CHINA’S SUPPORT PROGRAMS

FOR SELECTED INDUSTRIES:

WOOD AND WOOD PRODUCTS

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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TABLE OF CONTENTS 

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EXECUTIVE SUMMARY............................................................................................... vi 

INTRODUCTION ................................................................................................................. 1 

I. OVERVIEW OF CHINA’S WOOD AND WOOD PRODUCTS INDUSTRY AND THE 

NEW INDUSTRY POLICY .......................................................................................... 31 

A. CHINA’S WOOD AND WOOD PRODUCTS INDUSTRY ..................................... 31 

1. Timber Production............................................................................ 31 

2. The Pulp and Paper Industry ......................................................... 33 

3. The Solid Wood Products Industry ............................................... 37 

B. TRADE FLOWS ................................................................................................ 38 

C. THE GOVERNMENT INDUSTRY POLICY ........................................................ 42 

II. GOVERNMENT SUPPORT PROGRAMS AVAILABLE TO THE WOOD AND 

WOOD PRODUCTS INDUSTRY.................................................................................. 44 

A. PROGRAMS IDENTIFIED BY CHINA’S SCM NOTIFICATION......................... 45 

1. Programs Specifically Applicable to Forestry 

Enterprises.......................................................................................... 45 

a. FIEs Income Tax Reduction for Royalty Received for 

Supplying Forestry Production Technology (F1) .............. 45 

b. Preferential Tax Policies for Certain Forestry 

Enterprises (F2)...................................................................... 46 

c. Fund for Construction of Small Forests in Rural 

Areas (G33 & F3) .................................................................... 46 

d. Special Fund for Projects on the Protection of 

Natural Forestry (F4) ............................................................ 47 

e. Cash Subsidy for Returning Farmland to Forests 

(F5) ........................................................................................... 47 
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f. Compensation Fund for Forestry Ecological Benefits 

(F6) ........................................................................................... 47 

g. Loan Interest Subsidy for Afforestation Program 

Closely Related to Desertification Prevention 

Purpose (F7)............................................................................ 48 

h. Subsidy to Prevent and Control Forest Pest and 

Disease (F8)............................................................................. 48 

i. VAT Exemption for Grain Distributed for 

Compensating Returning Farmland to Forests (F9) ........ 48 

2. Programs Potentially Useable by Forestry Enterprises .......... 49 

B. THE GRAND-SIX AFFORESTATION PROJECTS............................................. 62 

1. The Natural Forests Protection Project (F9) .............................. 62 

2. The Beijing-Tianjin Sandstorm Prevention Project (F10)....... 62 

3. The Natural Reserve Development Project (F11) ...................... 63 

4. The Protective Afforestation Project (F12) ................................. 63 

5. Return Farmland to Forests (F13)................................................. 64 

6. Fast-Growth-High-Yield Forest Construction Project 

(F14) ...................................................................................................... 64 

C. PROGRAMS IDENTIFIED IN THE AF&PA REPORT....................................... 65 

1. Loan Interest Subsidy for Plantation Development (F15)....... 65 

2. Reduction of Production Cost (F16).............................................. 66 

3. The Grand Development Program for the West Region 

(G11)...................................................................................................... 67 

4. The Pulp/Paper Development Projects (F17).............................. 67 
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5. Loan Interest Subsidies for Technology Renovations 

(F18) ...................................................................................................... 68 

6. Discounted Loan for Wood Processing Projects (F19).............. 68 

7. Expedited Foreign Investment Approval Process (F20) .......... 68 

8. Favorable Tax Treatment to High-Tech and ForeignInvested Producers (G1, G3) ........................................................... 69 

D. PROGRAMS IDENTIFIED IN THE THREE SUBSIDY DISPUTES 

INVOLVING CHINA.......................................................................................... 70 

1. Canadian Countervailing Duty Investigation of 

Laminate Flooring from China....................................................... 70 

a. Tax Break for Productive Foreign-Invested 

Enterprises Scheduled to Operate for a Period of 

Not Less Than 10 Years (G46)............................................... 71 

b. Local Tax Break for FIEs in Industries Where 

Foreign Investment is Encouraged (G47) ........................... 71 

c. Tax Rebate on Reinvested Profits by FIEs (G48) ............... 72 

d. Tax Benefit for Enterprises Located in SEZs, 

CEOZs, or in the Old Urban Districts of Cities where 

the SEZs or the ETDZs are Located, or in Areas 

Designated by the State Council (G50) ............................... 72 

e. Tax Break for Enterprises in the Western Region 

and Other Specified Regions (G11) ..................................... 73 

f. Enterprises Operating in the Forestry Industry (F2)........ 74 

g. Refund of VAT for Products Produced with Fuel 

Wood and Other Low-valued Wood or Wood 

Residuals (F21)....................................................................... 74 

h. Tariffs and VAT Exemption on Imported Equipment 

(G51) ......................................................................................... 74 
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i. Loan Interest Assistance (F22)............................................. 75 

j. Local Grants for Flooring Enterprises (G52)..................... 76 

2. U.S. Countervailing Duty Investigation of Coated Free 

Sheet Paper from China................................................................... 76 

a. Programs Preliminarily Determined by Commerce 

to be Countervailable............................................................. 77 

i. The State Key Technology Renovation Project 

Fund (G53) ........................................................................ 77 

ii. The Two-Free, Three-Half Program (G46) ................ 77 

iii. Reduced Income Tax Rates for FIEs Based on 

Location (G7 & G50) ....................................................... 78 

iv. Local Income Tax Exemption and Reduction 

Program for “Productive” FIEs (G54)........................ 78 

v. Income Tax Credits on Purchases of 

Domestically-Produced Equipment by FIEs 

(G37)................................................................................... 78 

vi. VAT Rebates on FIE Purchases of 

Domestically-Produced Equipment (G55)................. 79 

vii. FIE VAT and Tariff Exemptions on Imported 

Equipment and Technology (G39) .............................. 79 

viii. Domestic VAT Refunds for Companies 

Located in the Hainan Economic Development 

Zone (G56)......................................................................... 79 

b. Programs Preliminarily Determined by Commerce 

to be Not Used ......................................................................... 80 

i. Clean Production Technology Fund (G57) ............... 80 

ii. Other programs............................................................... 80 
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3. U.S. Request for Consultations with Regard to Certain 

Chinese Subsidy Programs ............................................................. 81 

a. Income Tax Rebate for Domestic Enterprises 

Purchasing Domestically-Made Equipment (G38)............ 81 

b. Income Tax Rebate for Export-Oriented or HighTech FIEs (G2, G3).................................................................. 82 

c. Income Tax Rebate for FIEs Investing in 

Encouraged Line of Business (G58)..................................... 82 

d. Tax Refund for Qualified Reinvestment by FIEs 

(G48) ......................................................................................... 83 

e. Exemption for Export-Oriented and High-Tech FIEs 

from Certain Welfare Payments (G49) ................................ 83 

E. GOVERNMENT INACTION AGAINST ILLEGAL LOGGING ............................. 83 

F. PROVINCIAL PROGRAMS ............................................................................ 87 

G. THE MAGNITUDE OF GOVERNMENT SUBSIDIES RECEIVED AT THE 

ENTERPRISE LEVEL.................................................................................... 91 

1. Shandong Chenming Paper Group ............................................... 91 

2. Shandong Huatai Paper Co., Ltd. .................................................. 92 

3. Ningxia Meili Paper Industry Co., Ltd. ........................................ 93 

4. Yueyang Paper Co., Ltd.................................................................... 94 

5. An Hui Shan Ying Paper Industry Co., Ltd. ................................ 94 

6. Fujian YongAn Forestry Group Joint-Stock Co., Ltd. .............. 95 

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CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUCTS

EXECUTIVE SUMMARY 

Abundant labor supply and large capital investment has turned China into a 

major processing center in the global supply chain for wood products. Chinese 

factories supply IKEA with one-fourth of its global stock. Home Depot similarly 

sources a significant percentage of its wood products from Chinese suppliers. Today, 

China is the world’s largest exporter of furniture and a number of wood panel 

products. The dramatic growth of China’s wood and wood products industry, both 

at home and internationally through exports, has created tensions with China’s 

trading partners concerned with the extent of government support provided to 

Chinese producers. In recent years, two countervailing duty cases have found that 

segments of the Chinese industry have benefited from government assistance that 

was countervailable under both Canadian and U.S. law. This report reviews the 

types of government support that China has provided to its wood and wood products 

industry, covering assistance to timber companies, pulp and paper producers, and 

solid wood products companies. 

China’s forest land is limited, and thus so its timber resources. China’s per 

capita forest acreage ranks 119th among nations. In reaction to a major flood, the 

Chinese government enacted measures to preserve its forest ecological system and 

to restrict logging in natural forests. With its rapid economic expansion and limited 

home-grown timber resources, China has been the world’s largest importer of logs in 
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EXECUTIVE SUMMARY 

vii

recent years. To reduce its dependence on imports, the Chinese government has 

encouraged plantation development in order to meet future timber demand and is 

now operating the world’s largest plantation development program. Between 1978 

and 2005, 55 million hectares of forest plantations have been developed. Much of 

these newly-developed forests are for environmental protection purposes, where 

commercial logging is strictly limited. Only about 20 percent of the plantings are 

available for commercial timber production. 

Plantation development requires long-term capital commitments, which 

could be risky and hard to obtain for private companies. The Chinese government 

therefore has provided loan interest subsidies to support private developers. One 

program designed by the government to increase the nation’s commercial timber 

supply is the “fast-growth-high-yield” plantation development program. A report 

prepared by the American Forestry and Paper Association in 2004 estimated that 

the Ministry of Finance has committed USD $1.73 billion to 99 projects of fastgrowth-high-yield plantation development. 

While China is ramping up its domestic timber supplies, it has relied on 

imports to meet its demand for timber. It has been widely reported that illegal 

logging is rampant in China’s primary timber suppliers, Russia and Indonesia. The 

Western media has criticized Chinese border authorities for not making a sufficient 

effort to authenticate the logging documents for imported logs to ensure compliance 

with national logging limitations. Unfortunately, it is likely that China’s demand 
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EXECUTIVE SUMMARY 

viii

for timber in recent years has worsened the extent of illegal logging in these 

exporting countries. 

China’s pulp and paper industry has seen fast growth in demand in recent 

years. China is now the world’s second largest paper and paper board producer. 

The industry, however, remains fragmented with many small and outdated 

facilities. The government has been encouraging the consolidation of the industry 

and supporting adoption of modern and environmentally-friendly production 

technology. Four thousand small paper mills have been closed; and wood pulpbased new paper making facilities employing the most advanced production 

technology have been installed at a very fast rate. Production grew from 35.75 

million metric tons in 2000 to 54.39 million metric tons in 2004. Government 

support is an important element contributing to this capacity expansion and 

industry restructuring. 

In a recent countervailing duty case filed in the United States against 

Chinese producers of coated free sheet paper, the U.S. Department of Commerce, in 

its preliminary determination, found that the Chinese paper industry has benefited 

from a number of government support programs that are countervailable under U.S. 

law. Among these measures is the State Key Technology Renovation Project Fund, 

under which the government had been providing grants to paper producers in an 

amount equal to two years of interest payments on loans extended for technology 

innovation projects. Other programs found to be available to coated free sheet 
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EXECUTIVE SUMMARY 

ix

paper producers included: (1) tax preferences (including the so-called “two free, 

three half” program, and various other types of preferential tax treatment extended 

to companies with foreign investment), (2) tax benefits extended on condition of 

purchasing domestic equipment, and (3) awards to companies that adopted clean 

production technology. 

Production capacity in China’s solid wood products industry has grown very 

quickly as well. China is now the world’s largest furniture exporter, accounting for 

30 percent of global furniture trade. Chinese exports of wood panels also have 

increased rapidly, reaching 10 million cubic meters in 2005. 

Chinese exports of certain wood products have caused trade frictions with 

some of its major trading partners. In the United States, for example, domestic 

producers filed an antidumping case against imports of wooden bedroom furniture 

from China. In Canada, as well, the laminate flooring industry brought, in 2004, 

antidumping and countervailing duty actions against imports of laminate flooring 

from China. The Canadian authority found that some of the Chinese government 

subsidies provided to the laminate flooring industry were countervailable under 

Canadian law. In addition to those measures available to the coated free sheet 

paper industry noted above, measures which Canada found to be countervailable 

included discounted loans provided to wood processing companies and awards to 

companies that adopted environmentally-friendly production methods. 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUCTS

EXECUTIVE SUMMARY 

x

In addition to the support provided by the Chinese central government, local 

governments at the provincial and city levels also have provided financial 

assistance to wood products companies. Indeed, the annual reports of various 

Chinese paper companies reveal that the majority of the reported financial benefits 

to these companies has been provided by local governments. 

CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: 

WOOD AND WOOD PRODUCTS

INTRODUCTION

This report reviews China’s wood and wood products, or forestry, industry and relevant 

government industry policies and support programs that the government has been providing or 

has made available to enterprises in the industry. This report uses the terms “forestry industry” 

and “wood and wood products industry” interchangeably. They both refer broadly to the 

industry encompassing both raw timber and wood products.

1

Part I

The report begins with a brief introduction to the three segments of China’s forestry 

industry: timber production, the pulp and paper industry, and the solid wood products industry. 

To stop the fast degradation of China’s ecosystem, the government has restricted timber 

production, which has partially contributed to the current shortage in the supply of domestic 

timber. For the paper and solid wood products industries, low manufacturing costs and large 

capital investment has turned China into a major processing center for some of its wood products; 

for other wood products, especially raw material and high-end wood products, China is now one 

of the largest importers. The report reviews trade flows for China’s forestry industry. 

Following the introduction, the report reviews relevant Chinese government industry 

policies and development strategies. In 2003, China released a refined forestry policy, including 

the development strategy for the wood products industry as well as an environmental protection 

 

1

 In this report, pulp and paper production is carved out and discussed independently from the rest of the wood 

products industry, with the latter being referred to in this report as the solid wood products industry, including 

enterprises producing sawn wood, wood chips, panel products, wood furniture, et cetera. 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUCTS

Trade Lawyers Advisory Group 

June 2007

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plan. In 2004, the State Development and Reform Commission (SDRC) issued a guideline for 

paper and commercial use plantation development. These two documents will guide China’s 

forestry industry for the next 5-10 years. The report reviews the first document, which was 

issued jointly by the Chinese Communist Party Central Committee (CCPCC) and the State 

Council. The second document, issued by SDRC, is discussed in the pulp and paper section. 

Part II

In Part II, the report discusses government support programs that are available to forestry 

industry enterprises. First, we review China’s April 2006 notification to the World Trade 

Organization’s (WTO) Committee on Subsidies and Countervailing Measures (SCM). Eight 

programs listed in the notification are expressly applicable to the forestry industry; many other 

programs listed are potentially usable by the forestry sector. China today operates the largest 

afforestation program in the world. Environmental protection is the state’s primary purpose for 

this program, in particular, forestry ecosystem restoration and prevention of soil erosion. On the 

other hand, the program also increases China’s timber production capacity. The report then 

gives a brief introduction to China’s Six Grand Afforestation Projects. 

The various programs reviewed in this report have resulted in a rapid expansion of 

China’s wood and wood products industries and have attracted attention from trading partners 

and trade associations. For example, the American Forest and Paper Association (AF&PA) 

conducted a comprehensive study on government support to China’s forestry industry, and 

published a research paper in July 2004.2

 The report reviews the AF&PA study. 

 

2

 AF&PA, China’s Subsidization of its Forest Products Industry (July 2004). See Exhibit F-9. 
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Information on the use of subsidies by China’s wood and wood products industries can 

also be found in the records of two countervailing duty cases that have been filed against China, 

one in Canada and one in the United States.3 In both cases, the administering authorities in the 

United States (to date, only a preliminary determination has been issued) and Canada have 

reached affirmative determinations. In addition, in February 2007, the U.S. government filed a 

request for consultations with China at the World Trade Organization with respect to some of 

China’s subsidy programs. The report provides a summary of the subsidy programs identified in 

the three subsidy disputes. The report also looks briefly at some selected information on the 

types of programs that may be available from the provincial and local governments in China. 

Finally, the report reviews the issues involved regarding reports of illegal logging in China’s 

neighboring countries and China’s handling of imports of such products. 

To assist the reader’s understanding of the government programs reviewed in the report, 

we have assigned an identification number to each program discussed; and have prepared a 

master table listing all of the programs with their underlying legal authorities. This master table 

is set out on the following pages. 

 

3

 See Department of Commerce, Coated Free Sheet Paper from the People’s Republic of China: Amended 

Preliminary Affirmative Countervailing Duty Determination, 72 Fed. Reg. 17484 (April 9, 2007). See also

Canadian Border Services Agency (CBSA), Statement of Reasons Concerning the Making of a Final 

Determination with Respect to the Dumping of Certain Laminate Flooring Originating in or Exported From 

the People’s Republic of China and France (June 1, 2005) (“Laminate Flooring Statement of Reasons”); 

available at http://www.cbsa-asfc.gc.ca/sima/anti-dumping/ad1332f-e.html. 
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Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G1 Preferential tax policies for FIEs 

Income Tax Law of the People's 

Republic of China for Enterprises 

with Foreign Investment and 

Foreign Enterprises (The Tax 

Law) 

中华人民共和国外商投资企业和外国企业所得税法

F-4 I 

G1 Same as above 

Rules for the Implementation of 

the Income Tax Law of the 

People's Republic of China for 

Enterprises with Foreign 

Investment and Foreign 

Enterprise 

中华人民共和国外商投资企业和外国企业所得税法实施细则

F-5 I 

G2 

Preferential tax 

policies for Export 

FIEs 

Income Tax Law of the People's 

Republic of China for Enterprises 

with Foreign Investment and 

Foreign Enterprises (The Tax 

Law) 

中华人民共和国外商投资企业和外国企业所得税法

F-4 II 

G2 Same as above 

Rules for the Implementation of 

the Income Tax Law of the 

People's Republic of China for 

Enterprises with Foreign 

Investment and Foreign 

Enterprise 

中华人民共和国外商投资企业和外国企业所得税法实施细则

F-4 II 
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Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G3 

Preferential tax 

policies for FIEs 

which are 

technology-intensive 

and knowledgeintensive 

SAT Circular on the Preferential 

Tax Treatment to ForeignInvested Companies That Are 

Technology- and KnowledgeIntensive, Guo Shui Fa [1995] 

No. 139 

关于外商投资企业享受“两个密集型企业”税收优惠有关问题的通知

F-79 VI 

G3 Same as above 

SAT Circular on the Preferential 

Tax Treatment to ForeignInvested Companies That Are 

Technology-and KnowledgeIntensive, Guo Shui Fa [2003] 

No. 135 

C5-国家税务总局关于外商投资企业享受“两个密集型”税

收优惠政策有关问题的通知 2003 

F-48 VI 

G4 

Preferential tax 

policies for FIEs in 

the border cities 

SAT Circular on Granting 

Preferential Tax Treatment to 

Foreign-Invested Companies in 

12 Border Cities, Guo Shui Han 

Fa [1994] No. 1412 

国家税务局关于明确黑河等十二个边境城市执行外商投资企业税收政策问题的通知

F-49 VII 
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Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G5 

Preferential tax 

policies for FIEs 

recognized as high 

or new technology 

enterprises 

established in the 

State high or new 

technology 

industrial 

development zones, 

and for advanced 

technology 

enterprises invested 

in and operated by 

foreign businesses 

Rules for the Implementation of 

the Income Tax Law of the 

People's Republic of China for 

Enterprises with Foreign 

Investment and Foreign 

Enterprises 

中华人民共和国外商投资企业和外国企业所得税法实施细则

F-5 VIII 9 

G6 

Preferential tax 

policies for 

enterprises 

recognized as high 

or new technology 

enterprises 

established in the 

State high or new 

technology 

industrial 

development zones 

MOF & SAT Circular on Several 

Preferential Corporate Income 

Tax Policies, Cai Shui Zi [1994] 

No. 001 

财政部、国家税务总局《关于企业所得税若干优惠政策的通知》财税字[1994] 001 号

F-50 IX 
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Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G7 

Preferential tax 

policies for FIEs 

established in special 

economic zones 

(excluding Shanghai 

Pudong area) 

Income Tax Law of the People's 

Republic of China for Enterprises 

with Foreign Investment and 

Foreign Enterprises 

中华人民共和国外商投资企业和外国企业所得税法

F-4 X 

G7 Same as above 

Rules for the Implementation of 

the Income Tax Law of the 

People's Republic of China for 

Enterprises with Foreign 

Investment and Foreign 

Enterprises 

中华人民共和国外商投资企业和外国企业所得税法实施细则

F-5 X 

G8 

Preferential tax 

policies for FIEs 

established in the 

costal economic 

open areas and in 

the economic and 

technological 

development zones 

Income Tax Law of the People's 

Republic of China for Enterprises 

with Foreign Investment and 

Foreign Enterprises 

中华人民共和国外商投资企业和外国企业所得税法

F-4 XI 

G8 Same as above 

Rules for the Implementation of 

the Income Tax Law of the 

People's Republic of China for 

Enterprises with Foreign 

Investment and Foreign 

Enterprises 

中华人民共和国外商投资企业和外国企业所得税法实施细则

F-5 XI 
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Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G9 

Preferential tax 

policies for FIEs 

established in 

Pudong area of 

Shanghai 

Income Tax Law of the People's 

Republic of China for Enterprises 

with Foreign Investment and 

Foreign Enterprises 

中华人民共和国外商投资企业和外国企业所得税法

F-4 XII 

G9 Same as above 

Rules for the Implementation of 

the Income Tax Law of the 

People's Republic of China for 

Enterprises with Foreign 

Investment and Foreign 

Enterprises 

中华人民共和国外商投资企业和外国企业所得税法实施细则

F-5 XII 

G10 

Preferential tax 

policies for FIEs 

established in the 

Three Gorges of 

Yangzi River 

Economic Zone 

MOF Circular on the Tax Policy 

for Relocation of Residents in the 

Three Gorges Area and Regional 

Development, MOF Cai Shui Zi 

[1995] No. 34 

关于长江三峡库区移民开发税收政策的通知, 财税字[1995]34 号

F-51 XIII 

G11 

Preferential tax 

policies in the 

western regions 

Circular of the State Council on 

Several Policies on the 

Development of Western 

Regions, Guo Fa [2000] No. 33 

国务院关于实施西部大开发若干政策措施的通知, 国发[2000]33 号

F-24 XIV 9 9 
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Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G11 Same as above 

The General Office of the State 

Council to Circulate the Circular 

of the State Council on the 

Implementation of New Policies 

for the Development of Western 

Regions, Guo Ban Fa [2001] No. 

