(1)

On 16 May 2019, based on Article 10 of the basic Regulation, the European Commission (‘the Commission’) initiated an anti-subsidy investigation with regard to imports into the Union of certain woven and/or stitched glass fibre fabrics (‘GFF’) originating in the People's Republic of China (the ‘PRC’) and Egypt (together referred to as ‘the countries concerned’). The Commission published a Notice of Initiation in the Official Journal of the European Union (‘Notice of Initiation’) (2) on 16 May 2019.

(2)

The Commission initiated the investigation following a complaint lodged on 1 April 2019 by Tech-Fab Europe (‘the complainant’) on behalf of producers representing more than 25 % of the total Union production of certain woven and/or stitched glass fibre fabrics. The complaint contained evidence of subsidisation and of a resulting injury that was sufficient to justify the initiation of the investigation.

(3)

Prior to the initiation of the anti-subsidy investigation, the Commission notified the Government of China (‘GOC’) (3) and the Government of Egypt (‘GOE’) (4) that it had received a properly documented complaint, and invited the GOC and the GOE for consultations in accordance with Article 10(7) of the basic Regulation. Consultations were held on 13 May 2019 with the GOC and with the GOE. However, no mutually agreed solution could be reached.

(4)

On 21 February 2019, the Commission initiated a separate anti-dumping investigation of the same product originating in the PRC and Egypt (5) (‘the separate anti-dumping investigation’). On 7 April 2020, the Commission imposed definitive anti-dumping duties on imports of the product concerned originating in the PRC and Egypt (6) (‘the definitive anti-dumping Regulation’). The injury, causation and Union interest analyses performed in the present anti-subsidy investigation and the separate anti-dumping investigation are mutatis mutandis identical, since the definition of the Union industry, the sampled Union producers, the period considered and the investigation period are the same in both investigations.

(5)

The GOC claimed that the investigation should not be initiated because the complaint did not satisfy the evidentiary requirements of Articles 11(2) and 11(3) of the WTO Agreement on Subsidies and Countervailing Measures (‘SCM Agreement’) and of Article 10(2) of the Basic Regulation. According to the GOC, there was insufficient evidence of countervailable subsidies, injury and a causal link between the subsidised imports and the injury.

(6)

The Commission rejected that claim. The evidence submitted in the complaint constituted the information reasonably available to the complainant at that stage. As shown in the memorandum on sufficiency of evidence, which contains the Commission's assessment on all the evidence at the disposal of the Commission concerning the People's Republic of China and Egypt, and on the basis of which the Commission initiated the investigation, there was sufficient evidence at initiation stage that the alleged subsidies were countervailable in terms of their existence, amount and nature. The complaint also contained sufficient evidence of the existence of injury to the Union industry, which was caused by the subsidised imports.

(7)

More specifically, during the pre-initiation consultations, the GOC indicated that the complainant's references to any Chinese plans, programmes, or recommendations were irrelevant as they are not binding and that the GFF industry is not mentioned in China’s 13th Five Year Plan nor in the 13th Five Year Plan for the Building Materials Industry (2016-2020). Following initiation, the GOC also stated that GFF is not covered by the document ‘Made in China 2025’. The Commission noted that the GOC does not dispute the existence of such plans, programmes, or recommendations but only the extent to which they are binding or to which they cover the GFF industry. The Commission further observed that the complainant provided evidence indicating that 'new materials' are mentioned in several government documents, while 'glass-based materials' are mentioned in the 13th Five Year Plan for the Building Materials Industry (2016-2020). The GOC failed to produce any evidence showing that those statements would not be applicable to the product concerned.

(8)

The GOC also stated that neither the Chinese Export & Credit Insurance Corporation (‘Sinosure’) nor State-owned commercial banks are public bodies and that the GOC did not entrust or direct private banks. The Commission noted that this claim is connected to the claim already evoked above, and that the complaint among others mentioned the Bank Law in China, which the GOC does not dispute to belong to the Chinese legislation. The Commission also highlighted that recent EU anti-subsidy investigations had concluded differently on this matter (7).

(9)

Furthermore, the GOC claimed that export buyers' credit are provided to foreign companies and hence do not benefit Chinese GFF producers. The Commission found however that benefits granted to foreign companies owned by Chinese GFF producers may benefit the latter.

(10)

The GOC indicated that the tax scheme relating to accelerated depreciation of equipment used by High-Tech enterprises for High-Tech development and production, as well as some of the mentioned grants programmes had been terminated. The Commission took note of this comment, but highlighted that it does not apply to all programmes nor to the different levels of government authorities (i.e. national, regional or local) mentioned in the complaint. In addition, the tax scheme related to accelerated depreciation could still procure ongoing benefits such as depreciation over the lifespan of the relevant equipment, possibly covering the investigation period.

(11)

Following initiation, the GOC further argued that the complainant did not establish the conditions for applying an out-of-country benchmark for loans and for land use rights. The Commission found, however, that the allegations contained in the complaint are supported by recent EU anti-subsidy investigations concluding on those matters the need for external benchmarks adjusted to the prevailing conditions in the PRC (8).

(12)

In addition, the GOC stated that the complaint lacked sufficient evidence as it relied mostly on previous EU regulations, which concern different product scopes. The Commission however noted that the findings made in previous and recent anti-subsidy investigations relate to the same subsidy programmes alleged in the complaint. Following initiation, the GOC furthermore submitted that substantial changes and reforms had occurred in the financial sector in the years 2016 to 2018, and that the complaint could thus not rely on any pre-existing situation. However, the Commission noted that the complainant also provided additional evidence in the complaint of the continued existence of the subsidy programmes, without having been substantially altered. The Commission further recalled that the GOC failed to provide evidence rebutting the continuation of the relevant programmes. Thus, at the stage of initiation, the evidence available tended to show that there was no relevant change in the subsidy programmes at issue. Ultimately, this was also confirmed in this investigation.

(13)

The GOC further claimed, in relation to various subsidies, that the applicant failed to provide evidence of benefit and specificity. The Commission is of the view that the complainant provided sufficient evidence of benefit and specificity as was reasonably available to it. In any event, the Commission examined the evidence in the complaint and provided its own assessment of all relevant elements in the memorandum of sufficiency of evidence, which was put on the open file upon initiation. The GOC reiterated its comments following initiation, but did not provide any further evidence.

(14)

Therefore, the Commission concluded that there was sufficient evidence provided in the complaint tending to show the existence of the alleged subsidisation by the GOC.

(15)

Finally, a particular element of this case is that the alleged subsidisation in Egypt concerns two companies in the China-Egypt Suez Economic and Trade Cooperation Zone ('SETC-Zone'), a special economic zone which was set up together by the PRC and Egypt, which are the two countries targeted by the complaint. The Commission stated its intention to investigate all subsidies received by these companies in the SETC-Zone, regardless of their source.

(16)

During the pre-initiation consultations, the GOC indicated that the complainant had no legal basis to challenge the GOC via the product concerned originating in or exported from Egypt. The Commission noted the concerns of the GOC, but still considered that there was sufficient evidence to start an investigation into the alleged countervailable subsidies granted to the companies in the SETC-Zone, regardless of their source.

(17)

Following initiation, the GOC argued that, when establishing the Union consumption, the adjustment made to the import data from the PRC was unfair when compared to the adjustment made to the import data from other third countries like Russia. The GOC further argued that these adjustments were not cross-checked by the Commission. The GOC also argued that there is no information on the record on what constitutes market information / intelligence used in adjustments made to import data.

(18)

As also outlined in recital (937), further to the complainant’s import analysis on CN-basis, the imports were also assessed based on import statistics at TARIC level, cross-checked with other sources and adjusted where appropriate. With regards to Russia, the import data was cross-checked and adjusted based on the import data from GFF producers related to the Union producers that were the only known GFF producers in Russia. This methodology was found reasonable leading to an accurate estimate of the imports of the product concerned from Russia. In the same way, during the investigation, as explained in recital (937) below, the Commission cross-checked the Eurostat TARIC-level data with the data submitted by the known producers in the PRC, who came forward during the sampling exercise. The export volume of GFF reported by the cooperating Chinese exporting producers represented the totality of the imports recorded in Eurostat under the relevant TARIC codes and all exports were therefore considered to be the product concerned. Finally, by contrast to what was claimed by the GOC, the complaint explained how market information / intelligence was used to adjust import data. This claim was therefore rejected.

(19)

In its comments on initiation, the GOC argued that the market for GFF is segmented and each of the segments represent vastly different price bands. The GOC argued that the three main types of products woven rovings (‘WR’), knitted non-crimp fabrics (‘NCF’), and complex materials (‘CM’) have different composition and production steps/processes, and therefore also production costs and sales prices. Moreover, these three product types have different physical and technical characteristics, which in turn define their end uses. According to the GOC, the price comparison/undercutting assessment, as well as the assessment of the allegedly injurious impact of the Chinese imports as done in the complaint at an aggregate level is misleading and insufficient without actually assessing the extent of the presence, i.e. volume and market share, of the Chinese and the Union producers in each of the product segments.

(20)

The Commission considered that the GOC failed to submit any evidence to support those claims. At initiation, the complainant provided sufficient evidence regarding costs and prices of the product under investigation. The fact that different types of products exist that may have different production processes, costs and sales prices does not automatically entail that there is a segmentation of the market. It is noted that in accordance with Article 10(2) of the basic Regulation the complainant must provide the information that is reasonably available to it. As costs and prices of products types produced in China are by nature confidential and not available to the complainant, the Commission considered that the complaint contained sufficient information that was reasonably available to the complainant to initiate the investigation.

(21)

Furthermore, the information collected and received by the Commission during the investigation showed that the Union market for GFF is not segmented. The claim that the three product types – WR, NCF and CM – have different physical and technical characteristics, which in turn define their end uses, is factually incorrect. As explained in the complaint and in recitals (129) to (138), and as undisputed by the GOC, the product concerned is used to reinforce thermoplastic and thermoset resins in the composites industry. There are many overlaps in usage; the fabric type chosen will depend on the surface look, the resin flow, the tension to which the finished product will be subject and the application technique. Certain product types are particularly good for closed mould production techniques, or hand lay-up.

(22)

The three product types have the following main and overlapping uses: WRs are used on thermoset applications, especially hand lay-up, for marine products (boat hulls and decks), vehicle body panels (e.g. trucks, trains), windmill blades, pipes and tanks. NCFs are used for the construction of marine products (boat hulls and decks), vehicle bodies and panels (e.g. trucks, trains), windmill blades and nacelles, skis and snowboards, pipes and tanks. CMs are used in closed mould applications for vehicle bodies and panels, marine products (boat hulls and decks), windmill nacelles and leisure vehicles.

(23)

Finally, the Commission notes that it is not unusual for a product concerned to have product types that have different cost structure and prices. This is the very reason for which the Commission collects data on the basis of detailed product types classification. That classification, aside of fabric forms, distinguished between sales formats, types of glass used, area weight and density of rovings. The undercutting calculation was based on product type per product type comparison and thus all these characteristics were taken into consideration when imports from the PRC were being compared with GFF from Union producers. This argument was therefore rejected.

(24)

In its comments on initiation, the GOC further argued that significant differences between import prices of GFF from different sources also makes clear that the Union market for the different product types is segmented and imports from different countries are for different market segments.

(25)

As noted above, the information collected by the Commission throughout the investigation confirmed that the Union market for GFF is not segmented. Furthermore, the investigation has shown that Chinese exporting producers and Egyptian exporting producers do not export completely different forms of GFF. The matching between product sold by exporting producers in the PRC and Egypt was at around 90 %. This argument was therefore rejected.

(26)

In its comments on initiation, the GOC further argued that the Chinese import price comparison and undercutting calculation in the complaint were based on un-comparable and cherry-picked data that was wrongly adjusted.

(27)

As mentioned above, Article 10(2) of the basic Regulation sets the standard of the evidence to be provided by the complainant in the complaint. Thus, while the information has to be sufficient it must also be reasonably available to the complainant. Since cost and price information are by nature confidential, no precise data on costs and prices per product types exported by companies in third countries are reasonably available to the complainant at initiation stage. The information provided was nonetheless considered sufficient to initiate the investigation since it was based on Chinese import prices statistics from Eurostat.

(28)

The Commission further noted that, as specified in recital (965), the undercutting calculation during the investigation was mainly based on actual detailed data of sampled Union producers and exporting producers, which confirmed the undercutting allegations contained in the complaint based on Eurostat statistics. This argument was therefore considered moot also with regard to the data used in the investigation.

(29)

In its comments on initiation, the GOC argued that Chinese GFF imports did not cause price pressure. This statement was not substantiated by any evidence.

(30)

In contrast, the complaint provided information on the effect of the subsidised imports on prices of the like product in the Union market and the consequent impact of the imports on the Union industry that was considered sufficient to initiate the investigation. The evidence provided in the complaint showed that Union prices were significantly undercut by both Egyptian and Chinese import prices.

(31)

In addition, that statement is factually incorrect. As found by the Commission during the investigation and explained in recital (966), the sampled Chinese exporting producers significantly undercut Union industry’s prices during the IP. This argument was therefore rejected.

(32)

In its comments on initiation, the GOC argued the cumulation of imports from China and Egypt for the purpose of the injury analysis is not justified in the present case. This is because the conditions of competition between the imports from these countries, and between the imports from these countries and the like product produced and sold by the Union industry on the Union market are vastly differ. The GOC argued that Chinese GFF is not in competition with Egyptian GFF as (i) Egyptian GFF imports were practically inexistent until 2017; (ii) GFF imports from China and Egypt followed completely opposite trends; (iii) Egyptian imports are differently priced; and (iv) the Egyptian imports are only of NCF according to the Complainant’s own calculations and therefore do not compete with the Union and Chinese GFF sales on the Union market.

(33)

The Commission first observed that the complaint contained sufficient evidence tending to show that imports of the product concerned were being subsidised and imports volumes were significant and cause injury to the Union industry. It also contained a number of elements regarding the cumulative assessment of imports from the two countries concerned (in particular that for each country the estimated amounts of subsidisation are not de minimis (9), that for each country the import volumes are significant (10) and that the countries concerned are competing with each other, with the like product and third countries and that the products exported by these countries are sharing the same characteristics and end uses with the like product (11)), which were found to overcome their burden at initiation stage. This evidence was analysed further during the investigation and the Commission confirmed that the conditions for cumulation were met, as described in recitals (947) to (950) explained in detail.

(34)

The GOC further argued that Chinese import volume decreased in the period considered and could not have injured the Union producers.

(35)

As discussed above, the complaint contained sufficient evidence that Chinese and Egyptian imports of GFF should be assessed cumulatively. According to the evidence in the complaint, GFF imports from both countries are competing with each other and with the like product, as well as with imports from third countries. Imports from the PRC and Egypt have the same product characteristics and uses, and are sold to customers across the Union in direct competition with GFF produced by the Union industry and third countries.

(36)

In its comments on initiation, the GOC argued that the complainant has failed to provide reliable data as regards the Union industry as a whole, as the data for non-complainants was unreliable. Furthermore, the complainant did not provide information on several injury indicators.

(37)

The GOC did not explain in what way the data was unreliable. Again, confidential information on sales and production data of the non-complainant Union producers was not available to the complainant. The complainant therefore provided estimates that were considered reasonable and sufficiently accurate and in compliance with Article 10(2) of the basic Regulation. In order to provide sufficient evidence of injury, there is no obligation to provide data on all injury indicators mentioned in Article 8(4) of the basic Regulation; neither do all injury indicators have to show a downward trend.

(38)

The Commission noted that the sample of Union producers selected during the investigation, included the biggest non-complainant, which gave the Commission an opportunity to cross-check macro data provide by the complainant. Furthermore, all relevant injury indicators were considered by the Commission in the investigation. This argument was therefore rejected.

(39)

In its comments on initiation, the GOC argued that, the Union producers are not injured and particularly not on account of the Chinese imports. According to the GOC, between 2015 and the complaint IP, the Union industry was doing well and basically, all the injury indicators developed positively or remained stable.

(40)

The data in the complaint clearly showed that the Union industry has been materially injured by heavily undercutting subsidised imports of GFF from the subject countries. The production, sales and market share of the Union industry have dropped substantially. The complainants were forced to reduce investment and employment. Stocks of Union producers supporting the complaint increased and their profitability dropped.

(41)

The Commission noted that during the investigation the injury indicators established based on the actual verified data provided by sampled Union producers showed material injury that was caused by imports from the countries concerned. The GOC provided comments on these indicators, in its comments on the final disclosure (12). These comments are addressed in Section 5.4. of this Regulation.

(42)

In its comments on initiation, the GOC argued that the Union industry suffered injury due to its related imports from third countries and the decline in demand on the Union market.

(43)

The Commission disagreed. The complaint demonstrated that due to the low volumes of the related imports from third countries these could not have caused the material injury. The complainant’s analysis of the injury indicators further showed that the injury cannot be explained with the decline in demand on the Union market as their losses in market share demonstrate that its loss in sales went clearly beyond the consumption decline.

(44)

The complainant provided sufficient evidence of causal link between imports from the countries concerned and injury. In addition, the complainant analysed other potential causes of injury such as the performance of Union producers, the export performance of Union producers and imports from other third countries.

(45)

During the investigation, imports from third countries and the decline in demand on the Union market, were examined in Section 6.2. below. After final disclosure, no new arguments were provided in the GOC’s comments on initiation. This argument was therefore rejected.

(46)

In its comments on initiation, the GOC argued that vertically integrated Union producers suffered injury due to costs related to “backward integration” and decreased ability to sell on the open market due to “downward integration”.

(47)

At initiation, no information was available concerning an apparent competitive disadvantage from the Union industry. Furthermore, Union producers are predominantly not vertically integrated.

(48)

In addition, the Commission noted that the investigation has not demonstrated abnormal costs due to vertical integration. Furthermore, all sampled Union producers sold primarily to unrelated customers. This argument was therefore rejected.

(49)

In its comments on initiation, the GOC argued that the different sales trends of the complainant and non-complainant producers between 2015 and the complaint IP indicate that the two sets of producers compete for sales and customers. Thus, the loss of sales and market share by the complainant producers to the non-complainant producers was also a likely reason that the former suffered in terms of sales volumes and could not increase prices in the complaint IP.

(50)

Competition amongst Union producers is a consequence of the free market and it is normally an assumption (unless e.g. there is evidence of the existence of anti-competitive practices, which is not the case), rather than a factor explaining the existence of injury. Thus, not only complainant and non-complainant Union producers compete with each other on the Union market, but also the complainant Union producers themselves compete with each other. This cannot be considered as attenuating the causal link between subsidised imports and the material injury suffered by the entire Union industry. The findings of material injury based on a valid sample rely on an assessment of the industry as a whole, including data from complainants and non-complainants (micro and macro data).

(51)

During the investigation, as specified in the Note to the file for inspection by the interested party on the final sample of the Union producers of 21 June 2019, the sample of Union producers consisted of both, complainant and non-complainant Union producers. Furthermore, the injury determination was not limited to the complainant Union producers but to the entire Union industry as a whole. This claim was therefore rejected.

(52)

Finally, in its comments following initiation, the GOC claimed that excessive confidentiality has been granted to key information such as the supporters of the complaint and the main injury-related data. The GOC asserted that this had prevented it from properly rebutting the injury claims made by the complainant.

(53)

The Commission considered that the version open for inspection by interested parties of the complaint contained all the essential evidence and non-confidential summaries of data granted confidential treatment in order for interested parties to exercise their rights of defence throughout the proceeding. It is recalled that Article 29 of the basic Regulation allows for the safeguarding of confidential information in circumstances where disclosure would be of significant competitive advantage to a competitor or would have a significantly adverse effect upon a person supplying the information or upon a person from whom that person has acquired the information. The claims of the GOC in this regard were therefore rejected.

(54)

The GOE claimed that the investigation should not be initiated because the complaint did not satisfy the evidentiary requirements of Articles 11(2) of the WTO Agreement on Subsidies and Countervailing Measures and of Article 10(2) of the Basic Regulation. According to the GOE, there was insufficient evidence of countervailable subsidies, injury and a causal link between the subsidised imports and the injury. The Commission rejected that claim for the same reasons as mentioned in recital (6) above.

(55)

During the pre-initiation consultations, the GOE indicated that the complainant did not present evidence that the alleged preferential loans are granted by the Egyptian government. However, in view of the body of evidence brought forward in the complaint, and most notably the arrangements between China and Egypt, as well as the objectives of these arrangements, the Commission is of the view that the complainant provided sufficient evidence as was reasonably available to it showing that the conduct of granting subsidies through preferential lending could be attributed to the GOE.

(56)

Furthermore, the GOE claimed that the alleged tax benefits were removed from the legislation in 2015 and that the complainant failed to provide evidence that they continue to apply for existing projects. The Commission however found that the complainant provided sufficient evidence of the grandfathering of such tax benefits as was reasonably available to it.

(57)

The GOE also stated that the remission of import duties on raw materials is not a subsidy to the extent that these imported products are re-exported as such or as processed into a downstream product. The Commission acknowledged that only the excess remission of import duties on raw materials is a countervailable subsidy, and paid particular attention to this during the investigation. The Commission further noted that the GOE’s comment does not apply to production equipment.

(58)

The GOE claimed that the complainant failed to provide evidence of benefit on the provision of land at less than adequate remuneration. The Commission however found that the complainant provided sufficient evidence of benefit as was reasonably available to it.

(59)

Finally, the GOE indicated that the complainant failed to provide evidence of specificity concerning the provision of electricity at less than adequate remuneration, as there is no specificity when access to a subsidy is subject to objective conditions. The Commission noted that the GOE did not provide any evidence with respect to such objective conditions during the pre-initiation consultations.

(60)

Therefore, the Commission concluded that there was sufficient evidence provided in the complaint to start an investigation into the alleged countervailable subsidies granted directly or indirectly by the GOE.

(61)

Following definitive disclosure, Yuntianhua Group claimed that the replacement of factors of production performed in the separate anti-dumping investigation is inappropriate and requested the Commission to perform a dumping margin calculation for the exporting producers of the group without any recourse of Article 2(6a) of Regulation (EU) 2016/1036 of the European Parliament and of the Council of 8 June 2016 on protection against dumped imports from countries not members of the European Union (the ‘basic anti-dumping Regulation’) (13). According to Yuntianhua Group, the anti-subsidy investigation found no evidence that the inputs of GFF were provided for less than adequate remuneration. It similarly argued that the anti-subsidy investigation accepted that inputs of GFF were purchased at undistorted market values since the turnover of input and raw material suppliers were used for the calculation of the subsidy benefits.

(62)

The Commission, firstly, noted that comments on the calculation and methodology used in the separate anti-dumping investigation are outside of the scope of this proceeding. Therefore, comments concerning the methodology used for the determination of the dumping should be provided in the context of the said investigation.

(63)

Second, the investigation, as described in Section 3, showed that the key suppliers of the exporting producers benefited extensively from government subsidies. The Commission recalled that the use of the turnover of related companies supplying inputs and raw materials does not imply the acceptance of undistorted market values of those supplies. On the contrary, the turnover is the allocation key, which allows a sound apportionment of the established subsidies from which the exporting producers benefited.

(64)

Finally, the Commission noted that the findings made under Article 2(6a) of the basic anti-dumping Regulation relate to significant distortions when prices or costs are affected by substantial government intervention. A variety of elements is examined in this context holistically. Accordingly, the fact that an anti-dumping investigation under Article 2(6a) does not rely on evidence concerning subsidisation of raw materials or of the product concerned is not a bar for the Commission to investigate separately and pursuant to the applicable rules in the basic Regulation whether there is subsidisation. The arguments of Yuntianhua Group were therefore rejected.

(65)

Following the additional definitive disclosure, the Yuntianhua Group claimed that the disclosure contained new findings regarding: (i) the lack of GFF market segmentation; (ii) physical and technical product characteristics; (iii) cost and price structure; (iv) double counting resulting from the concurrent imposition of anti-dumping and anti-subsidy duties which affected the level of definitive anti-dumping duties imposed on 7 April 2020; and (v) the fact that the dumping margin found in the anti-dumping investigation for this party was incorrect and should be reduced by the entire amount of subsidization established in the PRC to avoid double-counting. These elements were not contained in the final disclosure of the parallel anti-dumping procedure, which would thereby not contain these essential findings and considerations. As a result, according to this party, the definitive anti-dumping Regulation (EU) 2020/492 would be manifestly unreasoned and illegal, and the dumping margin of 64,7 % appearing in the anti-dumping Regulation (EU) 2020/492 would be wrong.

