"Countervailing Regulations of the People's Republic of China"

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People’s Republic of China Anti-Subsidy Regulations

Introduction

The People’s Republic of China (PRC) is committed to creating and maintaining a market-based environment in which domestic industries can compete fairly and invest confidently. To this end, the PRC has developed and implemented the “People’s Republic of China Anti-Subsidy Regulations” (the “Regulations”), which provide a legal framework to protect Chinese companies from the manipulation of subsidies or other forms of unlawful competition by foreign companies.

The Regulations define the concept of subdivision and restrictions on the provision of subsidies, such as the requirement that all foreign subsidies must be approved by the Ministry of Commerce (MOFCOM). MOFCOM is also responsible for the investigation and imposition of remedial measures to address violations of the Regulations.

Definition

Under the Regulations, a “subsidy” is defined as “a grant of financial assistance by any foreign government or its designated agent, including a grant, loan or guarantee of a loan, provided by a foreign government or its designated agent, that has a competitive effect on the Chinese market.”

Subdivision

The subparagraphs of the Regulations provide a more specific definition of the different forms of subsidies that are prohibited, including direct and indirect aid, such as cash grants, tax advantages, grants for non-eligible products, and subsidized loans. The Regulations also outline the duties of MOFCOM with respect to the investigation and imposition of remedial measures for the violation of the Regulations.

Compliance

The Regulations require all foreign enterprises and their affiliated companies to comply with the provisions of the Regulations, including the prohibition on any subsidies to domestic consumers. All foreign subsidies that are not authorized by MOFCOM are prohibited and any violation of the Regulations will lead to remedial measures as prescribed by MOFCOM.

Remedial Measures

If it is found that a domestic Chinese enterprise has benefitted from a foreign subsidy, MOFCOM will consider the appropriateness of remedial measures. The likely measures include the following:

• Reduction or elimination of the subsidy;

• The suspension or termination of export or import business;

• The application of countervailing duties;

• The imposition of fines; and

• Other measures as deemed necessary.

Conclusion

In conclusion, the People’s Republic of China Anti-Subsidy Regulations aim to create and maintain a competitive business environment between domestic and foreign companies in the Chinese market. These Regulations continue to be a prominent element in the efforts of the Chinese government to foster fair competition and protect domestic businesses from the manipulation of subsidies or other forms of unlawful competition from foreign companies.

The Chinese Government, in efforts to promote a level playing field among Chinese businesses and promote fair competition among them, promulgate the Anti-Subsidy Regulations of the People’s Republic of China. The Regulation serves to address the inequality created when special subsidies are granted by the government, local and regional authorities and state-owned enterprises, creating an uneven playing field. The Regulation is aimed to prevent subsidies, principally in the form of fiscal, financial, and economic policies, to incentivize businesses to compete solely on the basis of merit, product quality, service and cost.

The Regulation contains four definitive provisions, which are: (1) Subsidies granted must comport with Chinese laws and regulations and are to be transparent in nature; (2) Prohibited subsidies must not be provided to enterprises with foreign participation and foreign-invested enterprises or foreign traders shall not receive subsidies directly or indirectly; (3) State-owned enterprises cannot grant subsidies to enterprises from their subsidiaries or investee companies; and (4) The costs incurred by the enterprise for obtaining an appropriate level of subsidy must not be reflected in the taxable income of the enterprise.

The Regulations also set out the specific categories of prohibited subsidies. These comprise of subsidies that: (1) distort competition by granting advantages to enterprises by sector, region or ownership; (2) allow the reallocation of resources in ways incompatible with economic efficiency; (3) jeopardize national balance of payments; (4) distort international trade or investment flows; (5) interfere with the Chinese Government’s fiscal policy; and (6) create unfair trading opportunities.

The Anti-Subsidy Regulations of the People’s Republic of China reiterates the Chinese Government’s intention in creating a fair, competitive environment among Chinese businesses and to ensure businesses adhere to fair and transparent practices when it comes to providing subsidies to businesses. In an increasingly competitive global environment, these Regulations serves to ensure businesses compete with one another fairly and effectively.