73 

国务院办公厅转发国务院西部开发办关于西部大开发若干政策措施实施意见的通知, 国办发

[2001]73 号

F-53 XIV 9 9 

G11 Same as above 

MOF Circular on Preferential 

Tax Treatment for Western 

Regions Development Program, 

Cai Shui [2001] No. 202 

财政部、国家税务总局、海关总署关于西部大开发税收优惠政策问题的通知, 财税[2001]202号

F-54 XIV 9 9 

G11 Same as above 

SAT 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 

国家税务总局关于实施对设在中西部地区的外商投资企业给予三年减按 15

%税率征收企业所得税的优惠的通知, 国税发[1999]172 号

F-55 XIV 9 9 
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Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G12 

Preferential tax 

policies for 

enterprises 

established in the 

poverty stricken 

areas 

MOF & SAT Circular on Several 

Preferential Corporate Income 

Tax Policies, Cai Shui Zi [1994] 

No. 001 

财政部、国家税务总局《关于企业所得税若干优惠政策的通知, 财税字[1994] 001 号

F-50 XV 

G13 Fiscal funds to alleviate poverty 

MOF Circular on the Distribution 

of “Interim Administrative Rules 

of the Fiscal Funds for Poverty 

Alleviation” and “Interim 

Administrative Rules of the 

Administration Fee for the 

Poverty Alleviation Projects,” 

Cai Nong [2000] No. 18 

关于印发《财政扶贫资金管理办法》(试行)和《财政扶贫

项目管理费管理办法》(试行)的通知

F-57 XVI 

G14 

Specific subsidy on 

agricultural 

production and 

construction in the 

poverty stricken 

areas of Hexi and 

Dingxi of Gansu 

Province and 

Xihaigu of Ningxia 

Hui Autonomous 

Region 

Circular of MOF and the Leading 

Group on Poverty Alleviation and Development of the State Council 

on the Distribution of 

“Administrative Rules of the 

Special Subsidies to the ‘Three 

West’ Agricultural 

Construction,” Cai Nong [2001] 

No. 67 

财政部、国务院扶贫开发领导小组关于印发《“三西”农业建设专项补助资金使用管理办法》的通知(2001), 财农[2001] 67 号

F-58 XVII 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUC

Trade Lawyers Advisory Group 

June 2007

11

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G15 

Interests discount of 

poverty alleviation 

loans 

People’s Bank of China Circular 

re Administrative Rules of 

Subsidized Loans for Poverty 

Alleviation, Yin Fa [2001] No. 

185 

中国人民银行、财政部、国务院扶贫开发领导小组办公室、中国农业银行关于印发《扶贫贴息贷款管理实施办法》的通知, 银发[2001]185 号

F-59 XVIII 

G16 

Preferential tax 

policies for 

enterprises which 

utilize the waste 

materials 

MOF & SAT Circular on Several 

Preferential Corporate Income 

Tax Policies, Cai Shui Zi [1994] 

No. 001 

财政部、国家税务总局《关于企业所得税若干优惠政策的通知》, 财税字

[1994] 001 号

F-50 XIX 

G17 

Preferential tax 

policies for 

enterprises suffering 

from natural 

disasters 

MOF & SAT Circular on Several 

Preferential Corporate Income 

Tax Policies, Cai Shui Zi [1994] 

No. 001 

财政部、国家税务总局《关于企业所得税若干优惠政策的通知》, 财税字

[1994] 001 号

F-50 XX 

G18 

Preferential tax 

policies for welfare 

enterprises 

SAT Circular on Preferential 

Turnover Tax Treatment for 

Social Welfare Enterprises, Guo 

Shui Fa [1994] No. 155 

国家税务总局关于民政福利企业征收流转税问题的通知国税发[1994]155 号

F-60 XXI 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUC

Trade Lawyers Advisory Group 

June 2007

12

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G19 

Preferential tax 

policies for 

enterprises making 

little profits 

MOF & SAT Circular on Certain 

Decisions Related to Corporate 

Income Tax Policies, Cai Shui Zi 

[1994] No. 009 

财政部、国家税务总局关于印发《企业所得税若干政策问题的规定》的通知, 财税字[1994]009号

F-61 XXII 

G20 

Preferential tax 

policies for township 

enterprises 

MOF & SAT Circular on Several 

Preferential Corporate Income 

Tax Policies, Cai Shui Zi [1994] 

No. 001 

财政部、国家税务总局《关于企业所得税若干优惠政策的通知》, 财税字[1994] 001 号

F-50 XXIII 

G21 

Preferential tax 

policies for 

enterprises which 

provide 

employment for 

unemployed people 

MOF & SAT Circular on Several 

Preferential Corporate Income 

Tax Policies, Cai Shui Zi [1994] 

No. 001 

财政部、国家税务总局《关于企业所得税若干优惠政策的通知》, 财税字[1994] 001 号

F-50 XXIV 

G22 

Preferential tax 

policies for scientific 

research institutions 

under transformation 

MOF & SAT Circular on the Tax 

Policy Regarding Research 

Institutions Undergoing 

Restructuring, Cai Shui [2003] 

No. 137 

财政部、国家税务总局关于转制科研机构有关税收政策问题的通知, 财税[2003]137 号

F-62 XXV 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUC

Trade Lawyers Advisory Group 

June 2007

13

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G23 

Preferential tax 

policies for the 

research and 

development of 

foreign-invested 

enterprises 

SAT Circular on Granting 

Income Tax Deduction to FIEs 

for Technology Development 

Expenditure, Guo Shui Fa [1999] 

No. 173 

国家税务总局关于外商投资企业技术开发费抵扣应纳税所得额有关问题的通知 , 国税发[1999]173 号

F-63 XXVII 

G24 

Preferential tax 

policies for 

enterprises 

transferring 

technology 

MOF & SAT Circular on Several 

Preferential Corporate Income 

Tax Policies, Cai Shui Zi [1994] 

No. 001 

财政部、国家税务总局《关于企业所得税若干优惠政策的通知》, 财税字[1994] 001 号

F-50 XXVIII 

G25 

Funds for 

supporting 

technological 

innovation for the 

technological small 

and medium-sized 

enterprises (SMEs) 

General Office of State Council 

Circular on the Interim 

Administrative Rules of the 

Technological Innovation Fund 

for the Technological Small- and 

Medium-sized Enterprises, Guo 

Ban Fa [1999] No. 47 

国务院办公厅转发科学技术部财政部关于科技型中小企业技术创新基金的暂行规定的通知(国办发〔1999〕47号)

F-64 XXXI 

G26 Development funds for SMEs Law of the People’s Republic of China on Promotion of Small and Medium-sized Enterprises 中华人民共和国中 小企业促进法 F-65 XXXII 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUC

Trade Lawyers Advisory Group 

June 2007

14

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G27 

Fund for 

international market 

exploration by 

SMEs 

MOF Circular on Administrative 

Measures on Funds Earmarked 

for International Market 

Exploitation of Small- and 

Medium-sized Enterprises, Cai 

Qi [2000] No. 467 

财政部、对外贸易经济合作部关于印发《中小企业国际市场开拓资金管理(试行)办法》的通

知, 财企〔2000〕467 号

F-66 XXXIII 

G27 Same as above 

MOFTEC (MOFCOM) Circular 

on Implementing Rules of the 

Administrative Measures on 

Funds Earmarked for 

International Market Exploitation 

of Small- and Medium-sized 

Enterprises, Ji Cai Fa [2001] No. 

270 

中小企业国际市场开拓资金管理办法实施细则(暂行)外经贸计财 发[2001]270 号

F-67 XXXIII 

G28 

Special fund for 

establishment of 

service system for 

SMEs 

Law of the People’s Republic of 

China on Promotion of Smalland Medium-sized Enterprises 中华人民共和国中 小企业促进法 F-65 XXXIV 

G28 Same as above 

MOF Circular on Interim 

Administrative Measures of the 

Special Fund for Establishment 

of the Service System for Smalland Medium-sized Enterprises, 

Cai Jian [2004] No. 124 

中小企业服务体系专项补助资金使用管理办法(暂行) 财

建[2004]124 号

F-68 XXXIV 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUC

Trade Lawyers Advisory Group 

June 2007

15

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G29 

Fund for 

subsidizing the 

training of the rural 

migrant labor force 

MOF and MOA Circular on 

Administrative Measures of the 

Fund for Subsidizing the Training 

of the Rural Migrant Labor 

Force, Cai Nong [2004] No. 38 

财政部、农业部关于印发《农村劳动力转移培训财政补助资金管理办法(试

行)》的通知(财农[2004]38 号)

F-69 XXXV 

G30 

Outlay for training 

of youngster 

farmers on science 

and technology 

MOA Circular on Comments on 

Development of Trial-Point for 

the Training of Cross-Century 

Youngster Farmers on Science 

and Technology, Nong Ke Jiao 

Fa [1999] No. 8 

关于开展跨世纪青年农民科技培训工程试点工作的意见

N/A XXXVI 

G31 

Fund for specialized 

cooperatives of 

farmers 

MOF Circular on the Interim 

Administrative Measures of the 

Fund for Specialized 

Cooperatives of Farmers, Cai 

Nong [2004] No. 87 

财政部关于印发《中央财政农民专业合作组织发展资金管理暂行办法》的通知, 财农[2004]87 号

F-70 XXXVII 

G32 

Subsidy for major 

flood control and 

drought resistance 

MOF and MWR Circular on the 

Interim Rules of the Distribution 

of Subsidy for Major Flood 

Control and Drought Resistance, 

Cai Nong [2001] No. 30 

财政部、水利部关于印发《特大防汛抗旱补助费分配暂行规定》的通知, 财农[2001]30 号

F-71 XLV 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUC

Trade Lawyers Advisory Group 

June 2007

16

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G33 

Fund for 

construction of small irrigation facilities in 

rural areas 

Circular from the General Office 

of MOF on the Pilot 

Administrative Rules of the 

Subsidy for Construction of 

Small Irrigation Facilities in 

Rural Areas, Cai Ban Nong 

[2001] No. 74 

财政部办公厅关于印发《农村小型公益设施建设补助资金管理试点办法》的通知, 财办农[2001]74 号

F-16 XLVI 

G34 

Fund for 

construction of small 

ecological facilities 

in rural areas 

Circular from the General Office 

of MOF on the Pilot 

Administrative Rules of the 

Subsidy for Construction of 

Small Irrigation Facilities in 

Rural Areas, Cai Ban Nong 

[2001] No. 74 

财政部办公厅关于印发《农村小型公益设施建设补助资金管理试点办法》的通知, 财办农[2001]74 号

F-16 XLVII 

G35 

Fund for projects on 

collection, 

reservation and 

utilization of rainfall 

MOF & MWR Circular on the 

Interim Administrative Rules of 

the Fund for Collection, 

Reservation and Utilization of 

Rainfall, Cai Nong [2004] No. 

138 

财政部、水利部关于印发《中央财政雨水集蓄利用专项资金管理暂行办法》的通知, 财农[2004] 138 号

F-73 XLVIII 

G36 

Subsidies for 

national key 

construction projects 

on water and soil 

conservation 

MOF Circular on Administrative 

Rules of the Subsidies for Small 

Scale Irrigation and Soil 

Conservation, Cai Nong [1987] 

No. 402 

小型农田水利和水土保持补助费管理的规定, 财农[1987]402 号

F-74 L 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUC

Trade Lawyers Advisory Group 

June 2007

17

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G37 

Income tax credits 

on purchases of 

domesticallyproduced equipment 

by FIEs 

Circular of the Ministry of 

Finance and the State 

Administration of Taxation on 

Enterprise Income Tax Credits 

for Purchase of Domestic 

Equipment by Foreign-Invested 

Enterprises and Foreign 

Enterprises, Cai Shui [2000] No. 

49 

财政部、国家税务总局关于外商投资企业和外国企业购买国产设备投资抵免企业所得税有关问题的通知

F-79 LVIII 

G37 Same as above 

Administrative Measures on 

Enterprise Income Tax Credits 

for Purchase of Domestic 

Equipment by FIEs and Foreign 

Enterprises, Cai Shui [2000] No. 

90 

国家税务总局关于印发《外商投资企业和外国企业购买国产设备投资抵免企业所得税管理办法》的通知

F-34 LVIII 

G38 

Preferential tax 

policies for 

domestic enterprises 

purchasing 

domesticallyproduced 

equipments for 

technology 

upgrading purpose 

MOF & SAT Circular on the 

Interim Measures of Income Tax 

Deduction for DomesticallyProduced Equipment Purchased 

for Technology Upgrading 

Purpose, Cai Shui [1999] No. 290 

财政部、国家税务总局关于印发《技术改造国产设备投资抵免企业所得税暂行办法》的通知, 财税 [1999] 290 

F-38 LIX 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUC

Trade Lawyers Advisory Group 

June 2007

18

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G39 

VAT and tariff 

exemptions on 

imported equipment 

Circular of the State Council on 

Adjusting Tax Policies on 

Imported Equipment, Guo Fa 

[1997] No. 37 

国务院关于调整进口设备税收政策的通知, 国发 [1997] 37 

F-30 

G40 

VAT exemption for 

grain distributed for 

compensating 

returning farmland 

to forests 

SAT Circular on VAT Exemption 

for Grain Distributed to 

Compensate for Returning 

Cultivated Land to Forests and to 

Grassland, Guo Shui Fa [2001] 

No. 131 

国家税务总局关于退耕还林还草补助粮免征增值税问题的通知, 国税发[2001] 131 

F-20 LXIII 

G41 

Preferential tax 

treatment for 

building material 

products produced 

with integrated 

utilization of 

resources 

MOF & SAT Circular on VAT 

Exemption for Products Produced 

with Integrated Utilization of 

Resources, Cai Shui Zi [1995] 

No. 44 

财政部、国家税务总局关于对部分资源综合利用产品免征增值税的通知, 财税字[1995]44 号

F-80 LXIX 

G41 Same as above 

MOF & SAT Circular on 

Continuing with the Preferential 

VAT Treatment for Products 

Produced with Integrated 

Utilization of Resources, Cai 

Shui Zi [1996] No. 20 

财政部、国家税务总局关于继续对部分资源综合利用产品等实行增值税优惠政策的通知, 财税

字[1996]20 号

F-81 LXIX 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUC

Trade Lawyers Advisory Group 

June 2007

19

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G42 

Preferential tax 

treatment for other 

products produced 

with integrated 

utilization of 

resources 

MOF & SAT Circular on VAT 

Treatment for Products Produced 

with Integrated Utilization of 

Resources, Cai Shui [2001] No. 

198 

财政部、国家税务总局关于部分资源综合利用及其他产品增值税政策问题的通知, 财税[2001]198 号

F-82 LXX 

G42 Same as above 

MOF & SAT Supplementary 

Circular on VAT Treatment for 

Products Produced with 

Integrated Utilization of 

Resources, Cai Shui [2004] No. 

25 

财政部 国家税务总局关于部分资源综合利用 产品增值税政策的补充通知, 财

税[2004]25 号

F-83 LXX 

G43 

Preferential tax 

treatment for 

products for the 

disabled people 

MOF & SAT Circular on Certain 

Policy Issues on VAT, Cai Shui 

Zi [1994] No. 60 

财政部、国家税务总局关于增值税几个税收政策问题的通知, 财税字[1994]060 号

F-84 LXXIII 

G44 

Preferential tax 

treatment for 

casting and forging 

products 

MOF & SAT Circular on VAT 

Refund for Casting and Forging 

Products, Cai Shui [2003] No. 96 

财政部、国家税务总局关于铸锻件产品增值税先征后返问题的通知

F-85 LXXVI 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUC

Trade Lawyers Advisory Group 

June 2007

20

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G45 

Preferential tax 

treatment to dies 

products 

MOF & SAT Circular on 

Continuing VAT Refund for Dies 

Products, Cai Shui [1998] No. 

139 

财政部、国家税务总局关于继续对模具产品实行增值税先征后返的通知国税发〔1998〕1

39号

F-86 LXXVII 

G46 

The two free, three 

half tax benefit for 

productive FIEs 

Article 8, in conjunction with 

Article 72, of the Implementation 

Rule for the FIEs Income Tax 

Law 

中华人民共和国外商投资企业和外国企业所得税法

F-4 9 

G46 Same as above 

Rules for the Implementation of 

the Income Tax Law of the PRC 

for Enterprises with Foreign 

Investment and Foreign 

Enterprise 

中华人民共和国外商投资企业和外国企业所得税法实施细则

F-5 9 

G47 

Income tax rebate 

for FIEs investing 

in encouraged line 

of business 

Article 8 of the Income Tax Law 

of the PRC for Enterprises with 

Foreign Investment and Foreign 

Enterprises 

中华人民共和国外商投资企业和外国企业所得税法

F-4 9 

G47 Same as above 

Rules for the Implementation of 

the Income Tax Law of the PRC 

for Enterprises with Foreign 

Investment and Foreign 

Enterprise 

中华人民共和国外商投资企业和外国企业所得税法实施细则

F-5 9 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUC

Trade Lawyers Advisory Group 

June 2007

21

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G48 

Tax rebate on 

certain qualified 

investment of FIEs 

profits 

Article 10 of the FIE Income Tax 

Law 

中华人民共和国外商投资企业和外国企业所得税法

F-4 9 

G48 Same as above Article 80 of the Implementation Rule for FIE Income Tax Law 

中华人民共和国外商投资企业和外国企业所得税法实施细则

F-5 9 

G49 

Exemption for 

export-oriented FIEs 

from certain welfare 

payment 

Provisions of the State Council 

on the Encouragement of Foreign 

Investment, Guo Fa [1986] No. 