(66)

The Commission noted at the outset that the explanations contained in the additional definitive disclosure in this proceeding are a reaction to comments received by parties further to that disclosure, and thus contained more details to the findings made by the Commission. Accordingly, they do not constitute new findings but simply address the comments of the interested parties.

(67)

Furthermore, with regard to points (i)-(iii) raised by this party i.e. the lack of GFF market segmentation, the product characteristics, and the cost and price structure, the Commission noted that the remarks in the additional disclosure concerning these three points were meant to address new claims raised by the parties. These new claims were submitted only in the context of this anti-subsidy proceeding. The only claim raised in the anti-dumping proceeding on segmentation was that Union producers would only produce OEM customer-specific products and no measures should be imposed on the OEM segment. These arguments were fully addressed in recital 409 of the anti-dumping Regulation (14). Therefore, the Commission could not possibly have addressed these new comments already in the context of the anti-dumping disclosure. The definitive anti-dumping regulation contained all the essential findings and considerations on the basis of which the Commission took its decision in relation to that procedure and fully addressed all the arguments that had been raised in the context of that proceeding. The findings in the anti-subsidy procedure do not affect the reasoning provided for in the definitive anti-dumping regulation.

(68)

Moreover, from a substantive point of view, these points do not affect or alter in any way the findings of the investigation, either the anti-dumping or the anti-subsidy. Therefore, there is no impact whatsoever of these points in the situation of the party raising this claim or of other parties. Despite that, the Commission decided to give an additional opportunity for parties to comment on those points. Indeed, even though they did not introduce any changes themselves (and thus the Commission did not have in principle an obligation to address them in the additional disclosure but in the definitive regulation), they were included in the additional definitive disclosure. For all these reasons, these claims were rejected.

(69)

In any event, there is no contradiction between the findings of the two investigations. The only difference is that parties had the opportunity to comment at a later stage and made additional comments in this proceedings. The Commission had the obligation to reply to these comments and have done so in this Regulation.

(70)

With regard specifically to the last two issues, (iv) and (v) in recital (67) above, of possible double counting and the dumping margin, the Commission noted the following. First, as already explained in reply to the parties’ comments to the definitive disclosure of this proceeding in particular at recital (1137), the Commission fully addressed the potential issue of double counting and gave ample opportunity to all parties to submit comments in the course of this proceeding. It could not possibly have done so in the context of the then ongoing anti-dumping proceeding. Second, the Commission notes that in the context of separate anti-dumping and anti-subsidy proceedings on the same product originating from the same country where the imposition of countervailing duties occurs later than the imposition of anti-dumping duties, there is no option other than amending the previously imposed anti-dumping duties. This must be done in order to take into account the new countervailing duties while at the same time preventing double counting and respecting the lesser duty rule if applicable and relevant. For this purpose, in these cases the legislative technique is to impose the relevant countervailing duties and then at the same time amend the relevant accplicable anti-dumping duties accordingly via the same Regulation. Therefore, contrary to what this party is arguing, the anti-dumping Regulation (EU) 2020/492 is not manifestly wrong and unreasoned. The relevant assessments and claims were fully addressed in this Regulation, which also constitutes the basis for amending the definitive anti-dumping regulation. As the relevant anti-dumping duty applicable to the Yuntianhua Group is also modified accordingly pursuant to this Regulation, as explained in details at Section 8, also the claim of this party that the level of its anti-dumping duty in Regulation (EU) 2020/492 is incorrect is both factually and legally wrong. For all these reasons, the claims by the Yuntianhua Group are rejected.

(71)

On 31 July 2019, the complainant submitted a request for registration of imports of GFF originating in the countries concerned based on Article 24(5) of the basic Regulation. On 21 November 2019, the complainant re-submitted a request for registration pursuant to Article 24(5) of the basic Regulation, with updated import figures.

(72)

Under Article 24(5) of the basic Regulation, imports of the product concerned are subject to registration for the purpose of ensuring that should the investigation result in findings leading to the imposition of definitive countervailing duties, those duties can, if the necessary conditions are fulfilled, be levied retroactively on the registered imports in accordance with the applicable legal provisions.

(73)

Responding to the request for registration, interested parties submitted comments that the Commission addressed in the registration Regulation. The Commission had at its disposal sufficient evidence justifying the need to register imports.

(74)

On 21 January 2020, the Commission published Implementing Regulation (EU) 2020/44 (‘the registration Regulation’) (15) making imports of GFF originating in the PRC and Egypt subject to registration as of 22 January 2020.

(75)

During the investigation, it became apparent that some economic operators might not have come forward based on an incorrect understanding of the definition of the product under investigation. For that reason, on 18 September 2019, the Commission clarified the wording of the product scope description included in the Notice of Initiation by publishing a Notice (‘Clarification Notice’) (16). The Clarification Notice also gave the possibility for parties to come forward within a prescribed time limit to make themselves known and to request a questionnaire, if they wished so. No interested party submitted any comment on the Clarification Notice nor requested a questionnaire.

(76)

After publication of the Clarification Notice and in the subsequent investigation, it was confirmed that no economic operators had failed to come forward due to the possible misunderstanding in the definition of the product concerned contained in the Notice of Initiation.

(77)

The investigation of subsidisation and injury covered the period from 1 January 2018 to 31 December 2018 (‘the investigation period’ or ‘IP’). The examination of trends relevant for the assessment of injury covered the period from 1 January 2015 to the end of the investigation period (‘the period considered’).

(78)

Both the current anti-subsidy investigation and the anti-dumping investigation mentioned in recital (4) have the same investigation period and the same period considered.

(79)

In the Notice of Initiation, the Commission invited interested parties to contact it in order to participate in the investigation. In addition, the Commission specifically informed the complainant, the GOE, the GOC, other known Union producers, the known exporting producers, known importers and users about the initiation of the investigation and invited them to participate.

(80)

Interested parties had an opportunity to comment on the initiation of the investigation and to request a hearing with the Commission and/or the Hearing Officer in trade proceedings. The Yuntianhua Group requested an intervention from the Hearing Officer to raise concerns related to the deadline given to respond to a deficiency letter. The company argued that it had not noticed the deficiency letter because its IT server had mistakenly considered the Commission’s e-mail as junk mail, and requested an extension of 18 days. The Hearing Officer invited the Commission to extend the deadline by 6 days.

(81)

As mentioned in Section 1.3, the Commission clarified the product scope during the investigation and gave interested parties concerned by the clarification, or who might not have made themselves known because they believed they were not concerned by the proceeding, the opportunity to make themselves known and request a questionnaire within a time limit. No additional parties came forward.

(82)

In the Notice of Initiation, the Commission stated that it might sample the interested parties in accordance with Article 27 of the basic Regulation.

(83)

In the Notice of Initiation, the Commission stated that it had decided to limit the investigation to a reasonable number of Union producers by applying sampling. It added that it had provisionally selected a sample of Union producers based on the reported production volume of the like product in the Union between October 2017 and September 2018 also taking into consideration the geographical spread. This sample consisted of four Union producers accounting for more than 40 % of the estimated total Union production of GFF. None of the interested parties provided comments and the provisional sample was therefore confirmed. The sample is representative of the Union industry.

(84)

To decide whether sampling was necessary and, if so, to select a sample, the Commission asked unrelated importers to provide the information specified in the Notice of Initiation.

(85)

Only one unrelated importer (Euroresins UK Ltd.) provided the requested information and agreed to be included in the sample. In view of the low number of cooperating importers, the Commission decided that sampling was not necessary.

(86)

To decide whether sampling was necessary and, if so, to select a sample, the Commission asked all known exporting producers in the PRC to provide the information specified in the Notice of Initiation. In addition, the Commission asked the Mission of the People’s Republic of China to the European Union to identify and/or contact other exporting producers, if any, that could be interested in participating in the investigation.

(87)

Eight exporting producers or groups of exporting producers in the PRC provided the requested information and agreed to be included in the sample. In accordance with Article 27(1) of the basic Regulation, the Commission selected a sample of two groups of exporting producers based on the largest representative volume of exports to the Union, which could reasonably be investigated within the time available. The sampled groups of exporting producers represented more than 79 % of the reported exports of GFF from the PRC to the Union during the investigation period.

(88)

The sample of exporting producers or groups of exporting producers is the following:

(89)

In accordance with Article 27(2) of the basic Regulation, all known exporting producers concerned, and the authorities of the PRC were consulted on the selection of the sample.

(90)

Comments on the selection of the sample were received from two sampled exporting producers, Jushi and Hengshi, belonging to the CNBM Group. While Jushi and Hengshi did not dispute the fact that they were related companies, they claimed that they were not related to Taishan. Jushi claimed that the Commission could not mechanically rely on Article 127(1)(d) or (f) of Commission Implementing Regulation (EU) 2015/2447 of 24 November 2015 (17) (the ‘Union Customs Code Implementing Act’) to treat Hengshi, Jushi and Taishan as a single entity. In support of that claim, Jushi referred to the WTO Panel in Korea – Certain Paper (18) and the Guidelines for related transactions of listed companies of Shanghai Stock Exchange.

(91)

They highlighted that (i) they had no common direct shareholding, (ii) there was no overlap in the members of their boards, (iii) there were no related transactions between Hengshi/Jushi and Taishan, and (iv) they were competitors on the market.

(92)

After the sampling exercise, on 13 November 2019, a hearing took place with Taishan, in which the above-mentioned arguments were again raised.

(93)

The investigation revealed that China National Building Material (‘CNBM’) is a Chinese state-owned enterprise owned directly and indirectly as to 41,27 % by CNBM Parent, which is in turn wholly owned by the State-owned Assets Supervision and Administration Commission of the State Council (‘SASAC’). CNBM owns 26,97 % stake in China Jushi Co., Ltd. (‘China Jushi’), which is the sole shareholder of Jushi (19).

(94)

In September 2017, CNBM entered into a Merger Agreement (20) with Sinoma that was finalised in May 2018. Sinoma, through its subsidiary Sinoma Science & Technology Co. was the owner of Taishan. After the merger, Sinoma was merged into and absorbed by CNBM. As a consequence, CNBM holds 26,97 % stake in China Jushi (the sole shareholder of Jushi) and 60,24 % in Sinoma Science & Technology Co., Ltd. (sole shareholder of Taishan).

(95)

Article 127(1)(d) of the Customs Code Implementing Act establishes that two persons shall be deemed to be related if: a third party directly or indirectly owns, controls or holds 5 % or more of the outstanding voting stock or shares of both of them. CNBM holds 26,97 % stake in China Jushi (the sole shareholder of Jushi) and 60,24 % in Sinoma Science & Technology Co., Ltd. (sole shareholder of Taishan). Therefore, the companies were found to be related.

(96)

Furthermore, according to a company report by the Chinese brokerage company Guotai Junan Securities from 2019 (21), CNBM has been reorganising its operating entities in order to enhance regional coordination and eliminate horizontal competition among listed subsidiaries since 2017. Furthermore, CNBM intends to resolve horizontal competition issues by 2020. According to the publicly available information in the report, CNBM planned to start this process by consolidating its glass fibre business by asset injections between China Jushi and Sinoma Science & Technology (Taishan’s sole shareholder). Thus, the evidence collected during the investigation does not support the companies’ argument that the common shareholding has no practical implication and that the companies operate independently. To the contrary, that evidence suggests that beyond the mere shareholding (which alone could be determinant for the conclusion that the companies are related), the three companies are also able to significantly influence each other’s business decisions, and that their controlling company (CNBM) aims to at least coordinate, if not to integrate, their operations (‘resolve the horizontal competition issues’). This means that the subsidies received by any of those companies may be used to the advantage of the product concerned indistinctly. Therefore, the Commission rejected the claim that its conclusion to consider the three companies as related disregarded factual and economic realities.

(97)

In relation to the argument that the Commission could not treat Hengshi, Jushi and Taishan as a single group for the purpose of calculating the amount of subsidisation conferred on the product concerned, the Commission recalled that in order to ensure that measures can be enforced effectively, particularly to avoid channelling exports through a related company with the lowest duty, it is the Commission's practice to establish the relationship between exporting producers through the criteria laid down in Article 127 of the Union Customs Code Implementing Act. This was clearly communicated to all parties in the Notice of initiation at the start of the proceeding. In addition, reference to Article 127 of the Union Customs Code Implementing Act is explicitly contained in Article 2(1) of the basic Anti-dumping Regulation (22) and the Commission should have the same treatment of parties in both anti-dumping and anti-subsidy cases (23). Moreover, pursuant to Article 7(1) of the basic Regulation, the calculation of the amount of subsidisation is made per unit of the subsidised product exported to the Union. The calculation of the amount of countervailable subsidies on the basis of the product concerned exported into the Union implies that, when companies are related, since money is fungible, they can use those benefits for the product concerned indistinctly, and thus, regardless of the exporting producer in particular. In this case, since Henghsi, Jushi and Taishan make and export the product concerned, the amount of countervailable subsidies granted upon them should take into account the fact that, because of their relationship, they are capable of channelling those benefits to the product concerned exported to the Union as they see fit. Consequently, the benefits granted to those exporting producers with respect to the product concerned should result in one single amount for the group.

(98)

Finally, the WTO case (24) referred to by Jushi in recital (90) does not support the company’s claim. In fact, contrary to what Jushi tries to infer, the WTO Panel in that case confirmed that, for the purpose of dumping determinations in anti-dumping investigations, the rule in Article 6.10 of the WTO Anti-Dumping Agreement (where a dumping margin should be calculated per exporting producer) did not necessarily preclude treating distinct legal entities as a single exporter or producer. The Panel noted that this treatment would be permitted “where the structural and commercial relationship between the companies in question is sufficiently close to be considered as a single exporter” (25). Applying this consideration, the Panel did not establish the criteria that investigating authorities must apply to assess whether companies are related. The Panel merely looked into the specific elements (such as shareholding, board of directors, sales channels) which where before the investigating authority in that case. The Appellate Body in EC – Fasteners confirmed the possibility of treating a number of exporters as a single entity, listing also elements which may be relevant, such as the existence of corporate and structural links between the exporters, such as (i) common control, shareholding and management; (ii) the existence of corporate and structural links between the State and the exporters, such as (i) common control, shareholding and management; and (iii) control or material influence by the State in respect of pricing and output (26). In that respect, from the legal and factual elements of this case, the existence of corporate links between Jushi, Hengshi and Taishan cannot be disputed.

(99)

Based on the above, the Commission concluded that they were related companies for the purpose of this investigation and all claims in this regard were thus rejected.

(100)

Following definitive disclosure, Taishan objected to the application of a countervailing duty combined with Hengshi/Jushi. This interested party claimed that the common ultimate shareholder CNBM had only very limited control on the business and operation decisions of Jushi or Hengshi. They reiterated that Taishan and Hengshi/Jushi were competitors on the market and noted that they had previously submitted evidence in support of these claims. Taishan offered a written commitment that would effectively cut any commercial link between Taishan and Hengshi/Jushi and thus it would not allow the channelling of any exports of GFF to the Union from Hengshi/Jushi via Taishan.

(101)

As described in recital (96), the investigation revealed that through their common shareholders the three companies are able to significantly influence each other’s business decisions. The evidence on file showed that the companies are in the process of consolidating and coordinating glass fiber operations. No new information or evidence was provided that could invalidate these findings. In fact, Taishan did not contest the plans of its main shareholder to consolidate its glass fibre business. Such plans are in clear contradiction with any commitment to cut commercial links between Taishan and Hengshi/Jushi. Besides, and without taking a position on whether the Commission could accept such a commitment, the company is clearly not in the position to enter into any kind of commitment without the endorsement of its ultimate controllers. Therefore, Taishan’s claims and commitment request were rejected.

(102)

Following definitive disclosure, the CNBM Group argued that the subsidies received by the related trader Jushi Hong Kong Co. Ltd. could not be countervailed, since the company was based in Hong Kong and not in China. Hong Kong is an independent member of the WTO and is therefore considered an independent jurisdiction under WTO law and for the purposes of the Union trade defence investigations. Since the current anti-subsidy proceedings were not initiated against Hong Kong, any subsidies allegedly received by Jushi Hong Kong should not be taken into account. The Commission noted that the CNBM Group did not dispute the Commission’s findings regarding subsidisation for this related trader. Irrespective of the status of Hong Kong in this investigation, the real center of activities and control of the company Jushi Hong Kong was actually located in Mainland China. As stated by the company itself, “In fact, Jushi Hong Kong is a paper company, with no dedicated employee, no land, no physical office and benefit, neither tax programmes nor grants”. The accounting records were located in Jushi Group Co. Ltd., relevant personnel for the verification was also located there, and the subsidies received and benefiting the product concerned were granted by Chinese entities. Moreover, as confirmed by the Appellate Body in United States - Anti-Dumping and Countervailing Measures on Large Residential Washers from Korea, subsidies bestowed on the recipient in countries other than the subsidising Member may be relevant in order to calculate the amount of ad valorem subsidisation (27). The company’s claim was therefore rejected.

(103)

Following definitive disclosure, Yuntianhua Group claimed that its subsidy margin has been inflated by adding subsidies granted to companies that did not supply inputs used in the production of the product concerned, and, therefore, requested that subsidies of these companies should not be taken into consideration for the calculation of the countervailing duty.

(104)

Article 1 of the basic Regulation provides that a countervailing duty may be imposed to offset any subsidy granted, directly or indirectly, for the manufacture, production, export or transport of any product whose release for free circulation in the Union causes injury. The Commission has evidence that the companies included in the investigation and whose subsidy benefits have contributed to the duty of the group, have participated directly or indirectly, providing inputs, services, materials, or assets that used in the production of the product concerned as describes in the Article 1 of the basic Regulation. In this respect, the comments made by the Yuntianhua Group were not supported by concrete evidence.

(105)

The Commission, nonetheless, observed that one of the related companies, whose subsidies have been countervailed, was originally requested to participate in the investigation since it leased machinery to one of the exporting producers. However, following the comments received, the Commission revised the allocation key relating to the leasing activities of the company that were linked to the product concerned. Since the benefits that could be allocated through the leasing activities were considered negligible, the Commission decided not to take them into account.

(106)

Five of the Chinese exporting producers that returned the sampling form informed the Commission of their intention to request individual examination under Article 27(3) of the basic Regulation. The Commission made the questionnaire available online on the day of the initiation. Moreover, the Commission informed the non-sampled exporting producers that they were required to provide a questionnaire reply if they wished to be examined individually. However, none of the companies provided a questionnaire reply. As a result, no individual examinations were possible.

(107)

In the notice of initiation, the Commission invited all exporting producers in Egypt to contact it. Two related exporting producers, representing 100 % of the exports to the Union and 100 % of the production of GFF in Egypt, came forward:

(108)

The questionnaires for the Union producers, importers, users, and exporting producers in the PRC and in Egypt were made available online (28) on the day of initiation.

(109)

The Commission received questionnaire replies from the two sampled Chinese exporting producer groups, the two Egyptian exporting producers, from the four sampled Union producers, five users and one unrelated importer. None of the non-sampled Chinese exporting producers sent a reply to the questionnaires.

(110)

The Commission also sent a questionnaire to the GOC and to the GOE. The questionnaire for the GOC included specific questionnaires for the China Development Bank ('CDB'), Export Import Bank of China (‘EXIM’), and Sinosure. Those financial institutions had been specifically referred to in the complaint as public bodies or bodies directed or entrusted granting subsidies. In addition, the GOC was asked to forward the specific questionnaire for financial institutions to any other financial institution that provided loans or export credits to the sampled companies, or to the customers of the sampled companies. The GOC was also asked for administrative convenience to gather any responses provided by these financial institutions and to send them directly to the Commission.

(111)

The questionnaire to the GOE included specific questionnaires for the National Bank of Egypt, Ahli Bank and Bank Misr. Those financial institutions had been specifically referred to in the complaint as public bodies or bodies directed or entrusted granting subsidies. In addition, for administrative convenience the GOE was asked to forward the specific questionnaire for financial institutions to any other financial institution that provided loans or export credits to the sampled companies. Furthermore, the questionnaire to the GOE included specific questionnaires for Egypt-TEDA Investment Company (‘Egypt TEDA’) and for the Egyptian Chinese JV Company for Investment (‘ECCI’), which had been identified in the complaint as state-owned entities operating in the SETC-Zone. The GOE was asked to gather any responses provided by these financial institutions and other entities, and to send them directly to the Commission.

(112)

The Commission received questionnaire replies from the GOC, which included replies to the specific questionnaire from EXIM and Sinosure, as well as from the GOE, which included replies to the specific questionnaire from the National Bank of Egypt, Bank Misr and Egypt TEDA.

(113)

Without prejudice to the application of Article 28 of the basic Regulation, the Commission sought and verified all information deemed necessary and made available by the parties in a timely manner for the determination of subsidy, injury and Union interest. A verification visit took place at the premises of the Chinese Ministry of Commerce, during which officials from other relevant ministries also participated. Moreover, representatives from EXIM, CDB and Sinosure were present during this verification visit.

(114)

A verification visit took also place at the premises of Egypt TEDA, as well as at the premises of the following Egyptian government authorities:

(115)

Moreover, the Commission carried out verification visits pursuant to Article 26 of the basic Regulation at the premises of the following companies:

(116)

Due to the threat of the COVID-19 transmission and the consequent measures taken to deal with the outbreak (30), the Commission was unable to verify the data submitted by a number of companies belonging to the group of one of the exporting producers located in the PRC. Given that this unforeseen situation occurred at a very late stage of the proceeding and that no other solution was possible, the Commission exceptionally used the information submitted by these companies for the subsidy calculation, which was verified based on available information.

(117)

On 24 January 2020, pursuant to Article 29(a)(2) of the basic Regulation, the Commission informed interested parties that it intended not to impose provisional measures and continue with the investigation.

(118)

The Commission continued seeking and verifying all information it deemed necessary for its definitive findings.

(119)

On 27 February 2020, the Commission informed all parties of the essential facts and considerations on the basis of which it intended to impose a definitive anti-subsidy duty on imports of the product concerned into the Union (‘definitive disclosure’).

(120)

All parties were granted a 15 days period within which they could make comments on the definitive disclosure. Several interested parties requested an extension of the deadline. The Commission granted until 20 March and 23 March 2020 for submitting comments to those parties. Interested parties had an opportunity to comment on the initiation of the investigation and to request a hearing with the Commission and/or the Hearing Officer in trade proceedings.

(121)

In the separate anti-dumping investigation parties received, on 19 December 2019 a final disclosure of the essential facts and considerations on the basis of which it intended to impose a definitive anti-dumping duty on imports of the product concerned into the Union. Furthermore, interested parties received an additional disclosure on 10 February 2020.

(122)

The Commission addressed in this regulation comments submitted during the anti-subsidy procedure. Comments submitted in the context of the separate anti-dumping investigation were not addressed in this regulation unless the parties explicitly indicated that the comments submitted covered both procedures.

(123)

Following definitive disclosure, no party requested a hearing with the hearing officer.

(124)

Furthermore, interested parties received an additional definitive disclosure on 17 April 2020 and were granted until 22 April 2020 for submitting comments (‘additional definitive disclosure’).

(125)

Moreover, interested parties received a second additional definitive disclosure on 24 April 2020 and were granted until 27 April 2020 for submitting comments (‘second additional definitive disclosure’).

(126)

The Commission had hearings with the Union industry, with the exporting producers Jushi/Hengshi China, and with the Egyptian exporting producers Jushi/Hengshi Egypt as well as with the GOE.

(127)

The product concerned (31) is fabrics of woven and/or stitched continuous filament glass fibre rovings and/or yarns with or without other elements, excluding products which are impregnated or pre-impregnated (pre-preg), and excluding open mesh fabrics with cells with a size of more than 1,8 mm in both length and width and weighing more than 35 g/m2 (‘GFF’), originating in the PRC and Egypt, currently falling under CN codes ex 7019 39 00, ex 7019 40 00, ex 7019 59 00 and ex 7019 90 00 (TARIC codes 7019390080, 7019400080, 7019590080 and 7019900080) (‘the product concerned’).

(128)

GFF is used in a wide range of applications, for example for the production of blades for wind turbines, in the boat, truck and sport equipment production, as well as in pipe rehabilitation systems.

(129)

The investigation showed that the following products have the same basic physical, chemical and technical characteristics as well as the same basic uses:

(130)

The Commission decided that those products are therefore like products within the meaning of Article 2(c) of the basic Regulation.

(131)

One exporting producer and the Ministry of Trade of the Arab Republic of Egypt claimed that pre-cut GFF kits should not be covered by the scope of the investigation. They argued that pre-cut GFF kits would be a downstream product requiring additional production steps and with differences in physical characteristics, having a much smaller size. It would come in different forms and packaging, consisting of several smaller pieces of fabrics quilted together. It was further argued that there would be no circumvention risk by excluding kits as the process of cutting would be irreversible and that the product is not interchangeable with the uncut GFF.

