   
  
G/SCM/Q2/CHN/118  
 
25 October  2022 
(22-7967) Page: 1/4 
Committee on Subsidies and Countervailing Measures  Original: English  
 
SUBSIDIES  
REPLIES TO FOLLOW UP QUESTIONS1 POSED BY THE UNITED STATES TO REPLIES2 REGARDING  
THE 2021 NEW AND FULL NOTIFICATION OF CHINA3 
The following communication, dated and received on 24 October  2022, is being circulated at the 
request of the delegation of China . 
 
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Question 1  
For the government guidance funds, such as the IC Fund, which are controlled by the 
central or local government, how does the government ensure that the fund is investing 
consistent with government policy for the relevant sector? Has there ever been an 
instance of a government -controlled guidance fund investing in a manner inconsistent 
with government policy for the relevant sector?  
Reply : 
The IC Fund was initiated and established in accordance with the market -oriented principle, and its 
investment business is in the hands of a professional management team, without intervention from 
government authorities.  
Question 2  
In July of 2017, the credit rating of Hongqiao Group, a large aluminium producer, was 
downgraded. Despite this credit downgr ading, the following month, the state -owned 
enterprise, China International Trust Investment Corporation (CITIC), bought 807 million 
new shares and USD  320 million of convertible bonds in the company. Why was such a 
large investment made in a company opera ting in a sector suffering from overcapacity 
whose credit rating was recently downgraded?  
Reply : 
CITIC operates in accordance with The Company Law and its Articles of Association and serve the 
interests of shareholders. As an independent market entity, it  exercises autonomy and assume sole 
responsibility for its profits and losses, and its investment is free from any government intervention.  
Question 3  
a. Did the CDB sign an agreement with the Ministry of Industry and Information 
Technology, wherein the bank pledged to provide USD  44 billion of investment to 
support the Made in China 2025 program, within the 13th Five-Year Plan 
Period  (2016 -2020)?  
 
1 G/SCM/Q2/CHN/114  
2 G/SCM/Q2/CHN/ 112 
3 G/SCM/N/ 372/CHN G/SCM/Q2/CHN/118  
 
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  b. Does China disagree with the research in the Journal of Finance in February  2018 
that found that 95%of CBD's industrial loans are to state -owned enterprises and 
that 86% of provincial level state -owned enterprises have loans outstanding with 
CDB? How is lending almost exclusively to state -owned enterprises "in line with 
market -oriented principles" when private enterprises in China are more dynamic 
and profitable than state -owned enterprises?  
c. As originally asked and not answered, to what extent are CDB loans to SOEs 
non-performing?  
d. What companies has CDB's subsidiary, CDB Capital, i nvested in?  
Reply : 
CDB operates in a market -oriented way and the fund mentioned is not subsidy.  
Question 4  
In our initial questions, the United States asked: An examination of the financial 
statements of various fossil fuel companies in China, such Sinopec , PetroChina and 
CNOOC, indicate the government provided financial appropriations totalling 
RMB 12.4 billion (USD  1.8 billion) in 2020. Why were these financial contributions not 
included in China's notification? In response, China asked for references to the relevant 
documents. The bases for these questions are as follows: Sinopec Annual Report; 
PetroChina Annual Report; CNOOC Energy Development Co., Ltd. Semi -Annual Report. 
Returning to the question originally asked: An examination of the financial statem ents of 
various fossil fuel companies in China, such Sinopec, PetroChina and CNOOC, indicate the 
government provided financial appropriations totalling RMB 12.4 billion (USD  1.8 billion) 
in 2020. Why were these financial contributions not included in China 's notification?  
Reply : 
In 2020, the central government appropriated a total of RMB 3,702 million from the state -owned 
capital operation budget to Sinopec, PetroChina and CNOOC, all of which is expenses to solve 
outstanding problems, ease the financial bu rden of reform, and free these enterprises from social 
functions such as education, medical treatment and municipal administration. It’s compensation 
money for the general service provided by such enterprises, with the aim to enable SOEs to 
participate fai rly in market competition. In addition, the government appropriations indicated in 
financial statements are not necessarily subsidies defined in the WTO’s Subsidy Agreement, and 
therefore the abovementioned amount is not included in the notification.  
Question 5   
In our initial questions, the United States asked: An examination of government budget 
documents indicate that 128 billion RMB (USD  18.3 billion) was spent in 2020 to lower 
fuel prices. Why was this expenditure not included in China's notificat ion? In response, 
China asked for references to the relevant underlying document. The basis for this 
question is the Central Level General Public Budget Expenditure. Returning to the question 
originally asked: An examination of government budget documents indicate 
that 128 billion RMB (USD  18.3 billion) was spent in 2020 to lower fuel prices. Why was 
this expenditure not included in China's notification ?   
Reply : 
No comment based on the materials available. We need more references for verification.  
Question  6 
In our initial questions, the United States asked: According to government budget 
documents, RMB  4.4 billion (USD  628 million) was spent in 2020 to support oil, gas, and 
coal exploration funding for various entities. Why were these expenditures not incl uded G/SCM/Q2/CHN/118  
 
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  in China's notification? In response, China asked for references to the relevant 
documents. The basis for this question, once again, is the Central Level General Public 
Budget Expenditure. Returning to the question originally asked: According to gover nment 
budget documents, RMB 4.4 billion (USD  628 million) was spent in 2020 to support oil, 
gas, and coal exploration funding for various entities. Why were these expenditures not 
included in China's notification?  
Reply : 
No comment based on the materials a vailable.  
Question 7  
Based on our examination, few if any of the normative measures cited in the notification 
have been published. Please explain how this is consistent with China Protocol of 
Accession obligations regarding publication of measures pertaini ng to or affecting trade.  
Reply : 
China values information disclosure and works in compliance with the Regulations on Information 
Disclosure of the People’s Republic of China.  
Question 8  
As we asked initially, are distant water fishing enterprises completely exempt from 
income tax?  
Reply : 
According to the Notice of the State Administration of Taxation on the Implementation of Preferential 
Income Tax Treatment for Enterprises Engaged in Agricultural, Forestry, Animal Husbandry and 
Fishery  Projects (No.48 of 2011 by the State Administration of Taxation), “For distant -water fishing 
enterprises that have obtained the Qualification Certificate for Distant -Water Fishing Enterprises 
issued by the Ministry of Agriculture and within the valid peri od, the income derived from distant -
water fishing is exempt from corporate income tax.” This preferential tax policy is not specific to 
distant -water fishing, but benefits many sectors.  
Question 9  
Why is China notifying funds allocated for "public sewage t reatment"? Does China 
consider that funds allocated for public sewage treatment should be notified under 
Article  25 of the Subsidies  Agreement? Please explain.  
Reply : 
The fund subsidizes eligible enterprises ，which is specific.  
Question 10  
What is the difference, if any, between Program 66: Preferential tax policies for 
enterprises engaged in projects of agricultural, forestry, animal husbandry and fishery 
and Program 27 Preferential tax policies for enterprises engaged in projects of 
agricu ltural, forestry, animal husbandry and fishery?  
Reply : 
Program 66 is part of the chapter dedicated to fishery subsidies, and eligible for the same preferential 
tax policy as stipulated in Program 27. The format is consistent with Item 33 of the Circular of  the 
Chinese Government on Subsidies at the Central Government Level 2017 -2018 and Item 1 of the 
Fishery Sector.  G/SCM/Q2/CHN/118  
 
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  Question 11  
The United States initially asked: According to the Domestic Refined Fuel Price Reform 
Upward Adjustment According to the System  notice issued on 31 December 2021 (and 
earlier iterations of this program), purchasers of diesel fuel in the fishery sector enjoy a 
preferential price compared to other retail purchasers, based on a state determined sales 
price. In its responses to the Unite d States' questions on China's 2019 Notification, China 
noted that the program on Domestic Refined Fuel Price Reform Upward Adjustment 
According to the System  had been repealed. However, the system appears to still be in 
place, having been updated multiple  times in each of 2019, 2020, and 2021. If the program 
has been repealed, why does it continue to be updated? Please explain and provide the 
legal citation for the repealing legal measure. If the program is on -going, does China 
intend to notify it and publ ish it in the MOFCOM Gazette? In response to this question, 
China stated: "There is no subsidy for fishery in terms of the refined fuel price. The 
footnotes to the tables in the Domestic Refined Fuel Price Reform Upward Adjustment 
According to the System , published on 31  December 2021, do not include fishery."  
We note that footnote 4 to the tables in the Domestic Refined Fuel Price Reform Upward 
Adjustment According to the System  states that "other relevant refined oil product pricing 
policies shall be impl emented in accordance with the provisions of the Administrative 
Measures of Oil Prices ." Article  4.1 of the Administrative Measures of Oil Prices  reads that 
"Gasoline and diesel retail and wholesale prices, as well as gasoline and diesel supply 
prices for social wholesale enterprises, railway, transport and other special users, shall 
be government -guided." The Administrative Measures of Oil Prices  do not specify what is 
encompassed by "transport" in Article 4.1, but the Administrative Measures are issued 
pursuant to Zhong Fa (2008) No. 37, Article 3.3 of which states that for "[u]rban public 
transport, rural road passenger transport (including inter -island and rural waterway 
passenger transport), forestry, and fisheries (including distant water fisheries)" t hat "the 
price of refined oil shall be subsidized by the central treasury through special transfer 
payments."  
In light of the above, please cite the specific measures that indicate fisheries do not 
benefit from a preferential price compared to other retail  purchasers of refined fuel prices. 
Moreover, please clarify whether China intends to notify the Domestic Refined Fuel Price 
Reform Upward Adjustment According to the System  and publish it in the MOFCOM 
Gazette.  
Reply : 
In China, purchasers of diesel fuel i n the fishery sector do not enjoy any preferential price. The 
Refined Fuel Price Reform Upward Adjustment released on December 31, 2021, contains no 
expression of preferential price for purchasers in the fishery sectors. Please verify your references.  
 
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