95 

国务院关于鼓励外商投资的规定, 国发

[1986]95 号

F-39 

G50 

Reduced income tax 

rates for FIEs based 

on location 

Article 7 of the FIE Income Tax 

Law 

中华人民共和国外商投资企业和外国企业所得税法

F-4 9 

G50 Same as above 

Article 71 of the FIE Income Tax 

Law Implementation Rule 

(Decree 85) 

中华人民共和国外商投资企业和外国企业所得税法实施细则

F-5 9 

G51 

Exemption of tariff 

and import VAT for 

the imported 

technologies and 

equipments 

Circular of the State Council on 

Adjusting Tax Policy on 

Imported Equipment, Guo Fa 

[1997] No. 37 

国务院关于调整进口设备税收政策的通知, 国发 [1997] 37 

F-30 LX 9 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUC

Trade Lawyers Advisory Group 

June 2007

22

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G51 Same as above 

The Current Catalogue of Key 

Industries, Products and 

Technologies the Development of Which is Encouraged by the State 

(Provisional), Decree 7 [1997] 

当前国家重点鼓励发展的产业、产品和技术目录(试

行)[失效] 国家计划委员会令[第 6 号] 

F-88 

G52 Local grants for flooring enterprises 

Suggestions on Financial Support 

of Economic Development in the 

Pudong New District during the 

Tenth Five-Year Plan (Dec. 

2000) 

浦东新区"十五"期间财政扶持经济发展的若干意见

F-33 9 

G53 

The State key 

technology 

renovation project 

fund 

State Key Technology 

Renovation Project Fund, Guo 

Jing Mao Tou Zi [1999] No. 886 

国家重点技术改造项目管理办法,国经贸投字 [999]886 

F-89 

G53 Same as above 

State Key Technology 

Renovation Project Fund 

Management Rule, Guo Jing Mao 

Tou Zi [2000] No. 822 

国家重点技术改造项目[2000]822 F-90 

G53 Same as above 

State Key Technology 

Renovation Project Audit and 

Management Rule, Guo Jing Mao 

Tou Zi [1999] No. 1038 

国家重点技术改造项目监督管理办法(试行) 

F-91 

G54 

Local income tax 

exemption and 

reduction for 

productive FIEs 

Article 9 of the FIE Income Tax 

Law 

中华人民共和国外商投资企业和外国企业所得税法

F-4 
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: WOOD AND WOOD PRODUC

Trade Lawyers Advisory Group 

June 2007

23

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

G55 

VAT rebate on FIE 

purchase of 

Domestically 

product Exemptions 

for domestic 

equipments 

Trial Administrative Measures on 

Purchase of Domestic Equipment 

by Projects with Foreign 

Investment, Guosuifa, [1999] No. 

171 

国家税务总局关于印发《外商投资企业采购国产设备退税管理试行办法》的通知

F-35 

G56 

Domestic VAT 

refunds for 

companies located 

in the Hainan 

Economic 

Development Zone 

Unknown Unknown 

G57 Clean production technology fund Management Rule for Special Funds Distributed to Subsidize Local Clean Production 中央补助地方清洁 生产专项资金使用 管理办法, 财建

[2004]343 号

F-52 

G58 

Income tax rebate 

for FIEs investing 

in encouraged line 

of business 

Article 73(6), Rules for 

Implementation of the Income 

Tax Law of the PRC on 

Enterprises with Foreign 

Investment and Foreign 

Enterprises, Decree 85 (June 30, 

1991) 

中华人民共和国外商投资企业和外国企业所得税法实施细则

F-5 

G58 Same as above 

MOFCOM Catalogue for the 

Guidance of Foreign Investment 

(Nov. 30, 2004) 

外商投资产业指导目录 (2004 年修订) F-26 
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Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

F1 

Income tax credit for 

royalty from 

supplying forestry 

production 

technology 

Notice on Income Tax Deduction 

for Interest Income and Others 

for Foreign Companies Who Do 

Not Have Business Presence in 

China, Guo Fa [2000] No. 37 

国务院关于外国企业来源于我国境内的利息等所得减征所得税问题的通知, 国发[2000]37, (11-18-2000) 

F-13 I 

F1 Same as above 

Article 19, Income Tax Law of 

the PRC for Enterprises with 

Foreign Investment and Foreign 

Enterprises 

中华人民共和国外商投资企业和外国企业所得税法

F-4 I 

F1 Same as above 

Article 66, Implementing Rules 

of the Income Tax Law of the 

PRC for Enterprises with Foreign 

Investment and Foreign 

enterprises 

中华人民共和国外商投资企业和外国企业所得税法实施细则

F-5 I 

F2 

Preferential tax 

policies for the 

enterprises engaged 

in forestry 

Circular on Certain Issues 

Regarding Forestry Tax Policy 

财政部,国家税务总局关于林业税收政策的通知, 财税[2001] 171 (11-01-2001) 

F-12 XXX 

F3 

Funds for 

construction of small 

forests in rural areas 

The Pilot Rule for Administering 

the Subsidy for the Construction 

of Small Irrigation Facilities in 

the Rural Areas, Cai Ban Nong 

[2001] No. 74 

财政部办公厅关于印发《农村小型公益设施建设补助金管理试点办法》的通知, 财办农 [2001] 74 号, (05-22-2001) 

F-16 XLVI 
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25

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

F4 

Special fund for 

projects on 

protection of natural 

forestry 

Regulation on the Management 

of the Special Fund for Projects 

on Protection of Natural Forests, 

Cai Nong [2000] No. 151 

财政部关于印发《天然林保护工程财政资金管理规定》的通知, 财农[2000] 151, (01-01-2001) 

F-77 LI 

F5 

Cash subsidy for 

returning cultivated 

land to forests 

Opinions of the State Council on 

Further Improving the Policies and 

Measures on Returning Cultivated 

Land to Forests, Guo Fa [2002] 

No. 10 

国务院关于进一步完善退耕还林政策措施的若干意见, 国

发[2002]10 号, (04-11-2002) 

F-17 LII 

F6 

Compensation fund 

for forestry 

ecological benefits 

MOF & NFB Circular on 

Distribution of Administrative 

Measures for the Central 

Compensation Fund for Forestry 

Ecological Benefits, Cai Nong 

[2004] No. 169 

财政部 国家林业局关于印发《中央森林生态效益补偿基金管理办法》的通知, 财农[2004]169号, (10-24-2004) 

F-18 LIII 

F7 

Interest discount for 

loans for the purpose 

of desertification 

prevention in 

forestry 

MOF Circular on Administrative 

Measures of the Fund for Loan 

Interest Subsidy for Desertification 

Prevention in Forestry, Cai Nong 

[2002] No. 137 

财政部关于印发《林业治沙贷款财政贴息资金管理规定》的通知, 财农[2002] 137, 01-01-2003 

F-19 LIV 
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26

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

F8 

Subsidy to prevent 

and control forest 

pest and disease 

MOF Circular on Administrative 

Measures of the Subsidy for 

Prevention from and Control of 

Pest and Disease in Forestry, Cai 

Nong [2002] No. 69 

财政部关于印发《林业病虫害防治补助费管理规定》的通知财农[2002]69 号,08-01-2002, (expired) 

F-54 LV 

F9 Natural forests protection projects Funds Management Rule for Major Natural Forests Protection Projects 重点地区天然林资 源保护工程建设资 金管理工作 F-72 9 

F10 

The Beijing-Tianjin 

sandstorm 

prevention 

afforestation projects 

SFA Opinion on Reinforcing the 

Afforestation Efforts to Control 

the Sources of Sandstorms 

Affecting the Beijing-Tianjin 

Area 

国家林业局关于进一步加强京津风沙源治理工程区荒山荒地造林的若干意见

F-56 9 

F11 The natural reserve development project 

MOA Notice on Reinforcing the 

Efforts on Management and 

Expanding of the Natural 

Reserves 

农业部关于进一步加强自然保护区建设和管理工作的通知

F-87 9 

F12 

Protective 

afforestation 

program 

MOF Response to Certain 

Questions on Funds Management 

Rule for the Four Major Protective 

Afforestation Programs 

财政部关于四大防护林建设专项资金有关问题的复函

F-36 9 
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Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

F12 Same as above 

SFA Opinion on Reinforcing the 

Efforts in Constructing and 

Managing the Protective 

Afforestation Projects in the 

Yangzi River Drainage Basin 

国家林业局关于加强长江流域等重点地区防护林体系工程建设和管理工作的若干意见

F-21 9 

F12 Same as above 

Interim Fund Management Rule 

for the Projective Afforestation 

Program in Three Northern Areas 

三北防护林体系建设专项资金管理暂行办法

F-76 9 

F13 Return farmland to forests 

Opinions of the State Council on 

Further Improving the Policies 

and Measures on Returning 

Cultivated Land to Forests, Guo 

Fa [2002] No. 10 

国务院关于进一步完善退耕还林政策措施的若干意见, 国发[2002]10 号, (04-11-2002) 

F-17 9 

F14 

Fast-growth-highyield forest 

construction project 

SFA Opinions on Fast-growthhigh-yield Forest Projects 

Development, Lin Dai Fa [2005] 

No. 129 

国家林业局关于加快速生丰产林基地工程建设的若干意见, 林贷发 [2005] 129 号

F-78 9 9 

F14 Same as above 

SFA Interim Rule on the 

Development of Fast-growth-highyield Forest Projects (1986) 

林业部关于速生丰产用材林基地建设若干问题的暂行规定 (1986) 

F-37 9 9 
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28

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

F15 

Loan interest subsidy 

for plantation 

development 

Resolution by the CCPCC and 

State Council on Accelerating the 

Development of the Forestry 

Industry, Zhongfa [2003] No. 9 

中共中央,国务院关于加快林业发展的决定, 中发 [2003] 9 号; (06-25-2003) 

F-1 9 9 9 

F15 Same as above 

Circular of Ministry of Finance 

Regarding the Issuance of Fund 

Management Method of Financial 

Interest Subsidy of Central 

Government of the Loan of 

Capital Construction, Caidian 

[2003] No. 421 

财政部关于印发《基本建设贷款中央财政贴息资金管理办法》的通知, 财建[2003]421 号

F-32 9 9 9 

F16 

Reduction of tax 

and fees and import 

tariff for wood 

products 

Resolution by the CCPCC and 

State Council on Accelerating the 

Development of the Forestry 

Industry, Zhongfa [2003] No. 9 

中共中央,国务院关于加快林业发展的决定, 中发 [2003] 9 号; (06-25-2003) 

F-1 9 

F16 Same as above 

MOF Notice on VAT Rebate 

Rate Adjustment Cai Shui [2003] 

No. 222 

财政部,国家税务总局关于调整出口货物退税率的通知, 财税[2003]222 号

F-23 9 

F17 

The pulp/paper 

development 

projects 

The 10th 5-year Plan 第十个五年规划 F-25 9 
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Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

F18 

Loan interest 

subsidies for 

technology 

renovations 

Unknown Unknown F-9 9 

F19 

Discounted loans 

for wood processing 

projects 

Unknown Unknown F-9 9 

F20 

Expedited foreign 

investment approval 

process 

N/A N/A F-9 9 

F21 

Refund of VAT for 

products produced 

with fuel wood and 

other low-valued 

wood or wood 

residuals 

Circular of Ministry of Finance 

and State Administration of 

Taxation Regarding the VAT 

Favorable Policy of the 

Comprehensively-used Product 

Produced and Processed with the 

Three Residues and Small 

Firewood Materials as Raw 

Materials, Cai Shui [2001] No. 72 

财政部、国家税务总局关于以三剩物和次小薪材为原料生产加工的综合利用产品增值税优惠政策的通知, 财税[2001]72 号

F-29 9 9 
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30

Master Table of Support Programs Available to Wood and Wood Products In

Sources of identificat

ID Name of the 

program Legal authority in English Legal Authority in Chinese Exhibit No 1 2 3 4 

F22 Loan interest assistance 

Circular of Ministry of Finance 

Regarding the Issuance of Fund 

Management Method of Financial 

Interest Subsidy of Central 

Government of the Loan of 

Capital Construction, Cai Jian 

[2003] No. 421. 

基本建设贷款中央财政贴息资金管理办法 2003 421 

F-32 9 9 

ID numbers: 

G-series: General programs which are not limited to agricultural entities. 

F-series: Programs that specifically apply to the forestry industry.

Sources of Identification: 

1: This column identifies the number of the subsidy program listed in China’s SCM Notification. See People’s Republic o

Notification Pursuant to Article XVI:1 of the GATT 1994 and Article 25 of the SCM Agreement, G/SCM/N/123/CHN (13 Apri

2: China’s State Forestry Administration (SFA) website. 3: AF&PA, China’s Subsidization of its Forest Products Industry (July 2004). 4: CBSA, Laminate Flooring from China (June 1, 2005). 

5: DOC, Coated Free Sheet Paper from China, 72 Fed. Reg. 17484 (April 9, 2007) (Amended Preliminary CVD Determination). 

6: U.S. Request for Consultation re Chinese Subsidies, WT/DS358/1/Add.1 (2 May 2007). 
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I. OVERVIEW OF CHINA’S WOOD AND WOOD PRODUCTS INDUSTRY AND THE 

NEW INDUSTRY POLICY

A. CHINA’S WOOD AND WOOD PRODUCTS INDUSTRY

The wood and wood products (or forestry) industry is deemed to be a basic industry in 

China. The government has not only assigned it the function of supplying wood products but 

also of managing the national forests and preserving the forestry ecosystem. In this report, the 

industry is roughly divided into three segments: timber production, the pulp and paper industry, 

and the solid wood products industry. Each of these segments is separately discussed herein. 

1. Timber Production 

Until recently, forests in China had been converted to farm land to produce food for the 

growing population. As a result, the nation was left with very limited forest resources. China’s 

per capita forest acreage ranks 119th among nations.4 5

 In the summer of 1998, a huge flood 

causing extensive loss of life gave the Chinese leadership a loud and unpleasant wake-up call to 

the nation’s deforestation problem, which was believed to be the main contributing factor to the 

flood. As a result, the government swiftly banned logging in the state-owned forests to save the 

ecosystem from further degradation.6

 Massive afforestation programs were launched shortly 

thereafter, as discussed in detail below. The logging ban caused the nation’s already diminishing 

timber production capacity to drop dramatically overnight. Demand, on the other hand, has been 

increasing quickly with the expansion in economic activities occurring in the country, creating a 

 

4

 Nan Li, Integrating Plantation and Paper Production – The Only Viable Development Strategy for China’s 

Paper Industry, ECONOMIC DAILY (August 12, 2005). See Exhibit F-7. 5

 China’s total forested area is estimated at 175 million ha, with the forest stocking volume at 12,456 million 

cubic meters. See USDA, Foreign Agricultural Service, PRC Solid Wood Products Annual, 2006, GAIN 

Report CH6052 (July 13, 2006) at 3. See Exhibit F-6. 

6

 See Several Opinions of the CCPCC and State Council on Disaster Recovery, Major Bodies of Water 

Management and Irrigation Works Development, Zhong Fa [1998] No. 15. See Exhibit F-8. 
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huge gap between domestic timber supply and demand. This gap will only grow larger in the 

years ahead. 

Construction timber provides an example of the gap in supply and demand. In 2005, 

domestic production was 170 million cubic meters. Demand, however, estimated at 230 million 

cubic meters, far exceeded the domestic capacity.7 It is anticipated that, by 2015, the gap will 

increase to 140 million cubic meters.8 The increased domestic consumption of timber has been 

satisfied by imports. The volume of imports tripled between 1997 and 2005. Total imports 

measured by Round-Wood Equivalent (RWE) rose from 40 million cubic meters in 1997 to 134 

million cubic meters in 2005, with Russia being the largest supplier, providing 70 percent of the 

softwood logs.9

In recent years, in addition to imports, China has been relying on plantation development 

to meet its future demand for timber. China has the largest plantation development program in 

the world (discussed infra). In 2005 alone, new plantations covering an area of 3,647,900 

hectares (“ha”) have been developed,10 with 17 percent of these newly-developed plantations

being designated for future timber production.11 The majority of the new plantations, 73 percent 

 

7

 See SDRC, The Tenth Five-Year and 2010 Special Plan for the Construction of National Forestry and 

Papermaking Integration Project (2004) at 3. An English translation of this Plan is provided in NewPage 

Corporation’s Petition for the Imposition of Countervailing Duties in the Matter of Coated Free Sheet Paper 

from China, Indonesia, And South Korea (October 30, 2006) at Exhibit III-6, which is reproduced in Exhibit F2. 

8

 Id. See Exhibit F-2. 9

 Chinese imports of Russian logs have increased from 0.95 million cubic meters in 1997 to 20 million cubic 

meters in 2005. The value of imported wood raw materials and products rose from USD $6.4 billion in 1997 

to USD $16.4 billion in 2005. See Andy White, et al., China and the Global Market for Forest Products: 

Transforming Trade to Benefit Forests and Livelihoods (March 2006) at 11. See Exhibit F-10. 

10 USDA, Foreign Agricultural Service, PRC Solid Wood Products Annual, 2006, GAIN Report CH6052 (July 13, 

2006) at 3. See Exhibit F-6. 11 Id. See Exhibit F-6. 
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of them, were for desertification and soil erosion prevention purposes. The total area of 

plantations developed in recent years was estimated to have reached 55 million ha by the end of 

2005. Considering the government support plans already laid out, further rapid expansion of 

plantations is to be expected in the years ahead.12

In addition to the lack of adequate supply of domestic wood resources, China’s wood 

products industry is suffering from technology obsolescence which not only causes low 

productivity but also gives rise to huge pollution problems. This is especially true with regard to 

the pulp and paper industry. 

2. The Pulp and Paper Industry 

The pulp and paper industry is, by far, the most important among the wood products 

industries in China. Domestic paper consumption has increased rapidly in recent years, from 

35.75 million metric tons in 2000 to 54.39 million metric tons in 2004.13 Production grew from 

30.5 million metric tons to 49.5 million metric tons for the same period.14 China is now the 

second largest paper and paper board producer in the world, with most of its production for 

domestic consumption.15 

Notwithstanding its recent growth, China’s pulp and paper industry remains fragmented. 

It is comprised of thousands of predominantly small-scale mills with production technology 

dating back to the 1960s and the 1970s. In China, the average paper production capacity per mill 

 

12 Resolution by the Chinese Communist Party Central Committee and the State Council on Accelerating the 

Development of Forestry, Zhong Fa [2003] No. 9. See Exhibit F-1. 

13 China Paper Association, Directory of China Paper Industry 2005-2006 (March 2006). 14 Id. 15 UNECE, FAO Forest Products Annual Market Review 2005-2006 (October 2006) at 19. 
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is only 12,000 metric tons, while mills in the rest of the world enjoy an average production 

capacity of 80,000 metric tons.16 The production technology employed by the majority of the 

industry is outdated. It is based on non-wood pulp, processed from rice straw and other 

agricultural residues. Compared with modern paper production technology, which is based on 

wood pulp, China’s non-wood-based technology causes much more pollution and is not capable 

of producing high grade paper. 

The government has been seeking ways to modernize and expand the pulp and paper 

industry in order to meet domestic demand and to reduce pollution. Approximately four 

thousands small-scale non-wood pulp mills have been closed.17 Wood pulp and production 

equipment were imported in large quantity to jump start the domestic production of wood fiberbased high-end paper. In 2001, the industry spent USD $11.7 billion on wood pulp imports, 

making wood pulp China’s third largest import category, behind only crude oil and steel.18

After some initial trial and adjustment, the State Development and Reform Commission 

(SDRC) issued a refined policy statement on January 6, 2004 in a publication entitled The Tenth 

Five-Year and 2010 Special Plan for the Construction of National Forestry and Papermaking 

Integration Project.