(132)

The complainant argued that pre-cut GFF kits and non-cut GFF have the same basic characteristics and end uses. As GFF are reinforcement materials, the cutting to shape is necessary to fit the form of the product that needs to be reinforced, but does not change its basic characteristics as such. The cutting process can be carried out by the GFF producer, an independent industrial cutter or the customer itself. It is a very simple and low-cost operation. The complainant further argued that users do not perceive pre-cut GFF differently from other GFF, as GFF are generally produced to user specifications. If the cutting process would change the characteristics of the GFF, that would render them unusable for the specific customer.

(133)

The investigation showed that pre-cutting and kitting processes do not change the basic physical, technical or chemical characteristics of GFF or their basic end uses. Customers of both products are largely the same and both are sold via the same distribution channels.

(134)

The investigation also confirmed that for most applications GFF are produced to order according to customers’ specifications. Pre-cut GFF kits constitute merely an additional specification in the customer order. That pre-cut GFF kits receive a different packaging does also not change the characteristics. Since GFF is ordered increasingly in the form of pre-cut GFF kits and the services of external kitters are used increasingly, there would be a high circumvention risk, if pre-cut GFF would be excluded from the scope of the investigation. Therefore, the Commission concluded that it would not be appropriate to exclude pre-cut GFF from the scope of the investigation.

(135)

Another exporting producer argued that glass fibre yarns should be deemed to be excluded from the scope of the investigation. This exporting producer argued that glass fibre yarn was not to be mentioned explicitly in the questionnaire, the complaint or in the Notice of Initiation, which would indicate that they are not covered by the product scope. It further argued that GFF from yarn could not be classified under the characteristics of the product control number (‘PCN’), that GFF from yarn would be imported under different CN codes than the ones mentioned in the complaint and that glass fibre yarns would also not be covered by the measures against glass fibre rovings in other proceedings.

(136)

The complainant and another Union producer (not party to the complaint) argued that only GFF from non-twisted or zero-twisted glass fibre yarns should be covered by the investigation, whereas twisted yarns could be excluded from the scope of the investigation. The complainant argued that non-twisted or zero-twisted glass fibre yarns share the characteristics of glass fibre rovings to consist of a bundle of untwisted filaments or strands and are also used for the same purposes as rovings and are typically 13-24 micrometres in diameter and are 300-4 800 tex.

(137)

Regarding the inclusion of GFF from glass fibre yarns, the Notice of Initiation defined the product under investigation as “fabrics of woven, and/or stitched continuous filament glass fibre rovings and/or yarn, […]” (32). The investigation has shown that non-twisted or zero-twisted glass fibre yarns share the same basic characteristics as glass fibre rovings, i.e. to consist of a bundle of untwisted filaments or strands, and are also used for the same purposes. Both are typically 13-24 micrometres in diameter and are 300-4 800 tex. Thus, it would not be appropriate to exclude these product types from the scope of the investigation.

(138)

In relation to GFF made mainly from twisted glass fibre yarn, the Commission notes that this product, which has different basic characteristics and is also subject to different end uses, e.g. printed circuit boards, was never part of the product concerned. The Commission explicitly clarified this point in the Clarification Notice.

(139)

Before analysing the alleged subsidisation in the form of subsidies or subsidy programmes, the Commission assessed government plans, projects and other documents, which were relevant for more than one of the subsidies or subsidy programmes. It found that all subsidies or subsidy programmes under assessment form part of the implementation of the GOC's central planning to encourage the GFF industry for the following reasons.

(140)

The 12th Five-Year Plan for National Economic and Social Development of the PRC (‘the 12th Five-Year Plan’) highlighted the importance of the new materials industry, which includes GFF, as a “strategic emerging industry” and stipulates that it should be developed into a “leading pillar industry” through comprehensive policy support and guidance (33). Furthermore, the 13th Five-Year Plan for National Economic and Social Development of the PRC (‘the 13th Five-Year Plan’), which covers the period 2016-2020, aims to develop further new materials industries by strengthening research and development and enhancing the innovation capability of the manufacturing industry (34).

(141)

The 13th Five-Year Plan highlights the strategic vision of the GOC for improvement and promotion of key industries. It emphasizes the role of technological innovation in the economic development of the PRC, as well as the continued importance of “green” development principles. According to its Chapter 5, one of the main development lines is to promote the upgrading of the traditional industrial structure, as was already the case in the 12th Five-Year Plan. Chapter 22 further elaborates this idea explaining the strategy to modernize the traditional industry in the PRC by promoting its technological conversion. In this respect, the 13th Five-Year Plan states that companies will be supported to “comprehensively improve in areas such as product technology, industrial equipment, environmental protection and energy efficiency”.

(142)

The 13th Five-Year Plan mentions the new materials in a couple of instances: “we will move faster to make breakthroughs in core technologies in fields such as next generation information and communications, new energy, new materials […]” (35). The plan furthermore envisages that there will be projects carried out related to key new materials research, development and application (36).

(143)

Following definitive disclosure, the GOC reiterated its basic position on China's Five Year Plans, claiming that they are not mandatory or legally binding but are simply guidance documents because they do not contain actual legal provisions, sanctions or any rules on applicability. The GOC further stated that the 12th Five-Year Plan is not applicable anymore and even if the 13th Five-Year Plan would be legally binding, quod non, it does not mention GFF. Additionally, while the plan refers to “new materials”, it does not define this term. Finally, the 13th Five-Year Plan is not specific to the GFF industry or to the “new materials industry” but covers nearly the entire economy

(144)

The Commission disagreed with this position. Chapter 17 of the 13th Five-Year Plan states: “the national development strategy and plan will come into play with a leading and constraining role.” Thus, rather than making only general statements of encouragement, this plan uses language which points to its binding nature.

(145)

Even if the 12th Five-Year Plan is not applicable anymore, it is the predecessor that highlighted the importance of the new materials industry as a “strategic emerging industry” that the 13th Five-Year Plan further developed. As demonstrated in recitals (148) and (149), the new materials industry includes the GFF industry. As mentioned in recital (141), the 13th Five-Year Plan highlights the strategic vision of the GOC for improvement and promotion of key industries; therefore, it prioritise certain sectors and technologies, including GFF.

(146)

Therefore, the claims of the GOC in this respect were rejected.

(147)

The new materials industry is also an encouraged industry under the Made in China 2025 initiative (37), and thereby eligible to benefit from considerable State funding. A number of funds had been created to support the Made in China 2025 initiative and hence indirectly the GFF industry such as the National Integrated Circuit fund, the Advanced Manufacturing Fund and the Emerging Industries Investment Fund (38).

(148)

Furthermore, GFF is often referred to under the umbrella of ‘new materials’. The Made in China 2025 Roadmap (39) 10 strategic sectors, which are the key industries for the GOC. It describes in Sector 9 ‘new materials’ and its subcategories, including advanced fundamental materials (point 9.1), key strategic materials (point 9.2) including high performance fibres and composite materials, new energy materials (40). New materials thus benefit from the advantages stemming from the support mechanisms listed in the document, including, among others, Financial Support Policies, Fiscal & Taxation Policy, State Council Oversight and Support (41).

(149)

Additionally, further to the Made in China 2025 Roadmap, in November 2016, the list of 10 strategic sectors was refined into a Catalogue of Four Essentials published by the National Manufacturing Strategy Advisory Committee (NMSAC), an advisory group to the National Leading Small Group on Building a National Manufacturing Power. In this catalogue, each of the 10 strategic sectors is split into four chapters: (i) core essential spare parts, (ii) key essential materials, (iii) advanced essential processes/technologies and (iv) industry technology platforms. Glass fibre can be found in sector 7: electrical equipment, point II key essential material: subpoint 16 glass fibre insulation boards and sector 9: new materials, point II key essential materials, subpoints 10. High-performance fibre, monomer and composite materials and 24. Glass-based materials.

(150)

Following definitive disclosure, the GOC claimed that GFF is not mentioned in the Made in China 2025 initiative which is broadly available throughout the economy and that Made in China 2025 is not mandatory but is a mere guideline.

(151)

In this respect, the Commission reiterates that the Made in China 2025 initiative clearly targets the new material industries, which include the GFF industry as already demonstrated. It provides for strategic support and guarantee through, inter alia, improved financial support policy and increased support of fiscal taxation policy. For instance, it clearly provides to “increase the support to the new generation of information technology, high-end equipment, new materials, etc.”

(152)

The Made in China 2025 initiative states that it is “the program of actions in the first ten years of implementing the strategy of manufacturing power” and it sets clear strategic policies and targets. The Made in China 2025 initiative also provides that “various regions shall work out specific implementation program and refine the policy measures to ensure various tasks to be implemented” and further states that “the Ministry of Industry and Information shall strengthen the tracking analysis, supervision and direction jointly with relevant departments, and report major events to the State Council in a timely manner”. Furthermore, the Made in China 2025 initiative is supported by implementing measures such as the Made in China 2025 Roadmap and the ‘Notice of the General Office of the Ministry of Industry and Information Technology on the release of the 2017 Industrial Transformation and Upgrade (Made in China 2025) Funding Guide’ (42), which provided for funds that benefitted certain cooperating GFF exporting producers. In addition, the Building Materials Industry Development Plan (2016-2020) mentioned in recital (153) “is prepared based on the Outline of the 13th Five-Year Plan for National Economy and Social Development of the People’s Republic of China and the Made in China 2025 Strategy”. Considering the above-mentioned, the Made in China 2025 initiative does not appear to be a mere guideline; on the contrary, it appears to have a de facto mandatory effect and is largely implemented. Therefore, the claims of the GOC were rejected.

(153)

Furthermore, the Building Materials Industry Development Plan (2016-2020) also promotes the GFF industry. This plan calls for optimizing industrial structure by, inter alia, expanding emerging industries such as glass-based materials, industrial ceramics, intraocular lens, high-performance fibres and composites, and graphene and modified materials. This is to be achieved through government funding, taxation, financial, pricing, energy, and environmental protection policies, and support for capital to participate in the mergers, acquisitions and restructuring of building materials enterprises through various means including lending (43).

(154)

Following definitive disclosure, the GOC claimed that the Building Materials Industry Development Plan applies to all building materials and is thus also broadly available throughout the economy. Furthermore, this plan only concerns general information about government policy.

(155)

The Building Materials Industry Development Plan provides for specific measures targeting the building materials industry, to which the GFF industry belongs as explained in recital (166). Therefore, the Commission disagrees with the GOC’s statement that it is available through the economy.

(156)

Although the Building Materials Industry Development Plan might appear merely as a guidance document, as mentioned in recital (152), it is an implementation of the 13th Five-Year Plan and the Made in China 2025 Strategy. It aims at “promoting transformation and upgrading of the building materials industry, facilitating the transition of the building materials industry from a large industry to a powerful one and achieving the sustainable development during the “13th Five-Year Plan” period” and sets clear tasks and projects in order to achieve the fixed objectives during a defined concrete five-year period (44). Therefore, its purely guidance character is disputable, and more so when examining in its broader context.

(157)

The GFF industry is also covered by the Intelligent Manufacturing Development Plan (2016-2020) published by the Chinese Ministry of Industry and Information Technology (the ‘MIIT’), which sets up 10 key tasks that aim at shortening the product development cycle, improving production efficiency, product quality, reducing operating cost, resources and energy consumption, and accelerating the development of intelligent manufacturing. In 2018, the State Council announced China’s plans to expand its program for smart manufacturing by adding about 100 pilot projects that same year, and according to publicly available information, one of the cooperating exporting producers, Taishan Fiberglass, Inc. was listed in 2015 among ‘The Intelligent Manufacturing Plants’ by the MIIT (45).

(158)

According to the GOC, the Intelligent Manufacturing Development Plan (2016-2020) is irrelevant, since this is not specific to the GFF industry but concerns the entire manufacturing industry. Additionally, the GOC claimed that the plan is not a mandatory document but a mere guideline.

(159)

The Intelligent Manufacturing Development Plan (2016-2020) is “prepared in accordance with the Outline of the 13th Five-Year Plan for National Economy and Social Development of the People’s Republic of China, the Made in China 2025 Strategy” (46). Therefore, it implements the strategy laid down in these documents. As already explained before, the 13th Five-Year Plan and the Made in China 2025 Strategy target specifically certain industries, among which is the GFF industry as part of the new materials industries. In addition, at many instances, the Intelligent Manufacturing Development Plan refers to the ten key fields of Made in China 2025 Strategy. In particular, the ‘Special Column 6 Intelligent transformation emphasis of key field’ provides that “for the new generation of information technologies, (…) new material, (…) building material (…), the deep application of intelligent and digital technologies in the research and development and design, manufacturing, logistics and warehousing, operation and management, after-sales service and other key links of enterprises is promoted”. Therefore, the Intelligent Manufacturing Development Plan (2016-2020) is specific to the key industries laid down by the Made in China 2025 Strategy and covers, inter alia, the new materials and the building materials sectors to which the GFF industry belongs.

(160)

The Commission also notes that the language used in the Intelligent Manufacturing Development Plan (2016-2020) suggests a mandatory character of the document. In particular, Section II (III) ‘Development objectives’ provides that “Before 2025, “Two-Step” strategy shall be implemented to promote intelligent manufacturing development: Step one, by 2020, the intelligent manufacturing development foundation and supporting capacity will be obviously enhanced, the digital manufacturing will be basically realized in the key field of traditional manufacturing industry, and the intelligent transformation of key industry with conditions and foundation will make obvious progress; Step two, by 2025, the intelligent manufacturing support system is basically established, and the intelligent transformation is initially realized in the key industry”. Furthermore, Section V ‘Organization and implementation’ provides that “the Ministry of Industry and Information Technology and Ministry of Finance are responsible for organizing and implementing the Plan, strengthening the leadership, carefully organizing, timely solving the problems met in the implementation process of the Plan, and promoting the implementation of various tasks and measures” and that “the competent departments of industry and information technology and of finance in various regions shall quickly formulate the implementation scheme connected with the Plan, implement relevant supporting policies, and complete the information feedback work according to the assignment of responsibility”. Therefore, the Commission concluded that the Intelligent Manufacturing Development Plan has clearly defined objectives that are mandatory for the companies involved.

(161)

In light of the above findings, the claims of the GOC were rejected.

(162)

Moreover, the China High-Tech Export Products Catalogue issued by the Ministry of Science and Technology, the Ministry of Foreign Trade and the General Administration of customs lists 1900 high-tech products in 8 categories, which are targeted for preferential export policies by the GOC. One of the categories is the ‘New Materials’ category, which includes GFF (47). In addition, the China High-Tech Products Catalogue issued by the Ministry of Science and Technology, the Ministry of Finance and State Administration of Taxation refers to 11 areas, among which the ‘new materials category’. Furthermore, according to the Law of the PRC on Science and Technology Progress, the high-tech enterprises established in High-tech Development Zones can benefit from a list of preferential policies, which include: (i) an Enterprise Income Tax rate of 15 %, instead of the normal rate of 25 %; (ii) if the output value of export products reaches 70 % of the total value for that year, the EIT rate is further reduced to 10 %; (iii) newly-established high-tech enterprises are exempt from EIT tax for the first two years from the date production begins; (iv) newly-established high-tech enterprises are exempt from construction tax; (v) for new technology development and production and operation houses, R&D land is tax-free; (vi) equipment used by high-tech enterprises for high-tech production and development is subject to accelerated depreciation; (vii) export products produced by high-tech enterprises are exempt from export tariffs except those restricted by the State or concerning specific products, etc (48).

(163)

Following definitive disclosure, the GOC claimed that the China High-Tech Products Catalogue, read in conjunction with the Law of the PRC on Science and Technology Progress is not specific to a certain industries because these documents set out objective criteria for eligibility, which are applied automatically.

(164)

In this respect, as already mentioned in recital (162), the China High-Tech Export Products Catalogue high-tech products in 8 categories, including ‘new materials’. The Commission further notes that the China High-Tech Products Catalogue refers to 11 areas, among which “6. New material”. Considering that both catalogues are limited to a certain number of areas, it cannot be concluded that they applies to all industries. Therefore, the claim of the GOC is rejected.

(165)

The Temporary Provisions on Promoting Industrial Structure Adjustment (Decision No. 40 2005 of the State Council) (‘Decision No 40’), Chapter III refers to ‘The Guiding Catalogue for Industry Restructuring’ which is composed of three kinds of contents, namely encouraged project contents, limited projects content and eliminated projects content. According to Article XVII of the Decision, if “the investment project belongs to the encouragement content shall be examined and approved and put on records according to the relevant national regulations on investment; all financial institutions shall provide credit support according to the credit principles; the self-using equipment imported in the total amount of investment, with the exception of commodities in the Non-exempt Imported Commodities Content of Domestic Invested Projects (amended in 2000) issued by the Ministry of Finance, can be exempt from import duty and import links value-added tax, unless there are new regulations on the non-exempt investment projects content. Other favorite policies on the encouraged industrial projects shall be implemented according to relevant national Regulations ”.

(166)

The Guiding Catalogue for Industry Restructuring (2011 Version) (2013 Amendment) (49) lists under ‘Category I Encouragement’

“XII.   Building Materials:

[…]

(167)

According to the GOC, Decision No. 40 is not specific to an enterprise or industry, as required by Article 2.1 of the SCM Agreement but to certain encouraged projects. Moreover, Decision No. 40 is not mandatory. The GOC affirmed that the Guiding Catalogue for Industry Restructuring referred to by the Commission is irrelevant because the Commission refers to the 2011 version of this catalogue, which has already expired. According to the GOC, the new version of this catalogue does not mention GFF.

(168)

First, the Commission points out that it referred to ‘The Guiding Catalogue for Industry Restructuring (2011 Version) (2013 Amendment)’; therefore, it did not refer to the 2011 version but to the 2013 amended version. To the Commission’s knowledge, the latest amendment of the Catalogue was approved by Decree of the National Development and Reform Commission of the People's Republic of China No. 29 of 27 August 2019 and entered into force on 1 January 2020 (50). This new ‘Guiding Catalogue for Industry Restructuring (2019 Version)’ indeed abolished the ‘Guiding Catalogue for Industry Restructuring (2011 Version) (Amendment)’. However, it was adopted and entered into effect after the investigation period. Therefore, ‘The Guiding Catalogue for Industry Restructuring (2011 Version) (2013 Amendment) was applicable during the investigation period. In any event, contrary to the GOC’s statement, the 2019 version of the ‘Guiding Catalogue for Industry Restructuring’ refers to GFF under ‘Section I Encouraged industries’ as follows:

“XII.   Building materials

[…]

(169)

Second, the Commission disagrees that Decision No. 40 has no mandatory effect. Indeed, Decision No. 40 lays down the temporary regulations promoting the industrial restructuring and it refers to ‘The Guiding Catalogue for Industry Restructuring’, which defines three kinds of content: encouraged projects content, limited projects content and eliminated projects content. However, Article XVII of Decision No. 40 establishes the treatment of investment projects belonging to the encouraged content in a mandatory manner, e.g. ‘all financial institutions shall provide credit support according to the credit principles’, ‘other favourite policies on the encouraged industrial projects shall be implemented according to relevant national Regulations’. Furthermore, Article XXI sets that ‘the relevant preferential policies implemented according to The Content of Industries, Products and Technologies Currently Especially Encouraged by the State (amended in 2000) shall be adjusted to be implemented according to the encouragement content of The Guiding Catalogue for Industry Restructuring’. Therefore, Decision No. 40 has a mandatory effect in this respect. The Guiding Catalogue for Industry Restructuring, ‘Category I Encouragement’ lists a certain number of projects under a certain number of industries. As explained in recital (166), it includes the building materials industry and specific projects related to the GFF industry. Consequently, Decision No. 40 read together with The Guiding Catalogue for Industry Restructuring provides for specific treatment of certain projects within certain encouraged industries. Therefore, although these documents refer to specific projects, they first establish the specific industries that are encouraged and then certain projects in these industries that could benefit from the preferential treatment provided for in Decision No. 40. Therefore, the Commission rejected the claims of the GOC.

(170)

Furthermore, GFF is covered by the Building Materials Industry Development Plan 2016-2020 (51), which envisages, among others, the transition of the construction material industry from a large industry to a strong industry. It also envisages an optimisation of the construction sector's structures, improvement of the security of supply of key materials, increase in the level of concentration in the industry as well as enhancement of the international competitiveness. The plan provides for quantitative development targets, governmental control over production capacity, detailed production targets, geographical distribution of industries among provinces in the PRC, security of supply, development of specific industries, government control and influence over enterprises and industry support measures (52). This demonstrates the strong presence and intervention of the State in the fibreglass industry.

(171)

The 13th Five-Year Plan for Fibre and Composite Materials Industry (53) is a plan targeting specifically the fibre material industry. It clearly guides the development of the sector, for example Section III.3 sets the goal to:

(172)

‘Actively integrate and upgrade the upstream and downstream ends of the industry chain to maintain the healthy and stable development of the fibre and composite materials industry: Encourage large-scale pond and kiln enterprises to steadily implement the “go global” development strategy, implement global production capacity patterns. On this basis: - keep the control over the domestic glass fibre production volume growth rate at a relatively low level; - at the same time, reduce the export ratio of domestic glass fibre and products; -actively adjust product structures; […] - actively adjust product structure and guide enterprises to implement differentiated development, vigorously develop deep processing of glass fibre products, expand the market size of fibre and composite materials products in mid-to-high-end application fields, and improve product quality and added value. Ensure that the annual growth rate of the main business revenue of the fibre and composite materials industry is higher than the national GDP growth rate by about 5 to 6 percentage points, that is, as of 2020, the total revenue of enterprises above designated size will reach 500 billion yuan, i.e. doubling compared to the situation prevailing at the end of the 12th Five-Year Plan.’  (54)

(173)

Furthermore, Section IV.3.4 of that plan sets basis for governmental guidance of the enterprises and the entire industry:

(174)

‘Guide various types of enterprises to get involved in differentiated operations taking into account their individual advantages and specific market segments. In particular, it is necessary to guide small and medium-sized enterprises to follow the growth path consisting in filling up specific gaps, in having small enterprises being complementary to big ones, in considering specialisation as the way to success. Thanks to differentiated operations, scale-competition between large enterprises is avoided, and the competition between similar enterprises is avoided, thus eliminating the low-cost competition market. At the same time, with specialized production, small and medium-sized enterprises can also win the respect and attention of large enterprises, establish close cooperative relationships with large enterprises, and effectively support and promote the development of large enterprises.’

(175)

The industry associations are closely interlinked with the State, mostly through the importance of CCP building in those associations (55). The provisions of Section IV.3.6 of the same plan also point to a State intervention into the fibre production, including the GFF sector:

(176)

The PRC has actively promoted the GFF industries on different government levels, an example of a local initiative covering one of the sampled companies can be found in the Jiujiang City 13th Five-Year Plan for the economic and social development:

(177)

Following definitive disclosure, the GOC claimed that the 13th Five-Year Plan for Fiber and Composite Materials Industry and the Jiujiang City 13th Five-Year Plan both only concerns general information about government policy, with no direct connection to any of the alleged subsidy programs at issue and are thus not “sufficient evidence” of specificity.

(178)

The Commission disagreed with this claim. As explained in recitals (171) and (172), the 13th Five-Year Plan for Fibre and Composite Materials Industry targets specifically the fibre material industry and it clearly guides the development of the sector. Even if this document might have no direct connection to the alleged subsidy programs as claimed by the GOC, it points to specific measures encouraging the fibre and composite materials industry. Furthermore, as mentioned in recital (176), the Jiujiang City 13th Five-Year Plan for the economic and social development specifically targets Jushi Group, which is one of the cooperating exporting producers. Therefore, these documents demonstrate that the Chinese authorities target specifically a given industry, which includes the GFF industry, and certain companies in this industry. Consequently, the claims of the GOC were rejected.

(179)

Considering the above-mentioned, the GFF industry is thus regarded as a key/strategic industry, whose development is actively pursued by the GOC as a policy objective.

(180)

Following definitive disclosure, the GOC objected to the Commission’s assessment that the GFF industry is an encouraged industry and that the Commission's allegation that the GFF industry is encouraged in China does not show that the measures at issue are specific within the meaning of Article 2 of the SCM Agreement.

