing loans of SOEs as part of the Northeast 

revitalization program; one example is that Heilongjiang Province agreed to 

write off RMB 36 billion worth of non-performing loans of SOEs. --- WTO 

consistency is questioned.

United States 

2004 TRM 

25 

As reported by www.tdctrade.com and China Daily, the Shenzhen WTO 

affairs office sponsors a fund of more than 10 million in order to reimburse 

up to 30% of legal fees incurred by local export companies facing antidumping lawsuits. --- WTO consistency is questioned.

European Communities 

2004, 2005 and 2006 TRM 

26 

As reported by www.tdctrade.com, the Guangdong provincial government 

supports private enterprises to “expand outward,” and eligible private 

enterprises may apply for special funds conceived for developing foreign 

trade activities. These funds include market exploration, export credit 

insurance, offshore processing trade project loan interest subsidy, export 

research and development fund, antidumping proceedings fund, export 

rebate account loan interest subsidy fund, and outward-looking enterprises 

development fund. --- WTO consistency is questioned.

European Communities 

2004, 2005 and 2006 TRM 

27 

As reported by www.tdctrade.com, the Export Interest Subsidy for Shenzhen 

Enterprises has been raised from 20% to 40%. The policy of subsidizing 

USD $0.03 for every USD $1 export of general merchandise is only 

applicable to merchandise procured in Shenzhen. SMEs with exports below 

USD $15 million are eligible to apply. Fund allocation is on a first-comefirst-serve basis. The fund would provide RMB 800 million in 2004. --- 

WTO consistency is questioned.

European Communities 

2004, 2005 and 2006 TRM 

28 

As reported from Zhejiang Province, an Export Subsidy Fund based on a 

federal program enables regional authorities to provide all exporting 

companies exporting more than USD $3 million with a subsidy of 0.01 RMB 

per each USD $ exceeding this threshold. --- WTO consistency is 

questioned.

European Communities 

2004, 2005 and 2006 TRM 

29 As reported by MOFCOM, Dalian Branch of the Export-Import Bank would United States 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: TEXTILES AND APPAREL

Trade Lawyers Advisory Group 

June 2007

46

Table B 

Chinese Subsidies Applicable to the Textiles and Apparel Industry

No. Subsidy Issue Raised By 

provide RMB 5 billion of export credits to companies to enter global 

markets, and, since November 2003, “low-cost credit provided by the bank 

has saved the enterprises RMB 150 million interest.”

2005 TRM 

30 

Export credits offered by China Development Bank to support sectors 

considered to be essential to China’s long-term competitiveness and 

specifically for companies engaging in R&D, Chinese brand name 

companies, and certain companies in overseas expansion. --- WTO 

consistency is questioned.

United States 

2006 TRM 

31 

As reported from the website of Shanghai Foreign Investment Center, 

export-oriented enterprises enjoy various preferential policies in the use of 

land, water, electricity, transportation, telecommunication, short-term funds 

and necessary loans, as well as local income tax exemption after expiration 

of normal income tax exemption if more than 70% of the production is 

exported. --- WTO consistency is questioned.

European Communities 

2003 TRM 

Sources for “Issues Raised By” Column: 

United States: 

2002 TRM: G/SCM/Q2/CHN/2 (18 October 2002) 

2003 TRM: G/SCM/Q2/CHN/6 (27 October 2003) 

2004 TRM: G/SCM/Q2/CHN/8 (6 October 2004) 

2004 U.S. request for information: G/SCM/Q2/CHN/9 (6 October 2004) 

2005 TRM: G/SCM/Q2/CHN/14 (29 September 2005) 

2006 TRM: G/SCM/Q2/CHN/23 (16 October 2006) 

2006 U.S. submission in response to China’s subsidies notification: G/SCM/Q2/CHN/19 (26 July 2006) 

2007 U.S. consultation with China: WT/DS358/1 (7 February 2007) 

2007 U.S. request for further consultation with China: WT/DS358/1/Add.1 (2 May 2007) 

European Communities: 

2003 TRM: G/SCM/Q2/CHN/1 (26 September 2002) 

2004 TRM: G/SCM/Q2/CHN/7 (23 September 2004) 

2005 TRM: G/SCM/Q2/CHN/12 (22 September 2005) 

2006 TRM: G/SCM/Q2/CHN/24 (20 October 2006) 

2006 EC submission in response to China’s subsidies notification: G/SCM/Q2/CHN/16 (25 July 2006) 

Canada: 

2006 Canada submission in response to China’s subsidies notification: G/SCM/Q2/CHN/18 (26 July 2006) 

Mexico: 

2002 TRM: G/SCM/Q2/CHN/4 (4 November 2002)