19 The guideline identified the following major problems facing the paper 

industry at the time. 

 

16 See SDRC, The Tenth Five-Year and 2010 Special Plan for the Construction of National Forestry and 

Papermaking Integration Project (2004) at 2. See Exhibit F-2. 

17 Dequan He and Christopher Barr, China’s Pulp and Paper Sector: An Analysis of Supply and Demand and 

Medium Term Projections, INTERNATIONAL FORESTRY REVIEW, Vol.6 (3-4) (2004) at 254, 262. 18 Nan Li, Integrating Plantation and Paper Production – The Only Viable Development Strategy for China’s 

Paper Industry, ECONOMIC DAILY (August 12, 2005). See Exhibit F-7. 

19 See SDRC, The Tenth Five-Year and 2010 Special Plan for the Construction of National Forestry and 

Papermaking Integration Project (2004). See Exhibit F-2. 
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(1) The industry remained so fragmented that it had 3500 paper mills across the 

nation. 

(2) Most of the paper mills were still using obsolete production technology 

from the 1960s and the 1970s, and were primarily based on outdated and 

highly-polluting non-wood fiber production methodology. The modern and 

more environmentally-friendly wood fiber technology had yet to be widely 

introduced in the industry; and the nation had yet to develop a domestic 

wood pulp production capacity. Wood pulp currently accounted for a mere 

6 percent of the total domestic pulp production. 

(3) The prevalent production method -- non-wood fiber-based paper production 

-- is both wasteful and heavily polluting. Non-wood fiber-based paper 

production poses a major environmental threat, accounting for one-third of 

the total industry Chemical Oxygen Demand (COD) discharge. 

(4) The industry is dependant on imports for technology and equipment; 

domestic investment in R&D has been low; and the enterprises lack 

technological innovation capacity.20

The guideline calls for accelerating the transformation of the industry from the traditional 

non-wood pulp to the modern wood pulp-based paper production method, so as to reduce water 

pollution and improve product quality. To achieve this, the guideline saw the need to build up 

sufficient domestic wood pulp production capacity. It anticipates that by 2010, China will need 

new paper production capacity of 5.6 million metric tons.21 To support this new addition of 

paper production capacity, China in turn will need to add 4.35 million metric tons of wood pulp 

production capacity and 1.2 million metric tons of bamboo-based pulp capacity. 22 A total 

investment of RMB 157.3 billion would be needed for this capacity building.23

 

20 See id. at 2. The Guideline for the Paper Industry revealed that, as compared to modern paper production 

technology based on wood pulp, non-wood pulp paper production in China consumes six times the water, and 

discharges twenty-three times the COD pollutant. See Exhibit F-2. 

21 Id. at 10. See Exhibit F-2. 22 Id. See Exhibit F-2. 23 Id. at 17. See Exhibit F-2. 
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Considering the limited forest resources in China, the guideline calls for development of 

fast-growing varieties in plantations to meet the demand for commercial timber. The guideline 

envisions government support for this plantation development. It contemplates that, at the initial 

stage, in addition to laying down a development strategy for the industry, it would be necessary 

for the government to provide direct investment or subsidized loans to support plantation 

development. This is necessary because, as the AF&PA report pointed out: 

Domestic companies are, for the most part, simply unwilling to 

invest in plantations because they cannot absorb the cost associated 

with waiting for plantation crops to mature before harvesting 

begins.... At the same time, domestic banks are unable ... and/or 

unwilling ... to provide loans to a majority of domestic companies 

that propose to invest in plantation projects.24

In addition, the guideline contemplates a timber-use tax at the rate of RMB 10-20 per 

cubic meter. The funds collected from the tax are to be used exclusively to support plantation 

development. Finally, the guideline calls for favoring domestically-produced paper and pulp 

production equipment.25

 

24 AF&PA, China’s Subsidization of its Forest Products Industry (July 2004) at 19. See Exhibit F-9. 

25 See SDRC, The Tenth Five-Year and 2010 Special Plan for the Construction of National Forestry and 

Papermaking Integration Project (2004) at 19. See Exhibit F-2. 
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Chart 1: China’s Paper and Paper Board Consumption and Production 

-

10.0

20.0

30.0

40.0

50.0

60.0

Millions of Metric Tons

Consumption 35.8 36.8 43.3 48.1 54.4 

Production 30.5 32.0 37.8 43.0 49.5 

2000 2001 2002 2003 2004

Source: The Directory of China Paper Industry (2005-2006) 

3. The Solid Wood Products Industry 

The solid wood products industry was reported to have 3,868 sizeable enterprises26 -- 

SOEs, and big and medium private- or foreign-invested enterprises with annual sales over RMB 

2 million -- providing 690,000 jobs, with an annual turnover reaching USD $46.78 billion.27 The 

problems facing the industry include: (1) an insufficient domestic supply of timber, which drives 

up the production cost; (2) a lack of well-defined legal rights with regard to land ownership and 

wood usage rights which hinders private and foreign investment; (3) an industry that is too 

 

26 The term “sizable enterprises” refers to state-owned enterprises or private productive enterprises with annual 

revenue over RMB 2 million. When including private enterprises with annual revenue below RMB 2 million, 

the overall number of enterprises reaches as many as 30,000. See AF&PA, China’s Subsidization of its Forest 

Products Industry (July 2004) at 34. See Exhibit F-9. 27 Id. See Exhibit F-9. 
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fragmented to be efficient; and (4) a low level of technology.28 Notwithstanding these problems, 

the industry in recent years has seen a very rapid expansion of production capacity. 

Wood panel production capacity has been increasing 12.2 percent annually since 1997. 

There were approximately 6,000 plywood enterprises in China in 2004.29 Domestic plywood 

production increased from 2.6 million cubic meters in 1994 to 21 million cubic meters in 2004. 

China is now the world’s largest plywood producer.30 As plywood production has grown much 

faster than domestic demand in China, exports have also grown. By 2001, China became a net 

exporter of plywood. By 2005, China’s plywood exports increased to over 10.7 million cubic 

meters Round Wood Equivalent, making China the largest exporter of plywood in the world.31

Chinese exports of fiberboard and particle board are insignificant. China has over 400 

production lines for medium-density fiberboard and country registered 7.67 million cubic meters 

of fiberboard production in 2002, predominantly for medium-density fiberboard. China’s 

particle board production capacity reached 3.69 million cubic meters in 2002, while domestic 

consumption was 4.29 million cubic meters for the year.32

B. TRADE FLOWS

The overall trade flows for the past ten years presents a picture in which there has been a 

huge increase of imports into China of raw forest products accompanied by the even more rapid 

increase of exports of processed wood products from China to Europe and the United States. 

 

28 Id. See Exhibit F-9. 

29 Id. at 36. See Exhibit F-9. 30 See Andy White, et al., China and the Global Market for Forest Products: Transforming Trade to Benefit 

Forests and Livelihoods (March 2006) at 11 (2006). See Exhibit F-10. 

31 Id. See Exhibit F-10. 32 AF&PA, China’s Subsidization of its Forest Products Industry (July 2004) at 36. See Exhibit F-9. 
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With fast growth of production capacity, China has become a processing center in the global 

supply chain of wood products. For instance, Chinese factories supply IKEA with one-fourth of 

its global stock.33 This is also demonstrated by the fact that the export volume of processed 

forest products is equivalent to 70 percent of the total volume of timber imports.34

Chart 2: China’s Trade in Forest Products 

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

(Million US$)

Exports 5,289 5,278 6,435 6,677 8,045 10,539 11,359 14,415 18,695 25,194 32,746 41,996 

Imports 4,936 5,673 6,517 6,845 8,754 10,612 10,173 11,581 13,595 15,963 17,097 18,764 

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: World Trade Atlas, China Customs

The major processed forest products exported by China are furniture, panels and, to a 

lesser extent, wood chips. The three products accounted for 80 percent of China’s total nonpaper wood products exports.35 China is now the largest furniture exporter, accounting for 30 

 

33 Peter S. Goodman and Peter Finn, Corruption Strains Timber Trade, THE WASHINGTON POST (April 1, 2007) 

at A01. See Exhibit F-14. 

34 Andy White, et al., China and the Global Market for Forest Products: Transforming Trade to Benefit Forests 

and Livelihoods (March 2006) at 4. See Exhibit F-10. 35 Id. at 10. See Exhibit F-10. 
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percent of the world’s furniture trade. Export volume increased from 3.2 million cubic meters 

RWE in 1997 to 12.7 million cubic meters RWE in 2005, recording an average annual increase 

of 19 percent. China is also the world’s largest exporter of wood panels. The export volume

reached 10 million cubic meters in 2005.36 For the wood products industry as a whole, the total 

value of exports rose from USD $3.6 billion to USD $17.2 billion between 1997 and 2005. 

Exports of paper have been increasing in recent years as well. Paper exports now account 

for 25 percent of the total wood products exports from China.37

Imports of wood products have grown almost as fast as exports. During the 1997-2005 

period, China’s imports of raw wood material and wood products rose at a 16 percent annual 

growth rate, from USD $6.4 billion to USD $16.4 billion in value, and from 40 million cubic 

meters RWE to 134 million cubic meters in volume.38 Russia supplies 75 percent of China’s 

softwood logs, which totaled 20 million cubic meters in 2005.39 It is anticipated that China’s 

imports of wood products are likely to double by 2015, based on the estimate that China’s 

domestic production of industrial round wood is unlikely to exceed 200 million cubic meters by 

2015.40

 

36 Id. See Exhibit F-10. 

37 Id. See Exhibit F-10. 38 UNECE/FAO, Forest Products Annual Market Review, 2005-2006 (2006) at 19. 

39 Id.

40 See Andy White, et al., China and the Global Market for Forest Products: Transforming Trade to Benefit 

Forests and Livelihoods (March 2006) at 6. See Exhibit F-10. 
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Chart 3: US-China Trade in Wood Products 

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

(million US$)

China Exports 1,380 1,465 1,851 2,411 3,262 4,148 4,452 6,038 7,636 10,269 12,767 15,824 

US Exports 757 997 1,084 998 1,120 1,393 1,287 1,504 1,914 2,316 2,655 2,907 

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Note: Aggregate value for products under HS chapter 44, 47, 48 and 94. 

Source: World Trade Atlas, China Customs 

Chart 4: Major US imports of Chinese Wood Products 

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

(Million US$)

Furniture 247 301 440 606 784 1,014 1,130 1,682 2,253 2,930 3,781 4,542 

Panel Products 1 3 10 17 20 25 32 79 120 418 647 937 

Particle Board 3 1 2 2 2 2 3 3 6 16 74 122 

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: U.S. Bureau of Census Statistics. 
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C. THE GOVERNMENT INDUSTRY POLICY

China’s forestry industry policy embraces two basic goals: ecosystem preservation and 

wood products supply. Alarmingly, the 1998 flood revealed to the leadership the severity of the 

degradation of China’s ecosystem. Their first reaction was to ban logging in the state-owned 

natural forests. Other programs were rolled out in the following years in an effort to restore the 

nation’s forestry resources. In 2003, the government consolidated the then existing policies in 

Resolution by the Chinese Communist Party Central Committee and the State Council on 

Accelerating the Development of Forestry (“Joint Resolution”).41

The preamble to the Joint Resolution states that safeguarding the ecosystem is the 

common theme for the human race in the 21st Century; that China’s forestry industry shall 

perform the dual duties of ecosystem restoration and timber production; that China’s sustainable 

development strategy requires the forestry industry to undergo an unprecedented transformation 

which will have a lasting impact; and that safeguarding the forestry ecosystem must take priority 

over production of timber products.42

The Joint Resolution lists the following as the main tasks for the nation’s forestry 

industry: 

• To excel in forestry management; 

• To develop new plantations; 

• To return more farmland to forests; 

• To optimize the structure of the forestry industry; 

• To restore the forestry ecosystem; 

 

41 Resolution by the Chinese Communist Party Central Committee and the State Council on Accelerating the 

Development of Forestry, Zhong Fa [2003] No. 9. See Exhibit F-1. 42 Id. at 1. See Exhibit F-1. 
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• To increase the supply of wood products; and 

• To raise the income level of the industry employees. 

The Joint Resolution also sets the goal for China’s afforestation effort: the forest density 

of the nation will be restored, from 19 percent of the land area to 26 percent by 2050.43

With regard to government support to the forestry industry, the Joint Resolution calls for: 

(1) an increase in direct government investment in the industry; (2) the provision of financial 

support; and (3) the reduction or elimination of taxes/fees on the industry. In addition, the Joint 

Resolution requires that government, at each level, (1) make priority budgetary allocations for 

development costs and management expenses for public utility forests (Gongyi Lin), (2) invest in 

important forestry infrastructure projects, and (3) provide compensation funds for forests being 

designated as public utility forests.44 Moreover, the government, at each level, shall support 

projects to develop fast-growth-high-yield plantations. Specifically, the government will 

continue to provide long-term low-interest loans and may subsidize the interest payments. 

Financial institutions shall provide favorable loans to individuals undertaking afforestation 

projects. Furthermore, efforts will be made to reduce the burden of tax and administrative fees 

on the industry. Specialty crop taxes applicable to log and bamboo shall be phased out.45 Public 

funds will be made available to grass root forest management units.46

 

43 Id. at 3. See Exhibit F-1. 44 Under the Forestry Law, forests in China are classified into two categories: forests for commercial use 

(Shangyong Lin), and forests for public utility (Gongyi Lin). Logging in public utility forests is restricted. In 

return, the government distributes compensation funds to the enterprises that manage these forests and are 

otherwise entitled to the timbers from the forests. 

45 China abolished its specialty crops tax in 2005. 

46 Resolution by the Chinese Communist Party Central Committee and the State Council on Accelerating the 

Development of Forestry, Zhong Fa [2003] No. 9 at para. 20. See Exhibit F-1. 
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II. GOVERNMENT SUPPORT PROGRAMS AVAILABLE TO THE WOOD AND WOOD 

PRODUCTS INDUSTRY

At each level, the Chinese government actively engages in economic development. 

Government agencies have developed many industrial support programs and quite a few of them 

are available to companies in the forestry industry. The support programs normally take the 

form of preferential tax treatment, loan interest subsidies or direct grants. They are initiated and 

administered by a myriad of government agencies, national as well as provincial and local. 

The forestry industry is administered independently from agriculture. The State Forestry 

Administration (SFA) has principal responsibility for administration of the forestry industry. 

This structure is similar to the differentiation maintained within the WTO system where wood 

products are not covered by the Agriculture Agreement. On the other hand, many enterprises in 

the two segments are within the realm of the “three-rural issue” in the sense that measures 

designed to address the “three-rural issue” are applicable to these enterprises. Indeed, as 

reviewed below, many programs identified in the agriculture report are equally applicable to the 

forestry industry when specific criteria are met. 

In April 2006, China submitted its first notification to the World Trade Organization’s 

(WTO) Committee on Subsidies and Countervailing Measures (“SCM Notification”) which 

listed seventy-eight (78) subsidy programs.47 Eight of the programs are expressly applicable to 

the forestry industry. Many other listed programs are potentially usable by forest product 

enterprises. In addition, China is currently undertaking the world’s largest afforestation program 

with public funds, commonly known in China as the Six Grand Afforestation Projects. Although 

 

47 See 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). See Exhibit F-3. 
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its primary purpose is for environmental protection, the program promotes China’s timber 

production capacity and may result in cheaper timber for downstream industries. In other 

instances, specific promotion programs are rolled out to upgrade the domestic industries. 

A. PROGRAMS IDENTIFIED BY CHINA’S SCM NOTIFICATION

Among the seventy-eight (78) programs listed in China’s first SCM Notification, eight (8) 

programs are expressly applicable to the forestry industry. However, many more of the 

programs listed in the SCM Notification are potentially applicable to enterprises in the forestry 

industry. 

1. Programs Specifically Applicable to Forestry 

Enterprises 

a. FIEs Income Tax Reduction for Royalty Received for 

Supplying Forestry Production Technology (F1) 

Program No. 1 (I) in China’s SCM Notification provides an income tax reduction for 

royalties received by foreign companies or foreign-invested enterprises (FIEs) “for supplying 

technology in scientific research, exploitation of energy resources, development of the 

communications and transportation industries, agricultural, forestry and animal husbandry 

production, and the development of important technologies.”48 Qualified royalties are levied at 

the reduced income tax rate of 10 percent. 49 If the underlying technology is certified by 

MOFCOM as advanced technology, income tax is exempted entirely.50 This tax benefit is 

available to FIEs only when the transaction that generates the royalty income is not related to the 

 

48 See 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) at 3. See Exhibit F-3. 

49 See G/SCM/N/123/CHN at 2 (item I), citing “Preferential tax policies for foreign-invested enterprises” and 

“State Council Circular Guo Fa No. 37 of 2000.” See Exhibits F-3 and F-13. 50 See G/SCM/N/123/CHN at 3. See Exhibit F-3. 
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FIE’s productive operation in China. An enterprise is qualified as an FIE if the foreign investors 

contribute at least an aggregate of 25 percent of the registered capital. The policy objective of 

this program is to increase the importation of advanced technology in forestry production. It 

should be noted that the FIEs Income Tax Law is scheduled to be superseded by January 1, 2008, 

with the existing benefit to be phased out in 5 years.51

b. Preferential Tax Policies for Certain Forestry 

Enterprises (F2) 

Program No. 30 (XXX) in the SCM Notification allows an income tax exemption for 

enterprises that are engaged in plantation development, seeds or seedling cultivation, or 

preliminary processing of forestry products. This program is available to both FIEs and 

domestic-invested enterprises (DIEs), and is aimed at reducing the tax burden on the forestry 

industry, and thus encouraging investment in the industry.52 

c. Fund for Construction of Small Forests in Rural 

Areas (G33 & F3) 

Program No 46 (XLVI) in the SCM Notification provides direct grants to individuals and 

enterprises that engage in the construction of projects deemed closely related to the welfare of 

the rural population. The qualified projects include, inter alia, rural water supply, soil 

conservation, small forest, et cetera. The total annual budgetary allocation was RMB 100 million 

for the years 2001 through 2004.53 

 

51 Corporate Income Tax Law of the People’s Republic of China (March 13, 2007). See Exhibit F-15. 52 See G/SCM/N/123/CHN at 34-35 (item XXX), citing “Preferential tax policies for the enterprises engaged in 

forestry” and “MOF Circular Cai Shui No.171 of 2001.” See Exhibits F-3 and F-12. 

53 See G/SCM/N/123/CHN at 52 (item XLVI), citing “Fund for construction of small irrigation facilities in rural 

areas” and “MOF Circular Cai Ban Nong No. 74 of 2001.” See Exhibits F-3 and F-16. 
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d. Special Fund for Projects on the Protection of 

Natural Forestry (F4) 

Program No. 51 (LI) in the SCM Notification is a program under which funds are 

provided to state-owned forestry enterprises to offset the negative impact on these enterprises 

and their employees from the logging ban or timber production restrictions, as the case may be. 

A large portion of the fund is used to assist laid-off workers. For the years 2001 through 2004, a 

total of RMB 24.45 billion was allocated.54

e. Cash Subsidy for Returning Farmland to Forests (F5) 

The government launched this program in 2001 to give a cash subsidy to farmers whose 

farmland was converted to forests. During the four years between 2001 and 2004, a total of 

RMB 6.049 billion was distributed to the farmers.55

f. Compensation Fund for Forestry Ecological Benefits 

(F6) 

This Fund is an important component of the compensation provided as a result of the 

government’s policy of restricting logging. The government provides funds at the rate of RMB 5 

per mu56 (equal to USD $10 per ha) to entities that manage the key national forests. These 

entities formerly profited from logging in the forests that they are designated to manage. This 

Fund distributed a total of RMB 5 billion between 2001 and 2004.57

 

54 See G/SCM/N/123/CHN at 57-58 (item LI), citing “Special fund for projects on protection of natural forestry” 

and “MOF Circular Cai Nong No. 151 of 2000.” See Exhibits F-3 and F-77; see also Exhibit F-12. 