(181)

The Commission disagreed with the COG’s statement. The findings demonstrated in recitals (140) to (178) show that the GFF industry, as part of the ‘building materials’ and the ‘new materials’ industries, is particularly targeted and encouraged through various policy and regulatory tools and listed in catalogues of encouraged industries. The fact that these documents provide for specific measures with respect to certain industries, including the GFF industry, is sufficient to demonstrate that they are specific within the meaning of Article 2 of the SCM Agreement.

(182)

For administrative convenience, the Commission requested the GOC to forward specific questionnaires to the two specific state-owned banks mentioned in the complaint, to Sinosure, as well as to any other financial institution that provided loans or export credits to the sampled companies.

(183)

The GOC indeed forwarded the specific questionnaires to the banks. 15 bank branches confirmed their outstanding loans with the sampled companies during the IP, but without providing a reply to the questionnaire as such. Only the in-house bank of one of the exporting producers (CNBM Finance) and one state-owned bank (Export-Import Bank of China) actually responded to the questions in the questionnaire. Furthermore, the CDB did not respond to the questionnaire, but was available for questions during the verification visit.

(184)

According to the GOC, it had no authority to demand information from the state-owned banks that did not reply to the questionnaire, as they operate independently from the GOC.

(185)

The Commission disagreed with this view. First, it is the Commission's understanding that the information requested from state-owned entities (be it companies or public/financial institutions) is available to the GOC for all entities where the GOC is the main or major shareholder. Indeed, according to the Law of the People's Republic of China on State-Owned Assets of Enterprises (57), State-owned assets supervision and administration agencies established by the State-owned Assets Supervision and Administration Commission of the State Council and local people's governments perform the duties and responsibilities of the capital contributor of a State-invested enterprise on behalf of the government. Such agencies are thus entitled to receive returns on assets, to participate in major decision-making and to select managerial personnel of State-invested enterprises. Furthermore, according to Article 17 of the above-mentioned Law on State-owned Assets, State-invested enterprises shall accept administration and supervision by governments and relevant governmental departments and agencies, accept public supervision, and be responsible to capital contributors.

(186)

In addition, the GOC also has the necessary authority to interact with the financial institutions even when they are not State-owned, since they all fall under the jurisdiction of the Chinese banking regulatory authority. For example, according to Articles 33 and 36 of the Banking Supervision Law (58), the China Banking and Insurance Regulatory Commission (‘CBIRC’) has the authority to require all financial institutions established in the PRC to submit information, such as financial statements, statistical reports and information concerning business operations and management. The CBIRC can also instruct financial institutions to disclose information to the public.

(187)

Furthermore, although the sole cooperating State-owned bank provided some general explanations on the functioning of their loan approval and risk management systems, it did not provide specific information concerning loans provided to the sampled companies. It argued that it was bound by statutory and regulatory requirements and contractual clauses with respect to the confidentiality of the information related to the sampled companies.

(188)

Therefore, the Commission asked the sampled groups of exporting producers to grant access to company-specific information held by all banks, State-owned and private, from which they received loans. Although the sampled companies gave their agreement to provide access to the bank data pertaining to them, the cooperating bank refused to provide the required detailed information.

(189)

In the end, the Commission only received information on corporate structure and ownership from the cooperating State-owned bank but not from any of the other financial institutions, which had provided loans to the sampled companies. Moreover, none of the financial institutions provided any information specific to the risk assessment of the loans granted to the sampled groups of exporting producers.

(190)

Since it had no information in relation to most of the State-owned banks that provided loans to the sampled companies, and no company-specific information on the loans provided by the cooperating banks, the Commission considered that it had not received crucial information relevant to this aspect of the investigation.

(191)

Therefore, the Commission informed the GOC that it might have to resort to the use of facts available under Article 28(1) of the basic Regulation when examining the existence and the extent of the alleged subsidisation granted through preferential lending.

(192)

In the reply to the Commission's letter, the GOC objected to the application of Article 28(1) of the basic Regulation. In general, it argued that the specific information requested was not necessary to begin with because the proceeding was based on a complaint that failed to provide sufficient evidentiary requirements of the SCM Agreement and the basic Regulation. The Commission considered that the sufficiency of evidence of the complaint was already addressed in Section 1.1.1 above and thus maintained its conclusion that there was sufficient evidence provided in the complaint tending to show the existence of the alleged subsidisation by the GOC.

(193)

The GOC also objected more specifically to the application of Article 28(1) of the basic Regulation regarding preferential lending. The GOC reiterated that it had no authority over the banks. The GOC also considered that it had cooperated to the best of its abilities, that the Commission had imposed an unreasonable extra burden on it, and that the missing information was not “necessary” in the sense of Article 28 of the basic Regulation, since it was already available through the responses to the questionnaires. The GOC reiterated these claims after the definitive disclosure.

(194)

The Commission maintained its position that the GOC has the authority to request information from the banks for the reasons explained in recitals (185) and (186) above. It acknowledged that the GOC forwarded the relevant questionnaires to the banks, and that it received a meaningful reply from one State-owned bank. The Commission used the information so provided, and complemented it with facts available only for those parts that were missing.

(195)

This missing information mainly concerns two aspects. First, information on the ownership and governance structure of the non-cooperating banks, which was necessary for the Commission to determine whether these banks are public bodies or not. Second, company-specific information from the cooperating bank, such as the internal loan approval process of the bank and the creditworthiness assessment of the bank for the loans provided to the sampled companies, which was necessary, in the sense of Article 28 of the Basic Regulation, in order to determine whether loans were provided at preferential rates to the sampled companies. Furthermore, such internal documents can only be provided by the banks, and could thus not be supplied through the questionnaire replies of the sampled companies.

(196)

The GOC also claimed that company-specific information could not be provided for regulatory reasons. Even if the Commission had a general written consent from the sampled companies waiving their confidentiality rights, the GOC maintained that the relevant banks or financial institutions would be required to ask the parties for their express permission with respect to each particular loan transaction and that these permissions would have to be verified by the relevant financial institutions.

(197)

However, the Commission noted that consent was requested separately from each company for the loan transactions of each specific bank. The Commission considered that such a specific consent should be sufficient as such to grant access to the records related to the sampled companies. In addition, some of the banks actually provided an overview of their outstanding loans with the companies, thus showing that they were not restricted in providing information as such on specific transactions. However, none of these banks provided any information related to their own internal assessment of the transactions that had been disclosed.

(198)

Finally, the Commission did not consider that it had imposed an unreasonable burden on the GOC. From the start, the Commission limited its investigation to those financial institutions that had provided loans to the sampled companies. The Commission also did not burden the GOC with the identification of these financial institutions, as the list with names and addresses of the banks, as well as the request to forward the questionnaires, was provided to the GOC at the very beginning of the investigation, in June 2019. This provided ample time for the GOC to comply with the Commission's request. The Commission thus considered that it had done its utmost to facilitate the tasks requested from the GOC.

(199)

The Commission thus maintained that it had to rely partially on facts available when examining the existence and the extent of the alleged subsidisation granted through preferential lending.

(200)

Sinosure responded partially to the specific questionnaire concerning export credit insurance provided to the sampled companies. In particular, Sinosure did not give specific information about the export credit insurance provided to the GFF industry, the level of its premiums or detailed figures relating to the profitability of its export credit insurance business.

(201)

Furthermore, Sinosure failed to provide the requested supporting documentation concerning its corporate governance, such as its Articles of Association, arguing that this was confidential information.

(202)

In the absence of such information, the Commission considered that it had not received crucial information relevant to this aspect of the investigation.

(203)

It is the Commission's understanding that the information requested from State-owned entities (be it companies or public/financial institutions) is available to the GOC for all entities where the GOC is the main or major shareholder. This is also the case for Sinosure, which is a fully State-owned entity. Therefore, the Commission informed the GOC that it might have to resort to the use of facts available under Article 28(1) of the basic Regulation when examining the existence and the extent of the alleged subsidisation granted through export credit insurance.

(204)

In the reply to the Commission's letter, the GOC objected to the application of Article 28(1) of the basic Regulation regarding export credit insurance, by pointing to the fact that Sinosure had provided a questionnaire reply, and had answered to the Commission's questions during the on-spot verification.

(205)

Sinosure indeed provided a questionnaire reply and representatives from Sinosure were present at the verification at the GOC's premises. However, as mentioned in recitals (200) and (201) above, the information provided was incomplete. For example, Sinsoure provided global figures on its profitability, but not on the profitability of its short-term export credit insurance business as such. The information provided thus did not allow the Commission to draw conclusions on crucial parts of the investigation regarding export credit insurance, that is whether Sinosure is a public body and whether the premiums charged to the sampled companies were market conform.

(206)

The Commission thus concluded that it had to rely partially on facts available for its findings concerning export credit insurance.

(207)

According to the subsidy questionnaire sent to exporting producers, holding companies are required to provide a reply to sections A & E of the questionnaire. However, China National Building Materials Co. Ltd. (‘CNBM’), the ultimate owner of the exporting producers Jushi, Hengshi and Taishan, failed to provide such a reply.

(208)

CNBM considered that it was not involved in the glass fibre fabrics business, and that it did not have any direct transactions with the exporting producers. However, the Commission found that there had been significant capital increases funded by CNBM relating to one of the exporting producers. Furthermore, the Commission found evidence that grants provided to some entities in the group had transited through the bank accounts of CNBM, and that some grants had been allocated between various entities in the group via the capital reserves accounts.

(209)

The Commission considers that in the absence of a questionnaire reply from the parent company CNBM, it is impossible to determine the full extent of the subsidies received by the CNBM Group. Under these circumstances, the Commission considered that it had not received crucial information relevant to this aspect of the investigation.

(210)

Therefore, the Commission informed the CNBM Group that it might have to resort to the use of facts available under Article 28(1) of the basic Regulation when examining the existence and the extent of the alleged subsidisation granted to CNBM, the parent company of the CNBM Group.

(211)

In the reply to the Commission's letter, Jushi objected to the application of Article 28(1) of the basic Regulation regarding CNBM. Jushi reiterated that CNBM plays the role of equity investor, rather than the role of an actual controller of China Jushi, that it was not involved in the glass fibre fabrics business, and that it did not have any direct transactions with the exporting producers. Furthermore, although CNBM is the top 1 shareholder of China Jushi, its shareholding accounts for only 26,97 %.

(212)

Concerning the capital increases, Jushi stated that the proportion of CNBM’s shareholding in China Jushi decreased from 60,25 % in 1998 to 26,97 % at the end of the IP. In the last three years, the registered capital of China Jushi was only increased via its own capital reserves, so the shareholding of CNBM remained stable at 26,97 %.

(213)

First, the Commission considered under all circumstances that holding companies should provide a questionnaire reply in order to ascertain whether any subsidies have been provided at the level of the parent company that may relate to the exporting producer. Without a questionnaire reply, it is impossible to determine the full extent of the subsidies relating to the exporting producers.

(214)

Second, for the claims relating to the actual control of CNBM over Jushi, the Commission referred to the reasoning developed in recitals (93) to (96) above concerning the relationship between Jushi and Taishan. On this basis, these claims were rejected.

(215)

Third, in terms of capital increases, although it is true that the shareholding of CNBM has decreased in relative terms over time, it has actually increased in absolute terms over the period 2010 to 2018.

(216)

Finally, the items mentioned in recital (208) above relate not only to Jushi and Hengshi, but also to Taishan. As a result, even if the Commission were to accept Jushi’s comments, this would not alter the Commission’s findings for the CNBM Group as such.

(217)

The Commission thus concluded that it had to rely partially on facts available for its findings concerning CNBM, the parent company of the CNBM Group.

(218)

Yunnan Yuntianhua Group Co., Ltd. failed to provide complete information in time about funds received via other equity instruments by certain shareholders of the company.

(219)

Despite repetitive requests from the Commission, during and after the on-spot verification, the company failed to provide the solicited information. Therefore, the Commission notified the company in question that it would consider basing its findings partially on facts available pursuant to Article 28(1) of the basic Regulation (i.e. as far as the information related to other equity instruments was concerned). In the reply to the Commission, the company indicated that due to the official shutdown in China during the last week of January and the first week of February, it was not in the position to respond to the Commission’s request of information within the set deadline.

(220)

Absent any additional evidence concerning the funds received via other equity instruments mentioned in recital (218) at this stage, the Commission continued to rely partly on facts available for its findings concerning these funds received via other equity instruments by certain shareholders of the company as detailed in Section 3.4.3.4 below.

(221)

On the basis of the information contained in the complaint, the Notice of Initiation and the replies to the Commission's questionnaires, the alleged subsidisation through the following subsidies by the GOC were investigated:

(222)

According to the information provided by the two sampled groups of exporting producers, 36 financial institutions located within the PRC had provided financing to them. Of these 36 financial institutions, 29 were State-owned banks (59). The remaining financial institutions were either privately owned (four institutions), or the Commission was not able to determine whether they were State-owned or privately owned (three institutions). However, only one State-owned bank filled in the specific questionnaire, despite a request to the GOC that covered all financial institutions, which had provided loans to the sampled companies.

(223)

EXIM provides export-contingent loans at preferential rates to Chinese companies that produce new- and hi-tech products, products with indigenous intellectual rights, self-owned brands, high value-added products and software products that are registered with the authorities for industry and commerce (60). According to the information available to the Commission, Chinese GFF producers qualify for export-oriented loans as new- and hi-tech products and/or as self-owned brands, given that several producers are recognized as ‘National High-Tech Enterprises’ or have been awarded famous brand, top brand, etc. status.

(224)

Furthermore, EXIM also assists exporters through export buyers’ credits. Export buyers’ credits are provided to foreign companies to finance their import of Chinese products, technologies and services (61).

(225)

The Commission ascertained whether the State-owned banks were acting as public bodies within the meaning of Articles 3 and 2(b) of the basic Regulation. In this respect, the applicable test to establish that a State-owned undertaking is a public body is as follows (62): ‘What matters is whether an entity is vested with authority to exercise governmental functions, rather than how that is achieved. There are many different ways in which government in the narrow sense could provide entities with authority. Accordingly, different types of evidence may be relevant to showing that such authority has been bestowed on a particular entity. Evidence that an entity is, in fact, exercising governmental functions may serve as evidence that it possesses or has been vested with governmental authority, particularly where such evidence points to a sustained and systematic practice. It follows, in our view, that evidence that a government exercises meaningful control over an entity and its conduct may serve, in certain circumstances, as evidence that the relevant entity possesses governmental authority and exercises such authority in the performance of governmental functions. We stress, however, that, apart from an express delegation of authority in a legal instrument, the existence of mere formal links between an entity and government in the narrow sense is unlikely to suffice to establish the necessary possession of governmental authority. Thus, for example, the mere fact that a government is the majority shareholder of an entity does not demonstrate that the government exercises meaningful control over the conduct of that entity, much less that the government has bestowed it with governmental authority. In some instances, however, where the evidence shows that the formal indicia of government control are manifold, and there is also evidence that such control has been exercised in a meaningful way, then such evidence may permit an inference that the entity concerned is exercising governmental authority.’

(226)

The Commission sought information about State ownership as well as formal indicia of government control in the State-owned banks. It also analysed whether control had been exercised in a meaningful way. For this purpose, the Commission had to partially rely on facts available due to the refusal of the GOC and the State-owned banks to provide evidence on the decision making process that had led to the preferential lending.

(227)

In order to carry out this analysis, the Commission first examined information from the State-owned banks that had filled in the specific questionnaire and allowed for verification.

(228)

Only one State-owned bank, namely EXIM, provided a questionnaire reply, which was verified on site.

(229)

Based on the information received in the questionnaire reply and during the verification visit, the Commission established that the GOC held, either directly or indirectly, more than 50 % of the shares in this financial institution.

(230)

Concerning the formal indicia of government control of the cooperating State-owned bank, the Commission qualified it as ‘key State-owned financial institution’. In particular, the notice ‘Interim Regulations on the Board of Supervisors in Key State-owned Financial Institutions’ states that: “The key State-owned financial institutions mentioned in these Regulations refer to State-owned policy banks, commercial banks, financial assets management companies, securities companies, insurance companies, etc. (hereinafter referred to as State-owned financial institutions), to which the State Council dispatches boards of supervisors”.

(231)

The Board of Supervisors of the key State-owned financial institutions is appointed according to the ‘Interim Regulations of Board of Supervisors of Key State-owned Financial Institutions’ (State Council Decree No. 282). Based on Articles 3 and 5 of these Interim Regulations, the Commission established that Members of the Board of Supervisors are dispatched by and accountable to the State Council, thus illustrating the institutional control of the State on the cooperating State-owned bank’s business activities. In addition to these generally applicable indicia, the Commission found the following with respect to EXIM:

(232)

EXIM was formed and operates in accordance with ‘The Notice of Establishing Export-Import Bank of China’ issued by the State Council, as well as the Articles of Association of EXIM. According to its Articles of Association, the State directly nominates the management of EXIM. The Board of Supervisors is appointed by the State Council in accordance with the ‘Interim Regulations on the Boards of Supervisors in Key State-owned Financial Institutions’ and other laws and regulations, and it is responsible to the State Council.

(233)

The Articles of Association also mention that the Party Committee of EXIM plays a leading and political core role to ensure that policies and major deployment of the Party and the State are implemented by EXIM. The Party's leadership is integrated into all aspects of corporate governance.

(234)

The Articles of Association further state that EXIM is dedicated to supporting the development of foreign trade and economic cooperation, cross-border investment, the One Belt One Road Initiative, cooperation in international capacity and equipment manufacturing. Its scope of business includes short-term, medium-term and long-term loans as approved and in line with the State's foreign trade and “going out” policies, such as export credit, import credit, foreign contracted engineering loans, overseas investment loans, Chinese government foreign aid loans and export buyer loans.

(235)

The Commission also found that State-owned financial institutions have changed their Articles of Associations in 2017 to increase the role of the China Communist Party (‘CCP’) at the highest decision-making level of the banks.

(236)

These new Articles of Association stipulate that:

(237)

This evidence shows that the Government exercised meaningful control over the conduct of this institution

(238)

The Commission further sought information about whether the GOC exercised meaningful control over the conduct of the cooperating State-owned bank with respect to its lending policies and assessment of risk, where they provided loans to the GFF industry. The following regulatory documents have been taken into account in this respect:

(239)

Reviewing these regulatory documents, the Commission found that financial institutions in the PRC are operating in a general legal environment that directs them to align themselves with the GOC's industrial policy objectives when taking financial decisions, for the following reasons.

(240)

With respect to EXIM, its public policy mandate is established in the notice of establishing EXIM as well as in its Articles of Association.

(241)

At the general level, Article 34 of the Bank law, which applies to all financial institutions operating in China, provides that ‘Commercial banks shall conduct their business of lending in accordance with the needs of the national economic and social development and under the guidance of the industrial policies of the State’. Although Article 4 of the Bank Law states that, ‘Commercial banks shall, pursuant to law, conduct business operations without interference from any unit or individual. Commercial banks shall independently assume civil liability with their entire legal person property’, the investigation showed that Article 4 of the Bank law is applied subject to Article 34 of the Bank law, i.e. where the State establishes a public policy the banks implement it and follow State instructions.

(242)

In addition, Article 15 of the General Rules on Loans provides that ‘In accordance with the State's policy, relevant departments may subsidize interests on loans, with a view to promoting the growth of certain industries and economic development in some areas.’

(243)

Similarly, Decision No. 40 instructs all financial institutions to provide credit support specifically to ‘encouraged’ projects. As already explained in Section 3.1 and more specifically in recital (166), projects of the GFF industry belong to the ‘encouraged’ category. Decision No. 40 hence confirms the previous finding with respect to the Bank law that banks exercise governmental authority in the form of preferential credit operations. The Commission also found that the CBIRC has far-reaching approval authority over all aspects of the management of all financial institutions established in the PRC (including privately owned and foreign owned financial institutions), such as (63):

(244)

The Bank law is legally binding. The mandatory nature of the Five Year Plans and of Decision No. 40 has been established above in Section 3.1. The mandatory nature of the CBIRC regulatory documents derives from its powers as the banking regulatory authority. The mandatory nature of other documents is demonstrated by the supervision and evaluation clauses, which they contain.

(245)

Following definitive disclosure, the GOC claimed that none of the regulatory documents relied upon by the Commission were sufficient to show that meaningful control had, in fact, been exercised by the GOC on EXIM. More specifically, the GOC argued that Article 34 of the Chinese Commercial Banking Law is nothing more than a general statement without any practical implications. The GOC added that Article 34 should not be read in isolation, but in conjunction with Articles 4, 5, and 41 of the Bank law relating allegedly to the bank's autonomy, and the lack of interference by entities, individuals or governments. The GOC also requested to disregard Article 15 of the General Rules on Loans, since it is not mandatory. Finally, the GOC stated that Decision No. 40 of the State Council was not binding, and referred to Article 17 of this Decision, according to which all financial institutions are required to make lending decisions based on market principles.

(246)

The Commission first recalled that, as mentioned in recital above, it considered that the Bank law and Decision No. 40 are mandatory. Furthermore, the findings of this investigation (as well as the Commission's findings in previous investigations concerning the same subsidy programme (64)) did not support the claim that banks do not take government policy and plans into account. The investigation rather showed that Article 15 of the General Rules on Loans was actually applied in practice, and that Articles 4, 5 and 41 of the Bank law were applied subject to Article 34 of the Bank law, i.e. where the State establishes a public policy the banks implement it and follow State instructions. The findings of this investigation did not support the claim that banks do not take government policy and plans into account while making lending decisions. For example, the Commission found that the exporting producers benefit from similarly low interest rates through preferential lending.

(247)

The Commission also noted that the Decision No. 40 of the state Council instructs all financial institutions to provide credit support only to encouraged projects and promises the implementation of ‘other preferential policies on the encouraged projects’. On the basis of the above, banks are required to provide credit support to the GFF industry. While Article 17 of the same Decision also asks the bank to respect credit principles, the Commission could not establish during the investigation that this was done in practice. Decision No. 40 hence confirmed the previous finding with respect to the Bank law that banks exercise governmental authority in the form of preferential credit operations.

(248)

On that basis, the Commission concluded that the GOC has created a normative framework that had to be adhered to by the managers and supervisors appointed by the GOC and accountable to the GOC. Therefore, the GOC relied on the normative framework in order to exercise control in a meaningful way over the conduct of the cooperating State-owned bank whenever it was providing loans to the GFF industry.

(249)

The Commission also sought concrete proof of the exercise of control in a meaningful way based on concrete loans. During the verification visit, the cooperating State-owned bank maintained that in practice it had used sophisticated credit risk assessment policies and models when granting the loans at issue. However, as already indicated in recitals (187) to (190) above, no concrete examples relating to the sampled companies were provided. The cooperating State-owned bank refused to provide information, including its specific credit risk assessments, related to the sampled companies for regulatory reasons and contractual reasons even though the Commission had a written consent from the sampled companies waiving their confidentiality rights.

(250)

In the absence of concrete evidence of creditworthiness assessments, the Commission therefore examined the overall legal environment as set out above in recitals (238) to (245), in combination with the behaviour of the cooperating State-owned bank with regard to the loans provided to the sampled companies. This behaviour contrasted with its official stance during the verification visit, as in practice it was not acting based on thorough market-based risk assessments.

(251)

The verification visits revealed that, with the sole exception of certain loans in foreign currency, loans were provided to the two sampled groups of exporting producers at interest rates below or close to the People’s Bank of China (‘PBOC’) benchmark interest rates, regardless of the companies’ financial and credit risk situation. Hence, the loans were provided below market rates when compared to the rate corresponding to the risk profile of the sampled exporting producers. In addition, the sampled companies had received revolving loans, which allow them to immediately replace the capital repaid on loans at the maturity date by fresh capital from new loans.

(252)

The Commission also found that loans which should have been reported by the banks as ‘not normal’ loans had not always been indicated as such in the national central credit register by the cooperating State-owned bank. The obligation to report such ‘not normal loans’ exists in particular when loans had been restructured, when the debtor defaulted on its payments, or when revolving loans had been issued. Such occurrences were found for the two sampled exporting producers. According to the CBIRC’s ‘Guidelines on risk-based loan classification’, all of these instances should have been included in the central credit register. This lack of reporting by the financial institutions leads to a distorted picture of the company’s credit situation in the central credit register, as the register does not show the real creditworthiness of the company. As a result, even if a financial institution were to apply a market-based risk assessment, it would have done so based on inaccurate information.

(253)

The Commission therefore concluded that the GOC has exercised meaningful control over the conduct of the cooperating State-owned bank with respect to its lending policies and assessment of risk concerning the GFF industry.

(254)

The Commission established that the cooperating State-owned financial institution implemented the legal framework set out above in the exercise of governmental functions with respect to the GFF sector. Therefore, it was acting as public body in the sense of Article 2(b) of the basic Regulation read in conjunction with Article 3(1)(a)(i) of the basic Regulation and in accordance with the relevant WTO case-law.

(255)

As set out in section 3.2 above, none of the other State-owned banks, which provided loans to the sampled companies, replied to the specific questionnaire. The CDB did not respond to the questionnaire, but was available for questions during the verification visit at the premises of MOFCOM. During this visit, the CDB stated that the statements it had made during a previous anti-subsidy investigation by the EU in 2012 were still valid, and that no major changes had occurred since then. The CDB did not provide any further detailed information on its governance structure, risk assessment or examples relating to specific loans to the GFF industry.

(256)

Therefore, in line with the conclusions reached in recitals (182) to (199) above, the Commission decided to use facts available to determine whether those State-owned banks qualify as public bodies.

(257)

In previous anti-subsidy investigations (65), the Commission established that the following banks, which had provided loans to the sampled groups of exporting producers in the investigations at hand, were partially or fully owned by the State itself or by State-held legal persons: China Development Bank, China Construction Bank, Industrial and Commercial Bank of China, Bank of Communications, China Everbright Bank, Postal Savings Bank, China Merchants Bank, Shanghai Pudong Development Bank, China Industrial Bank, Shenyang Rural Commercial Bank, Bank of Shanghai, Ningbo Bank, China CITIC Bank, China Guangfa Bank, China Bohai Bank, Huaxia Bank, Hankou Bank, Hubei Bank, Huishang Bank, Dongying Bank, Bank of Tianjin, Bank of Kunlun, Shanghai Rural Commercial Bank, China Industrial International Trust Limited, Daye Trust Co., Ltd. and Sinotruk Finance Co., Ltd. Since no information has been provided indicating otherwise, the Commission maintained the same conclusion in the present investigation.

(258)

Using publicly available information, such as the bank’s website, annual reports, information available in bank directories or on the Internet, the Commission furthermore found that the following banks that had provided loans or financial leasing to the two sampled groups of exporting producers were partially or fully owned by the State itself or by State-held legal persons:

(259)

The Commission further established, absent specific information from the financial institutions at issue indicating otherwise, GOC ownership and control based on formal indicia for the same reasons as set out above in Section 3.4.1.2. In particular, based on facts available, managers and supervisors in the non-cooperating State-owned banks would appear to be appointed by the GOC and be accountable to the GOC in the same manner as in the cooperating State-owned bank.

(260)

With regard to the exercise of control in a meaningful manner, the Commission considered that the findings concerning the cooperating financial institution could be considered representative also for the non-cooperating State-owned financial institutions. The normative framework analysed in Section 3.4.1.2 above applies to them in an identical manner. Absent any indication to the contrary, based on facts available, the lack of concrete evidence of creditworthiness assessments is valid for them in the same manner as for the cooperating State-owned bank, so that the analysis on the concrete application of the normative framework in Section 3.4.1.2 above applies to them in an identical manner.

(261)

Moreover, the Commission observed that the majority of loan contracts which the Commission had obtained from the sampled companies had similar conditions and that the lending rates which had been agreed were similar and partly overlapped with the rates provided by the cooperating State-owned bank.

(262)

The Commission therefore considered that the findings for the cooperating state-owned bank constituted the facts available under Article 28 of the basic Regulation for assessing the other State-owned banks, due to those similarities in loan conditions and lending rates.

(263)

On that basis, the Commission concluded that the other State-owned banks, which provide loans to the sampled companies, are public bodies within the meaning of Article 2(b) read in conjunction with Article 3(1)(a)(i) of the basic Regulation.

(264)

Following definitive disclosure, the GOC argued that the Commission based itself only on previous investigations and indicia of formal control to establish that the non-cooperating State-owned banks were acting as public bodies. No separate analysis was performed for each bank. In addition, since EXIM is a policy bank, its situation could not be transposed to commercial banks

(265)

In this respect, the Commission recalled that in the absence of cooperation from the other State-owned banks, the Commission had to rely on facts available. The Commission concluded that the information from previous investigations, combined with formal indicia of control and the findings of the investigation itself regarding EXIM and regarding the actual conduct of the banks towards the exporting producers constituted the best facts available in this case. In any event, the GOC failed to put forward any evidence or argument to rebut the Commission's findings concerning the fact that the other State-owned banks which provided loans to the sampled companies are public bodies within the meaning of Article 2(b) read in conjunction with Article 3(1)(a)(i) of the basic Regulation. The Commission thus maintained its position.

(266)

In light of the above considerations, the Commission established that all State-owned Chinese financial institutions that provided loans or financial leasing to the two sampled groups of cooperating exporting producers are public bodies within the meaning of Article 2(b) read in conjunction with Article 3(1)(a)(i) of the basic Regulation.

(267)

In addition, even if the State-owned financial institutions were not to be considered as public bodies, the Commission established that they would be considered entrusted or directed by the GOC to carry out functions normally vested in the government within the meaning of Article 3 (1)(a)(iv) of the basic Regulation for the same reasons, as set out in recitals (269) to (272) below. Thus, their conduct would be attributed to the GOC in any event.

(268)

The Commission then turned to the remaining financial institutions. The following financial institutions were considered to be privately owned, based on the findings established in previous anti-subsidy investigations (67), and complemented by publicly available information: China Minsheng Bank, Sumitomo Mitsui Banking (China) Co., Ltd, Standard Chartered Bank, Ping An Bank. For the following financial institutions, in the absence of cooperation and in the absence of sufficient publicly available information the Commission could not ascertain whether they were State-owned or privately owned: Chongqing Runyin Financial Leasing Co., Ltd., Wuxi International Platinum Co., Ltd., Liangjiang Financial Leasing Co., Ltd., Taian Bank and Taian Daiyue Rural Commercial Bank Co., Ltd. Following a conservative approach, the Commission analysed the latter in the same manner as privately owned financial institutions and they are referred hereafter as ‘privately owned financial institutions’. The Commission analysed whether these financial institutions had been entrusted or directed by the Government of China to grant subsidies to the GFF sector within the meaning of Article 3(1)(a)(iv) of the basic Regulation.

(269)

According to the WTO Appellate Body, ‘entrustment’ occurs where a government gives responsibility to a private body and ‘direction’ refers to situations where the government exercises its authority over a private body (68). In both cases, the government uses a private body as a proxy to make the financial contribution, and ‘in most cases, one would expect entrustment or direction of a private body to involve some form of threat or inducement’ (69). At the same time, paragraph (iv) does not allow Members to impose countervailing measures to products ‘whenever the government is merely exercising its general regulatory powers’ (70) or where government intervention ‘may or may not have a particular result simply based on the given factual circumstances and the exercise of free choice by the actors in that market’ (71). Rather, entrustment or direction implies ‘a more active role of the government than mere acts of encouragement’ (72).

(270)

The Commission noted that the normative framework concerning the industry mentioned above in recitals (238) to (245) applies to all financial institutions in the PRC, including privately owned financial institutions. To illustrate this, the Bank Law and the various orders of the CBIRC cover all Chinese-funded and foreign-invested banks under the management of the CBIRC.

(271)

Furthermore, the verification visits in the sampled companies revealed that the majority of loan contracts which the Commission had obtained from the sampled companies had similar conditions, and that the lending rates provided by the private financial institutions were similar and partly overlapped with the rates provided by the publicly owned financial institutions.

(272)

In the absence of any divergent information received from the private financial institutions, the Commission concluded that, in so far as the GFF industry is concerned, all financial institutions (including private financial institutions) operating in China under the supervision of the CBIRC have been entrusted or directed by the State in the sense of Article 3(1)(a)(iv), first indent of the basic Regulation to pursue governmental policies and provide loans at preferential rates to the GFF industry.

(273)

After definitive disclosure, one of the parties argued that the fact that each of the sampled groups of companies benefitted from different types of loans or financial leasing during the investigation period with variances in respect of e.g. maturity, collateral, guarantees and other attached conditions, as mentioned in recital (281) below, indicated that they are not being entrusted or directed by the State. This party also submitted that the overlap in rates by private and publicly owned banks showed that the publicly owned banks were providing loans on market terms, not the opposite. The Commission also tried to shift the burden of proof by stating that its conclusions applied ‘[i]n the absence of any divergent information received from the private financial institutions’. However, the Commission should have first established a prima facie case.

(274)

In response to these claims, the Commission recalled that in the absence of cooperation from the banks, the Commission had to rely on facts available for the private banks. As such, it did not shift the burden of proof. Furthermore, since there was cooperation from only one State-owned bank, the Commission used the information from the cooperating party, which was deemed to be a public body, to compare it with the conditions offered by private banks, which were not cooperating. The fact that there was an overlap in rates shows that the private banks also provided loans below market terms, not the opposite. To follow the reasoning of the party would be equivalent to concluding that information based on facts available is more reliable than conclusions based on verified information. The fact that companies benefitted from different types of loans during the investigation period with different conditions attached to it, does not alter this. In any event, the party failed to put forward any evidence or argument to rebut the Commission's findings. These claims were thus rejected.

(275)

In addition, the normative framework applying to all banks in China is much wider than only the two regulations governing the CBIRC, as shown in recital (238) above, and the entire set of regulatory documents is legally binding, as explained in recital (244) above, so that they amount to more than acts of mere encouragement. Moreover, verification visits in the sampled companies did not reveal any significant differences between loan conditions or rates provided by the private financial institutions, and those provided by publicly owned financial institutions.

(276)

Following disclosure, the GOC submitted that the legislation invoked by the Commission has only guiding role, and a mere guiding role of the government is not sufficient for a finding of entrustment or direction to be made. In this context, the GOC highlighted that article 34 of the Bank Law was nothing more than a general statement without practical implications.

(277)

Article 15 of the General Rules on Loans is also not a mandatory obligation but merely allows financial institutions to take state policies into account. Decision No. 40 is also not a binding document, and it explicitly mandates financial institutions to provide financial support ‘according to the credit principles’.

(278)

The Commission disagreed with this view, since the normative framework applying to all banks in China is legally binding, as explained in recital (244) above, so that they amount to more than acts of mere encouragement or guidance by the government. Concerning Decision No. 40, the Commission already established in recital (247) above that Decision No. 40 instructs all financial institutions to provide credit support only to encouraged projects even though Article 17 of the same Decision also asks the bank to respect credit principles. The Commission thus maintained its position.

(279)

In previous anti-subsidy investigations, the Commission already determined that domestic credit ratings awarded to Chinese companies were not reliable, based on a study published by the International Monetary Fund (73), showing a discrepancy between international and Chinese credit ratings, combined with the findings of the investigation concerning the sampled companies. Indeed, according to the IMF, over 90 % of Chinese bonds are rated AA to AAA by local rating agencies. This is not comparable to other markets, such as the EU or the US. For example, less than 2 % of firms enjoy such top-notch ratings in the US market. Chinese credit rating agencies are thus heavily skewed towards the highest end of the rating scale. They have very broad rating scales and tend to pool bonds with significantly different default risks into one broad rating category (74).

(280)

In addition, foreign rating agencies, such as Standard and Poor’s and Moody’s, typically apply an uplift over the issuer’s baseline credit rating based on an estimate of the firm’s strategic importance to the Chinese Government and the strength of any implicit guarantee when they rate Chinese bonds issued overseas (75). Fitch for example clearly indicates, where applicable, that such guarantees are a key driver underlying its credit ratings of Chinese companies (76).

(281)

The Commission also found further information to complement this analysis. First, the Commission determined that the State can exercise a certain influence over the credit rating market. According to two studies published in 2016, there were around 12 credit rating agencies active on the Chinese market, a majority of which are State-owned. In total, 60 % of all rated corporate bonds in China had been rated by a State-owned ratings agency (77).

(282)

The GOC confirmed that, during the investigation period, there were 15 credit rating agencies active on China's bond market, among which 12 domestic rating agencies, including Shanghai Brilliance Credit Rating & Investors Service Co., Ltd, Dagong Global Credit Rating Co., Ltd, Golden Credit Rating International Co., Ltd, China Bond Rating Co., Ltd, CSCI Pengyuan Credit Rating Co., Ltd, Fareast Credit Rating Co., Ltd, China Chengxin Securities Rating Co., Ltd, United Credit Ratings Co., Ltd, Shanghai Credit Information Services Co., Ltd, China Securities Index Co., Ltd, Beijing North Joint Credit Evaluation Co., Ltd and Sichuan Dapu Credit Rating Limited Company. Most of the domestic rating agencies were State-owned. There were also 3 Sino-foreign joint venture credit rating agencies, namely China Lianhe Credit Rating Co. Ltd, S&P Global China Rating, and China Chengxin International Credit Rating Co., Ltd.

(283)

Second, there is no free entrance on the Chinese credit rating market. It is essentially a closed market, since rating agencies need to be approved by the China Securities Regulatory Commission (‘CSRC’) or the PBOC before they can start operations (78). The PBOC announced mid-2017 that overseas credit rating agencies would be allowed to carry out credit ratings on part of the domestic bond market, under certain conditions. However, during the investigation period, no foreign credit rating agency had been admitted yet (79). Nevertheless, in the meantime, foreign agencies did establish joint ventures with some local credit rating agencies, which provide credit ratings for domestic bond issues. However, these ratings follow Chinese rating scales and are thus not exactly comparable with international ratings, as explained above.

(284)

Finally, a recent study performed by the PBOC itself confirms the Commission’s findings, stating in its conclusions that ‘if the investment level of foreign bonds is set to international rating BBB-and above, then the domestic bond investment grade may be rated at AA-level and above, taking into account the difference between the average domestic rating and the international rating of 6 or more notches’ (80).

(285)

In view of the situation described in recitals (279) to (284) above, the Commission concluded that Chinese credit ratings do not provide a reliable estimation of the credit risk of the underlying asset. On this basis, even if some sampled companies were awarded a good credit rating by a Chinese rating agency, the Commission concluded that such ratings are not reliable. Those ratings were also distorted by the policy objectives to encourage key strategic industries, like GFF.

(286)

In line with the findings in the HRF and tyres investigations (81), revolving loans are loans, which allow a company to replace the capital repaid on loans at the maturity date by fresh capital from new loans. Revolving loans are usually a sign of short-term liquidity problems of the borrower, and involve a greater risk exposure for the banks granting them. The existence of revolving loans in a given company was therefore considered an indication that the company is in a worse financial situation than what the financial statements would suggest at first sight, and that there is an additional risk related to short-term liquidity problems.

(287)

Following definitive disclosure, the GOC claimed that revolving loans are not necessarily a sign of liquidity issues. This is clear from the websites of leading European banks. For instance, revolving credit lines and loans are a part of the standard business of banks such as ING (82) and BNP Paribas (83) and are not associated with higher interest rates.

(288)

The Commission disagreed with the assessment made by the GOC. The Chinese authorities themselves consider revolving loans to be an additional factor of credit risk. As stated in the CBRC's ‘Guidelines on risk-based loan classification’, revolving loans should be reported at least as a ‘concerned’ loan (84). A loan falling under this category means that even though a borrower can pay the principal and interest of the loan now, there are some factors, which may negatively affect the repayment thereof.

(289)

Revolving credit facilities do indeed exist in Europe, but their terms and conditions are very different from the Chinese revolving loans. Revolving credit facilities in the Union are basically credit lines, with a pre-determined maximum amount that can be withdrawn and repaid on several occasions during a pre-specified time period. In addition, such credit facilities entail an additional cost, be it a contractual margin on top of the usual short-term market rates (85), or a predetermined management fee. Furthermore, the example of BNP Paribas provided by the GOC also foresaw a fee for unused capital over the duration of the credit facility.

(290)

On the other hand, the revolving loans found during the verification visits at the Chinese sampled companies did not have conditions different from other short-term loans. They were not labelled as being a credit line or a revolving credit facility and there were no extra fees or margins attached to it. At first sight, they appeared to be normal short-term loans. However, sometimes the purpose of the loan referred to ‘repayment of loans’. In addition, when verifying the repayments of such loans during the verification visit, it became clear that the capital amount was actually being repaid by fresh loans received from the same bank for the same amount within a week before or after the maturity date of the initial loan. The Commission then extended its analysis to the other loans in the loan tables and found in most cases other instances with exactly the same characteristics. For all these reasons, the Commission maintained its position on revolving loans.

(291)

In the course of the investigation, the Commission found that certain sampled companies issued bonds with the specific purpose of debt repayments, namely loans. The Commission established that by restructuring their debt via this instrument, some companies could rearrange and defer their liabilities, as well as, obtain the funds without which they would not be able to meet their repayment obligations, evidencing therefore problems to raise funds.

(292)

The use of bonds to that aim raises concerns on the ability of a given company to pay for its debts, therefore questioning not only its short-term liquidity, but also the solvency in the long term. The existence of bonds issued with the purpose of repayment of loans in a given company is therefore considered an indication that the company is in a worse financial situation than what the financial statements would suggest at first sight, and that there is an additional risk related to its short and long-term financing.

(293)

As demonstrated in recitals (238) to (245), several legal documents, which specifically target companies in the sector, direct the financial institutions to provide loans at preferential rates to the GFF industry. These documents demonstrate that the financial institutions only provide preferential lending to a limited number of industries/companies, which comply with the relevant policies of the GOC.

(294)

Following definitive disclosure, the GOC disputed the specificity conclusions on preferential lending. According to the GOC, Articles 4 and 34 of the Bank law merely set out general guidelines with respect to the conduct of commercial banks and do not mention to which companies or industries loans should be granted. Furthermore, Article 15 of the General Rules on Loans does not expressly and unambiguously restrict the availability of this specific subsidy to companies in the GFF sector. Decision No. 40 is not specific to an enterprise or industry but to certain encouraged projects, which is not synonymous. Moreover, Decision No. 40 is not mandatory, and in light of the extremely wide array of economic sectors and industries covered by Decision No. 40, it cannot be concluded that this documents explicitly limits the access of the alleged subsidy to certain enterprises.

(295)

In this respect, the Commission noted that, even though the Bank law and the General Rules on Loans do not specify GFF as such, they do refer to the State’s industrial policies, which are set out in the documents listed in Section 3.1 above. The Commission thus referred back to the documents that were listed and the conclusions that were reached in Section 3.1 above. In addition, it considered that references to the GFF industry are sufficiently clear as this industry is identified either by its name or by a reference to the product that it manufactures or the industry group that it belongs to. Moreover, the fact that the GOC supports a limited group of encouraged industries, which includes the GFF industry, makes this subsidy specific. The Commission thus maintained its conclusions.

(296)

The Commission therefore concluded that subsidies in the form of preferential lending are not generally available but are specific within the meaning of Article 4(2)(a) of the basic Regulation. Moreover, there was no evidence submitted by any of the interested parties suggesting that the preferential lending is based on objective criteria or conditions in the sense of Article 4(2)(b) of the basic Regulation.

(297)

The Commission then calculated the amount of the countervailable subsidy. For this calculation, it assessed the benefit conferred on the recipients during the investigation period. According to Article 6(b) of the basic Regulation, the benefit conferred on the recipients is the difference between the amount of interest that the company pays on the preferential loan and the amount that the company would pay for a comparable commercial loan obtainable on the market.

(298)

In this regard, the Commission noted a number of specificities on the Chinese GFF market. As explained in Sections 3.4.1.1 to 3.4.1.7 above, the loans provided by Chinese financial institutions reflect substantial government intervention and do not reflect rates that would normally be found in a functioning market.

(299)

The sampled groups of companies differ in terms of their general financial situation. Each of them benefitted from different types of loans or financial leasing during the investigation period with variances in respect of e.g. maturity, collateral, guarantees and other attached conditions. For those two reasons, each company had a different average interest rate based on its own set of loans received.

(300)

The Commission assessed individually the financial situation of each sampled group of exporting producers in order to reflect these particularities. In this respect, the Commission followed the calculation methodology for preferential lending established in the anti-subsidy investigation on hot rolled flat steel products originating in the PRC, as well as in the anti-subsidy investigation on tyres originating in the PRC (86) and explained in the recitals below. As a result, the Commission calculated the benefit from the preferential lending practices for each sampled group of exporting producers on an individual basis, and allocated such benefit to the product concerned.

(301)

As mentioned in recitals (250) to (252) above, the Chinese lending financial institutions did not provide any creditworthiness assessment. Hence, in order to establish the benefit, the Commission had to assess whether the interest rates for the loans accorded to the CNBM Group were at market level.

(302)

The exporting producers of the CNBM Group presented themselves in a generally profitable financial situation according to their own financial accounts. One of the exporting producers did not have any loans. However, the Commission noted that it financed 65 % of its purchases by a sort of preferential short-term financial instrument (bank acceptance drafts). As explained in Section 3.4.3.2 below, bank acceptance drafts are a type of debt instrument; therefore, their extensive use points to short-term liquidity issues. The second exporting producer made constant profits during the period 2016-2018, and had healthy financial indicators at first sight, such as a low debt-to-assets ratio. However, it appeared to have short-term liquidity problems for the following reasons: the company’s outstanding short-term debt represented almost 100 % of its turnover; it issued a bond to repay bank loans; it used a high amount of bank acceptance drafts to finance its purchases, and it used revolving loans, which suggests that the company may be in a more fragile financial situation than what the financial statements would suggest at first sight. The third exporting producer showed a similar picture, with a profitable situation, but an extensive use of bank acceptance drafts and a bond issued to repay bank loans.

(303)

The first intermediate parent company, China Jushi, was profitable during the period 2016-2017 and the investigation period, but used bank acceptance drafts extensively to finance its purchases. Furthermore, the Commission established that some of the loans provided at the level of China Jushi were revolving loans, and that China Jushi had issued two bonds with the purpose of repaying bank loans. Revolving loans were also found in the second intermediate parent company, Sinoma Technology.

(304)

As mentioned in recitals (207) to (217) above, the parent company CNBM did not cooperate. However, looking at its publicly available annual report for 2018, a similar picture emerges: the company has a high leverage, with a net debt ratio of 130 %, and a debt-to-assets ratio of 68 %. During the investigation period, the company concluded a debt-to-equity swap deal with State-owned banks, in order to improve its debt structure. Under such a deal, the company could convert part of its debt to State-owned banks into shares, and thus reduce the liabilities on its balance sheet.

(305)

The Commission noted that the various companies in the CNBM Group were awarded ratings ranging between AA- and AA+ by a Chinese credit rating agency. In light of the overall distortions of Chinese credit ratings mentioned in recitals (279) to (285), the Commission concluded that this rating is not reliable.

(306)

The Commission considered that the overall financial situation of the group corresponds to a BB rating, which is the highest rating that does no longer qualify as ‘investment grade’. ‘Investment grade’ means that bonds issued by the company are judged by the rating agency as likely enough to meet payment obligations that banks are allowed to invest in them.

(307)

After definitive disclosure, the CNBM Group claimed that the Commission gave a joint credit rating to the entire CNBM Group based mainly on CNBM’s credit rating, even though the level of indebtedness of CNBM could not have a detrimental effect on China Jushi, for which it holds only a 27 % stake. In addition, CNBM could not transfer its debt liabilities to China Jushi since the companies in the group are separate legal entities with limited liability, meaning that the debts of shareholders or subsidiaries could not be transferred. Furthermore, since the CNBM Group considers that bank acceptance drafts are not equivalent to short-term loans they should also not be taken into account for the assessment of the companies’ credit rating.

(308)

The Commission disagreed with these statements. As shown in recitals (301) to (304) above, the Commission has made an individual assessment of each of the companies within these groups. In the specific case of the CNBM Group, irrespective of the situation described at the level of CNBM, most of the companies reviewed showed a similar picture, including revolving loans, extensive use of bank acceptances, and bonds taken out to repay loans. In addition, contrary to what was stated by the company, debt was actually transferred between various companies in the group through intercompany loans. Therefore, the Commission decided to attribute a single credit rating to the group. Finally, as mentioned in Section 3.4.3.2 below, the Commission considered bank acceptance drafts as another type of financial instrument equivalent to a short-term loan, which can thus be used in the determination of the credit ratings. Hence, the company’s claims were rejected.

(309)

The premium expected on bonds issued by firms with this rating (BB) was then applied to the standard lending rate of the PBOC in order to determine the market rate.

(310)

That mark-up was determined by calculating the relative spread between the indices of US AA rated corporate bonds to US BB rated corporate bonds based on Bloomberg data for industrial segments. The relative spread thus calculated was then added to the benchmark interest rates as published by the PBOC at the date when the loan was granted (87), and for the same duration as the loan in question. This was done individually for each loan provided to the company.