55 See G/SCM/N/123/CHN at 58-59 (item LII), citing “Cash subsidy for returning cultivated land to forests” and 

“State Council Circular Guo Fa No. 10 of 2002.” See Exhibits F-3 and F-17. 

56 The “mu” is a Chinese measure of land area. One mu is equal to 0.067 hectares, and 15 mu equals 1 hectare. 

57 See G/SCM/N/123/CHN at 59-60 (item LIII), citing “Compensation fund for forestry ecological benefits” and 

“MOF Circular Cai Nong No. 169 of 2004.” See Exhibits F-3 and F-18. 
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g. Loan Interest Subsidy for Afforestation Program 

Closely Related to Desertification Prevention 

Purpose (F7) 

Program No. 54 (LIV) of the SCM Notification provides direct grants to enterprises in an 

amount equal to certain qualified interest payments for loans obtained to conduct afforestation 

projects. Only those afforestation projects that effectively prevent desertification qualify for this 

program. During the four-year period between 2001 and 2005, a total of RMB 576 million was 

distributed.58 

h. Subsidy to Prevent and Control Forest Pest and 

Disease (F8) 

Program No. 55 (LV) of China’s SCM Notification allows funds to be distributed to 

individuals and enterprises in the forestry industry for the purpose of controlling and preventing 

forest disease and controlling hazardous creatures. A total of RMB 338 million was distributed 

between 2001 and 2004.59 The program has now been discontinued.60

i. VAT Exemption for Grain Distributed for 

Compensating Returning Farmland to Forests (G40) 

Program No. 63 (LXIII) in China’s SCM Notification provides for compensation to 

farmers for giving up their farmland under the return-farmland-to-forests program.61 Under this 

program, the government has distributed cash and grain to the affected farmers. Grain 

 

58 See G/SCM/N/123/CHN at 61 (item LIV), citing “Interest discount for loans for the purpose of desertification 

prevention in forestry” and “MOF Circular Cai Nong No. 137 of 2002.” See Exhibits F-3 and F-19. 

59 See G/SCM/N/123/CHN at 62 (item LV), citing “Subsidy for prevention from and control of pest and disease 

in forestry” and “MOF Circular Cai Nong No. 69 of 2002.” See Exhibits F-3 and F-54. 60 See G/SCM/N/123/CHN at 63. See Exhibit F-3. 61 See G/SCM/N/123/CHN at 71-72 (item LXIII), citing “Preferential tax policies for the relief grain and disaster 

relief grain, compensation grain for returning cultivated land to forests and to grass land, and the grain rations 

for the migrants from the reservoir areas” and “MOF Circular Cai Shui Zi No. 198 of 1999” and “SAT Circular 

Guo Shui Fa No. 131 of 2001.” See Exhibits F-3 and F-20. 
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distributed to the farmers is exempted from the value-added tax (VAT) in order to lower the cost 

for this compensation program. It should be noted that this is just one of the tax measures that 

support the return of farmland to forests project and other afforestation programs. 

2. Programs Potentially Useable by Forestry Enterprises 

In addition to the eight programs listed above that are specifically applicable to the 

forestry industry, many other programs listed in China’s SCM Notification are potentially usable 

by companies in the wood products industry. While this report does not discuss each of these 

programs in detail, a table summarizing these programs is provided on the following pages. 
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Programs Listed In China’s SCM Notification That Are Potentially Usable 

By Companies In The Wood and Wood Products Industry

Legislation for the Listed Subsidies ID SCM No. Subsidies 

Doc No. Laws/Circulars in English Laws

G1 1 Preferential tax policies for foreign-invested enterprises N/A Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises (The Tax Law) 中华人民

外国企业

G1 1 Same as above N/A 

Rules for the Implementation of the Income 

Tax Law of the PRC for Enterprises with 

Foreign Investment and Foreign Enterprise 

中华人民外国企业

G2 2 Preferential tax policies for foreign-invested export enterprises N/A Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises (The Tax Law) 中华人民

外国企业

G2 2 Same as above N/A 

Rules for the Implementation of the Income 

Tax Law of the PRC for Enterprises with 

Foreign Investment and Foreign Enterprise 

中华人民外国企业

G3 6 

Preferential tax policies for 

enterprises with foreign 

investment which are 

technology-intensive and 

knowledge-intensive 

SAT Circular, Guo 

Shui Fa [1995] No. 

139 

Circular on the Preferential Tax Treatment 

to Foreign-Invested Companies That Are 

Technology- and Knowledge-Intensive 

关于外商

型企业”税

G3 6 Same as above 

SAT Circular, Guo 

Shui Fa [2003] No. 

135 

SAT Circular on the Preferential Tax 

Treatment to Foreign-Invested Companies 

That Are Technology- and KnowledgeIntensive 

国家税务享受“两个

有关问题
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Programs Listed In China’s SCM Notification That Are Potentially Usable 

By Companies In The Wood and Wood Products Industry

Legislation for the Listed Subsidies ID SCM No. Subsidies 

Doc No. Laws/Circulars in English Laws

G4 7 

Preferential tax policies for 

enterprises with foreign 

investment in the border cities 

SAT Circular, Guo 

Shui Han Fa [1992] 

No. 1412 

SAT Circular on Granting Preferential Tax 

Treatment to Foreign-Invested Companies in 

12 Border Cities 

国家税务个边境城收政策问

G5 8 

Preferential tax policies for 

enterprises with foreign 

investment recognized as high 

or new technology enterprises 

established in the State high or 

new technology industrial 

development zones, and for 

advanced technology enterprises 

invested in and operated by 

foreign businesses 

N/A 

Rules for the Implementation of the Income 

Tax Law of the PRC for Enterprises with 

Foreign Investment and Foreign Enterprises 

中华人民外国企业

G6 9 

Preferential tax policies for 

enterprises recognized as high 

or new technology enterprises 

established in the State high or 

new technology industrial 

development zones 

MOF Circular, Cai 

Shui Zi [1994] No. 

001 

MOF & SAT Circular on Several Preferential 

Corporate Income Tax Policies 

财政部、业所得税
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Programs Listed In China’s SCM Notification That Are Potentially Usable 

By Companies In The Wood and Wood Products Industry

Legislation for the Listed Subsidies ID SCM No. Subsidies 

Doc No. Laws/Circulars in English Laws

G7 10 

Preferential tax policies for 

enterprises with foreign 

investment established in 

special economic zones 

(excluding Shanghai Pudong 

area) 

N/A 

Income Tax Law of the PRC for Enterprises 

with Foreign Investment and Foreign 

Enterprises 

中华人民外国企业

G7 10 Same as above N/A 

Rules for the Implementation of the Income 

Tax Law of the PRC for Enterprises with 

Foreign Investment and Foreign Enterprises 

中华人民外国企业

G8 11 

Preferential tax policies for 

enterprises with foreign 

investment established in the 

costal economic open areas and 

in the economic and 

technological development 

zones 

N/A 

Income Tax Law of the PRC for Enterprises 

with Foreign Investment and Foreign 

Enterprises 

中华人民外国企业

G8 11 Same as above N/A 

Rules for the Implementation of the Income 

Tax Law of the PRC for Enterprises with 

Foreign Investment and Foreign Enterprises 

中华人民外国企业

G9 12 

Preferential tax policies for 

enterprises with foreign 

investment established in 

Pudong area of Shanghai 

N/A 

Income Tax Law of the PRC for Enterprises 

with Foreign Investment and Foreign 

Enterprises 

中华人民外国企业
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Programs Listed In China’s SCM Notification That Are Potentially Usable 

By Companies In The Wood and Wood Products Industry

Legislation for the Listed Subsidies ID SCM No. Subsidies 

Doc No. Laws/Circulars in English Laws

G9 12 Same as above N/A 

Rules for the Implementation of the Income 

Tax Law of the PRC for Enterprises with 

Foreign Investment and Foreign Enterprises 

中华人民外国企业

G10 13 

Preferential tax policies for 

enterprises with foreign 

investment established in the 

Three Gorges of Yangzi River 

Economic Zone 

MOF Circular, Cai 

Shui Zi [1995] No. 

034 

Circular on the Tax Policy for Relocation of 

Residents in the Three Gorges Area and 

Regional Development 

关于长江政策的通

G11 14 Preferential tax policies in the western regions State Council Circular, Guo Fa [2000] No. 33 Circular of the State Council on Several Policies on the Development of Western Regions 国务院关

政策措施

G11 14 Same as above 

General Office of 

State Council 

Circular, Guo Ban 

Fa [2001] No. 73 

The General Office of the State Council to 

Circulate the Circular of the State Council 

on the Implementation of New Policies for 

the Development of Western Regions 

国务院办发办关于施实施意

G11 14 Same as above 

MOF Circular, Cai 

Shui [2001] No. 

202 

Circular on Preferential Tax Treatment for 

Western Regions Development Program 

财政部、署关于西问题的通

G11 14 Same as above 

SAT Circular, Guo 

Shui Fa [1999] No. 

172 

SAT Circular on Extending 15% 

Preferential Income Tax Rate for Three 

Years to Foreign-Invested Companies in 

Central and Western Regions. 

国家税务西部地区年减按 15的优惠的
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Programs Listed In China’s SCM Notification That Are Potentially Usable 

By Companies In The Wood and Wood Products Industry

Legislation for the Listed Subsidies ID SCM No. Subsidies 

Doc No. Laws/Circulars in English Laws

G12 15 

Preferential tax policies for 

enterprises established in the 

poverty stricken areas 

MOF Circular, Cai 

Shui Zi [1994] No. 

001 

MOF & SAT Circular on Several 

Preferential Corporate Income Tax Policies 

财政部、业所得税

G13 16 Fiscal funds to alleviate poverty 

MOF Circular, Cai 

Nong [2000] No. 

18 

Circular on the Distribution of “Interim 

Administrative Rules of the Fiscal Funds for 

Poverty Alleviation” and “Interim 

Administrative Rules of the Administration 

Fee for the Poverty Alleviation Projects” 

关于印发法》(试行

费管理办

G14 17 

Specific subsidy on agricultural 

production and construction in 

the poverty stricken areas of 

Hexi and Dingxi of Gansu 

Province and Xihaigu of 

Ningxia Hui Autonomous 

Region 

MOF Circular, Cai 

Nong [2001] No. 

67 

Circular of MOF and the Leading Group on 

Poverty Alleviation and Development of the 

State Council on the Distribution of 

“Administrative Rules of the Special 

Subsidies to the ‘Three West’ Agricultural 

Construction” 

财政部、组关于印专项补助通知(2

G15 18 Interest discount of poverty alleviation loans People’s Bank of China Circular, Yin Fa [2001] No. 185 Administrative Rules of Subsidized Loans for Poverty Alleviation 中国人民

扶贫开发农业银行款管理实

G16 19 

Preferential tax policies for 

enterprises which utilize waste 

materials 

MOF Circular, Cai 

Shui Zi [1994] No. 

001 

MOF & SAT Circular on Several Preferential 

Corporate Income Tax Policies 

财政部、业所得税
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Programs Listed In China’s SCM Notification That Are Potentially Usable 

By Companies In The Wood and Wood Products Industry

Legislation for the Listed Subsidies ID SCM No. Subsidies 

Doc No. Laws/Circulars in English Laws

G17 20 

Preferential tax policies for 

enterprises suffering from 

natural disasters 

MOF Circular, Cai 

Shui Zi [1994] No. 

001 

MOF & SAT Circular on Several 

Preferential Corporate Income Tax Policies 

财政部、业所得税

G18 21 Preferential tax policies for welfare enterprises SAT Circular, Guo Shui Fa [1994] No. 155 SAT Circular on Preferential Turnover Tax Treatment for Social Welfare Enterprises 国家税务

征收流转

G19 22 Preferential tax policies for enterprises making little profits MOF Circular, Cai Shui Zi [1994] No. 009 MOF & SAT Circular on Certain Decisions Related to Corporate Income Tax Policies 财政部、

《企业所定》的通

G20 23 Preferential tax policies for township enterprises MOF Circular, Cai Shui Zi [1994] No.001 MOF & SAT Circular on Several Preferential Corporate Income Tax Policies 财政部、

业所得税

G21 24 

Preferential tax policies for 

enterprises which provide 

employment for unemployed 

people 

MOF Circular, Cai 

Shui Zi [1994] No. 

001 

MOF & SAT Circular on Several 

Preferential Corporate Income Tax Policies 

财政部、业所得税

G22 25 

Preferential tax policies for 

scientific research institutions 

under transformation 

MOF Circular, Cai 

Shui [2003] No. 

137 

MOF & SAT Circular on the Tax Policy 

Regarding Research Institutions Undergoing 

Restructuring 

财政部、科研机构知

G23 27 

Preferential tax policies for the 

research and development of 

foreign-invested enterprises 

SAT Circular, Guo 

Shui Fa [1999] No. 

173 

SAT Circular on Granting Income Tax 

Deduction to FIEs for Technology 

Development Expenditure 

国家税务技术开发关问题的
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Programs Listed In China’s SCM Notification That Are Potentially Usable 

By Companies In The Wood and Wood Products Industry

Legislation for the Listed Subsidies ID SCM No. Subsidies 

Doc No. Laws/Circulars in English Laws

G24 28 Preferential tax policies for enterprises transferring technology MOF Circular, Cai Shui Zi [1994] No. 001 MOF & SAT Circular on Several Preferential Corporate Income Tax Policies 财政部、

业所得税

G25 31 

Funds for supporting 

technological innovation for 

small- and medium-sized 

technological enterprises 

(SMEs) 

General Office of 

State Council 

Circular, Guo Ban 

Fa [1999] No. 47 

Circular on the Interim Administrative 

Rules of the Technological Innovation Fund 

for Small- and Medium-sized Technological 

Enterprises 

国务院办政部关于新基金的发〔199年5月

G26 32 Development funds for SMEs N/A Law of the PRC on Promotion of Small- and Medium-sized Enterprises 中华人民G27 33 Fund for international market exploration by SMEs MOF Circular, Cai Qi [2000] No. 467 

Administrative Measures on Funds 

Earmarked for International Market 

Exploitation of Small- and Medium-sized 

Enterprises 

财政部、于印发《资金管理

G27 33 Same as above 

MOFTEC 

(MOFCOM) 

Circular, Ji Cai Fa 

[2001] No. 270 

Implementing Rules of the Administrative 

Measures on Funds Earmarked for 

International Market Exploitation of Smalland Medium-sized Enterprises 

中小企业办法实施

G28 34 Special fund for establishment of service system for SMEs N/A Law of the PRC on Promotion of Small- and Medium-sized Enterprises 中华人民
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Programs Listed In China’s SCM Notification That Are Potentially Usable 

By Companies In The Wood and Wood Products Industry

Legislation for the Listed Subsidies ID SCM No. Subsidies 

Doc No. Laws/Circulars in English Laws

G28 34 Same as above 

MOF Circular, Cai 

Jian [2004] No. 

124 

Interim Administrative Measures of the 

Special Fund for Establishment of the 

Service System for Small- and Mediumsized Enterprises 

中小企业使用管理

G29 35 

Fund for subsidizing the 

training of the rural migrant 

labor force 

MOF Circular, Cai 

Nong [2004] No. 

38 

MOF and MOA Circular on Administrative 

Measures of the Fund for Subsidizing the 

Training of the Rural Migrant Labor Force 

财政部、劳动力转理办法(试

[2004]38 号

G30 36 

Outlay for training of youngster 

farmers on science and 

technology 

MOA Circular, 

Nong Ke Jiao Fa 

[1999] No. 8 

Comments on Development of Trial-Point 

for the Training of Cross-Century Youngster 

Farmers on Science and Technology 

关于开展训工程试

G31 37 Fund for specialized cooperatives of farmers MOF Circular, Cai Nong [2004] No. 87 MOF Circular on the Interim Administrative Measures of the Fund for Specialized Cooperatives of Farmers 财政部关

专业合作办法》的

G32 45 Subsidy for major flood control and drought resistance MOF Circular, Cai Nong [2001] No. 30 MOF and MWR Circular on the Interim Rules of the Distribution of Subsidy for Major Flood Control and Drought Resistance 财政部、

防汛抗旱的通知

G33 46 Fund for construction of small irrigation facilities in rural areas MOF Circular, Cai Ban Nong [2001] No. 74 Circular from the General Office of MOF on the Pilot Administrative Rules of the Subsidy for Construction of Small Irrigation Facilities in Rural Areas 财政部办

型公益设点办法》
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Programs Listed In China’s SCM Notification That Are Potentially Usable 

By Companies In The Wood and Wood Products Industry

Legislation for the Listed Subsidies ID SCM No. Subsidies 

Doc No. Laws/Circulars in English Laws

G34 47 

Fund for construction of small 

ecological facilities in rural 

areas 

MOF Circular, Cai 

Ban Nong [2001] 

No. 74 

Circular from the General Office of MOF on 

the Pilot Administrative Rules of the 

Subsidy for Construction of Small Irrigation 

Facilities in Rural Areas 

财政部办型公益设点办法》

G35 48 

Fund for projects on collection, 

reservation and utilization of 

rainfall 

MOF Circular, Cai 

Nong [2004] No. 

138 

MOF & MWR Circular on the Interim 

Administrative Rules of the Fund for 

Collection, Reservation and Utilization of 

Rainfall 

财政部、财政雨水暂行办法

G36 50 

Subsidies for national key 

construction projects on water 

and soil conservation 

MOF Circular, Cai 

Nong [1987] No. 

402 

Administrative Rules of the Subsidies for 

Small Scale Irrigation and Soil Conservation 

小型农田管理的规

G37 58 

Preferential tax policies for 

foreign-invested enterprises and 

foreign enterprises which have 

establishments or places in 

China and are engaged in 

production or business 

operations purchasing 

domestically-produced 

equipments 

MOF Circular, Cai 

Shui [2001] No. 49 

MOF & SAT Circular on Granting Income 

Tax Deduction for Domestically Produced Equipment Purchased by Foreign Invested 

Enterprises and Foreign Enterprises 

财政部、投资企业备投资抵的通知
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Programs Listed In China’s SCM Notification That Are Potentially Usable 

By Companies In The Wood and Wood Products Industry

Legislation for the Listed Subsidies ID SCM No. Subsidies 

Doc No. Laws/Circulars in English Laws

G37 58 Same as above 

SAT Circular, Guo 

Shui Fa [2000] No. 

90 

SAT Circular on Administrative Measures 

of Income Tax Deduction for DomesticallyProduced Equipment Purchased by ForeignInvested Enterprises and Foreign Enterprises 

国家税务资企业和投资抵免的通知

G38 59 

Preferential tax policies for 

domestic enterprises purchasing 

domestically-produced 

equipment for technology 

upgrading purpose 

MOF Circular, Cai 

Shui [1999] No. 

290 

MOF & SAT Circular on the Interim 

Measures of Income Tax Deduction for 

Domestically-Produced Equipment 

Purchased for Technology-Upgrading 

Purpose 

财政部、《技术改业所得税

G39 60 

Exemption of tariff and import 

VAT for imported technologies 

and equipment 

State Council 

Circular, [1997] 

Guo Fa No. 37 

Circular of the State Council on Adjusting 

Tax Policy on Imported Equipment 

国务院关策的通知

MOF Circular, Cai 

Shui Zi [1999] No. 

198 

MOF & SAT Circular on VAT Exemption 

for Staple Crops Enterprises 

财政部、企业增值

G40 63 

Preferential tax policies for 

relief grain and disaster relief 

grain, compensation grain for 

returning cultivated land to 

forests and to grassland, and 

grain rations for migrants from 

the reservoir areas 

SAT Circular, Guo 

Shui Fa [2001] No. 

131 

SAT Circular on VAT Exemption for the 

Relief Grain and Disaster Relief Grain, 

Compensation Grain for Returning 

Cultivated Land to Forests and to Grassland 

国家税务补助粮免

G41 69 

Preferential tax treatment for 

building material products 

produced with integrated 

utilization of resources 

MOF Circular, Cai 

Shui Zi [1995] No. 