(311)

Following definitive disclosure, several parties claimed that the use of a relative spread was flawed. All of them alleged that the Commission should have used an absolute instead of a relative spread between the US AA rated bonds and the US BB rated bonds. The following reasons were provided:

(312)

These issues were already presented in previous investigation (88). As can be seen from recitals (175) to (187) in the HRF case, and from recital (256) in the Tyres case, the Commission rejected these arguments on the following grounds.

(313)

First, while the Commission recognised that commercial banks usually use a mark-up expressed in absolute terms, it observed that this practice seems mainly based on practical considerations, because the interest rate is ultimately an absolute number. The absolute number is however the translation of a risk assessment that is based on a relative evaluation. The risk of default of a BB-rated company is X % more likely than default of the government or a risk-free company. This is a relative evaluation.

(314)

Second, interest rates reflect not only company risk profiles, but also country- and currency specific risks. The relative spread thus captures changes in the underlying market conditions, which are not expressed when following the logic of an absolute spread. Often, as in the present case, the country- and currency- specific risk varies over time, and the variations are different for different countries. As a result, the risk-free rates vary significantly over time, and are sometimes lower in the US, sometimes in China. These differences relate to factors such as observed and expected GDP growth, economic sentiment, and inflation levels. Because the risk-free rate varies over time, the same nominal absolute spread can signify a very different assessment of the risk. For example, where the bank estimates the company-specific risk of default at 10 % higher than the risk-free rate (relative estimation), the resulting absolute spread can be between 0,1 % (at a risk-free rate of 1 %) and 1 % (at a risk-free rate of 10 %). From an investor perspective, the relative spread is hence a better measure as it reflects the magnitude of the yield spread and the way it is affected by the base interest-rate level.

(315)

Third, the relative spread is also country-neutral. For instance, where the risk-free rate in the US is lower than the risk-free rate in China, the method will lead to higher absolute mark-ups. On the other hand, where the risk-free rate in China is lower than in the US the method will lead to lower absolute mark-ups.

(316)

On the third point, historical data showing the evolution of the absolute and relative spread over time were already analysed in the Tyres case. The Commission’s analysis found that the absolute spread is not as stable as alleged, but instead varies over time, from 1 % to 4,5 %. In addition, the relative spread followed exactly the same trend as the absolute spread over the past 23 years, i.e. when the relative spread increases the absolute spread also increases and vice versa. As for the alleged volatility of the relative spread, the magnitude of the changes were similar — the difference between the highest and the lowest figures was 530 % for the relative spread and 450 % for the absolute spread (89).

(317)

The GOC also objected to the use of an out-of-country benchmark as such. In this respect, the GOC noted that the Commission first should have looked for comparable commercial loans the exporting producers could actually obtain on the market. Otherwise, the benchmark should be based on positive evidence and reasoned explanations that all loans in the market concerned were distorted by government intervention such that no comparable loan existed on the domestic market.

(318)

In this respect, as explained in Section 3.4.1.7 above, the Commission determined that domestic credit ratings awarded to Chinese companies were not reliable as such, and were also distorted by the policy objectives to encourage key strategic industries, like GFF. As a result, Chinese credit ratings do not provide a reliable estimation of the credit risk of the underlying asset, and the Commission had to look for a benchmark based on undistorted credit ratings. Furthermore, the Commission noted that the resulting interest rate of around 9 % for BB rated companies is not unreasonable in view of the fact that the yield of BB rated corporate bonds on the Chinese domestic market was 21 % at the end of the investigation period (90). Consequently, these claims were rejected.

(319)

The GOC also claimed that the use of an out-of-country benchmark was inappropriate, as the benchmark did not make the necessary adjustments to reflect the prevailing conditions on the Chinese financial market, and that the Commission failed to take into account differences that existed in the size of the loans, the repayment terms and conditions and whether or not the loans were guaranteed, among other factors.

(320)

The Commission disagreed with this view, since the PBOC benchmark rate is used as a starting point for the calculation. Furthermore, the use of the relative spread captures changes in the underlying country-specific market conditions, which are not expressed when following the logic of an absolute spread, as explained in the recital above. In addition, the Commission observed that it it not possible to include all factors of the individual risk assessment of a bank into the proxy. However, the Commission’s calculation methodology takes into account parameters of individual loans, such as the start date and the duration of the loan, as well as the variability of the interest rate. The GOC’s claims were thus rejected.

(321)

As for loans denominated in foreign currencies in the PRC, the same situation in respect of market distortions and the absence of valid credit ratings applies, because these loans are granted by the same Chinese financial institutions. Therefore, as found before, BB rated corporate bonds in relevant denominations issued during the investigation period were used to determine an appropriate benchmark.

(322)

Furthermore, as explained in Section 3.4.2.1, the existence of revolving loans in a given company is considered an indication that the company is in a worse financial situation than what the financial statements would suggest at first sight, and that there is an additional risk related to short-term liquidity problems. Indeed, revolving loans are usually concluded for short durations. It is highly unlikely that a revolving loan would have a maturity of more than two years, and the evidence of the loans verified in the sampled companies supported this conclusion.

(323)

Therefore, in order to take into account the increased risk exposure of the banks when providing short-term financing to companies with revolving loans, the Commission moved down one notch in the risk rating scale and adapted the relative spread calculation for all short-term financing of the concerned companies. The Commission thus made a comparison between US AA corporate bonds and US B (instead of BB) corporate bonds with the same duration. According to Standard & Poor's credit rating definitions, an obligor rated ‘B’ is more vulnerable than the obligors rated ‘BB’, but the obligor currently still has the capacity to meet its financial commitments. Nevertheless, adverse business, financial, or economic conditions may impair the obligor's capacity or willingness to meet its financial commitments. This benchmark is therefore considered to be appropriate to reflect the additional risk derived from the use of revolving loans as short-term financing.

(324)

The Commission thus used this as the relevant benchmark for all short-term debt, including loans, with a maturity of 2 years or less provided to companies, which were making use of revolving loans.

(325)

For the remaining loans with a maturity above 2 years and for companies that did not have revolving loans, the Commission reverted to the general benchmark awarding the highest grade of ‘Non-investment grade’ bonds, as explained in recital (306).

(326)

The Commission found that certain companies within the group issued bonds with the purpose of debt restructuring. In this case, as explained in Section 3.4.2.2, the Commission considered that the companies concerned are in a worse financial situation than what are the financial statements would suggest at first sight, and that there is an additional risk related to its short and long-term financing. Therefore in order to take into account the increased risk exposure, the Commission moved down one notch in the risk rating scale and adapted the relative spread calculation also for their long-term financing, including loans, by making a comparison between US AA corporate bonds and US B.

(327)

Finally, since the parent company CNBM did not cooperate, the benefit for preferential lending at the level of CNBM was established by using the methodology explained in this section, applied to the publicly available information in the 2018 annual report of this company, such as outstanding liabilities, average cost of capital and average duration of borrowings.

(328)

As mentioned in recitals (250) to (252) above, the Chinese lending financial institutions did not provide any creditworthiness assessment. Hence, in order to establish the benefit, the Commission had to assess whether the interest rates for the loans accorded to the Yuntianhua Group were at market level.

(329)

The exporting producers of the Yuntianhua Group presented itself in a generally profitable financial situation according to its own financial accounts.

(330)

However, the analysis of the short-term liquidity raises concerns for the two exporting companies since the short-term debts in the IP represent from 90 to over 100 percent of the companies turnover, with an increasing trend from previous year. The use of short-term debt is significant in both companies. Although one of the exporting producers has no loans during the IP, it financed most of its purchases, as well as part of other non-operative cost, through bank acceptance drafts, an instrument with a maturity, generally, lower than a year.

(331)

CPIC, the first direct shareholder and key supplier for the exporting producers, was profitable during the IP. However, it decreased the return to equity from previous year. Furthermore, the company presents liquidity issues, since its short term debts represent 80 to 90 % of the total debt. The comparison of the company’s current assets to its current liabilities provides a current ratio (91) with a low value, below 1, which raises concerns on its capacity to repay short-term debts. Similarly, the Commission established the extensive use of bank acceptance drafts to finance its purchases.

(332)

Yunnan Yuntianhua Group Co., Ltd., the parent company of the Yuntianhua Group, involved in the supply chain of the product under investigation, was loss-making during the IP. The comparison of the company’s current assets to its current liabilities, through the current ratio below 1, raises serious concerns on its liquidity and its ability to repay short terms debts. Furthermore, the investigation revealed that the company issued bonds with the explicit purpose of debt repayment. The use of revolving loans was similarly established.

(333)

The Commission noted that the Yuntianhua Group was awarded an AA rating by a Chinese credit rating agency. In light of the overall distortions of Chinese credit ratings mentioned in recitals (279) to (285) above, the Commission concluded that this rating is not reliable.

(334)

The Commission considered that the overall financial situation of the group corresponds to a BB rating, which is the highest rating that does no longer qualify as ‘investment grade’. ‘Investment grade’ means that bonds issued by the company are judged by the rating agency as likely enough to meet payment obligations that banks are allowed to invest in them.

(335)

The premium expected on bonds issued by firms with this rating (BB) was then applied to the standard lending rate of the PBOC in order to determine the market rate.

(336)

That mark-up was determined by calculating the relative spread between the indices of US AA rated corporate bonds to US BB rated corporate bonds based on Bloomberg data for industrial segments. The relative spread thus calculated was then added to the benchmark interest rates as published by the PBOC at the date when the loan was granted (92), and for the same duration as the loan in question. This was done individually for each loan and financial leasing provided to the company.

(337)

As for loans denominated in foreign currencies in the PRC, the same situation in respect of market distortions and the absence of valid credit ratings applies, because these loans are granted by the same Chinese financial institutions. Therefore, as found before, BB rated corporate bonds in relevant denominations issued during the investigation period were used to determine an appropriate benchmark.

(338)

Furthermore, as explained in Section 3.4.2.1, the existence of revolving loans in a given company is considered an indication that the company is in a worse financial situation than what the financial statements would suggest at first sight, and that there is an additional risk related to short-term liquidity problems. Indeed, revolving loans are usually concluded for short durations. It is highly unlikely that a revolving loan would have a maturity of more than two years, and the evidence of the loans verified in the sampled companies supported this conclusion.

(339)

Therefore, in order to take into account the increased risk exposure of the banks when providing short-term financing to companies with revolving loans, the Commission moved down one notch in the risk rating scale and adapted the relative spread calculation for all short-term financing of the concerned companies. The Commission thus made a comparison between US AA corporate bonds and US B (instead of BB) corporate bonds with the same duration. According to Standard & Poor's credit rating definitions, an obligor rated ‘B’ is more vulnerable than the obligors rated ‘BB’, but the obligor currently still has the capacity to meet its financial commitments. Nevertheless, adverse business, financial, or economic conditions may impair the obligor's capacity or willingness to meet its financial commitments. This benchmark is therefore considered appropriate to reflect the additional risk derived from the use of revolving loans as short-term financing.

(340)

The Commission thus used this as the relevant benchmark for all short-term debt, including loans, with a maturity of 2 years or less provided to companies, which were making use of revolving loans.

(341)

For the remaining loans with a maturity above 2 years and for companies that did not have revolving loans, the Commission reverted to the general benchmark awarding the highest grade of ‘Non-investment grade’ bonds, as explained in recital (306).

(342)

The Commission found that certain companies within the group issued bonds with the purpose of debt restructuring. In this case, as explained in Section 3.4.2.2, the Commission considered that the companies concerned are in a worse financial situation than what are the financial statements would suggest at first sight, and that there is an additional risk related to its short and long-term financing. Therefore in order to take into account the increased risk exposure, the Commission moved down one notch in the risk rating scale and adapted the relative spread calculation also for their long-term financing, including loans, by making a comparison between US AA corporate bonds and US B.

(343)

The investigation showed that all sampled groups of exporting producers benefited from preferential lending during the investigation period. In view of the existence of a financial contribution, a benefit to the exporting producers and specificity, the Commission considered preferential lending a countervailable subsidy.

(344)

The subsidy amount established with regard to the preferential lending during the investigation period for the sampled groups of companies amounts to:

Preferential financing: lending

(345)

The investigation showed that Chinese financial institutions also provided credit lines at preferential conditions in connection with the provision of financing to each of the sampled companies. These consisted of framework agreements, under which the bank allows the sampled companies to use various debt instruments, such as working capital loans, bank acceptance drafts, documentary bills, other forms of trade financing, etc., within a certain maximum amount.

(346)

The purpose of a credit line is to establish a borrowing limit that the company can use at any time to finance its current operations thus making working capital financing flexible and immediately available when needed. The investigation showed that the two sampled exporting producers had credit line agreements with different banks that covered diverse short-term financing instruments with the purpose to finance operating expenses. Consequently, the Commission considered that in principle, all short-term financing of the sampled companies should be covered by a sort of credit line instrument, including bank acceptance drafts, which are issued on a regular basis to finance current operations.

(347)

Therefore, the Commission compared the amount of the credit lines available to the cooperating companies during the investigation period with the amount of short-term financing used by these companies during the same period to establish whether all short-term financing was covered by a credit line. In case the amount of the short-term financing exceeded the credit line limit, the Commission increased the amount of the existing credit line by the amount actually used by the exporting producers beyond that credit line limit.

(348)

Under normal market circumstances, credit lines would be subject to a so-called ‘arrangement’ or ‘commitment’ fee to compensate for the bank's costs and risks at the opening of a credit line, as well as to a renewal fee charged on a yearly basis for renewing the validity of the credit lines. However, the Commission found that all of the sampled companies benefited from credit lines provided free of charge.

(349)

Following definitive disclosure, the GOC argued that the Commission’s claim that in normal market circumstances, credit lines are subject to commitment fees was unjustified in light of its own consideration in the Aircraft cases. According to the GOC, commitment fees only apply when the credit line is a committed credit line. However, the Commission did not establish that the credit lines in question were committed credit lines. The GOC recalled that in ‘EC – Aircraft’, the EU itself contended that the fact that the EIB did not charge commitment fees was justified because ‘… (i) for “openrate” contracts (i.e. contracts where the rates are not fixed ex ante), there is no certainty as to the timing of the availability of funds, and the EIB does not commit to a precise interest rate’.

(350)

In response to this claim, the Commission noted that the argument of the EU in EC-Aircraft proceedings regarding commitment fees was not followed by the Panel in its ultimate findings. In particular, the Panel established that the lack of charging commitment fees by the EIB to compensate for the the EIB’s commitment to make funding available was more advantageous than a comparable loan from a commercial lender and conferred a benefit (93). Therefore, this claim was rejected.

(351)

In accordance with Article 6(d)(ii) of the basic Regulation, the Commission considered the benefit thus conferred on the recipients to be the difference between the amount that the company has paid as a fee for the opening or the renewal of credit lines by Chinese financial institutions and the amount that the company would pay for a comparable commercial credit line, which the company could obtain on the market.

(352)

Following disclosure, several parties claimed that the Commission did not perform a specificity analysis for credit lines. Furthermore, the GOC reiterated its comments developed in Section 3.1 above, stating that GFF is not an encouraged industry and none of the documents referred to by the Commission in this regard show that the credit lines provided to the GFF industry are specific within the meaning of Article 2 of the SCM Agreement.

(353)

The Commission did not make a separate specificity analysis as credit lines are intrinsically linked to other types of preferential lending such as loans, and thus follow the same specificity analysis as developed in Section 3.4.2.3 above for the loans. As a result, these claims were rejected.

(354)

The appropriate benchmark for the arrangement fee was established at 1,5 % by reference to publicly available data (94) for opening similar credit lines in similar (but undistorted) situations. The amount of the arrangement fee is payable on a lump sum basis at the time of the opening of the credit line. Therefore, the Commission applied the benchmark to the amount of credit lines opened during the investigation period.

(355)

For credit lines existing before the beginning of the IP and renewed during the IP, a renewal fee of 1,25 % was used as a benchmark following the same source. The amount of the renewal fee is payable yearly on a lump sum basis at the time of the renewal of the credit line. Therefore, the Commission applied the benchmark to the amount of credit lines renewed during the IP.

(356)

After definitive disclosure, one of the parties commented that the costs pertaining to arrangement and renewal fees are commonly waived by banks in order to secure large commercial clients. The company further provided an example of a bank in the United States, which did not charge an arrangement fee and only charged a 0,25 % annual renewal fee for a committed credit line of between USD 100 001 and USD 3 million (95) In addition, given that the United States is a much larger market than the United Kingdom and that the Commission relied on bond ratings from the United States to establish creditworthiness, such a benchmark was considered to be much more suitable than the UK benchmark for small businesses used by the Commission.

(357)

The Commission noted that the allegation that the costs pertaining to arrangement and renewal fees are commonly waived by banks in order to secure large commercial clients was not substantiated by any evidence. Moreover, the Commission reviewed the benchmark proposed by the company and found that this benchmark specifically concerned lines of credit for small businesses with a maximum amount of USD 3 million, and more particularly related to short term working capital needs. On the contrary, the benchmark used by the Commission had a minimum limit of GBP 25 000 but no upper limit, there were no limitations in terms of the use of the capital provided or the duration, and it was separate from another financial product mentioned in the same document, but specifically tailored to small businesses. The Commission’s own benchmark was thus more suitable for large size clients. In addition, the US bank providing the credit lines in the example chosen by the claimant was a bank operating exclusively on the US market, whereas HSBC (the benchmark used by the Commission) is a global bank, operating also on the Chinese market. There is no evidence available to the Commission indicating that HSBC waives the fees depending on the size of the customer. In this respect as well, the Commission’s benchmark thus seemed more appropriate. Consequently, the company’s claims were rejected.

(358)

Bank acceptance drafts are a financial product aimed at developing a more active domestic money market by broadening credit facilities. It is a form of short-term financing that might ‘reduce fund cost and enhance capital efficiency’ of the drawer (96).

(359)

Bank acceptance drafts can only be used to settle genuine trade transactions and the drawer must produce sufficient evidence in that respect, e.g. through purchase/sales agreement, invoice and delivery order etc. Bank acceptance drafts may be used as a standard means of payment in purchase agreements together with other means such as remittance or money order.

(360)

The bank acceptance draft is drawn by the applicant (the drawer, which is also the buyer in the underlying commercial transaction) and accepted by a bank. By accepting the draft, the bank accepts to make unconditional payment of the amount of money specified in the draft to the payee/bearer on the designated date (the maturity date).

(361)

In general, the bank acceptance contracts contain the list of the transactions covered by the amount of the draft with indication of the payment due date with the supplier and the maturity date of the bank acceptance draft.

(362)

The Commission established that generally bank acceptance drafts are issued within the framework of a bank acceptance draft agreement specifying the identity of the bank, suppliers and buyer, the obligations of the bank and the buyer and detailing the value per supplier, the payment due date agreed with the supplier and the maturity date of the bank acceptance draft.

(363)

The Commission also established that credit line agreements generally list bank acceptance drafts as possible use of the finance limit along with other short-term financial instruments such as working capital loans.

(364)

Depending on the conditions established by each bank, the drawer might be required to make a small deposit in a dedicated account, make a pledge and pay acceptance commission. In any event, the drawer is obliged to transfer the full amount of the bank acceptance draft to the dedicated account at the latest at the maturity date of the bank acceptance draft.

(365)

Once accepted by the bank, the drawer endorses the bank acceptance draft and transfers it to the payee, who is also the supplier in the underlying commercial transaction, as a payment of the invoice. Consequently, the payment obligation of the buyer (drawer) towards the supplier (payee) is cancelled. A new payment obligation of the buyer is created towards the accepting bank for the same amount (the drawer has the obligation to pay the bank in cash before the maturity of the bank acceptance draft). Therefore, the issuance of a bank acceptance drafts has the effect to replace the obligation of the drawer towards its supplier by an obligation towards the bank.

(366)

The maturity of bank acceptance drafts varies depending on the conditions set by each bank and can go up to 1 year.

(367)

The payee (or bearer) of the bank acceptance draft has three options before the maturity:

(368)

The issuance date of the bank acceptance draft generally corresponds to the payment due date agreed with the supplier but can also be a date prior or posterior to the payment due date. The investigation found that, as far as the sampled companies are concerned, the issuance date was generally on or before the due date of the payment with the supplier and in some cases even after the payment due date. The Commission established that the maturity of the bank acceptance drafts of the sampled companies is in most cases from 6 months up to 12 months after the payment due date of the invoice.

(369)

Regarding the accounting treatment of bank acceptance drafts, they are recognized as liabilities to the bank in the accounts of the drawers, i.e. the sampled exporting producers.

(370)

The Credit Reference Center of the People’s Bank of China (‘CRCP’) recognises bank acceptance drafts as “unsettled credit” provided by banks at the same level as loans, letters of credit or trade financing. It should also be noted that the CRCP is fed by the financial institutions, which grant various types of loans, and that such financial institutions have thus recognised bank acceptance drafts as liabilities to them. Furthermore, the bank acceptance agreements collected during the investigation provide that, should the buyer not make the full payment on the expiry date of the bank acceptance drafts, the bank would treat the amount unpaid as an overdue loan to the bank.

(371)

Following definitive disclosure, one exporting producer from CNBM Group claimed that the CRCP does not recognise bank acceptance drafts as a liability towards the bank in the credit reports. This interested party referred to the note to the liabilities in the CRCP Credit Report where it is specified that “The debt balance includes the unsettled advances, loans, class loans, trade financing, factoring, bills discounting, guarantees and third-party compensated debts, and the debts handled by asset management company at the time of statistics”. It further added that in one of the group companies the ‘Summary information’ in the credit report refers to a ‘current balance of liability’, which did not include the bank acceptance drafts amounts but only the loans amount.

(372)

In this respect, the Commission points out that the credit reports list bank acceptance drafts in the ‘Summary of unsettled credit information’ at the same level as loans, letters of credit, discounted bills, factoring or trade financing. The fact that bank acceptance draft are not counted in the ‘debt balance’ or in the ‘current balance of liability’ at the specific time when the report was issued does not affect their classification as credit, which is clearly recognized by the CRCP in the credit reports.

(373)

As already mentioned in recital (358), bank acceptance drafts are a form of a short-term financing. In addition, as stated by the People’s Bank of China on its website, “the bank acceptance draft can guarantee the establishment and performance of the contract between the buyer and the seller, as well as promote the capital turnover via the intervention of Bank of China's credit ”  (97). In addition, on its website DBS Bank advertises bank acceptance drafts as a means to “improve working capital by deferring payments”  (98).

(374)

The Commission found that bank acceptance drafts are largely used as a means of payment in commercial transactions as a substitute to a money order thus facilitating the cash turnover and the working capital of the drawer. From a cash point of view, the instrument de facto grants the drawer a deferred due date of payment of 6 months or 1 year because the actual cash payment of the transaction amount occurs at the maturity of the bank acceptance draft and not at the moment when the drawer had to pay its supplier. In the absence of such a financial instrument, the drawer would either use its own working capital, which has a cost, or contract a short-term working capital loan with a bank in order to pay its suppliers, which also has a cost. In fact, by paying with bank acceptance draft, the drawer uses the supplied goods or services for a period of 6 months to 1 year without advancing any cash and without bearing any cost. As an illustration of the use of bank acceptance drafts as a substitute of short-term loans, the Commission established that one of the sampled exporting producers did not have any loans. However, the bank acceptance drafts issued by this exporting producer during the IP represented 70 % of its operating cost. Similarly, bank acceptance drafts at the end of the IP accounted for more than 53 % of its total liabilities.

(375)

Under normal market circumstances, as a financial instrument, bank acceptance drafts would imply a cost of financing for the drawer. The investigation showed that all the sampled companies that used bank acceptance drafts during the investigation period only paid a commission for the acceptance service provided by the bank, which varied between 0,05 % and 0,1 % of the face value of the draft. However, none of the sampled companies bore a cost for the financing via bank acceptance drafts by deferring the cash payment of the supply of goods and services. Therefore, the Commission considered that the investigated companies benefitted from financing in the form of bank acceptance drafts for which they did not bear any cost.

(376)

Considering the above, the Commission concluded that the bank acceptance system put in place in the PRC provided all exporting producers a free financing of their current operations, which conferred a countervailable benefit as described in recitals (395) to (399) below, in accordance with Article 3(1)(a)(i) and 3(2) of the basic Regulation.

(377)

Following definitive disclosure, both cooperating exporting producers made a comment that bank acceptance drafts do not constitute a loan or any other form of financial assistance and that the Commission made an incorrect assumption that the use of bank acceptance drafts has the same effect as of a short-term loan. They argued that the extended payment due date that the use of a bank acceptance draft implies is not an interest-free short-term loan granted by a bank, but rather an extension of the payment due date that the seller decides to grant. Yuntianhua Group claimed that the Commission did not demonstrate the existence of a financial contribution in case of bank acceptance drafts. Both cooperating exporting producers insisted that the bank acceptance drafts do not involve any financing because no money has been transferred from the bank to any party.

(378)

One company from the CNBM Group argued that the bank’s acceptance is merely to facilitate transactions between unacquainted parties, in a way that the bank adds its own guarantee that the payment will be made when the maturity date is due. In addition, the bank acceptance draft does not change the date of payment as originally provided in the sales contract and therefore, a bank does not, by accepting a draft, provide a short-term loan. It further stated that the way the bank acceptance drafts are booked in the company’s internal ledgers does not alter the conclusion that bank acceptance drafts are not a kind of short-term financing. This party also claimed that since according to the sales contract, the seller only receives the payment in 6 months or 1 year, the buyer does not need to use its own working capital or contract a short-term loan in order to pay at sight, because the seller already accepts that the payment will be a deferred one.

(379)

In this respect, the Commission pointed out that it did not establish that bank acceptance drafts constitute a loan. However, the Commission concluded that they have economic effects similar to short-term financing.

(380)

As pointed out in recital (374), the Commission established that bank acceptance drafts are largely used as a means of payment in commercial transactions, as a substitute to a money order, thus facilitating the cash turnover and the working capital of the drawer. The Commission also found that from a cash point of view, the instrument defers the cash payment at the maturity of the bank acceptance draft. In fact, the supplier is paid with bank acceptance draft at the payment due date agreed in the contract, instead of cash. The cash payment at maturity is a payment by the drawer to the bank under the contractual relation created between the drawer and the bank in the framework of the bank acceptance draft. Suppliers can also endorse bank acceptance drafts to pay other providers (instead of cash). Therefore, as pointed out in recital (374), the use of bank acceptance drafts allowed the drawers to use the supplied goods or services for a period of 6 months to 1 year without advancing any cash and without bearing any cost. The Commission also reiterated that the People’s Bank of China presents bank acceptance drafts as an instrument that might “reduce fund cost and enhance capital efficiency” of the drawer ‘ as well as promote the capital turnover via the intervention of Bank of China's credit ’  (99) and the DBS Bank advertises bank acceptance drafts as a means to “improve working capital by deferring payments”  (100). Furthermore, the GOC has not disputed the conclusion of the Commission that bank acceptance drafts are a form of financing. In addition, recently, the CBIRC issued a notice in which it states that in order to strengthen credit support to downstream enterprises in core enterprises, banking financial institutions may provide credit support for downstream enterprises to obtain goods and pay for goods by opening bank acceptance bills, domestic letters of credit, advance financing, etc (101). This is yet another evidence showing that the GOC perceives the bank acceptance drafts as another form of credit support.

(381)

The fact that there is no transfer of money from the bank to any party at the moment of the issuance of the bank acceptance draft does not alter the above reasoning and conclusions. As already explained, bank acceptance drafts, as put in place in the PRC, are a means of payment in commercial transactions that favour the drawers by facilitating their cash turnover and their working capital. From economic and financial point of view, the use of this instrument allows the drawer to pay its liabilities without using financial resources of the company and therefore, it constitutes a form of financing of its economic operations. Contrary to what the cooperating exporting producers claim, this financing is not granted by the supplier but by the bank. As explained in recital (365), once the bank acceptance draft is accepted by the bank and endorsed to the payee (i.e. the supplier) the payment obligation of the buyer (drawer) towards the supplier (payee) is cancelled. Indeed, the payee (supplier) is paid by bank acceptance draft at the moment agreed in the sales contract (i.e. the payment due date). This was further confirmed by the GOC during the verification visit, namely that once the company pays the supplier with the bank acceptance draft they no longer have an obligation in relation to the supplier but to the bank because the one who requested the bank acceptance draft to be issued will need to pay the bank in full on maturity date. Furthermore, as a means of payment, the bank acceptance draft can be used by the supplier to pay its own liabilities towards other parties. Therefore, the supplier does not grant an extension of the payment due date. On the contrary, the bank grants an extension of the actual cash payment of the transaction covered by the bank acceptance draft by 6 months or 1 year and thus allows the drawer to avoid any cost of financing.

(382)

The Commission disagreed with the comment that since according to the sales contract, the seller only receives the payment in 6 months or 1 year, the buyer does not need to use its own working capital or contract a short-term loan in order to pay at sight. The Commission also disagreed with the statement that the way the sampled exporting producers book the bank acceptance drafts in their internal ledgers is irrelevant. In fact, as already mentioned above, bank acceptance drafts are a means of payment used by the drawer to honour its obligations towards the payee. The statement that “the seller only receives the payment in 6 months or 1 year” is factually incorrect because the seller receives the payment with bank acceptance draft at the payment due date agreed in the contract. As already pointed out in recital (374), bank acceptance drafts are stipulated as a means of payment in commercial transactions instead of a cash payment and this is agreed by both the seller and the buyer. However, the cash payment of the goods and services is deferred to the maturity date of the bank acceptance draft and this deferral is granted by the bank. As already explained in recital (365), when the seller is paid by bank acceptance draft the liability of the drawer towards the seller is cancelled and two new liabilities are created: a liability of the drawer towards the accepting bank and a liability of the accepting bank towards the seller (payee) or the bearer of the bank acceptance draft. Contrary to what is claimed, the way the sampled exporting producers book the bank acceptance drafts in their internal ledgers is an important element that shows that, from one side, the liability towards the seller is cancelled with the payment by means of bank acceptance draft and, on the other side, a new liability of the drawer towards the bank is created. This is an additional evidence that through the use of bank acceptance drafts as a means of payment, which is allowed by the bank that accepted the draft, the drawer does not need to pay in cash the supplier (payee) at the payment due date agreed in the contract. Rather the drawer is obliged to pay in cash to the bank at the maturity date of the bank acceptance draft, which is 6 months or 1 year later. This was further confirmed by the GOC during the verification visit as it stated that bank acceptance drafts “are interesting to alleviate the burden on the company’s cash flow” .

(383)

The Commission also disagreed with the comment that by accepting the bank acceptance draft, the bank in a way merely adds its own guarantee that the payment will be made when the maturity date is due. First, as stated before, the bank acceptance draft is a means of payment, by which the drawer honours its liability towards the payee (the supplier). Therefore, the payment of the supplier by the drawer happens at the moment of the endorsement of the bank acceptance draft, while at maturity, the drawer honours its payment obligation towards the bank. Second, the bank acceptance draft cannot be classified merely as an additional guarantee of a future payment because the bank acceptance draft is a means of payment, acknowledged in the sales contracts, and the payment obligation of the drawer towards the supplier is cancelled by the payment with bank acceptance draft. The cash payment due to the bank at maturity is not an extension of the payment due date granted by the supplier, it is instead an obligation towards the bank. In addition, this was confirmed by the GOC during the verification visit where it stated that legally speaking the difference between the bank guarantee and the bank acceptance draft is that “with the guarantee it is company A who is in the 1st line liable for the payment, whereas for bank acceptances, it is the issuing bank”.

(384)

Considering the above, the Commission reiterated its conclusion that in terms of their effects bank acceptance drafts are a form of a short-term financing in the way that they allowed the exporting producers to finance their purchases. The benefit provided to the cooperating exporting producers is the financing cost savings due to the fact that the use of financing through bank acceptance drafts was not remunerated.

(385)

Considering that bank acceptance drafts effectively have the same purpose and effects as short-term working capital loans, and that they have been extensively used by the cooperating exporting producers to finance their current operations instead of using short-term working capital loans, they should bear a cost equivalent to a short-term working capital loan financing. This conclusion was further confirmed by the GOC during the verification visit where it stated that, regarding the choice for a company between bank acceptance draft and a short-term loan, it is up to the company to decide but “by nature they are similar”.

(386)

In light of the above considerations, the Commission rejected the claims that bank acceptance drafts are not a form of short-term financing.

(387)

Concerning specificity, as mentioned in recital (165), according to Decision No. 40, financial institutions shall provide credit support to encouraged industries.

(388)

The Commission considered that bank acceptance drafts are another form of preferential financial support by financial institutions to encouraged industries such as the GFF sector. Indeed, as specified in Section 3.1 above, the GFF sector is among the encouraged industries and is therefore eligible for all possible financial support. No evidence was provided that any undertaking in the PRC (other than within encouraged industries) can benefit from bank acceptance drafts under the same preferential terms and conditions.

(389)

Following definitive disclosure, CNBM Group claimed that the bank acceptance draft is a common commercial practice in the PRC available to all industries and that the only statutory limit to the user of a bank acceptance draft is indicated in Article 6 of Law of the People’s Republic of China on Negotiable Instruments, i.e. “if a person having no capacity or limited capacity for civil acts signs a negotiable instruments, the signature shall be null and void”. It also claimed that it is not the responsibility of exporting producers to rebut a presumption that an alleged subsidy program is specific and that it is the Commission’s responsibility to substantiate its determination of specificity on the basis of positive evidence, in particular by comparing the terms offered to the sampled companies with those offered to other Chinese companies. Finally, one company from CNBM Group asked the Commission to explain why a similar system in Canada, that the Commission has referred to in the e-bikes case, is not considered as a specific subsidy program, while it considers the system in the PRC as a specific subsidy.

(390)

In this respect, the Commission referred to Recital (165) where it presented evidence that according to Decision No 40, financial institutions are required to provide credit support to encouraged industries. Bank acceptance drafts, as a form of financing, are part of the preferential financial support system by financial institutions to encouraged industries, such as the GFF industry.

(391)

The Commission pointed out that it based its assessment regarding the specificity of the subsidy scheme on available governmental documents, such as plans and regulations, on encouraged industries. In this respect, the Commission noted that the GOC has clearly defined which industries are encouraged limiting the specific preferential financing benefits only to those ones. Therefore, even if a number of other industries specifically defined as encouraged also enjoy the same or similar preferential conditions as the GFF industry, this does not render preferential financing and in particular, bank acceptance drafts generally available to all industries.

(392)

Furthermore, even if a form of financing could be in principle available to companies in all industries, the concrete conditions, under which such financing is offered to companies from a certain industry, such as the financing remuneration and the volume of financing, might make it specific. In fact, in the case of the cooperating exporting producers, as mentioned above, the Commission established that all of them benefitted from short-term financing through bank acceptance drafts without bearing any cost and that some of them benefitted from a substantial volume of bank acceptance drafts in comparison with other short-term financing such as short-term loans. There was no evidence submitted by any of the interested parties demonstrating that the preferential financing through bank acceptance drafts of companies in the GFF industry is based on objective criteria or conditions in the sense of Article 4(2)(b) of the basic Regulation.

(393)

Regarding the comment about the bank acceptance drafts system in Canada, the Commission pointed out that according to Article 4(2) of the basic Regulation, the assessment of the specificity of a subsidy programme is made only with respect to the subsidies under investigation. Therefore, the Commission is not required to demonstrate that similar systems in other countries are also specific.

(394)

Considering the above arguments, the claims of the cooperating exporting producers regarding specificity of the bank acceptance drafts were rejected.

(395)

For the calculation of the amount of the countervailable subsidy, the Commission assessed the benefit conferred on the recipients during the investigation period.

(396)

As already mentioned in recitals (358) and (373), bank acceptance drafts are a form of short-term financing that enhance the capital efficiency of the drawer by facilitating its working capital and meeting its cash needs as they are largely used as a means of payment in commercial transactions instead of cash. The Commission found that the sampled exporting producers used bank acceptance drafts to address their needs for short-term financing without paying a remuneration. In addition, as stated in recital (346), the Commission considered that all short-term financing of the sampled companies, including bank acceptance drafts, should be covered by a credit line. The benefit relating to credit lines was established in Section 3.4.3.1 above.

(397)

The Commission thus concluded that bank acceptance drawers should pay a remuneration for the period of financing. For calculation purposes, the Commission considered that the period of financing started, either on the payment due date agreed with the supplier, in cases where the bank acceptance draft was issued before the payment due date, or on the date of the issuance of the bank acceptance draft in cases where the bank acceptance draft was issued on or after the payment due date. The period of financing was deemed to end on the maturity date of the bank acceptance draft.

(398)

In accordance with Article 6(b) of the basic Regulation, the Commission considered that the benefit thus conferred on the recipients is the difference between the amount that the company had actually paid as remuneration of the financing by bank acceptance drafts and the amount that it should pay by applying a short-term financing interest rate.

(399)

The Commission determined the benefit resulting from the non-payment of a short-term financing cost. In this respect, as mentioned in recital (358), bank acceptance drafts are a form of short-term financing. They effectively have the same purpose as short-term working capital loans. Therefore, the Commission considered that bank acceptance drafts should bear a cost equivalent to a short-term loan financing. Therefore, the Commission applied the same methodology as to short-term loans financing denominated in RMB, described in Section 3.4.2.4 above.

(400)

Following definitive disclosure, one company from CNBM Group made a comment that as the bank acceptance draft is a credit provided by the seller to the buyer, the Commission should calculate the benefit in the context of the subsidy program ‘provision of good and services for less than adequate remuneration (LTAR)’ and it should first determine whether the suppliers account for ‘public bodies’ within the meaning of Article 2(b) of the basic Regulation.

(401)

As already explained in recitals (379) to (383), the Commission disagreed that bank acceptance drafts are a credit provided by the seller and concluded that bank acceptance drafts are a form of preferential financing provided by the bank to the drawer. Therefore, the above comment was rejected.

(402)

Another company from CNBM Group claimed that the Commission should have deducted the actual payment term granted from the supposed period of bank financing.

(403)

As explained in recital (397), the Commission had considered the payment due date agreed with the supplier in the calculation of the period of financing. In the case of the CNBM Group company that made the claim, the investigation showed that in practice the payment due date of the underlying invoices had either already expired when the corresponding bank acceptance drafts were issued, or that no link could be found between the invoices provided and the bank acceptance drafts. Consequently, this claim was rejected.

(404)

One company from CNBM Group claimed that the Commission should deduct the fees actually paid by the sampled producers from the alleged benefit. In addition, Yuntianhua Group claimed that under Article 7(1)(a) of the basic Regulation, the Commission has to deduct any application fee or other costs necessarily incurred in order to qualify for, or to obtain, the subsidy.

(405)

The Commission already noted in recital (375) that the cooperating exporting producers have paid a commission for the acceptance service provided by the bank, which varied between 0,05 % and 0,1 % of the face value of the bank acceptance draft. In fact, this commission, paid for the processing of the bank acceptance draft by the bank, is a distinct element from the financing granted by the bank, for which the cooperating exporting producers did not bear any cost. This fee is paid in order to cover the bank’s administrative costs of processing the bank acceptance drafts. The Commission countervailed only the financing part of the bank acceptance drafts (namely, the part equivalent to short-term financing); it did not analyse whether the acceptance commission also involved a countervailable subsidy. In any event, the impact of the fee on the subsidy amount ranges from 0,01 % to 0,04 %, depending on the exporting producer and therefore it is immaterial. Therefore, the Commission did not consider it necessary to analyse this claim in its merit and also to assess the countervailability of this benefit.

(406)

One company from CNBM Group claimed that the basis for the calculation of the benefit should be reduced by the amount of the deposits that it made as a guarantee for the bank acceptance drafts.

(407)

In this regard, as the Commission concluded in previous investigations (102), it should first be noted that it is common practice for banks to request guarantees and collaterals from their clients when granting financing. Furthermore, it should be noted that such guarantees are used to secure that the exporting producer will bear its financial responsibility vis-à-vis the bank and not vis-à-vis the supplier. The investigation also revealed that these guarantees are not systematically requested by Chinese banks and are not always linked to specific bank acceptance drafts. In this respect, the alleged deposits do not amount to an advanced payment by the drawer to the banks but merely an additional guarantee requested at times by banks and which does not have any impact of the bank’s decision to issue the bank acceptance drafts with no additional borrowing interests for the drawer. Furthermore, they can take various forms including term deposits and pledges. The deposits bear interests in favour of the drawer, and therefore, do not represent a cost for the drawer of the bank acceptance draft. On this basis, this claim was rejected.

(408)

One company from CNBM Group claimed that the Commission should exclude from its calculations the bank acceptance drafts issued to related parties since the extension of a payment term to a related party via a bank acceptance draft confers no benefit on the payee in terms of increased liquidity because it reduces the liquidity of the related counterparty by a commensurate amount.

(409)

In this respect, the Commission recalls that as stated above, a bank acceptance draft is a means of payment and therefore, it does not have the effect of extending the payment due date agreed with the supplier but it has the effect to defer the cash payment. As a means of payment, the bank acceptance draft can be endorsed by the payee (supplier) to settle its liabilities towards other parties. Therefore, there is no commensurate decrease in liquidity of the related parties that received the bank acceptance draft. Consequently, the claim was rejected.

(410)

Yuntianhua Group claimed that in the calculation of the bank acceptance drafts for some related companies, the Commission did not use the data as provided in the reply to the questionnaire.

(411)

The Commission noted that the calculation was based on the last submission of data provided by the companies and verified during the on spot verification. The claim was therefore rejected.

(412)

Finally, one company from CNBM Group made a specific claim regarding bank acceptance drafts issued by a related company to avoid double counting. The Commission rejected the claim. However, since the details of this claim are confidential, the Commission addressed it in a disclosure specific to the company concerned.

(413)

The investigation showed that Chinese financial institutions discounted receivables to certain sampled companies in return for cash.

(414)

Through this operation, financial intermediaries advanced to companies amounts of receivables before their due date. The companies received early funds by transferring the rights of future receivables to financial institutions after the deduction of fees and the applicable discount rates.

(415)

The applicable discount rate should specifically compensate for the risk of default, which is highly influenced by the credit rating of the last entity liable to meet the payment obligation.

(416)

The discounted receivables encountered during the investigation had different forms such as bills, bonds, factoring, bank acceptances and commercial acceptances. Each form operates under specific conditions and, similarly, they also involve different degrees of underlying risk. In the case of bank acceptance drafts, the last liable entity is the issuer of the bank acceptance, that is, a Bank. However, in other type of receivables e.g. bills, letter of credit the last liable entity would normally be a commercial company.

(417)

Under normal market circumstances, the applicable discount rate should compensate for the bank's costs and risks. However, the Commission found that certain sampled companies might have been provided with preferential rates, which would confer a countervailable benefit.

(418)

The benefit thus conferred on the recipients would be the difference between the discount rate applied by Chinese financial institutions and the discount rate applicable for a comparable operation on the market, for instance short-term loans.

(419)

However, the information contained in the file does not allow discerning between the different applicable discount rates. Additionally the Commission estimated that the benefit conferred by this form of subsidisation was negligible in this investigation. Therefore, it decided not to countervail it.

(420)

The Commission established on the basis of publically available information that CNBM had carried out during the investigation period a debt-to-equity swap for 4 billion RMB from Agricultural Bank of China (‘ABC’) and Bank of Communications (‘COMM’). As indicated in recitals (208) to (217) above, CNBM failed to provide a questionnaire reply and to cooperate with the investigation. Therefore, the Commission had to resort to facts available as far as its assessment on this transaction is concerned.

(421)

ABC and COMM are both State-owned banks, considered public bodies and/or entrusted or directed according to Section 3.4.1.4 above. In addition, both ABC and COMM were found to be public bodies in previous anti-subsidy investigations or entrusted or directed to carry out functions normally vested in the government (103). There is no evidence on the file of the current investigation, which would contradict those previous findings.

(422)

The Commission considered that a bank would not convert its debt to equity under normal market conditions without further compensation. Indeed, equity is a much riskier instrument than debt, because there is no assurance that the bank will get its capital investment back. In addition, equity does not necessarily guarantee a return on investment contrary to an interest rate on a loan. The increased risk the banks undertake thanks to this debt-to-equity swap is supported by evidence of weak financial situation contained in the annual report of the company for the financial year 2018: the company has very high net debt ratio (between 120 %-145 %), the short term loans to be repaid within one year amount to double of the company’s annual gross profit, and overall liabilities represent 2/3 of its annual turnover. Finally, a press article on CNBM website specicifcallty indicated industrial policy objectives and the great importance of the strategic cooperation between CNBM and the two banks as a reason for the swap. In particular, the press article says that the swap will help CNBM to achieve the ‘structural reform of the supply side’ as an industrial objective.

(423)

In light of the above considerations, the Commission concluded that during the investigation period the debt-to-equity swap conferred a benefit to CNBM as it was provided at preferential conditions by public bodies or entities otherwise entrusted or directed by the State in pursue of industrial policy objectives.

(424)

The Commission considered that the preferential financing through debt-to-equity swap is specific within the meaning of Article 4(2)(a) of the basic Regulation since the investors are entities, which operate under the guidelines of the State’s policies that list GFF as an encouraged industry. In any event, the information available points towards the granting of this ad hoc subsidy to CNBM, which makes the subsidy specific to an enterprise.

(425)

In the absence of further evidence due to non-cooperation, the Commission did not have access to the agreements between CNBM and the banks. Thus, the Commission could not assess whether the significant risks the banks undertake have been somehow compensated. However, all the elements explained in recital (422) point to a difficult financial situation of CNBM and to the industrial objectives pursued with this transaction, supporting the conclusion that it did not have market logic reflecting the significant actual risks involved. Consequently, the Commission considered the transaction as equivalent to debt forgiveness, and treated it as a grant during the investigation period. Since the grant was taken completely in the investigation period, it was calculated on the basis of the total turnover of the entire group. This resulted in a subsidisation amount of 1,83 %.

(426)

During the investigation period, a sampled company (Yunnan Yuntianhua Group Co., Ltd) benefited from funds provided by State controlled entities through special forms of equity injections.

(427)

These funds were transferred in the form of equity increases that, however, did not automatically provide the investors with full shareholders rights. In this sense, the funds were transferred in exchange of a future equity share in the recipient company, which would become effective only after an undetermined period of time.

(428)

The investigation established that when the company received the funds, they were booked as other equity instruments without the expected change on the share of company’s ownership. The investors, despite having transferred the funds, did not gain full access to shareholding rights, nor received any payment of interest in exchange. Only after an undetermined period of time, but usually longer than a year, and upon the approval of SASAC, part of the funds were transferred to paid-in-capital equity. Only at that moment in time, did the investors receive full shareholders’ rights.

(429)

The Commission also established that the period between the capital injection and the conferral of shareholders’ rights could be longer than a year. In this regard, the Commission identified substantive amounts of equity injections that did not confer any shareholders’ rights during the entire investigation period.

(430)

Consequently, in practice, until the shareholders’ rights are recognised, for a period longer than a year, the company has at its disposal funds in exchange of a future transfer of ownership but without incurring any cost.

(431)

Under normal market circumstances, to compensate for the use of funds, a company would transfer a portion of the company’s ownership shortly after the funds had arrived, or it would register the funds as a debt. However, given the particular circumstances of these arrangements in this case, this hybrid form of financing is in fact closer to a classic interest-free shareholder loan for a long period of time than to an equity instrument.

(432)

In light of the above considerations, the Commission considered that during the investigation period the company Yunnan Yuntianhua Group Co., Ltd., part of the Yuntianhua Group, benefited from access to substantive amounts of financing for a prolonged period, for which it did not bear any cost. Since this special form of equity injections in question did not automatically confer shareholders rights to the investors, the Commission considered that they had the effect similar to a loan at free interest.

(433)

In order to determine whether the investors could be considered public bodies or entrusted or directed by the GOC, the Commission requested to Yuntianhua Group specific information about the shareholders that provided funds via other equity instruments. The investors were: Kunming Heze Investment Center; Yunnan Jinrun Zhonghao Investment Center; and Yunnan State-owned Enterprise Reform No.2 Equity Investment Fund Partnership (Fund for State-owned enterprise reform).

(434)

The information requested by the Commission comprised corporate information, such as names of principal shareholders and the composition and rules of the board of directors of each investor. The Commission also enquired information about the investment policies of the said investors and further details about the specific transfers of funds via other equity instruments.

(435)

Furthermore, the Commission contacted the GOC and solicited the same information as described in recital (434). The GOC answered that it did not have or hold information about specific companies and for all entities in China in which it may have a shareholding. Therefore, it refused to answer directly but deferred its answer to the one to be provided by the concerned sampled company.

(436)

In the absence of a complete reply, in line with the recitals (218) to (220), the Commission decided to use facts available to determine whether those investors qualify as public bodies.

(437)

Using publicly available information, such as, annual reports, information available in business directories or on the investors’ websites or publically available databases, the Commission found that the investors that had provided funds via other equity instruments to the Yuntianhua Group were partially or fully owned by the State.