44 

MOF & SAT Circular on VAT Exemption 

for Products Produced with Integrated 

Utilization of Resources 

财政部、分资源综的通知
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Programs Listed In China’s SCM Notification That Are Potentially Usable 

By Companies In The Wood and Wood Products Industry

Legislation for the Listed Subsidies ID SCM No. Subsidies 

Doc No. Laws/Circulars in English Laws

G41 69 Same as above 

MOF Circular, Cai 

Shui Zi [1996] No. 

20 

MOF & SAT Circular on Continuing with 

the Preferential VAT Treatment for 

Products Produced with Integrated 

Utilization of Resources 

财政部、对部分资增值税优

G42 70 

Preferential tax treatment for 

other products produced with 

integrated utilization of 

resources 

MOF Circular, Cai 

Shui [2001] No. 

198 

MOF & SAT Circular on VAT Treatment 

for Products Produced with Integrated 

Utilization of Resources 

财政部、资源综合政策问题

G42 70 Same as above MOF Circular, Cai Shui [2004] No. 25 MOF & SAT Supplementary Circular on VAT Treatment for Products Produced with Integrated Utilization of Resources 财政部 国

源综合利充通知

G43 72 

Preferential tax treatment for 

imported products exclusively 

used by disabled people 

State Council 

Circular, Guo Han 

[1997] No. 3 

Provisional Regulations on Tax Exemption 

for Imported Products for Scientific and 

Educational Purposes 

科学研究收暂行规

G44 76 Preferential tax treatment for casting and forging products MOF Circular, Cai Shui [2003] No. 96 MOF & SAT Circular on VAT Refund for Casting and Forging Products 财政部、

件产品增知

G45 77 Preferential tax treatment to dies products MOF Circular, Cai Shui [1998] No. 139 MOF & SAT Circular on Continuing VAT Refund for Dies Products 财政部、

对模具产的通知
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Programs Listed In China’s SCM Notification That Are Potentially Usable 

By Companies In The Wood and Wood Products Industry

Legislation for the Listed Subsidies ID SCM No. Subsidies 

Doc No. Laws/Circulars in English Laws

G45 77 Same as above MOF Circular, Cai Shui [2003] No. 95 MOF & SAT Circular on VAT Refund for Dies Products 财政部、

产品增值

ID numbers: 

G-series: General programs which are not limited to agricultural entities. 

SCM No.: This column identifies the number of the subsidy program listed in China’s SCM Notification. See People’s Republic 

Notification Pursuant to Article XVI:1 of the GATT 1994 and Article 25 of the SCM Agreement, G/SCM/N/123/CHN (13 
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B. THE SIX GRAND AFFORESTATION PROJECTS

Afforestation is an important component of China’s forestry policy. The Six Grand 

Afforestation Projects refers to the six largest afforestation projects currently managed by the 

State Forestry Administration. The program is primarily for environmental purposes, aimed at 

restoring the nation’s forestry ecosystem for future generations. The program also increases the 

potential for timber production. A brief introduction to these six projects is provided below. 

1. The Natural Forests Protection Project (F9) 

This project evolved from the 1998 logging ban. It now includes three components: (a) a 

ban on logging in the natural forests in the drainage basins of the upper reach of the Yangzi 

River and the middle and lower reach of the Yellow River, accompanied by some afforestation 

projects in the same areas; (b) strict enforcement of a significantly reduced logging quota in the 

north-east region and Inner Mongolia; and (c) measures aimed at improving the management of 

the 1.415 billion mu (94.33 million ha) natural forests with priority being given to the recovery 

of the degraded forests. This project also includes reemployment programs for the 740,000 

workers whose livelihoods formerly depended on the logging industry. By 2005, seven years 

after the kickoff of this program, the aggregated area of afforestation under this project had 

reached 13.177 million ha, with government investment totaling RMB 44.89 billion.62 

2. The Beijing-Tianjin Sandstorm Prevention Project (F10) 

This project is designed to prevent sandstorms by reversing deforestation trends and 

restoring the natural ecological system around the Beijing-Tianjin areas. Launched in 2000, the 

 

62 The Six Grand Projects Accelerates the Development of the Forestry Industry, CHINA GREEN DAILY (October 

28, 2005); available at http://www.linye.sh.cn/news/national/11299.shtml. See Exhibit F-22.
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project aims to increase the forest density of the area to 21.4 percent by 2010. By 2005, the total 

afforestation area under this project had reached 2.19 million ha with RMB 8.33 billion 

government investment.63 

3. The Natural Reserve Development Project (F11) 

The Natural Reserve Development project was launched in 2001. A total of 763 new 

natural reserves have been designated since that time to protect China’s forestry ecosystem. 

Currently, a total of 1672 national natural reserves have been established and are being managed 

under this project, covering an area of 1190 million ha, equivalent to 12.4 percent of China’s 

total land area. To date, the project has received government investment of RMB 1.57 billion.64

4. The Protective Afforestation Project (F12) 

The Protective Afforestation Project is a program comprised of six afforestation subprojects. The largest is the Three Northern Regions Protective Afforestation Project, commonly 

known as the Green Great Wall Project. Officially initiated in 1978, the Green Great Wall 

Project is designed to build a forest shelterbelt -- a Green Great Wall -- in the northern part of 

China, an area that has the lowest forest density and that is facing the most serious threat from

deforestation. The project involves an area equivalent to 42.4 percent of China’s land territory. 

When finished in 2050, this project is expected to create new forests covering an area of 35 

million ha. It will raise the forest density for the three northern regions from the current level of 

5.05 percent to 14.95 percent. While information about China’s total investment in this project is 

 

63 Id. See Exhibit F-22. 64 Id. See Exhibit F-22. 
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not available, the government spent RMB 4.138 billion on this project between 2001 and 2005. 

China invested another RMB 7.907 billion for the other Protective Afforestation Projects.65

5. Return Farmland to Forests (F13) 

The Return Farmland to Forest project was initiated in 2000 and was designed to 

ameliorate soil erosion problems by converting slope farmland to forests. By 2005, 17.34 

million ha of slope farmland had been converted under this project, with governmental 

investment reaching RMB 60 billion. Eighty percent of the forests thus built are designated as 

ecological forests, for which commercial logging is strictly restricted. The rest are available for 

timber production.66 

6. Fast-Growth-High-Yield Forest Construction Project 

(F14) 

The Fast-Growth-High-Yield Forest Construction project was designed to increase 

commercial timber production capacity, so as to reduce the pressure on natural forests for timber. 

The project was launched in 2002. By 2005, a total of 334,500 ha of fast-growth-high-yield

(FGHY) plantations had been planted. The details of this program are discussed below (see 

program F15).67 

In addition to the Six Grand Afforestation Projects, there are other government support 

programs that benefit China’s timber industry. In general, the government has adopted a very 

supportive position toward reforestation/afforestation efforts. For instance, Article 8 of the PRC 

 

65 Id. See Exhibit F-22. 66 Id. See Exhibit F-22. 

67 See SDRC, The Tenth Five-Year and 2010 Special Plan for the Construction of National Forestry and 

Papermaking Integration Project (2004). See Exhibit F-2. See also SFA Opinions on Fast-Growth-High-Yield 

Forests Production Base Construction, Lin Dai Fa [2005] No. 129. See Exhibit F-78. 
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Forest Law explicitly calls for the national and local authorities to provide economic support or 

long-term loans for afforestation projects.68 

C. PROGRAMS IDENTIFIED IN THE AF&PA REPORT

The American Forest and Paper Association (AF&PA) published a report in 2004 titled 

China’s Subsidization of its Forest Products Industry (AF&PA report). The report presented an 

extensive review of Chinese government support programs for the forestry industry, ranging 

from timber production to the paper and other processed wood products industries. The 

following sections review those support programs identified by the AF&PA report that have not 

already been discussed previously in this paper. 

1. Loan Interest Subsidy for Plantation Development (F15) 

The AF&PA report notes that China’s wood products industry has suffered from high 

prices for raw materials. This problem arose from limited supply due to China’s lack of natural

forest resources and the government restriction on logging. In addition, heavy taxation and 

administrative fees on timber production discouraged private investment in plantation 

development. To increase timber supply, in 2001, the Chinese government launched a program 

to promote the construction of fast-growth-high-yield plantations. It was designed to increase 

the domestic production of commercial-use timber, especially for wood-pulp production. 

According to a government plan, a total of 99 plantations, covering an area of 13.33 million ha, 

are to be developed between 2001 and 2015.69 The project was estimated to require a total 

 

68 Forestry Law of the People’s Republic of China (2004) at Article 8. See Exhibit F-11. 69 AF&PA, China’s Subsidization of its Forest Products Industry (July 2004) at 9. See Exhibit F-9. 
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investment of USD $8.65 billion.70 It is expected that the Ministry of Finance (MOF) would 

provide USD $1.73 billion or 20 percent of the total estimated investment,71 primarily through 

loan interest subsidies. The subsidies are available to state-owned, private, and foreign-invested 

enterprises. Specifically, the MOF will provide funds to commercial banks to cover interest 

payments for loans extended for the purpose of developing fast-growth-high-yield plantations.72

2. Reduction of Production Cost (F16) 

The AF&PA report notes that the Chinese government has taken measures to help 

enterprises in the wood products sector to reduce production costs. Heavy tax and administrative 

fees have discouraged private investment in plantations. To address this issue, the State Council 

issued a circular entitled Resolution on Accelerating Development of the Forestry Industry, 

calling for the reduction of taxes and fees on plantations and on logging.73 The Resolution also 

delegated to local government authorities the task of lowering local taxes and fees. In addition, 

to discourage exports, the government in 1999 abolished the VAT export rebate on logs, lumber 

and wood pulp, and waste paper.74 On the other hand, the VAT rates on imported timber, 

processed forest products, and wood pulp were reduced by half.75 Both of these measures 

reduced the domestic price for these relevant products, and, in turn, reduced the manufacturing 

cost for downstream enterprises. 

 

70 Id. at 10. See Exhibit F-9. 71 Id. See Exhibit F-9. 72 Id. See Exhibit F-9. 

73 Id. at 11, citing Resolution by the Chinese Communist Party Central Committee and the State Council on 

Accelerating the Development of Forestry, Zhong Fa [2003] No. 9. See Exhibits F-9 and F-1. 

74 MOF & SAT Circular on Adjustment of VAT Rebate Rate on Certain Products, Cai Shui [2003] No. 222. See 

Exhibit F-23. 75 AF&PA, China’s Subsidization of its Forest Products Industry (July 2004) at 11. See Exhibit F-9. 
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3. The Grand Development Program for the West Region 

(G11) 

In 2000, in order to promote the economic development in the inland area, the Chinese 

government launched the program entitled The Grand Development of the West Region.

76 Under 

this program, preferential treatment was granted to enterprises operating in the West Region. 

Many of these preferences are usable by companies in the forestry industry in the region. The 

AF&PA report identifies the following preferences: (a) a 3-year tax holiday followed by a 50 

percent tax reduction; and (b) zero tariffs on imports of certain equipment, machines and 

technology.77 In addition, the China Development Bank offers discounted loans to enterprises in 

the West Region. The AF&PA report also states that free land use rights are granted to

enterprises for plantation development.78 Citing to a report that the Ministry of Transportation 

and Communication is planning to invest a total of USD $26.59 billion in the highway and rail 

system in the West Region, the AF&PA report points out that government investment in 

infrastructure helps the industry to lower manufacturing costs.79

4. The Pulp/Paper Development Projects (F17) 

The 10th 5-Year Plan calls for China to develop more pulp and paper production capacity 

to meet domestic demand and to reduce reliance on imports for high-grade paper.80 The AF&PA 

report found that, in 2001, the State Development and Planning Commission (SDPC) planned to 

 

76 See State Council Circular on Several Policies on the Development of Western Regions, Guo Fa [2000] No. 33. 

See Exhibit F-24. 77 AF&PA, China’s Subsidization of its Forest Products Industry (July 2004) at 15. See Exhibit F-9. 78 Id. See Exhibit F-9. 

79 Id. See Exhibit F-9. 80 See The PRC Economic and Social Development 10th Five-Year Plan Outline (March 15, 2001). An English 

translation of this Plan is provided in NewPage Corporation’s Petition for the Imposition of Countervailing 

Duties in the Matter of Coated Free Sheet Paper from China, Indonesia, And South Korea (October 30, 2006) 

at Exhibit III-2, which is reproduced in Exhibit F-25. 
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establish 42 pulp/paper projects in 6 regions for the development of pulp material bases, pulp 

production, and high-grade paper production capacity. For the initial stage of these projects, the 

SDPC provided USD $2.13 billion in loan interest subsidies to 13 of the projects.81 

5. Loan Interest Subsidies for Technology Renovations 

(F18) 

The AF&PA report found that, between 1998 and 2002, the Chinese government 

provided USD $1.67 billion, mostly in the form of loan interest subsidies, to enterprises for the 

purpose of technology renovation.82 The beneficiaries of this program are mostly newsprint and

light-weight coated paper producers. The AF&PA report estimates that this subsidy helped to 

develop new production capacity of over 1.7 million metric tons.83 

6. Discounted Loan for Wood Processing Projects (F19) 

The People’s Bank of China normally sets a minimum lending rate for commercial banks. 

The AF&PA report indicates that the State Council has allowed commercial banks to extend 

loans to wood processing enterprises at 90 percent of the standard rate with a preferential 

payback period of between 3 to 5 years, as opposed to the normal loan term of 1 to 2 years.84

7. Expedited Foreign Investment Approval Process (F20) 

The SDRC maintains a catalogue that lists industries for which foreign investment is 

encouraged or restricted. The current catalogue encourages foreign investment in wood-based 

paper production, medium-to-large chemical and mechanical pulp processing, and high-grade 

 

81 AF&PA, China’s Subsidization of its Forest Products Industry (July 2004) at 22. See Exhibit F-9. The 

AF&PA report does not identify the legal authority for this program. 

82 Id. See Exhibit F-9. 83 Id. See Exhibit F-9. 84 Id. See Exhibit F-9. 
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paper and paper board production (not including newsprint). For industries where foreign 

investment is encouraged, the State Council delegates foreign investment approval authority 

down to the local level, and the local authority is authorized to extend preferential treatment to 

these foreign investment projects. This policy allows foreign investors to bypass an otherwise 

time-consuming approval procedure at the central government level. Prior to the issuance of this 

new policy, the AF&PA report notes that it could take years to obtain an approval from the 

central government. The AF&PA report concludes that this policy, together with other 

preferential policies, has resulted in large foreign investments in the forestry industry. By 2002, 

companies with more than 25 percent foreign ownership accounted for 29 percent of total paper 

production and 44.8 percent of industry profits.85

8. Favorable Tax Treatment to High-Tech and ForeignInvested Producers (G1) 

The AF&PA report notes that the Chinese government provides preferential tax treatment 

to enterprises with foreign investment and to enterprises classified as high-tech enterprises. This 

preferential tax treatment is potentially applicable to paper and paper board producers.86 The 

details of these measures are discussed below. It should be noted that the legislation providing a 

tax break to enterprises with foreign investment will be superseded, effective January 1, 2008, 

with existing benefits to be phased out by January 1, 2013.87

 

85 Id. at 23. See Exhibit F-9. 86 Id. See Exhibit F-9. 87 In addition to the above measures, the AF&PA report also notes that, in the past, China had initiated 

antidumping investigations against imports of newsprint and coated wood-free paper. For example, in 

February 2002, an investigation was launched, and, subsequently, an antidumping duty order was imposed on 

coated wood–free paper imports from Korea and Japan. In March 2004, China initiated an antidumping 

investigation against imports of Kraft linerboard and Kraft top linerboard from the U.S., South Korea, Taiwan 

and Thailand. See AF&PA, China’s Subsidization of its Forest Products Industry (July 2004) at 23. See 
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D. PROGRAMS IDENTIFIED IN THE THREE SUBSIDY DISPUTES 

INVOLVING CHINA

As reviewed above, China has become a large exporter of a variety of wood products, 

and many of China’s paper and wood products are potentially eligible for support from an array 

of government programs. To date, two countervailing duty cases have been brought against 

wood products exported from China. In addition, pursuant to WTO dispute settlement 

procedures, the United States has requested consultations with China on certain industry support 

programs, some of which are applicable to wood and wood products. This section of the paper 

reviews these three cases. It should be noted that, subsequent to the U.S. request for 

consultations regarding Chinese subsidies, Mexico submitted an independent subsidy complaint 

against China at the WTO. As the measures challenged in the Mexican complaint are exactly the 

same as those listed in the U.S. request for consultations, the Mexican complaint will not be 

specifically discussed in this paper. 

1. Canadian Countervailing Duty Investigation of 

Laminate Flooring from China 

On October 4, 2004, Uniboard Surfaces, the only known Canadian manufacturer of 

laminate flooring, filed a petition for the imposition of countervailing duties on imports of 

laminate flooring from China and France. Following investigation, the Canadian Border 

Services Agency (CBSA) found that certain Chinese subsidy programs were in existence during 

the period of investigation, that they had been used by the Chinese companies under 

 Exhibit F-9. A positive finding was reached in September 2005. The antidumping duty order on imports of 

Kraft linerboard and Kraft top linerboard from the United States was later terminated when the U.S. 

government threatened to challenge the decision at the WTO. See USTR, China Terminates Antidumping Duty 

Order on Kraft Linerboard (01/10/2006); available at http://www.ustr.gov/Document_Library/Press_Releases/ 

2006/January/China_Terminates_Antidumping_Duty_Order_on_Kraft_Linerboard.html. 
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investigation, and that they were countervailable under Canadian law.88 These subsidy programs 

are reviewed below. 

a. Tax Break for Productive Foreign-Invested 

Enterprises Scheduled to Operate for a Period of Not 

Less Than 10 Years (G46) 

The CBSA found that Article 8 of the FIE Income Tax Law allows a tax break to FIEs 

that are engaged in production and are scheduled to operate for more than 10 years. A tax 

exemption is provided to these FIEs for the first 2 years after they start to register profits. In the 

following 3 years, these FIEs are eligible to a 50 percent tax deduction.89 The implementation 

rule of the FIE Income Tax Law specifically states that this tax benefit is applicable to eligible 

enterprises in the forest products industry.90

b. Local Tax Break for FIEs in Industries Where 

Foreign Investment is Encouraged (G47) 

The Ministry of Commerce maintains a catalogue that lists all of the industries for which 

foreign investment is encouraged.91 FIEs that are engaged in the encouraged industries listed in 

 

88 See CBSA, Laminate Flooring Statement of Reasons (June 1, 2005). 

89 See CBSA, Laminate Flooring Statement of Reasons (June 1, 2005) at Appendix 3 (program 1), citing Article 

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

Foreign Enterprises (1991). 

90 See CBSA, Laminate Flooring Statement of Reasons (June 1, 2005) at Appendix 3 (program 1), citing Article 

72 of the Detailed Implementation of the Income Tax Law of the People’s Republic of China for Enterprises 

with Foreign Investment and Foreign Enterprises (1991). It should be noted that this legislation will be 

superseded, effective on January 1, 2008; with a 5-year grace period for existing benefits available to FIEs. 

91 MOFCOM, Catalogue for the Guidance of Foreign Investment Industries (Amended in 2004) (November 30, 

2004). See Exhibit F-26. 
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the catalogue are eligible for local tax breaks under Article 9 of the FIE Income Tax Law.92 The 

forestry industry is listed as an industry in which foreign investment is encouraged. 

c. Tax Rebate on Reinvested Profits by FIEs (G48) 

Under Article 10 of the FIE Income Tax Law, FIEs are entitled to a 40 percent rebate of 

income taxes paid on profit that is later reinvested directly in China. If such reinvestment is for 

the establishment of a new project, this rebate is available when the new project is scheduled to 

remain in operation for at least 5 years. If the reinvestment is for the establishment or expansion 

of export-oriented enterprises or for enterprises with advanced technology, 100 percent of the 

income taxes paid on the reinvested profit will be rebated.93

d. Tax Benefit for Enterprises Located in SEZs, CEOZs, 

or in the Old Urban Districts of Cities Where the 

SEZs or the ETDZs are Located, or in Areas 

Designated by the State Council (G7 & G50) 

Article 7 of the FIE Income Tax Law provides that productive FIEs, in certain 

specifically-designated locations, are eligible for a reduced income tax rate of 15 percent. The 

most important designated locations are Special Economic Zones (SEZ), Coastal Economic 

Open Zones (CEOZ), and Economic & Technology Development Zones (ETDZ).94 Some local 

 

92 See CBSA, Laminate Flooring Statement of Reasons (June 1, 2005) at Appendix 3 (program 2), citing Article 

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

Foreign Enterprises (1991) (to be phased out by 2013). 

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

Enterprises (1991) at Article 10 (to be phased out by 2013). See Exhibit F-4. 

94 See CBSA, Laminate Flooring Statement of Reasons (June 1, 2005) at Appendix 3 (program 4), citing Article 

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

Foreign Enterprises (1991) (to be phased out by 2013). 
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tax regulations have extended this benefit to domestic enterprises.95 For instance, in the Circular 

of the Shenzhen Taxation Bureau on Interpretations of the Provisions Pertaining to Tax Policies 

for Enterprises in Shenzhen Special Economic Zone by the Municipal People’s Government of 

Shenzhen, Article 1 expressly states that the reduced tax rate benefit is applicable to domestic 

enterprises as well as to FIEs.96

e. Tax Break for Enterprises in the Western Region and 

Other Specified Regions (G11) 

The CBSA found that the Chinese government provided tax breaks to enterprises from 

certain key industries that located in the Western Region and other specified regions. Article 1 

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

Administration of Customs on the Preferential Tax Policy of Development of the Western Region

stipulates that, between 2001 and 2010, both DIEs and FIEs from industries encouraged by the 

State will be taxed at a reduced rate of 15 percent.97 To qualify for this reduced rate, the 

enterprises must derive 70 percent of their total revenue from operations that are listed in the 

Current Catalogue of Key Industries, Products and Technologies the Development of Which is 

Encouraged by the State. Paper production is listed in this catalogue.98

 

95 See CBSA, Laminate Flooring Statement of Reasons (June 1, 2005) at Appendix 3 (program 4), citing Articles 

1 and 6 of Regulations on Special Economic Zones in Guangdong Province. The original regulation is not 

identified. 

96 See CBSA, Laminate Flooring Statement of Reasons (June 1, 2005) at Appendix 3 (program 4). 

97 Circular of the Ministry of Finance, State Administration of Taxation and General Administration of Customs 

on the Preferential Tax Policy of Development of the Western Region, Cai Shui [2001] No. 202. See Exhibit F27. 

98 SDRC, Current Catalogue of Key Industries, Products and Technologies the Development of Which is 

Encouraged by the State, Decree No.7 [2000]. See Exhibit F-28. 
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f. Enterprises Operating in the Forestry Industry (F2) 

This program is discussed above in Part II, section A.1.b. of this paper. 

g. Refund of VAT for Products Produced with Fuel 

Wood and Other Low-valued Wood or Wood 

Residuals (F21)

Certain environmentally-friendly wood products produced by using fuel woods or other 

low-value woods or wood residuals are entitled to an immediate VAT refund after levy.99 This 

measure is aimed at encouraging full utilization of raw wood, thus reducing the aggregate 

demand for timber. Raw wood products are subject to a 13 percent VAT in China; processed 

woods products are subject to a VAT of 17 percent. 

h. Tariffs and VAT Exemption on Imported Equipment 

(G51) 

The CBSA found that, from January 1, 1998, China has exempted tariffs and VAT for 

certain equipment imported by both DIEs and FIEs under the Circular of the State Council 

Concerning the Adjustment in the Taxation Policy of Import Equipment.

100 Equipment that is 

imported for use in a domestic project qualifies for the benefit only if such equipment or the 

project is listed in the Current Catalogue of Key Industries, Products and Technologies the 

Development of Which is Encouraged by the State 101 and is not listed in the Directory of 

 

99 Joint Circular of Ministry of Finance and State Administration of Taxation (SAT) Regarding the VAT 

Favorable Policy of the Comprehensively Used Product Produced and Processed with the Three Residues and 

Small Firewood Materials as Raw Materials, Cai Shui [2001] No. 72. See Exhibit F-29. 

100 See CBSA, Laminate Flooring Statement of Reasons (June 1, 2005) at Appendix 3 (program 10); see also 

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

[1997] No. 37. See Exhibit F-30. 

101 See CBSA, Laminate Flooring Statement of Reasons (June 1, 2005) at Appendix 3 (program 10); see also 

SDRC, Current Catalogue of Key Industries, Products and Technologies the Development of Which is 

Encouraged by the State, Decree No. 7 [2000]. See Exhibit F-28. 
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Imported Commodities of Non-Tax Exemption to be Used in Domestic Invested Projects.

102 For 

FIEs, the type of project in which the equipment will be used must be listed in the Guideline 

Catalogue for Foreign Investment Industries under the Encouraged Catalogue or the Restricted 

B Catalogue.103

i. Loan Interest Assistance (F22) 

The CBSA found that, in September 24, 2003, the MOF issued the Circular of Ministry 

of Finance Regarding the Issuance of Fund Management Method of Financial Interest Subsidy 

of Central Government of the Loan of Capital Construction.

104 According to the circular, the 

loan interest assistance is available to large and medium “Capital Construction Projects,” which 

are defined as projects with total investment of least RMB 50 million for commercial projects or 

RMB 30 million for non-commercial projects. Under Article 5 of the Circular, fast-growth-highyield plantations are expressly listed as eligible projects for this support program. Companies 

invested in fast-growth-high-yield plantations may apply for loan interest assistance. The 

amount of the loan interest assistance may not be more than 3 percent of the amount of the 

eligible loan and may be provided throughout the construction period but not exceeding 5 years. 

Certain large projects, however, are not subject to the duration limit under this project.105 

 

102 See CBSA, Laminate Flooring Statement of Reasons (June 1, 2005) at Appendix 3 (program 10). 103 See CBSA, Laminate Flooring Statement of Reasons (June 1, 2005) at Appendix 3 (program 10); see also 

MOFCOM, Catalogue for the Guidance of Foreign Investment Industries (Amended in 2004) (November 30, 

2004). See Exhibit F-26. 104 See CBSA, Laminate Flooring Statement of Reasons (June 1, 2005) at Appendix 3 (program 11); see also 

Circular of Ministry of Finance Regarding the Issuance of Fund Management Method of Financial Interest 

Subsidy of Central Government of the Loan of Capital Construction, Cai Jian [2003] No. 421. See Exhibit F32. 

105 Circular of Ministry of Finance Regarding the Issuance of Fund Management Method of Financial Interest 

Subsidy of Central Government of the Loan of Capital Construction, Cai Jian [2003] No. 421. See Exhibit F32.
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j. Local Grants for Flooring Enterprises (G52) 

Enterprises located in Shanghai Pudong New District, as well as some other development 

zones, have received grants in their first three operative years as development aid from the local 

authorities.106

2. U.S. Countervailing Duty Investigation of Coated Free 

Sheet Paper from China 

In the fall of 2006, NewPage Corporation filed a petition in the United States alleging 

that subsidies provided by the Chinese government to Chinese producers of coated free sheet 

paper were causing material injury to the U.S. industry producing coated free sheet paper. In 

November 2006, the International Trade Administration of the U.S. Department of Commerce 

(Commerce) initiated an investigation. Commerce also indicated that it would determine during 

the course of the investigation whether to change or adhere to a mid-1980s construction of U.S. 

law that countervailing duty law was not applicable to non-market economies. 107 In its 

preliminary countervailing duty determination, issued at the end of March and amended in early 

April 2007, Commerce found that certain government subsidies were specific and thus 

potentially countervailable.108

 

106 See CBSA, Laminate Flooring Statement of Reasons (June 1, 2005) at Appendix 3 (program 13), citing

Suggestions on Financial Support of Economic Development in the Pudong New District During the Tenth 

Five-year Plan (December 2000). See Exhibit F-33. 

107 U.S. Department of Commerce, International Trade Administration, Notice of Initiation of Countervailing Duty 

Investigations: Coated Free Sheet Paper from the People’s Republic of China, Indonesia, and the Republic of 

Korea, 71 Fed. Reg. 68546 (November 27, 2006). 

108 U.S. Department of Commerce, International Trade Administration, Coated Free Sheet Paper from the 

People’s Republic of China: Amended Preliminary Affirmative Countervailing Duty Determination, 72 Fed. 

Reg. 17484 (April 9, 2007) (“CFS Paper Preliminary Determination”). 
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a. Programs Preliminarily Determined by Commerce to 

be Countervailable 

i. The State Key Technology Renovation Project 

Fund (G53) 

Commerce found that subsidies had been granted to paper enterprises under the State Key 

Technology Renovation Project Fund program. Specifically, under Article 9 of the Measures for 

the Administration of National Debt Special Fund for National Key Technological Renovation 

Project,

109 the Chinese government provided grants to paper producers equal to 2 years’ interest 

payments on loans extended for technology innovation projects, or up to 3 years’ interest 

payments for enterprises located in certain specified areas.110 Commerce determined that the 

program was not generally available to all enterprises; the recipients were selected mainly from 

the 512 key enterprises, the 120 pilot enterprises groups, and the leading enterprises in various 

industries. This program, however, was not operational after 2003, even though the legal 

authority for the program is currently still in effect.111

ii. The Two-Free, Three-Half Program (G46) 

Commerce preliminarily determined that the “Two Free, Three Half” program (which has 

been discussed previously in this report) is limited to certain enterprises as a matter of law and, 

thus, is countervailable under U.S. law. 112 The Chinese legal authority for this program, 

however, will be superseded on January 1, 2008, with a five-year grace period for existing tax 

benefits granted to FIEs. 

 

109 See CFS Paper Preliminary Determination, 72 Fed. Reg. at 17491, citing State Circular, Guo Jing Mao Tou Zi 

[1999] No. 886. See Exhibit F-89. 

110 See CFS Paper Preliminary Determination, 72 Fed. Reg. at 17491. 111 See id. 112 See CFS Paper Preliminary Determination, 72 Fed. Reg. at 17494. 
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iii. Reduced Income Tax Rates for FIEs Based on 

Location (G7 & G50) 

This program is discussed in the Canadian laminate flooring case above at Part II, section 

D.1.d. 

iv. Local Income Tax Exemption and Reduction 

Program for “Productive” FIEs (G54) 

The FIE Income Tax Law authorizes Chinese local government authorities to exempt or 

reduce the tax burden on certain productive FIEs. Commerce concluded that tax exemption or 

reduction is a financial contribution from the local government and confers a benefit. In addition, 

Commerce found that as each program is applicable locally, each is specific as a matter of law.113

v. Income Tax Credits on Purchases of 

Domestically-Produced Equipment by FIEs 

(G37) 

Commerce found that provisions in two circulars issued in 2000 by the MOF allow a tax 

credit of up to 40 percent of the purchase value for domestically-produced equipment when 

certain criteria are met.114 Since the program is only available to FIEs, Commerce determined 

that the program is countervailable.115 

 

113 See CFS Paper Preliminary Determination, 72 Fed. Reg. at 17495; see also Income Tax Law of the People’s 

Republic of China for Enterprises with Foreign Investment and Foreign Enterprises (1991) at Article 9. See 

Exhibit F-4. 

114 See CFS Paper Preliminary Determination, 72 Fed. Reg. at 17495, citing Circular of the Ministry of Finance 

and the State Administration of Taxation on Enterprise Income Tax Credits for Purchase of Domestic 

Equipment by Foreign Invested Enterprises and Foreign Enterprise, Cai Shui [2000] No. 49 and 

Administrative Measures on Enterprise Income Tax Credits for Purchase of Domestic Equipment by FIEs and 

Foreign Enterprises, Guo Shui Fa [2000] No. 90. See Exhibits F-75 and F-34. 115 See CFS Paper Preliminary Determination, 72 Fed. Reg. at 17495. 
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vi. VAT Rebates on FIE Purchases of 

Domestically-Produced Equipment (G55) 

Pursuant to Trial Administrative Measures on Purchase of Domestic Equipment by 

Projects with Foreign Investment, the Chinese government provides VAT refunds to FIEs on 

purchases of certain domestically-produced equipment. As this program is limited to FIEs, 

Commerce found the program to be countervailable.116

vii. FIE VAT and Tariff Exemptions on Imported 

Equipment and Technology (G39) 

Commerce found that, in order to encourage the use of advanced production technology, 

the Chinese government grants, to both FIEs and certain qualified DIEs, an exemption from 

VAT and tariffs on imports of certain technologically-advanced equipment that is used in 

production.117

viii. Domestic VAT Refunds for Companies Located 

in the Hainan Economic Development Zone 

(G56) 

Commerce found that the local government provides a VAT rebate to enterprises located 

in the Economic Development Zone of Hainan. An enterprise that qualifies as high-tech and

employs more than 1000 local workers is entitled to a 25 percent refund of VAT paid on 

domestic sales for up to 5 years.118

 

116 See CFS Paper Preliminary Determination, 72 Fed. Reg. at 17495, citing Trial Administrative Measures on 

Purchase of Domestic Equipment by Projects with Foreign Investment, Guo Shui Fa [1999] No. 171. See 

Exhibit F-35. 

117 See CFS Paper Preliminary Determination, 72 Fed. Reg. at 17496, citing the Circular of the State Council on 

Adjusting Tax Policies on Imported Equipment, Guo Fa [1997] No. 37. See Exhibit F-30. 118 See CFS Paper Preliminary Determination, 72 Fed. Reg. at 17496. 
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b. Programs Preliminarily Determined by Commerce to 

be Not Used 

i. Clean Production Technology Fund (G57) 

The Chinese government launched the Clean Production Technology Fund program in 

October 2004 to encourage enterprises to conduct environmentally-clean production 

inspection.119 Local authorities give awards under this program to enterprises when certain 

criteria are met.120 Commerce found that although one company reported receiving a grant under 

this program, the benefit received was less than 0.005 percent, and that programs with subsidy 

rates under 0.005 percent are not included in the total countervailable duty rate.121

ii. Other programs 

During the investigation, Commerce found that nine programs were in existence but did 

not determine that they were countervailable because none of the respondents in the case had 

applied for or received any benefits from such programs. These programs are the following: 

• Direction Adjustment Tax on Fixed Assets 

• Income Tax Exemption Program for Export-Oriented FIEs 

• Corporate Income Tax Refund Program for Reinvestment of FIE Profits in 

Export-oriented Enterprises 

• Discounted Loans for Export-Oriented Enterprises 

• Exemption from Payment of Staff and Worker Benefits for Export-Oriented 

Enterprises 

• Preferential Tax Policies for FIEs Engaged in Forestry and Established in Remote 

Underdeveloped Areas 

 

119 See CFS Paper Preliminary Determination, 72 Fed. Reg. at 17497, citing the decree of the NDRC and the 

National Administration of Environmental Protection titled Provisional Measures on Clean Production 

Inspection, Decree [2004] No. 16. See Exhibit F-31. 

120 See CFS Paper Preliminary Determination, 72 Fed. Reg. at 17497. 121 See id.
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• Preferential Tax Policies for Enterprises Engaged in Forestry 

• Special Fund for Projects for the Protection of Natural Forestry 

• Compensation Fund for Forestry Ecological Benefits122

3. U.S. Request for Consultations with Regard to Certain 

Chinese Subsidy Programs 

On February 7, 2007, the United States submitted a request for consultations to the 

Chinese Delegation regarding certain subsidy and other programs. The U.S. request listed a total 

of 9 measures which it believed were inconsistent with China’s obligations under two WTO 

agreements – the Agreement on Subsidies and Countervailing Measures (SCM) and the 

Agreement on Trade-Related Investment Measures (TRIMS). Several of the nine measures have 

already been discussed in this paper. Among these are two measures that grant tax refunds to 

FIEs for purchasing domestic equipment (discussed in Part II, D.2.a.vi.) and the measure 

exempting VAT and import tariffs for certain equipment and technology (discussed in Part II, 

D.2.a.viii.). The following reviews those measures listed in the U.S. request that have not been 

discussed previously in detail. 

a. Income Tax Rebate for Domestic Enterprises 

Purchasing Domestically-Made Equipment (G38) 

This measure was listed in China’s first SCM Notification as item 59 (LIX).123 It was 

designed to encourage domestic enterprises to invest in technology renovation. Under the 

measure, domestic companies are entitled to a tax rebate equal to 40 percent of the purchase 

price for any domestically-produced equipment that is used in technology renovation projects 

 

122 See CFS Paper Preliminary Determination, 72 Fed. Reg. at 17497. 

123 See 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) at 67. See Exhibit F-3. 
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consistent with national industrial policies. The actual tax rebate however, is not to exceed the 

difference between the amount of the taxes paid for the current year compared to the taxes paid 

in the previous year. This measure does not apply to foreign-invested companies.124 

b. Income Tax Rebate for Export-Oriented or HighTech FIEs (G2, G3) 

The FIEs Income Tax Law provides an additional tax rebate for export-oriented FIEs and 

High Tech FIEs beyond those normally available to FIEs. Export-oriented FIEs are those FIEs 

that export 70 percent or more of their total production (measured by value). Export-oriented 

FIEs are entitled to a 50 percent reduction of their income taxes if they do not enjoy other tax 

benefits.125 For those export-oriented FIEs that are already qualified for the reduced income tax 

rate of 15 percent, they will be taxed at a further reduced rate of 10 percent.126 FIEs employing 

advanced technology that is certified by MOFCOM enjoy three additional years of the 50 percent 

tax reduction beyond the “two-free, three-half” benefit (discussed above).127 

c. Income Tax Rebate for FIEs Investing in Encouraged 

Line of Business (G58) 

As noted previously, MOFCOM maintains an investment catalogue listing industries in 

which foreign investment is encouraged. Upon approval by the State Tax Administration, FIEs 

operating in these encouraged industries are eligible to receive a reduced income tax rate of 15 

 

124 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) at 2, citing MOF & 

SAT, Circular on the Interim Measures of Income Tax Deduction for Domestically Produced Equipment 

Purchased for Technology Upgrading Purpose, Cai Shui [1999] No. 290. See Exhibit F-38. 

125 See id., WT/DS358/1/Add.1 at 2, citing Provisions of the State Council on the Encouragement of Foreign 

Investment, Guo Fa [1986] No. 95. See Exhibit F-39. 

126 Id. 

127 See SAT 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 
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percent. 128 The forestry industry and the paper making industry are listed as encouraged 

industries.129

d. Tax Refund for Qualified Reinvestment by FIEs (G48) 

This program was previously discussed in Part II, D.1.c. Export-oriented or high-tech 

FIEs that reinvest their profits in similar projects are entitled to a 100 percent refund of income 

taxes paid on their reinvested profits. 

e. Exemption for Export-Oriented and High-Tech FIEs 

from Certain Welfare Payments (G49) 

In addition to the tax benefits discussed above, export-oriented and high-tech FIEs are 

exempted from making certain employee welfare payments.130

E. GOVERNMENT INACTION AGAINST ILLEGAL LOGGING

Illegal logging, in addition to its undesirable social and environmental consequences, 

may distort trade by providing some wood products producers with artificially-low-cost timber 

 

128 See WT/DS358/1/Add.1 at 2, citing Article 73(6), State Council Rules for Implementation of the Income Tax 

Law of the PRC on Enterprises with Foreign Investment and Foreign Enterprises, Decree [1991] No. 85. See 

Exhibit F-5. 

129 See WT/DS358/1/Add.1 at 2, citing MOFCOM, Catalogue for the Guidance of Foreign Investment (Amended 

in 2004) (November 30, 2004). See Exhibit F-26. 130 See WT/DS358/1/Add.1 at 2, citing Article 3, Provisions of the State Council on the Encouragement of 

Foreign Investment, Guo Fa [1986] No. 95. See Exhibit F-39. 
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that has been harvested contrary to national laws.131 A recent report estimated that, in 2002, 30 

percent of China’s wood exports might have used timber from suspicious sources.132 

Illegal logging used to be a significant problem in China. In 1995, 34 million cubic 

meters of raw timber were reported to be logged over quota. 133 The Ministry of Forestry 

estimated in 1997 that 31 percent of the timber harvested in Heilongjiang, the most important 

timber-producing province in China, was over quota. Currently, the situation of over-quota 

logging is less clear after China strengthened its enforcement of the logging quota and the new 

forest law subsequent to the 1998 flood. In 2004, “SFA reported that the problem of ‘excessive 

logging’ had been ‘straightened out.’”134 Other reports, however, indicate that illegal logging 

remains a problem in some areas.135 

In addition, illegal logging has been a serious problem in some countries that export logs 

to China. In Russia, from which China imports 70 percent of its softwood logs, 20-30 percent of 

the harvest is believed to be illegal.136 Indonesia, the other primary source of China’s log 

imports, frequently is cited as having the highest illegal logging rate among the world’s major 

 

131 In response to such concerns, the U.S. International Trade Commission recently included illegal logging as a 

factor to be examined in a Section 332 investigation requested by the Senate Committee on Finance regarding 

the competitive conditions affecting the U.S. wood flooring and hardwood plywood industry. See International 

Trade Commission, Wood Flooring and Hardwood Plywood: Competitive Conditions Affecting the U.S. 

Industries, 72 Fed. Reg. 19960 (April 20, 2007). 132 Seneca Creek Associates & Wood Resources International, “Illegal” Logging and Global Wood Markets: The 

Competitive Impacts on the U.S. Wood Products Industry (November 2004) at 17. If this estimation is accurate, 

USD $1.811 billion worth of China’s exports of wood products to the United States that year would be from 

suspicious sources. 

133 Id. at 129, citing Chen & Lu, Natural Forest Resource Conservation and Sustainable Management in Key 

Forest Areas, FORESTRY ECONOMICS, No 2 (April 1999). 134 Seneca Creek Associates & Wood Resources International, “Illegal” Logging and Global Wood Markets: The 

Competitive Impacts on the U.S. Wood Products Industry (November 2004) at 130. 

135 Id. 136 Id. at 99. 
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log producers.137 Sixty to eighty percent of the log harvest in Indonesia is believed to be 

unlicensed.138 News reports have voiced concern that China’s strong demand for wood products 

has had the unintended consequence of worsening the illegal logging problem as countries 

expand log exports to China to meet the growing demand for logs by wood products companies 

in Chinas. Concerns have also been raised that China has not done enough to stop the 

importation of illegal logs. 

A recent article in the Washington Post claimed that half of the logging in Russia was 

illegal, and that much of the illegally-harvested timber ended up in China. The article criticized 

the Chinese border authority for not making a sufficient effort in authenticating harvest permits 

for the imported logs.139 Another article reported that some Chinese companies have been 

importing Merbau, an endangered species, notwithstanding that they have reason to know that 

the logs were harvested illegally.140 Foreign multinational companies, including IKEA and 

Home Depot, that purchase wood products from the Chinese manufacturers were blamed for 

turning a blind eye to the sources of the raw timber their Chinese suppliers had been using.141 A 

 

137 Id. In the U.S. CVD investigation of CFS Paper from Indonesia, the United Steelworkers Union and the Sierra 

Club alleged that government inaction toward illegal logging should be investigated as a government subsidy 

because the authority’s failure to enforce its laws regarding logging fees and forestry regulations resulted in the 

provision of a good (standing timber) to the Indonesian industry for less than adequate remuneration. See 

Coated Free Sheet Paper from Indonesia: Notice of Preliminary Affirmative Countervailing Duty 

Determination, 72 Fed. Reg. 17498, 17499 (April 9, 2007). 138 Seneca Creek Associates & Wood Resources International, “Illegal” Logging and Global Wood Markets: The 

Competitive Impacts on the U.S. Wood Products Industry (November 2004) at 65. See also Andy White, et al., 

China and the Global Market for Forest Products: Transforming Trade to Benefit Forests and Livelihoods

(March 2006) at 14. See Exhibit F-10. 

139 Peter S. Goodman and Peter Finn, Corruption Strains Timber Trade, THE WASHINGTON POST (April 1, 2007) 

at A01. See Exhibit F-14. 140 Michael Casey, Group: China Buying Threatened Hardwood, THE WASHINGTON POST (April 17, 2007). See 

Exhibit F-40. 

141 Peter S. Goodman and Peter Finn, Corruption Strains Timber Trade, THE WASHINGTON POST (April 1, 2007) 

at A01. See Exhibit F-14. 
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research paper similarly found: “Across East Asia, there is evidence to suggest that large 

quantities of illegally-sourced wood products are heading for China.”142

Environmental and industry groups recently started taking measures to encourage 

Chinese wood producers to use only legally-harvested logs. The Forest Stewardship Council 

(“FSC”) established its China National Working Group in March 2006 in Beijing, and has started 

issuing certificates for wood products producers that use only legal timber. A domestic wood 

products certification system similar to the FSC scheme is under development. A number of 

companies that import wood products from China, notably in the EU and the United States, are 

seeking to source their imports from certified producers in China in order to meet consumer 

demand for certified wood products in their markets. Wood products producers in China have 

reportedly reacted positively. Four months after inception, the FSC has certified that 146 

Chinese producers have passed its Chain of Custody certification.143 There are reports, however, 

that the effective monitoring of the actual use of the type of timber remains problematic.144 On 

the government side, some efforts have been made to curtail illegal logging through bilateral 

agreement. For example, in 2000, China signed a Memorandum of Understanding with 

Indonesia, in which the countries pledged to establish a joint action plan to identify sources of 

 

142 See Andy White, et al., China and the Global Market for Forest Products: Transforming Trade to Benefit 

Forests and Livelihoods (March 2006) at 14. See Exhibit F-10. 143 See USDA, Foreign Agricultural Service, PRC Solid Wood Products Annual, 2006, GAIN Report CH6052 

(July 13, 2006) at 5. See Exhibit F-6. 

144 Peter S. Goodman and Peter Finn, Corruption Strains Timber Trade, THE WASHINGTON POST (April 1, 2007) 

at A01. See Exhibit F-14. 
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illegally-harvested timber, combat trade in such timber, and improve enforcement of forestry 

laws.145 

F. PROVINCIAL PROGRAMS

The provincial and local government plays an important role in providing support to the 

wood products industry. Most subsidy programs launched by the central government are 

implemented through the local government. For instance, in the laminate flooring investigation, 

the CBSA found that, with regard to the tax benefit granted to the productive FIEs with 

operational periods longer than 10 years, notwithstanding that “[t]he authority responsible for 

administering this program is the State Administration of Taxation of the People's Republic of 

China, [the] local tax offices are responsible for implementing State policy and all relevant 

matters related to income tax assessment and collection, including examination and approval of 

applications relating to preferential income tax treatment.”146

In addition, provincial and local governments have been active in exercising their legal 

authority to initiate their own industrial promotion programs. Article 9 of the FIE Income Tax 

Law explicitly delegates to provincial governments the authority to grant local income tax 

exemptions or deductions to FIEs operating in encouraged industries, which include the forestry 

industry. The local governments have also been active in establishing special economic zones 

(SEZs) and granting various favorable treatment to the enterprises operating in these SEZs. 

 

145 Memorandum of Understanding between the Government of the Republic of Indonesia and the Government of 

the People’s Republic of China Concerning Cooperation in Combating Illegal Trade of Forest Products. See

Exhibit F-41. 146 CBSA, Laminate Flooring Statement of Reasons (June 1, 2005) at Appendix 3 (program 1). 
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The AF&PA report noted that the provinces of Gansu and Xinjiang maintained some 

preferential policies for afforestation projects. Enterprises have been given free land to be used 

for afforestation purposes, and the terms of land-use-rights granted have been longer than what 

Chinese national law allows. The Chinese national land law provides that land-use-rights for 

commercial usage should not be extended for a period longer than 50 years, but, in Gansu and 

Xinjiang, enterprises are granted land-use-rights for 70 years and 60 years, respectively, for 

plantation development purposes.147

The AF&PA report also found that, in practice, local governments have the potential to 

provide support to companies in the forestry sector in a number of ways. For instance, local 

governments “allowed enterprises to utilize land at no charge.”148 In another instance, a local 

government agreed to transfer water resources from other areas to support a foreign-invested 

wood products project. In addition, local governments decide certain tax rates and fee waivers, 

and have a great influence on the terms of the loans extended to the wood products enterprises.149

The annual reports of some forestry enterprises listed on Chinese stock exchanges also 

indicate that local governments are significant sources of public funds. Shandong Chenming 

Paper Holdings Limited, one of the two mandatory respondents in the CFS case, as well as other 

paper makers named in the investigation, listed in their respective 2006 annual reports the 

following seven local programs from which they benefited in 2006. 

 

147 AF&PA, China’s Subsidization of its Forest Products Industry (July 2004) at 15. See Exhibit F-9. 148 Id. at 50. See Exhibit F-9. 

149 Id. See Exhibit F-9. 
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Programs Identified In Company Annual Reports for 2006 

Program: Local Award for Leading Exporters

Recipient: Shandong Chenming

Description: In its Circulation No. 8 for 2006, the Treasury Bureau of Shouguang City in 

Shandong Province allows awards for leading exporters of the city. 

Shandong Chenming received RMB 4.929 million under this program in 

2006. One of Chenming’s subsidiaries located in Nanchang city, Jiangxi 

Province, received a similar award from the city authority totaling RMB 445, 

900.150

Program: Local Award for Leading Tax Payers

Recipient: Shandong Chenming

Description: In its Circulation No.9 for 2006, the Treasury Bureau of Shouguang City 

granted Shandong Chenming a governmental award totaling RMB 13.071 

million for being among the leading tax payers of the city.151

Program: Local Government Grants for Technological Renovation Program

Recipients: Shandong Chenming 

 Ningxia Meili

Description: In its Circulation No. 10 for 2006, the Treasury Bureau of Shouguang City 

granted Shandong Chenming RMB 36.144 million to support the company’s 

technological renovation program related to its coated paper production. Its 

subsidiary in Wuhan City received a similar subsidy for a technological 

renovation program in the amount of RMB 2.8 million. For similar reasons, 

authorities in the city of Hailare, Inner Mongolia provided another RMB 2.7 

million to a Shandong Chenming subsidiary in that city.152

In another instance, in 2006, the Zhongwei city authority granted RMB 7.71 

million in technological innovation aid to Ningxia Meili Paper.153

 

150 Shandong Chenming Paper Group, 2006 Annual Report at 44, 45. See Exhibit F-42. 

151 Shandong Chenming Paper Group, 2006 Annual Report at 44. See Exhibit F-42. 152 Shandong Chenming Paper Group, 2006 Annual Report at 44, 45. See Exhibit F-42 153 Ningxia Meili Paper Industry Co., Ltd., 2006 Annual Report at 51. See Exhibit F-43. 
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Programs Identified In Company Annual Reports for 2006 

Program: Local Tax Rebate

Recipient: Shandong Chenming

Description: The General Office of the Shouguang city government, in its Circulation No. 

188, allowed the company a local tax rebate of RMB 1.345 million. The 

company’s annual report also disclosed that the Shouguang local government 

exempts companies in a local industrial district from local tax in the first 

year, followed by a 50 percent reduction in local tax for the subsequent two 

years. A similar rebate was provided by the local authority in Jilin Yanbian 

Korean autonomous county, Jilin Province. A subsidiary of Shandong 

Chenming located in that county received RMB 6.61 million in local tax 

rebates in 2006.154

Program: Local Policy Grants

Recipient: Shandong Chenming

Description: Shandong Chenming received from Chibi City Treasury Bureau, Hubei 

Province, policy grants of RMB 9.7 million in 2006. The Qihe City 

Authority in Shandong Province granted the company another RMB 28.35 

million.155

Program: Local Environmental Protection Program Subsidy

Recipient: Ningxia Meili 

Description: Ningxia autonomous region government granted Ningxia Meili RMB 

400,000 in 2006 to support its environmental protection projects.156

Program: High-Tech R&D Subsidy

Recipient: Ningxia Meili 

Description: In 2006, the Zhongwei city authority granted RMB 500,000 to Ningxia Meili 

in support its R&D activities.157

 

154 Shandong Chenming Paper Group, 2006 Annual Report at 44, 45. See Exhibit F-42. 

155 Shandong Chenming Paper Group, 2006 Annual Report at 45. See Exhibit F-42. 156 Ningxia Meili Paper Industry Co., Ltd., 2006 Annual Report at 51. See Exhibit F-43. 157 Id. See Exhibit F-43. 
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G. THE MAGNITUDE OF GOVERNMENT SUBSIDIES RECEIVED AT THE 

ENTERPRISE LEVEL

Several Chinese forestry enterprises were involved in the two CVD investigations 

conducted in the United States and Canada. The annual reports of these companies provide some 

limited information on the level and types of government assistance extended to companies in 

the forestry sector. The financial reports of these companies reflect certain benefits that they 

record as subsidies but the reports do not necessarily cover all subsidies received by the 

companies. The following reviews financial information reported in the annual reports of six 

Chinese companies in the forestry sector. 

1. Shandong Chenming Paper Group

Shandong Chenming Paper Group is a major Chinese Paper producer. It is one of the 

two mandatory respondents in the U.S. CFS paper countervailing duty investigation. The 

company is listed on the Shanghai Stock Exchange. Its annual report for 2006 lists government 

support totaling RMB 153.088 million for the year. 

Shandong Chenming Paper Group RMB 

Total government grants and tax benefits 153,088,569.48

Sales revenue 11,814,092,426.30

Source: Shandong Chenming Paper Group, 2006 Annual Report158

 

158 Shandong Chenming Paper Group, 2006 Annual Report at 5, 44. See Exhibit 42. 
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Shandong Chenming Paper Group: Break Down of Grants Received 

(RMB '000) 

2006 2005 

Shandong Chenming Paper Group 56,634 45,673

Shandong Chenming Paper Group Qihe Linerboard Paper 

Company Limited 33,424 47,336

Shandong Chenming Paper Group Qihe Linerboard Paper 

Company Limited 28,350 --

Chibi Chenming Paper Company Limited 9,700 12,060

Yanbian Chenming Paper Company Limited 6,611 6,649

Wuhan Chenming Hanyang Paper Company Limited 2,800 5,803

Hailaer Chenming Paper Company Limited 2,700 2,240

Shandong Chenming Panels Company Limited 1,521 771

Jiangxi Chenming Paper Company Limited 446 245

Heze Chenming Panels Company Limited -- 950

TOTAL GRANTS: 142,186 121,727

TAX REBATE: 10,902 

TOTAL SUBSIDY: 153,088 

Source: Shandong Chenming Paper Group, Auditor's Report and Consolidated Financial 

Statements for the Year Ended 31 December 2006159

2. Shandong Huatai Paper Company, Ltd. 

The petitioner in the in the CFS paper investigation listed Shandong Huatai Paper 

Company, Ltd. as a recommended respondent. The company is China’s largest newsprint 

producer, and is listed on the Shanghai Stock Exchange. In 2006, its paper production capacity 

was 1.2 million tonnes. All of the reported subsidy received by Shandong Huatai Paper 

Company, Ltd. was in the form of VAT export rebates. 

 

159 Shandong Chenming Paper Group, Auditor's Report and Consolidated Financial Statements for the Year Ended 

31 December 2006 at 26. See Exhibit F-92. 
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Shandong Huatai Paper Company, Ltd. RMB 

Grants income 1,185,316.90

Sales revenue 3,739,619,064.92

Source: Shandong Huatai Paper Co., Ltd., 2006 Annual Report160

3. Ningxia Meili Paper Industry Company, Ltd. 

Ningxia Meili Paper Industry Company, Ltd. is another recommended respondent in the 

CFS paper case. It is a major paper maker, ranking 8th in the industry, with annual production 

capacity of 450,000 tonnes. It is listed on the Shenzhen Stock Exchange, and is certified as a 

Dragon Head enterprise in the Ningxia province. It also has pulp production capacity of 350,000 

tonnes, and owns a plantation covering an area of 0.5 million ha. 

Ningxia Meili Paper Industry Company, Ltd. RMB 

Subsidy Income 8,910,000.00

Sales Revenue 904,740,197.69

Ningxia Meili Paper Industry Company, Ltd.: Break Down of Grants Received 

(RMB) 

2006 

Technology Renovation Grants by the Local Government 7,710,000.00

Environmental Protection Grants 400,000.00

Packaging Technology R&D Development 500,000.00

Government Rewards 300,000.00

TOTAL 8,910,000.00

Source: Ningxia Meili Paper Industry Co., Ltd., 2006 Annual Report161

 

160 Shandong Huatai Paper Co., Ltd., 2006 Annual Report at 4, 60. See Exhibit F-44. 161 Ningxia Meili Paper Industry Co., Ltd., 2006 Annual Report at 51 and section 3 (financial highlights). See 

Exhibit F-43. 
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4. Yueyang Paper Company, Ltd. 

Yueyang Paper Company, Ltd. is a producer of newsprint and coated paper. Its stock is 

listed on Shanghai Stock Exchange. Yueyang Paper has paper production capacity of 400,000 

tonnes, pulp capacity of 450,000 tonnes, and owns a plantation covering 850,000 ha. The VAT 

exemption reported by Yueyang Paper was granted for timber that was produced by the company 

and consumed in the company’s pulp production.

Yueyang Paper Company, Ltd. RMB 

Subsidy Income 4,776,807.49

Sales Revenue 1,872,841,583.44

Yueyang Paper Company, Ltd.: Break Down of Subsidies Received 

(RMB) 

2006 

VAT Exemption 4,659,807.49

Plantations Development Subsidy 117,000.00

TOTAL 4,776,807.49

Source: Yueyang Paper Co., Ltd., 2006 Annual Report162

5. An Hui Shan Ying Paper Industry Company, Ltd. 

An Hui Shan Ying Paper Industry Company, Ltd. is a major paper board producer with 

annual paper and paper board production capacity of 500,000 tonnes. It is a public company 

listed on the Shanghai Stock Exchange. 

 

162 Yueyang Paper Co., Ltd., 2006 Annual Report at 5, 65. See Exhibit F-45. 
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An Hui Shan Ying Paper Industry Company, Ltd. RMB 

Government Subsidy 32,045,089.22

Sales Revenue 1,628,186,684.47

An Hui Shan Ying Paper Industry Company, Ltd.: Break Down of Subsidies Received 

(RMB) 

2006 

Policy grants VAT exemption 2,399,500.00

Tax rebate Plantations Development subsidy 21,927,871.40

Subsidy for utilizing recycled paper 7,717,717.82

TOTAL 32,045,089.22

Source: An Hui Shan Ying Paper Industry Co., Ltd., 2006 Annual Report163

6. Fujian YongAn Forestry Group Joint-Stock Company, 

Ltd. 

Fujian YongAn is one of the largest wood panel producers in China. It was the first 

forestry company listed on the Shanghai Stock Exchange. The company was involved, as an 

exporter, in the Canadian countervailing duty investigation of laminate flooring. The entire 

subsidy reported by Fujian YongAn Forestry Group was received as VAT rebates for various 

reasons. 

Fujian YongAn Forestry Group Ltd. RMB 

Government Subsidy 7,158,749.97

Sales Revenue 345,825,405.86

Source: Fujian YongAn Forestry Group Joint-Stock Co., Ltd., 2006 Annual Report164

 

163 An Hui Shan Ying Paper Industry Co., Ltd., 2006 Annual Report at 2, 56. See Exhibit F-46. 164 Fujian YongAn Forestry Group Joint-Stock Co., Ltd., 2006 Annual Report at 5, 66. See Exhibit F-47.