(438)

Concerning Kunming Heze Investment Center, the Commission established that more than 98 % of the shares ultimately held by the local government and SOEs (104). Specifically, among its shareholders, the Commission found more than 24 % of the shares held by the SOE Yunnan State Owned Capital Operations Ltd (Yunnan guoyou ziben yunying youxian gongsi). The Commission also found that more than 74 % of the shares of Kunming Heze Investment Center were held by China Fortune International (Huaxin International Trust), which is a financial company of the SOE China Huadian Group Co., Ltd. Moreover, Kunming Heze Investment Center is managed by an investment fund dedicated to invest in public provincial companies. In addition, in the entity and in the shareholders of the entity, the Commission found legal representatives and member of the boards, which held former executive position in Yunnan SASAC, as well as members of the CCP (105).

(439)

Concerning Yunnan Jinrun Zhonghao Investment Center, (106) the Commission established that at least 46 % of the shares were ultimately held by the local government and SOEs. In particular, the Commission found among its shareholders ownership structure the China Construction Bank Trust and the Yunnan Province State-owned capital operations Jinrun equity investment fund management.

(440)

Similarly, the Commission established that the Yunnan State-owned Enterprise Reform No.2 Equity Investment Fund Partnership (Fund for State-owned enterprise reform) owned by the SOE Yunnan Energy Investment Group.

(441)

The Commission further established the existence of formal indicia of control by the State of those investors. In particular, in the absence of specific information indicating otherwise, the Commission considered that managers and supervisors in the State-owned companies owning the entities at issue are assumed to be appointed by and accountable to the State based on the conclusions reached in Sections 3.4.1.5 and 3.4.1.6.

(442)

Moreover, as explained in recital (431) the Commission established that their operations did not follow a purely market logic and not reflect the actual market risks associated with the transactions investigated. Rather, in line with the governmental policies to encourage specific industries, as established in Section 3.1 above, those investors acted irrationally by supporting financially the exporting producer.

(443)

In light of the above considerations, the Commission established that the State controlled entities that provided funds via other equity instrument to the Yuntianhua Group are public bodies within the meaning of Article 2(b) read in conjunction with Article 3(1)(a)(i) of the basic Regulation.

(444)

In addition, even if the State controlled entities were not to be considered as public bodies, the Commission established that they would be considered entrusted or directed by the GOC to carry out functions normally vested in the government within the meaning of Article 3 (1)(a)(iv) of the basic Regulation for the same reasons, as set out in recital (269). Thus, their conduct would be attributed to the GOC in any event.

(445)

The Commission considered that the preferential financing through equity injections is specific within the meaning of Article 4(2)(a) of the basic Regulation since the investors are entities, which operate under the guidelines of the State’s policies that list GFF as an encouraged industry. In any event, the information available points towards the granting of this ad hoc subsidy to Yunnan Yuntianhua Group Co., Ltd, which makes the subsidy specific to an enterprise.

(446)

As explained in recital (432), the Commission considered that Yunnan Yuntianhua Group Co., Ltd. benefitted from substantive financing through equity injections, which had an effect similar to loan financing at free interest. Therefore, the Commission decided to follow the calculation methodology for loans as described above in Section 3.4.2. This means that the relative spread between US AA corporate bonds and the applicable US BB or US B corporate bonds with the same duration is applied to the benchmark interest rates published by the PBOC to establish a market-based interest for loans, which is then compared with the actual interest rate paid by the company in order to determine the benefit. This resulted in a subsidisation amount of 0,3 %.

(447)

All of the sampled companies benefited from preferential financing in the form of bonds.

(448)

In China, the players on the bond market are essentially the same entities as those, which are active on the loan market. Companies that want to issue bonds need to solicit the services of a financial institution, acting as an underwriter. Underwriters organize the issuance of bonds and propose the interest rates at which the bond will be presented to investors. These underwriters are the same State-owned banks that also provide the preferential loans discussed in Section 3.4.2 above. Furthermore, investors buying the bonds are also mainly Chinese (State-owned) banks, since more than 95 % of the total trading volume of bonds happens on the interbank market (107).

(449)

As described in Section 3.4.1.1 above, these financial institutions are characterized by a strong State presence, and the GOC has the possibility to exercise a meaningful influence on them.

(450)

The general legal framework, in which these financial institutions operate, and which was already described in Section 3.4.1 above, is also applicable to bonds. In addition, the following regulatory documents apply specifically to bonds:

(451)

In line with the regulatory framework, bonds cannot be issued or traded freely in China. The issuance of each bond must be approved by various governmental authorities, such as the PBOC, the NDRC or the CSRC, depending on the type of bond and the type of issuer. In addition, according to the Regulations on the Administration of Corporate Bonds, there are annual quotas for the issuance of corporate bonds.

(452)

Furthermore, according to Article 16 of the Securities Law, the public issuance of bonds should satisfy the following requirements: “the investment of raised funds shall comply with the industrial policies of the State […]” and “the funds as raised […] shall be used for the purpose as verified”. Article 12 of the Regulations on the Administration of Corporate Bonds reiterates that the purpose of the raised funds must comply with the industrial policies of the State.

(453)

According to the Administrative Measures for the Issuance and Trading of Corporate Bonds, only certain bonds corresponding with strict quality criteria, such as an AAA credit rating, may be offered for public issuance. Most bonds will therefore be privately issued to so-called qualified investors, which have been approved by the CSRC, and which are essentially Chinese institutional investors.

(454)

Finally, the interest rates on corporate bonds are not freely determined, since Article 18 of the Regulations on the Administration of Corporate Bonds states that, “the interest rate offered for any corporate bonds shall not be higher than 40 % of the prevailing interest rate paid by banks to individuals for fixed-term savings deposits of the same maturity”.

(455)

The Commission also sought concrete proof of the exercise of control in a meaningful way based on concrete issues of bonds. It therefore examined the overall legal environment as set out above in recitals (450) to (454), in combination with the concrete findings of the investigation.

(456)

The verification visits revealed that bonds were usually issued by the two groups of sampled exporting producers at interest rates close to the People’s Bank of China (‘PBOC’) benchmark interest rates, regardless of the companies’ financial and credit risk situation.

(457)

In practice, interest rates on bonds are influenced by the credit rating, similar to loans. However, as described above in recitals (279) to (285), the local credit rating market is distorted and credit ratings are unreliable. This was illustrated by the fact that the bond prospectuses and credit rating reports for the bonds issued by the sampled companies did not correspond to the actual situation of the companies.

(458)

In one case for example, the detailed bond prospectus warned that the profit levels of the company had been declining, that a significant portion of the net assets had been pledged for internal financing guarantees, that there was a high pressure created by short-term debt repayment, and that the company had foreseen some extensive capital-intensive projects even though it had already a high debt-to-assets ratio. Nevertheless, the report then concluded by providing a AA+ credit rating to the bond offering.

(459)

In light of the above considerations, the Commission found that the Chinese financial institutions organizing the issuance of bonds for the sampled companies are public bodies or are entrusted or directed by the government within the meaning of Articles 3 and 2(b) of the basic Regulation as explained in Sections 3.4.1.5 and 3.4.1.6. Furthermore, a benefit was provided to the sampled exporting producers, since the bonds were issued at rates below the market rates corresponding to their actual risk profile.

(460)

The Commission considered that the preferential financing through bonds is specific within the meaning of Article 4(2)(a) of the basic Regulation as the bonds cannot be issued without approval from government authorities, and the Securities Law of the PRC states that the issuance of bonds must comply with the State's industrial policies. As already mentioned in recitals (140) to (177), the GFF industry is regarded as key/strategic industry.

(461)

Since bonds are in essence just another type of debt instrument, similar to loans, and since the calculation methodology for loans is already based on a basket of bonds, the Commission decided to follow the calculation methodology for loans as described above in Section 3.4.2. This means that the relative spread between US AA corporate bonds and US BB corporate bonds with the same duration is applied to the benchmark interest rates published by the PBOC to establish a market-based interest rate for bonds, which is then compared with the actual interest rate paid by the company in order to determine the benefit.

(462)

As explained in recital (291), the Commission found that certain companies issued bonds with the purpose of debt restructuring. On these cases, as explained in Section 3.4.2.2, the Commission considered that the companies concerned are in a worse financial situation than what the financial statements would suggest at first sight, and that there is an additional risk related to its short and long-term financing. Therefore, in order to take into account the increased risk exposure, the Commission moved down one notch in the risk rating scale and adapted the relative spread calculation also for their financing, including bonds, by making a comparison between US AA corporate bonds and US B.

(463)

The investigation showed that all sampled groups of exporting producers benefited from preferential financing in the form of bank acceptance drafts and bonds, and two of the sampled companies benefited from preferential financing the form of equity injections during the investigation period. In view of the existence of a financial contribution, a benefit to the exporting producers and specificity, the Commission considered these types of preferential financing a countervailable subsidy.

(464)

Concerning CNBM, since this company did not cooperate, the benefit for other types of preferential financing at the level of CNBM was established by using the methodology explained in each of the sections above, applied to the publicly available information in the 2018 annual report of this company, such as bond issuances, and outstanding amounts for notes payable.

(465)

The subsidy amount established with regard to the preferential financing described above during the investigation period for the sampled groups of companies amounts to:

Preferential financing: other types of financing

(466)

The complainant alleged that Sinosure provides short-, medium- and long-term export credit insurance, investment insurance and bond guarantees, among other services, on a concessional basis to encouraged industries. According to a recent study undertaken by the Organisation for Economic Co-operation and Development (‘OECD’), the Chinese hi-tech industry, of which the GFF industry is part, received 21 % of the total export credit insurance provided by Sinosure (108). Furthermore, Sinosure has taken an active role in fulfilling the ‘Made in China 2025’ Initiative, guiding enterprises to use national credit resources, carrying out scientific and technological innovation and technological upgrading, and helping “going out” enterprises become more competitive in the global market (109).

(1)

Notice on the Implementation of the Strategy of Promoting Trade through Science and Technology by Utilising Export Credit Insurance (Shang Ji Fa [2004] No. 368), issued jointly by MOFCOM and Sinosure;

(2)

840 plan included in the Notice by the State Council of 27 May 2009;

(3)

Notice on Cultivation and Development of the State Council on Accelerating Emerging Industries of Strategic Decision (GuoFa [2010] No. 32 of 18 October 2010), issued by the State Council and its Implementing Guidelines (GuoFa [2011] No. 310 of 21 October 2011)

(4)

Notice on Issuing the 2006 Export Catalogue of High-Tech Products of China, Guo Ke Fa Ji Zi [2006] No. 16

(5)

Notice on Compilation of Guide Catalogue of Chinese High-tech Products from the Ministry of Science and Technology, G.K.B.J. [2009] No 61 of 9 October 2009

(467)

The two sampled groups of companies had outstanding export insurance agreements with Sinosure during the investigation period.

(468)

As mentioned in recital (201) above, Sinosure failed to provide the supporting documentation requested concerning its corporate governance such as Articles of Association.

(469)

In addition, as pointed out in recital (200), Sinosure did not provide more specific information about the export credit insurance provided to the GFF industry, the level of its premiums or detailed figures relating to the profitability of its export credit insurance business.

(470)

Therefore, the Commission had to complement the information provided by facts available.

(471)

According to information provided in previous anti-subsidy investigations (110), Sinosure is a State-owned policy insurance company established and supported by the State to support the PRC's foreign economic and trade development and cooperation. The company is 100 % owned by the State. It has a board of directors and a board of supervisors. The Government has the power to appoint and dismiss the company’s senior managers. Based on this information, the Commission concluded that there is formal indicia of government control with respect to Sinosure.

(472)

The Commission further sought information about whether the GOC exercised meaningful control over the conduct of Sinosure with respect to the GFF industry. In this context, the Commission noted that the Export Catalogue of High and New Technology Products of China specifically lists glass fibre products, including GFF, as encouraged to be exported (111).

(473)

Furthermore, according to the Notice on the Implementation of the Strategy of Promoting Trade through Science and Technology by Utilising Export Credit Insurance, Sinosure should increase its support for key industries and products by strengthening its overall support for the export of high and new technology products. It should treat industries such as ‘new materials’ and other high and new technology industries listed in the Export Catalogue of High and New Technology Products of China, as its business focus and provide comprehensive support in terms of underwriting procedures, approval with limits, claims processing speed and rate flexibility. With regard to rate flexibility, it should give products the maximum premium rate discount within the floating range provided by the credit insurance company. As mentioned in recitals (148) and (162), the GFF industry is included in the more general category of ‘new materials’. Furthermore, the Annual Report of Sinosure for 2017 states that Sinosure has actively insured transactions of strategic emerging industries such as new materials (112).

(474)

On this basis, the Commission concluded that the GOC has created a normative framework that had to be adhered to by the managers and supervisors appointed by the GOC and accountable to the GOC. Therefore, the GOC relied on the normative framework in order to exercise control in a meaningful way over the conduct of Sinosure.

(475)

The Commission also sought concrete proof of the exercise of control in a meaningful way based on concrete insurance agreements. During the verification visit, Sinosure maintained that in practice its premiums were market-oriented and based on risk assessment principles. However, no specific examples with respect to the GFF industry or the sampled companies were provided.

(476)

In the absence of concrete evidence, the Commission therefore examined the concrete behaviour of Sinosure with regard to the insurance provided to the sampled companies. This behaviour contrasted with their official stance, as they were not acting based on market principles.

(477)

After comparing the total claims paid with the total insured amounts, based on the data in the Sinosure’s Annual Report for 2017 (113), the Commission concluded that on average Sinosure would need to charge 0,26 % of the insured amount as a premium to cover the cost of the claims (without even taking into account overhead expenses). However, in practice, the premiums paid by the sampled companies were much lower than the minimum fee needed to cover operational costs.

(478)

In addition, the Commission found that some of the exporting producers benefited from a partial or total refund of the export credit insurance premiums paid to Sinosure.

(479)

Therefore, the Commission concluded that the legal framework set out above is being implemented by Sinosure in the exercise of governmental functions with respect to the GFF sector. Sinosure acted as a public body in the sense of Article 2(b) of the basic Regulation read in conjunction with Article 3(1)(a)(i) of the basic Regulation and in accordance with the relevant WTO case-law. Furthermore, the sampled exporting producers received a benefit, since the insurance was provided at rates below the minimum fee needed for Sinosure to cover its operational costs.

(480)

The Commission also determined that the subsidies provided under the export insurance programme are specific, because they could not be obtained without exporting and are thus export contingent within the meaning of Article 4(4)(a) of the basic Regulation.

(481)

During the verification visit, Sinosure stated that there are five market players on the market and that it does not have information regarding its market share. However, according to information provided in a previous anti-subsidy investigation, for which the investigation period was 1 July 2016 to 30 June 2017 (114), Sinosure represented around 90 % of the domestic market for export insurance in the PRC at that time and hence had a predominant market position The Commission could not find a market-based domestic insurance premium. Therefore, in line with previous anti-subsidy investigations, the Commission thus used the most appropriate external benchmark, for which information was readily available, i.e. the premium rates applied by the Export-Import Bank (‘Ex-Im Bank’) of the United States of America to non-financial institutions for exports to OECD countries.

(482)

The refunds of export insurance premiums awarded during the investigation period were treated as a grant. Since there was no evidence of additional costs incurred by the companies for which an adjustment would be needed, the benefit was calculated as the full amount of the refund received in the investigation period.

(483)

The subsidy amount established with regard to this scheme during the investigation period for the sampled exporting producers amounts to:

Preferential financing and insurance: export credit insurance

(484)

Since the investigated groups of companies were vertically integrated, the main raw material suppliers have been included in the investigation by the Commission, and the subsidies received at the level of these related suppliers have been integrated into the calculations for each subsidy scheme.

(485)

On the other hand, the Commission did not find sufficient evidence to substantiate the allegation of provision of goods for less than adequate remuneration by unrelated suppliers to the GFF producers.

(486)

All land in the PRC is owned either by the State or by a collective, constituted of either villages or townships, before the land's legal or equitable title may be patented or granted to corporate or individual owners. All parcels of land in urbanized areas are owned by the State and all parcels of land in rural areas are owned by the villages or townships therein.

(487)

Pursuant to the constitutional law of the PRC and the Land Law, companies and individuals may however purchase ‘land use rights’. For industrial land, the leasehold is normally 50 years, renewable for a further 50 years.

(488)

According to the GOC, Article 137 of the Property Law of the People’s Republic of China stipulates that “the land used for purposes of industry, business, entertainment or commercial dwelling houses, etc. or the land for which there are two or more intended users shall be transferred by means of auction, bid invitation or any other public bidding method.” Furthermore, the GOC refers to Article 3 of the Interim Regulations of the People’s Republic of China Concerning the Assignment and Transfer of the Right to the Use of the State-owned Land in Urban Areas. This Article provides that “any company, enterprise, other organization and individual within or outside the People's Republic of China may, unless otherwise provided by law, obtain the right to the use of the land and engage in land development, utilization and management in accordance with the provisions of these Regulations.”

(489)

The GOC considers that there is a free market for land in the PRC, and that the price paid by an industrial enterprise for the leasehold title of the land reflects the market price.

(490)

The land-use right provision in China falls under Land Administration Law of the People's Republic of China. In addition, the following documents also are part of the legal basis:

(491)

According to Article 10 of the ‘Provision on Assignment of State-owned Construction Land Use Right through Bid Invitation, Auction and Quotation’, local authorities set land prices according to the urban land evaluation system, which is only updated every three years, and the government's industrial policy.

(492)

During the verification visit, the GOC stated that in May 2019 the Ministry of Finance issued Guidelines on the usage of industrial land use to provide better information on LUR for market participants, and ensure supply in accordance with the need of the market. These Guidelines state that a level playing field is created and all market players have access on the same terms to industrial land. However, these Guidelines were not applicable during the investigation period and at the time of acquisition of the LUR by the sampled exporting producers.

(493)

In previous investigations, the Commission found that prices paid for LUR in the PRC were not representative of a market price determined by free market supply and demand, since the auctioning system was found to be unclear, non-transparent and not functioning in practice, and prices were found to be arbitrarily set by the authorities. As mentioned in the previous recital, the authorities set the prices according to the Urban Land Evaluation System, which instructs them among other criteria to consider also industrial policy when setting the price of industrial land.

(494)

The current investigation did not show any noticeable changes in this respect. For instance, the Commission found that, only some of the sampled exporting producers had gone through bidding or a similar public offering process for their LURs, even for the land use rights obtained recently. For most of the sampled companies, LURs were allocated by local authorities at negotiated prices.

(495)

The Commission noted that there is also a dynamic land monitoring system in addition to the urban land monitoring system. In the expiry review on Solar Panels originating in the People’s Republic of China (115), the Commission found that these prices are higher than the minimum benchmark prices set by the urban land evaluation system and used by local governments, because the latter were updated only every three years, while the dynamic monitoring prices were updated quarterly. However, there was no indication of land prices being based on the dynamic monitoring prices. In fact, the GOC had confirmed during the investigation on solar panels that the urban land price dynamic monitoring system monitored the fluctuations of the price levels of land in certain areas (i.e. 105 cities) in the PRC and was designed to assess the evolution of land prices. However, the starting prices in biddings and auctions were based on the benchmarks established by the land evaluation system. This situation was still applicable during the IP. In addition, in this case, most of the sampled groups of companies received their plots of land through allocation.

(496)

For the plots of land that were provided through bidding, the Commission found that in each case, there was only one bidder for the land, and the price paid corresponded to the starting price of the bidding process. In the absence of additional detailed information concerning the actual process of the auction, it was uncertain that the initial price was set independently and corresponded to the market value of the land-use right.

(497)

Following definitive disclosure, the GOC claimed that in a bidding mechanism, the price eventually obtained does not only reflect the price at which a seller is willing to sell or the initial price at which a bid is made, but also reflects the price that purchasers are willing to pay and the price eventually reached through such mechanism thus reflects both demand and supply. If, after the bidding mechanism has been completed, the end price “corresponded to the starting price of the bidding process” , then this simply means that this is the price that reflects demand and supply at that moment in time. The Commission agreed with the GOC on the basic principles of bidding mechanisms described, but noted that such a mechanism can only work when there are several bidders for a certain piece of land. However, the Commission did not find a single instance in this investigation, or even in previous investigations, where there had been more than one bidder for the land, and where the interplay of demand and supply could thus have been observed. Consequently, this claim was rejected.

(498)

Moreover, the Commission also found that some companies received refunds from local authorities to compensate for the prices, which they paid for the LURs. Furthermore, some of the LURs obtained by companies in the CNBM Group only had to be paid several years after the land had been put into use.

(499)

The above evidence contradicts the claims of the GOC that the prices paid for LUR in the PRC are representative of a market price, which is determined by free market supply and demand.

(500)

The findings of this investigation show that the situation concerning acquisition of LURs in the PRC is non-transparent and the prices were arbitrarily set by the authorities.

(501)

Therefore, the provision of land-use rights by the GOC should be considered a subsidy within the meaning of Article 3(1)(a)(iii) and Article 3(2) of the basic Regulation in the form of provision of goods, which confers a benefit upon the recipient companies. As explained in recitals (491) to (499) above, there is no functioning market for land in the PRC and the use of an external benchmark (see recitals (506) to (515) below) demonstrates that the amount paid for land-use rights by the sampled exporting producers is well below the normal market rate.

(502)

In the context of preferential access to industrial land for companies belonging to certain industries, the Commission noted that the price set by local authorities has to take into account the government’s industrial policy, as mentioned above in recital (493). Within this industrial policy, the GFF industry is listed as an encouraged industry (116). In addition, Decision No. 40 of the State Council requires that public authorities ensure that land is provided to encouraged industries. Article 18 of Decision No. 40 makes clear that industries that are ‘restricted’ will not have access to land use rights. It follows that the subsidy is specific under Article 4(2)(a) and 4(2)(c) of the basic Regulation because the preferential provision of land is limited to companies belonging to certain industries, in this case the GFF sector, and government practices in this area are unclear and non-transparent.

(503)

Following definitive disclosure, the GOC reiterated the comments provided on Section 3.1 above also in relation to LUR, stating that none of the documents referred to by the Commission have a direct link to GFF, and none of them restrict the allegedly preferential provision of LURs to certain enterprises. In addition, Decision No. 40 of the State Council does not mention that public authorities should ensure that land is provided to encouraged industries.

(504)

In response, the Commission referred back to the arguments already developed in Section 3.1 above, highlighting that GFF is indeed an encouraged industry. Furthermore, Decision No. 40 of the State Council does mention in Article XII that ‘The Guiding Catalogue for Industry Restructuring’ is an important reference for guiding the investment, government’s management of investment projects and the formulation and implementation of policies of tax, credits, land (emphasis added) and import and export”. Furthermore, the introduction of the Decision No. 40 states that “All departments concerned shall accelerate the steps in formulating and amending the relevant policies in tax, credit, land (emphasis added) and import and export, etc., and strengthen the coordination with industrial policies so as to further perfect the policy system of promoting the industrial restructuring”. A contrario, Article XVIII of Decision No. 40 states that for industries falling into the limited category “The departments governing investment shall not examine, approve or put on record, no financial institution may grant any loan, no other departments governing land management , city planning and construction, environmental protection, quality inspection, firefighting, customs, industry and commerce, etc., may go through relevant procedures” (emphasis added). There is thus a clear link between the industrial policies for encouraged industries and the policy for the provision of land. The GOC’s claims were therefore rejected.

(505)

Consequently, the Commission considered this subsidy countervailable.

(506)

As in previous investigations (117) and in accordance with Article 6(d)(ii) of the basic Regulation, land prices from the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (‘Chinese Taipei’) were used as an external benchmark (118). The benefit conferred on the recipients is calculated by taking into consideration the difference between the amount actually paid by each of the sampled exporting producers (i.e., the actual price paid as stated in the contract and, when applicable, the price stated in the contract reduced by the amount of local government refunds/grants) for land use rights and the amount that should normally have been paid on the basis of the Chinese Taipei benchmark.

(507)

The Commission considers Chinese Taipei as a suitable external benchmark for the following reasons:

(508)

Following the methodology applied in previous investigations (119), the Commission used the average land price per square meter established in Chinese Taipei corrected for inflation and GDP evolution as from the dates of the respective land use right contracts. The information concerning industrial land prices as of 2015 was retrieved from the website of the Industrial Bureau of the Ministry of Economic Affairs of Taiwan (120). For the previous years, the prices were corrected using the inflation rates and evolution of GDP per capita at current prices in USD for Taiwan as published by the IMF for 2015.

(509)

After definitive disclosure, several parties claimed that Chinese Taipei was not a suitable external benchmark. One party suggested the use of India instead of Chinese Taipei for the following reasons: