(1)

On 4 December 2020, the European Commission (‘the Commission’) initiated an anti-subsidy proceeding with regard to imports of aluminium converter foil (‘ACF’) originating in the People’s Republic of China (‘China’, ‘PRC’ or ‘the country concerned’) on the basis of Article 10 of Regulation (EU) 2016/1037 (‘the basic Regulation’). It published a Notice of Initiation in the Official Journal of the European Union (‘the Notice of Initiation’) (2).

(2)

The Commission initiated the investigation following a complaint lodged on 21 October 2020 by six Union producers (‘the complainants’), representing more than 50 % of the total Union production of aluminium converter foil. 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) that it had received a properly documented complaint, and invited the GOC for consultations in accordance with Article 10(7) of the basic Regulation. Consultations were held on 30 November 2020. However, no mutually agreed solution could be reached.

(4)

On 22 October 2020, the Commission initiated a separate anti-dumping investigation of the same product originating in the PRC (‘the separate anti-dumping investigation’). (4) 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 before and after initiation 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. In its submission following initiation, the GOC reiterated that the complaint, with regard to a number of claimed subsidy schemes, did not contain sufficient evidence to meet the evidentiary standard and, regardless of what information might be reasonably available to the complainant, there always needs to be sufficient evidence regarding the existence and nature of a subsidy, material injury and a causal link. The GOC also reiterated this claim after the final disclosure.

(6)

In its submission following the initiation and also after the final disclosure, the GOC also claimed that the Commission memorandum on sufficiency of evidence and the anti-subsidy questionnaires went beyond the allegations raised in the complaint and that the Commission had added additional evidence to the complaint to justify the initiation of the investigation. The GOC claimed that by adding such elements the Commission broadened the scope of the investigation. More specifically, the GOC alleged that by adding references to documents such as a 2018 “report on Aluminium”, the “Made in China 2025” strategy, a U.S. DOC determination on aluminium products of 2018, and by adding the Chinese Export & Credit Insurance Corporation (‘Sinosure’) to the list of financial institutions to be investigated or asking information regarding the China Banking and Insurance Regulatory Commission (the ‘CBIRC’), the Commission had broadened the scope of the investigation.

(7)

The Commission rejected the claim of the GOC concerning sufficiency of evidence. Indeed, 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 PRC, 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.

(8)

The Commission also rejected the claim concerning the scope of the investigation. The memorandum on sufficiency of evidence contains an examination of the elements available to the Commission, including, but not limited to, those brought forward by the complainant. The elements in the complaint were indeed analysed together and corroborated with other facts known by the Commission in accordance with established practice. As mentioned in the Notice of Initiation, in view of Articles 10(2) and 10(3) of the basic Regulation, the Commission prepared a memorandum on sufficiency of evidence containing the Commission’s assessment on all the evidence at the disposal of the Commission concerning the PRC and on the basis of which the Commission initiated the investigation. Thus, the scope of the investigation is not narrowed to the evidence and allegations in the complaint, but can be complemented by other information available to the Commission. Furthermore, during the investigation, the Commission may examine all information that is relevant to the alleged subsidies and is not limited to the information contained in the complaint. This applies also to the financial institutions providing preferential financing such as Sinosure and relevant regulatory bodies such as the CBRC.

(9)

While the GOC reiterated its claims concerning sufficiency of evidence and the scope of the investigation also after final disclosure, it did not bring forward any new substantial arguments or evidence. Therefore, those claims were rejected.

(10)

In its submission following initiation, the GOC alleged that the complainant used Chinese laws selectively and misinterpreted their connection with respect to the ACF industry. The GOC stated that policy documents, such as the 10-13th Five Year Plans, the Catalogue for the Guidance of Industrial Structure Adjustment (2005) and the Nonferrous Metal Development Plan (2016-2020) are just guidance documents that are not binding. The GOC also stated that the Five Year Plans do not specifically refer to ACF.

(11)

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 for the ACF industry. The Commission further observed that the complainant provided evidence indicating that non-ferrous metals industries, of which the aluminium industry is part, are mentioned in several government documents. The GOC failed to produce any evidence showing that those documents would not be applicable to the product concerned.

(12)

The GOC also stated that State-owned enterprises (‘SOEs’), State-owned banks (‘SOBs’) or Sinosure cannot be qualified as public bodies and that the complainant unjustifiably relied on formal indicia of control such as the GOCs ownership and alleged power to appoint or nominate management officials to draw an unwarranted conclusion that all SOEs/SOBs acted as public bodies. The GOC also claimed that the complainant relied on previous cases of the Commission or the Department of Commerce of the USA in evaluating the nature of functions that the banks performed and the nature and scope of the governmental authority vested in them. The GOC also claimed that past findings of the Commission for unrelated industries could not constitute sufficient evidence in the complaint and they also do not substantiate that State-owned banks and Sinosure acted as public bodies in the current investigation.

(13)

The Commission noted that this claim of the GOC is connected to the claim already mentioned above, and that the complaint, among others, mentioned the Bank Law in China, which the GOC does not dispute is Chinese legislation. The Commission highlights that recent EU anti-subsidy investigations related to the same subsidy programmes as those alleged in the complaint, that had also examined the whether SOEs/SOBs acted as public bodies, had concluded that this was the case (5). The fact that these investigations covered industries unrelated to the ACF industry does not invalidate the qualification of the above institutions as public bodies. Moreover, evidence of government ownership may be considered to amount to evidence “tending to prove or indicating” that an entity is a public body capable of conferring a financial contribution. (6)

(14)

In its submission following initiation, the GOC furthermore submitted that substantial changes and reforms had occurred in the financial sector in recent years, 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. The Commission further recalls 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.

(15)

In the same submission the GOC also claimed that some of the guidance documents including The Temporary Provisions on Promoting Industrial Structure Adjustment (Decision No 40 2005 of the State Council) (‘Decision No 40’) with reference to the “Eleventh Five-year Plans” are outdated and no longer applicable during IP.

(16)

Decision No 40, Chapter III refers to ‘Catalogue for the Guidance of Industrial Structure Adjustment’ which is composed of three kinds of contents, namely encouraged project contents, limited projects content and eliminated projects content.

(17)

To the Commission’s knowledge, the latest amendment of the Guiding Catalogue for Industry Restructuring 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 (7). This new ‘Guiding Catalogue for Industry Restructuring (2019 Version)’ was adopted and entered into effect during the investigation period. Therefore, ‘The Guiding Catalogue for Industry Restructuring’ referred to in Decision No 40 was applicable during the investigation period.

(18)

After final disclosure the GOC reiterated its claim that the Commission had misinterpreted the role of the Chinese Government’s plans and projects and maintained that these are purely guidance documents and not legally binding. It also disagreed with relying on facts established in previous investigations, as well as with the use of references from the 2017 Commission staff working document on Significant Distortions in the Economy of the People’s Republic of China for the purposes of Trade Defence Investigations (8), which the GOC considers to be inaccurate and not objective, as it was written specifically to facilitate the initiation of trade defence investigations. The GOC furthermore objected to the Commission’s view that the laws, regulations and Government plans can reasonably be assumed to remain applicable unless it is demonstrated that they are repealed or replaced.

(19)

First, the Commission noted that the GOC did not bring forward any new substantial arguments or evidence concerning the general role of the Chinese Government’s plans and projects, and their binding nature.

(20)

Second, concerning the use of information contained in the China Report, the fact that the document was issued bearing in mind its potential use in trade defence investigations does not render the objective evidence contained therein incorrect or impartial as such, as claimed by the GOC. The Commission also notes that it only referred twice to this document in the current investigation, once as a general introduction to the system of five-year plans, and once in the context of establishing a link between planning documents and encouraged sectors. These references were used in combination with and corroborated by other references, including documents issued by the GOC itself.

(21)

Third, the Commission maintains that established laws, regulations and Government plans can reasonably be assumed to remain applicable until it is demonstrated that they are repealed or replaced. Indeed, as part of the investigation the Commission sent to the GOC a list of reference documents concerning the general legal framework, rules and procedures applicable in the PRC, as well as some specific documents concerning the industry concerned. The GOC was requested to review the completeness and validity of these documents and to update or complement them wherever applicable. After receiving a substantiated reply and updated reference documents from the GOC, the Commission considered it could reasonably assume that those documents that were not repealed or replaced were still applicable.

(22)

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

(23)

Following initiation, the GOC further argued that the complainant did not establish the conditions for applying an out-of-country benchmark for land use rights (‘LUR’). 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 (9).

(24)

Furthermore, the GOC claimed that various subsidy schemes alleged by the complainant could not be considered a subsidy as the complaint did not provide for detailed evidence concerning the existence, amount and nature of these subsidies, or the direct relationship between the subsidy and the product concerned. The GOC further claimed, in relation to various subsidies, that the complainant failed to provide evidence of benefit and specificity.

(25)

The Commission is of the view that the complainant provided sufficient evidence of the existence, amount, nature, benefit and specificity as was reasonably available to it. Furthermore, the Commission highlights that recent EU anti-subsidy investigations related to the same subsidy programmes alleged in the complaint had also examined benefit and specificity of the same programmes and had concluded differently on these matters9. 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.

(26)

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.

(27)

In its submission following initiation the GOC indicated that the tax scheme providing VAT rebates on domestically produced equipment had been terminated. The Commission took note of this comment, but highlighted the tax schemes relating to VAT rebates, or import tariff and VAT exemptions on imported equipment, could still procure ongoing benefits such as depreciation over the lifespan of the relevant equipment, possibly covering the investigation period.

(28)

Following initiation, the GOC also argued that the complainants incorrectly set aside the fact that the ACF industry in the Union benefits from several direct and indirect subsidies, support and incentives in various forms from the EU and Member State authorities and that the Commission should not apply double standards. After final disclosure the GOC also reiterated this claim.

(29)

This claim concerning subsidies in the EU had no weight on the Commission’s assessment underlying the initiation of this case, as they do not fall within the factors considered for this purpose.

(30)

The Union industry did not submit a request for registration of imports pursuant to Article 24(5) of the basic Regulation.

(31)

On 6 August 2021, in accordance with Article 29a(2) of the basic Regulation, the Commission informed the interested parties of its intention not to impose provisional countervailing measures and to continue the investigation. Since no provisional countervailing measures were imposed, the Commission did not register imports under Article 24(5a) of the basic Regulation. The Commission continued seeking and checking all information it deemed necessary for its definitive findings.

(32)

The investigation of subsidisation and injury covered the period from 1 July 2019 to 30 June 2020 (‘the investigation period’ or ‘IP’). The examination of trends relevant for the assessment of injury covered the period from 1 January 2017 to the end of the investigation period (‘the period considered’).

(33)

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

(34)

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 GOC, other known Union producers, the known exporting producers, known importers and users about the initiation of the investigation and invited them to participate.

(35)

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.

(36)

Several parties requested a hearing with the Commission services. Parties who made a request within the stipulated deadlines were granted an opportunity to be heard. Xiamen Xiashun Aluminium Foil Co. Ltd. requested an intervention from the Hearing Officer, and a hearing with the Hearing Officer took place on 8 April 2021.

(37)

In the Notice of Initiation, the Commission stated that it had provisionally selected a sample of Union producers. The Commission selected the sample on the basis of the volume of production and sales of the like product in the Union during the investigation period. The sample consisted of three Union producers. The sampled Union producers accounted for more than 50 % of the estimated total production and 40 % of the estimated total Union sales volume of the like product. The Commission invited interested parties to comment on the provisional sample. No comments were received and therefore the sample was confirmed.

(38)

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.

(39)

Two unrelated importers provided the requested information and agreed to be included in the sample. Given the small number of replies, sampling of unrelated importers was not necessary.

(40)

To decide whether sampling was necessary and, if so, to select a sample, the Commission asked all exporting producers in China 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 identify and/or contact other exporting producers, if any, that could be interested in participating in the investigation.

(41)

Nine 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 three groups of exporting producers on the basis of the largest representative volume of exports to the Union that could reasonably be investigated within the time available. These companies represented over 90 % of the estimated total Union imports of the product concerned.

(42)

In accordance with Article 27(2) of the basic Regulation, all known exporting producers concerned and the authorities of the country concerned were given the opportunity to comment on the selection of the sample. No comments were received.

(43)

The sample of groups of exporting producers is the following:

(44)

Four 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.

(45)

The Commission sent a questionnaire to the complainant and the questionnaires for the Union producers, importers, users, and exporting producers in China were made available online on the day of initiation (10).

(46)

The Commission also sent a questionnaire to the GOC, which included specific questionnaires for Sinosure, the banks and other financial institutions that provided financing or export credits to the sampled exporting producers, and for the top 10 producers and distributors of the input materials used by the sampled exporting producers. The GOC was also asked for administrative convenience to gather any responses provided by these financial institutions and producers or distributors of input materials, and to send them directly to the Commission.

(47)

The Commission received a questionnaire reply from the GOC, which included a questionnaire reply from the Export-Import Bank of China (‘EXIM bank’) and Sinosure. However, no reply was received from any of the other banks or financial institutions, or from the main producers and distributors of the input materials.

(48)

The Commission also received questionnaire replies from all sampled exporting producer groups, from the three sampled Union producers, nine users and one unrelated importer.

(49)

Without prejudice to the application of Article 28 of the basic Regulation, the Commission sought and crosschecked all the information deemed necessary for the determination of subsidy, resulting injury and Union interest. Due to the outbreak of the COVID-19 pandemic and the consequent measures taken to deal with the outbreak (‘the COVID-19 Notice’) (11), the Commission was unable to carry out verification visits at the premises of the GOC, the sampled companies and the cooperating importers and users. Instead, the Commission performed a remote crosscheck (‘RCC’) of the information provided by the GOC, during which officials from the relevant ministries and other government authorities participated. The Commission furthermore carried out RCCs of the following companies via videoconference:

(50)

The RCC scheduled with Manreal could not be finalized due to its insufficient cooperation. Manreal requested the intervention of the Hearing officer, who confirmed that the termination of the RCC did not violate Manreal’s rights of defence. The questionnaire reply of Manreal was thus not considered for the definitive findings. However, this did not impact the conclusions on Union Interest. Despite the termination of the RCC, this company was still considered as an interested party and its comments in the investigation were taken into account.

(51)

On 3 November 2021, 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 (‘final disclosure’).

(52)

All parties were granted a period within which they could make comments on the final disclosure. 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.

(53)

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.

(54)

The product concerned is aluminium converter foil of a thickness of less than 0,021 mm, not backed, not further worked than rolled, in rolls of a weight exceeding 10 kg (‘the product concerned’).

(55)

The following products are excluded:

(56)

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

(57)

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

(58)

Several parties submitted product exclusion requests concerning the following products: ACF of gauge below 6 microns (‘ACF< 6’) and ACF for electric car batteries (‘car battery ACF’).

(59)

Several users, Walki, Gascogne and Alupol, claimed that Union producers do not offer ACF < 6. This is allegedly evidenced by the fact that Union producers do not promote such products on their webpages, in their brochures and by their refusal of orders of such products. Neither are the Union producers interested in offering ACF< 6, since their production capacity is filled with other product orders, taking into account also the expected demand for automotive battery foil. Union producers are not in a position to provide the requested “commercial” quality, especially regarding porosity/permeability, measured in maximum pinholes per square meters. The use of thinner ACF is furthermore more environmentally friendly and should also for this reason be excluded from the scope.

(60)

In addition, Huhtamäki argued that the Union industry has supply constraints for thinner ACF.

(61)

The Commission has requested all nine users that cooperate with the investigation to specify their current demand for and sources of ACF< 6. Only one user confirmed to have purchased during the IP an amount of ACF< 6 that surpassed the quality threshold for commercial production, from a single Chinese producer. However, even for this user ACF< 6 represents a very small part of its ACF consumption. Other users only indicated requests from their respective customers for products that included ACF< 6, which have triggered trial orders both to the Union ACF industry and to Chinese producers post IP.

(62)

The replies indicated that the demand for ACF< 6 has only very recently started and is in an increasing trend. There was some limited demand for it over the past 10 years, but no clear pattern. This is in line with explanations from the Union producers that in the past there was also a gradual movement into thinner gauges of ACF, from the 7-8 microns range being the lower range in the past into 6 and 6,35 microns becoming the current standard for many applications.

(63)

While a survey amongst the Union producers has shown that, apart from direct negotiations, none of them currently actively markets ACF< 6, the Commission has collected ample evidence that the Union producers are capable to produce ACF< 6. This includes test roll production post IP, which according to testing documentation met the purchaser’s technical demands. Furthermore, the Commission could confirm sales of ACF< 6 of various Union producers in commercial production quantities, even if on a limited scale, over a period of 10 years prior to the IP. The Commission could also observe investments in quality control. The Commission therefore concluded that the Union industry can provide quality to fit the market demand.

(64)

Second, the capacity to produce ACF< 6 is limited by the last step i.e. the rolling mills. Therefore, the Commission has analysed the capacity of various Union producers in this last step, also taking into account the demand for other products in the various production steps. All sampled Union producers have sufficient free capacity to enable them to provide ACF< 6, even if demand for car battery foil increases in the future. The Commission could therefore not confirm the risk of a supply shortage for a future increase in ACF< 6 demand.

(65)

Third, regarding the argument that the use of thinner ACF is more environmentally friendly, the Commission recalled that the intended effect of trade defence measures in the form of duties is not to prevent imports of a given product but to ensure that those imports are traded at non-injurious prices. The Commission also recalled the capability of the Union producers to manufacture ACF< 6.

(66)

Finally, as to the argument of Huhtamäki concerning the supply constraint, the investigation revealed that the production capacity of the Union industry of ACF< 6 is considerably greater than the demand.

(67)

In view of the above considerations, the Commission rejected the request for exclusion of ACF < 6 from the product scope of the product under investigation.

(68)

Gascogne requested that its arguments made in the separate anti-dumping procedure concenring the same product originanting from the PRC were incorporated into this anti-subsidy investigation. The Commission already addressed the same arguments in recitals 25 to 28 Regulation (EU) 2021/2170.

(69)

Walki also requested that its arguments made in the separate anti-dumping investigation were incorporated into this anti-subsidy investigation. In this respect, the Commission refers to its findings in recitals 29 to 32 of Regulation (EU) 2021/2170.

(70)

In addition, Walki explained during its hearing after final disclosure, that post-IP in October 2021, there was still no active open market sales or marketing of European producers for ACF< 6. Walki submitted evidence that post-IP it did not receive a positive response to its requests for quotation on ACF< 6 and explained that only one Union producer would be in the position to accept orders of ACF< 6 in commercial quantity. The Commission already addressed the same arguments in recital 28 Regulation (EU) 2021/2170

(71)

One interested party, Xiamen, requested the exclusion of aluminium car battery foil on the following grounds:

(72)

In response, the Commission first noted that all the alloys named by the interested party share the same characteristic in that they all contain more than 98 % of aluminium and the complaint is not limited to a specific alloy. The use of different alloys for different product variations is not unusual and cannot serve as an exclusion criteria.

(73)

Second, the bright/dull surface is a consequence of rolling two layers of ACF together in the last rolling mill, where the sides of ACF facing each other during the rolling turn out dull. This production method was covered by the complaint, which explicitly stated that both surfaces of ACF can be bright if specified by the customer. The intended use of ACF for car batteries cannot therefore justify any exclusion from the product scope as the physical characteristics of the product are the same. The same applies to the higher cost due to single layer rolling.

(74)

Third, the car battery production in the Union is still in its starting phase. The Commission collected evidence demonstrating that the Union producers are preparing to meet the demand of this emerging market segment. Furthermore, the argument runs counter to the claim made by Walki related to the exclusion of ACF< 6, that the Union industry might focus so much on car battery foil that they would potentially not be interested in dedicating sufficient production capacity to ACF< 6.

(75)

Fourth, the fact that currently there are no major exports from the PRC reflects the fact that the electric car battery production in the EU is still in its infancy, and this is thus not a viable argument for an exclusion.

(76)

The analysis has shown that ACF for electric car batteries is technically ACF included in the defined scope of the investigation.

(77)

In view of the above considerations, the Commission rejected the request for exclusion of ACF for electric car batteries from the product scope of the product under investigation.

(78)

Following the final disclosure, Xiamen Xiashun argued that the four arguments by the Commission in support of the rejection of the exclusion are erroneous, do not respond to the arguments raised by Xiamen Xiashun and fail to provide the substantive data based on which the Commission reached those conclusions. The Commission failed to provide any factual evidence that responds to Xiamen Xiashun’s exclusion request in its submissions and the hearing on 23 February. The refusal to indicate on which evidence the Commission based its rejection on infringes Xiamen Xiashun’s rights of defence. Xiamen Xiashun further argued that a late submission of evidence by the complainant in respect of the battery foil exclusion request in the anti-dumping proceeding raises doubts as to what evidence was actually considered by the Commission in the anti-subsidy investigation. Xiamen Xiashun argued that a submission of the complainant dated 19 July 2021 was made after the deadline of the deadline of comments at the provisional stage of the anti-dumping investigation and should not be considered. Further, an excessive confidentiality in the submission renders it impossible for Xiamen Xiashun to meaningfully respond.

(79)

The Complainants’ submission of 19 July 2021 was a reaction to Xiamen Xiashun’s submission of 5 July 2021, in which Xiamen Xiashun provided arguments for the exclusion of ACF for electric car batteries from the scope. The open version of that submission was not redacted excessively. The redaction of the name of the company, which prepared the technical details of the submission as well as the redaction of details on their technical production were necessary not to reveal confidential details on the company’s business. The Commission therefore rejects the argument that it infringed Xiamen Xiashun’s rights by considering that submission. Further the Commission rejects the claim that it did not specify, which evidence it took into account. The Commission necessarily took into account all evidence on the case file.

(80)

Xiamen Xiashun had argued that due to different usage and technical characteristics aluminium foil for electric car batteries would be a new product for the industry, even if it is aluminium foil. The Commission however, had responded to all of these arguments, clearly stating that also ACF for electric car batteries shares the technical characteristics and production steps. The technical differences on which Xiamen Xiashun had elaborated did only show a distinction to other kinds of ACF, but did not demonstrate that ACF for electric car batteries would not share the characteristics defined in the product scope of the investigation. The Commission also responded to the argument that the Union industry would not be capable to produce ACF for electric car batteries. The Commission therefore rejected the claim.

(81)

Xiamen Xiashun argued that the Commission committed manifest errors of assessment and acted in breach of the principle of sound administration, as it did not examine with all due care and impartiality the evidence provided and did not take due account of all relevant evidence when making its determinations by not providing a meaningful summary on the plans of Union producers to increase their capacity to meet the demand for battery foil and dismissing the evidence provided by Xiamen Xiashun in respect of the expected demand for battery foil.

(82)

Xiamen Xiashun claimed that the Commission’s statements that the “substantial spare capacity of the Union industry can meet the demand on the emerging battery foil market” contradicted its statement that “data showing the preparation of Union producers to meet the demand of battery foil is highly confidential and not susceptible of being summarised since these projects are not yet public and thus highly sensitive”.

(83)

Xiamen Xiashun also claimed that the Commission dismissed its comprehensive overview on the expected demand on the basis that the realisation of several battery projects was indicated to take place at an undetermined moment in the future. Xiamen Xiashun claimed that this is inherent to data relating to planned projects.

(84)

The Commission’s statement that the Union industry can meet the demand on the emerging battery foil market relates to the overall spare capacity in the rolling mills. The data showing the preparation of Union producers to meet the demand of battery foil relates to the efforts of the Union industry to be able to produce according to the specific characteristics requested by battery producers. By providing a summary of these efforts, the Commission would reveal business strategies of Union producers. There is no thus contradiction between the aforementioned statements. The Commission therefore rejected this claim.

(85)

In assessing the overview on the expected future demand that Xiamen Xiashun provided from a publically available source, the Commission differentiated between projects in a planning phase with a specific timeframe and intended projects for which there is no indication of the year in which they will become operational. This is not a dismissal of evidence provided by Xiamen Xiashun, but a thorough analysis of the actual demand to be expected. Indeed, the assessment of whether the Union industry can fulfil the expected future demand was appropriately based on battery projects, whose realisation is scheduled to take place at a specific year in the future. The claim was thus rejected.

(86)

This case was initiated during the transition period following the withdrawal of the United Kingdom (‘UK’) from the EU. During this transition period, the UK remained subject to Union law. The transition period ended on 31 December 2020. Consequently, as of 1 January 2021, companies and associations located in the UK no longer qualified as interested parties in this proceeding. In conclusion, as the UK is no longer subject to the Union law, the findings on subsidy and injury are based on the EU-27 market data.

(87)

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 the analysis of the investigated 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 ACF industry for the following reasons.

(88)

The direction of the Chinese economy is to a significant degree determined by an elaborate system of planning which sets out priorities and prescribes the goals the central and local governments must focus on. Relevant plans exist at all levels of government and cover all economic sectors. The objectives set by the planning instruments are of binding nature and the authorities at each administrative level monitor the implementation of the plans by the corresponding lower level of government. Overall, the system of planning in the PRC results in resources being allocated to sectors designated as strategic or otherwise politically important by the government, rather than being allocated in line with market forces (12).

(89)

ACF is regarded as a key product by the GOC, as found in public policy documents and lists. Such categorisation is of significant importance as it qualifies given sectors for coverage by a variety of specific policies and support measures designed to spur development in each sector (13). ACF is also integrated within the new materials in the Made in China 2025 strategy (14) and is included in numerous plans, directives and other documents, which are issued at national, regional and municipal level, and are mutually interlinked. Examples of such key policy documents include the following plans, projects and other documents.

(90)

The “10th Five Year Plan of Economic and Social Development (2001-2005)” indicates that the acceleration of industrial restructuring and reorganization would be undertaken with the objective of the development of industrial products, including the raw materials industry, and more specifically, alumina (15).

(91)

The “National 11th Five-Year Plan of Economic and Social Development (2006-2010)” calls for the development of aluminium processing and enhancement of the “comprehensive utilization level of aluminium industrial resources.” (16)

(92)

The “National 12th Five-Year Plans of Economic and Social Development (2011-2015)” indicates that the restructuring of key industries should include new progress in R & D, integrated resources utilization, energy conservation, and emission reduction by the smelting and building material industries (17).

(93)

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, highlights the strategic vision of the GOC for improvement and promotion of key industries. The 13th Five-Year Plan emphasised the GOC’s intention to strengthen the development of strategic high technologies and displays how the GOC favours “key” industries, which should be promoted and improved. This Plan identifies the nonferrous metals industry, of which the aluminium foil industry is a part, as one of such “key” industries for which the service supporting system, including finance, taxation, insurance, and investment platforms should be perfected (18).

(94)

The “Decision of the State Council on Promulgating the Interim Provisions Promoting Industrial Structure Adjustment for Implementation (Guo Fa (2005) No 40)” (‘Decision 40’) indicates that the “Catalogue for the Guidance of Industrial Structure Adjustment” is an important basis for investment guidance and government administration of policies such as public finance, taxation, and credit. Decision 40 further indicates that projects in “encouraged” industries shall be provided credit support in compliance with credit principles. (19)

(95)

The “Catalogue for the Guidance of Industrial Structure Adjustment” specifically includes aluminium, and the development of production technology within it, as encouraged (20). This is confirmed in the Guiding Catalogue for Industry Restructuring (2019 Version), according to which aluminium rolling processing, vacuum aluminizing for packing and aluminium alloy processing are all encouraged.

(96)

The “Nonferrous Metal Development Plan (2016-2020)” describes the nonferrous metal industry as an important foundation of the manufacturing industry and support for the “realization of manufacturing power.” Further, priority is indicated for the development of aluminium foil (21).

(97)

The “Notice of Guidelines on Accelerating the Adjustment of Aluminium Industry Structure (2006)” indicates that, “Aluminium is an important raw material for the development of the national economy.” (22) This document indicates targeted financial support for the aluminium sector: “According to the national macro-control, industrial policy and credit requirements, the financial institutions shall conduct reasonable allocation of credit funds. For alumina enterprises and electrolytic aluminium enterprises that meet the national industrial policies, market access conditions and credit principles, it is required to continue to give credit support; for enterprises non-compliant with national industrial policy and market access conditions, with backward technology and listed in prohibited items or eliminated, they shall not be provided with any form of credit support.” (23)

(98)

The China High-Tech Products Catalogue issued by the Ministry of Science and Technology, the Ministry of Foreign Trade and the General Administration of Customs lists 1 900 high-tech products in categories, which are targeted for preferential export policies provided by the government. One of the categories is the so-called "New materials" category, which includes ACF (24).

(99)

By being an encouraged industry in the Made in China 2025 strategy, the ACF industry is eligible to benefit from considerable State funding. A number of funds had been created to support the Made in China 2025 initiative (25) and hence the ACF industry (26).

(100)

Furthermore, The Made in China 2025 Roadmap (27) gives 10 strategic sectors, which are the key industries for the GOC. It includes in Sector 9 ‘New materials’ and spells out the objectives to “actively develop special new materials for both military and civilian use, speed up two-way transfer and transformation of technologies and promote integrated military and civilian development of new material industry as well as accelerate the upgrading of basic materials” (28). ACF as part of new materials fall under the development priorities of this sector. The new materials thus benefits from the advantages stemming from the support mechanisms listed in the document, including, among others, financial support policies, fiscal and taxation policy, and State council oversight and support.

(101)

The approach of the GOC to define encouraged industries and products in catalogues in order to allocate resources accordingly, based on their strategic or political importance as attributed by the GOC, and to implement and supervise the plans at each administrative level can be further observed by examining the Catalogue of Strategic and Emerging Products and Services of the National Development and Reform Commission (‘NDRC’) from 2016 (29). ACF is included under new materials.

(102)

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 it 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” .

(103)

Consequently, Decision No 40 read together with the Guiding Catalogue for Industry Restructuring provides for specific treatment of certain projects within certain encouraged industries.

(104)

Considering the above-mentioned plans and programmes, the ACF industry is thus regarded as a key/strategic industry, whose development is actively pursued by the GOC as a policy objective. On the basis of the policy documents referred to in this section, the Commission concluded that the GOC intervenes in the ACF industry to implement the related policies and interferes with the free play of market forces in the ACF sector, notably by promoting and supporting the sector through various means.

(105)

Following final disclosure, the GOC claimed that the documents mentioned above in this section do not provide basis for specific support or encouragement for ACF industry. According to the GOC, there is insufficient evidence to prove that ACF industry is an encouraged industry and the documents that refer to nonferrous metals, aluminium industry and/or new materials do not cover ACF.

(106)

The Commission disagreed. Firstly it maintains that it can be reasonably assumed that the description of products such as new materials, nonferrous metals and aluminium industry also covers aluminium foil. Second, some of the documents listed above, such as the “Nonferrous Metal Development Plan (2016-2020)” referred to in recital (96) and the China High-Tech Products Catalogue in recital (98) also explicitly mention aluminium foil as such. Third, the investigation established that the cooperating exporting producers had benefited from subsidies that are only eligible to encouraged industries as stipulated in the Decision No 40 and analysed in detail in relevant sections below. The Commission therefore rejected the claims of the GOC.

(107)

Following final disclosure, the GOC made some general remarks concerning the Commission’s decision to apply the provisions of Article 28(1) of the basic Regulation with regard to preferential lending, export credit insurance, and input materials.

(108)

The GOC claimed that all of the Commission’s requests for information to which the GOC could not provide responses, were unreasonable, since these requests assumed the existence of legal powers which the GOC did not possess.

(109)

Furthermore, the GOC argued that the Commission did not properly evaluate the facts before it and did not provide a proper explanation of why the facts available reasonably replaced any necessary information that was missing.

(110)

As set out below in recital (118) the Commission was of the opinion that the GOC did have the legal power to obtain the requested information, as shareholder or responsible authority of the entities for which the Commission requested the information. The Commission did set out in its communication to the GOC, repeated in sections 3.2.1 to 3.2.3 below, why it had to rely on facts available. The Commission considered publicly available information to be a reasonable replacement for the information that was not provided by the GOC. The Commission therefore rejected the claims of the GOC.

(111)

For administrative convenience, the Commission requested the GOC to forward specific questionnaires to any financial institution that provided loans or export credits to the sampled companies.

(112)

At first, only a reply from EXIM bank and Sinosure was received. The GOC did not respond to the Commission’s request to provide questionnaires to all financial institutions that provided loans or export credits to the sampled companies. In the deficiency letter, the Commission therefore repeated its request with regard to the financial institutions with a view to maximising their engagement in the investigation by providing the necessary information for the Commission to make findings on the existence and extent of the alleged subsidisation.

(113)

Following the deficiency letter, the GOC indicated that it was not authorized to request information from commercial banks. The Commission disagreed with this view. First, it is the Commission’s understanding that the information requested from State-owned entities is available to the GOC for all entities where the GOC is the main or major shareholder. 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 CBIRC.

(114)

In the end, the Commission only received information on corporate structure, governance and ownership from EXIM bank but not from any of the other financial institutions, which had provided loans to the sampled companies. Moreover, the Commission did not receive any verifiable company-specific information from any of the banks or financial institutions.

(115)

Since it has received no information in relation to most of the banks that provided loans to the sampled companies, the Commission considers that it has not received crucial information relevant to this aspect of the investigation.

(116)

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.

(117)

In reply, the GOC objected to the application of Article 28(1) of the basic Regulation. It argued that the GOC is not obliged to provide the requested information, that questions should be asked directly to the entities concerned, and not to the GOC in its capacity as investor or shareholder, and that the requested information does not constitute necessary information.

(118)

The Commission agrees that answers should be received from the entities directly concerned. However, the Commission requested the GOC for administrative convenience to forward specific questionnaires to all relevant financial institutions, which it did not do. Furthermore, as mentioned in recital (113) above, the Commission maintained its position that as the regulatory body, the GOC is the authority to request answers to the specific questions from the financial institutions that provided financing to the sampled exporting producers.

(119)

Finally, the Commission considered the requested information to be crucial to assess the control of the GOC over the conduct of the financial institutions with respect to its lending policies and assessment of risk, where they provided loans to the ACF industry.

(120)

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

(121)

For administrative convenience, the Commission requested the GOC to forward a specific questionnaire to Sinosure.

(122)

Although a questionnaire reply was received, Sinosure failed to give the supporting documentation requested concerning Sinosure’s corporate governance, such as its Articles of Association. Furthermore, no specific information about the export credit insurance provided to the ACF industry, the level of its premiums or detailed figures relating to the profitability of its export credit insurance business were received from the GOC or Sinosure.

(123)

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

(124)

In its reply, and following final disclosure, the GOC maintained its position that Sinosure did not provide subsidies specific to the ACF industry and that it follows market-oriented principle to carry out relevant insurance business and has no specific preferential treatment concerning the ACF industry. In addition, export credit insurance was not included in the complaint, therefore the information requested was not necessary or crucial for the Commission’s determinations.

(125)

As mentioned in recital (8) above, during the investigation, the Commission has the discretion to investigate all information that is relevant to the alleged subsidies and is not limited to the information contained in the complaint. The Commission furthermore notes that more broadly, schemes related to preferential financing and to direct transfer of funds, which encompass also export credit insurance, were included in the complaint and in the Notice of Initiation. The Commission also considered that the information that the GOC provided with regard to Sinosure was incomplete and did not allow the Commission to draw conclusions on crucial parts of the investigation regarding export credit insurance, specifically whether Sinosure is a public body and whether the premiums charged to the sampled companies were market-based. This claim was thus rejected.

(126)

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

(127)

The Commission requested the GOC to forward a specific questionnaire to the top 10 producers and distributors of the input materials used in the production of ACF, as well as to any other suppliers of the materials in question, which have provided inputs to the sampled companies. In its reply to the questionnaire, the GOC claimed that it did not have control over the input materials suppliers to provide the confidential information requested in the questionnaire, and that it would be an unreasonable burden for the GOC to coordinate the process with a very significant number of input materials suppliers of the sampled companies.

(128)

The GOC did not provide an overview with the names and the ownership structure of Chinese suppliers of input materials under investigation, claiming that this was confidential information. Furthermore, the GOC failed to provide detailed information on most of the characteristics of the domestic market in China of input materials for ACF, among which: the share of SOE in the domestic production and consumption, the size of the domestic market, the State’s and/or SOEs’ pricing policies, actual prices of input materials in the domestic market, and statistics.

(129)

Since the Commission received no information from the GOC concerning all elements listed above, among which the domestic market structure, price-setting mechanisms and prices, and shareholding of companies, the Commission considered that it had not received crucial information relevant to the investigation.

(130)

The Commission thus concluded that it had to rely partially on facts available for its findings concerning input materials.

(131)

According to the subsidy questionnaire, related companies providing inputs and assets for the production process of the sampled exporting producers are required to provide a reply to sections A and E of the questionnaire. However, Yongxin, a related input supplier of the sampled exporting producer Xiamen Xiashun, initially did not provide such a reply. Xiamen Xiashun stated that due to the nature of the relationship, it had no way to compel Yongxin to reply to a questionnaire and that the lack of cooperation by Yongxin should not have any impact on the present investigation.

(132)

The Commission noted that Xiamen Xiashun and Yongxin had set up a joint venture company, Yongshun, due to which these companies were related within the meaning of Article 127 of Commission Implementing Regulation (EU) 2015/2447 (30). Furthermore, the joint venture company Yongshun was an important provider of raw materials for the production of ACF by Xiamen Xiashun. Consequently, it should submit a subsidy questionnaire reply, as per instructions of the questionnaire and the deficiency letter of 19 February 2021.

(133)

Concerning the lack of impact on the investigation, the Commission noted numerous intercompany transactions between Yongxin and Yongshun, relating to land, raw materials and financing. The Commission thus considered that in the absence of a reply from Yongxin, it was impossible to determine the full extent of the subsidies received by the group.

(134)

Therefore, on 15 March 2021 the Commission informed Xiamen Xiashun 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 Yongxin. In response to the Commission’s letter, Xiamen Xiashun requested a hearing with the Hearing Officer on 23 March 2021. The Hearing Officer suggested that Xiamen Xiashun make a further effort with Yongxin to provide the requested information. Finally, a reply to the Commission’s specific questions was received from Yongxin on 7 May 2021, and the data received were verified during a remote cross check on 2 June 2021.

(135)

According to the subsidy questionnaire, the sampled companies, as well as their related companies, were requested to provide data and supporting documentation as regards purchases of the LURs, including the LUR certificates and purchase contracts of the original transactions with the Land Bureau, specifying the conditions under which the LURs were received. However, the companies in the Nanshan Group had not provided the requested documentation, making it impossible for the Commission to verify the conditions, including the purchase price, of the LURs.

(136)

Also, some of the companies in the Nanshan Group had not filled in the requested tables concerning imported and domestic machinery and therefore not provided the requested information concerning purchases of imported and domestic machinery and the related VAT exemptions and import tariff rebates for the use of imported equipment and technology.

(137)

Finally, the cooperation by the parent company of the Nanshan Group, namely Nanshan Group Co., Ltd., was limited in terms of (i) availability of its staff to reply to the questions of the Commission and (ii) the documents provided. For example, documentation concerning purchase of land, attribution of a number of grants and loans was not provided at all, or it was incomplete. This limitation significantly impeded the investigation, notably since many of the companies within the Nanshan Group had received their LURs and financing through Nanshan Group Co., Ltd.

(138)

Therefore, by letter of 3 September 2021, the Commission informed Nanshan Group that it might have to resort to the use of facts available in accordance with Article 28(1) of the basic Regulation with respect to the missing information as mentioned in recitals (135) to (137) above.

(139)

In their comments to the abovementioned Article 28 letter, the Nanshan Group made several claims as described below.

(140)

As regards the LURs, the Nanshan Group claimed that, as the other companies of the group reported their purchases from Nanshan Group Co. Ltd., the price of these intra-company transactions should be used to determine the purchase price of the LURs purchased by Nanshan Group Co. Ltd. from third parties. It also claimed that the prices of intra-company land transfers were established based on the land value provided in the Land Appraisal Report made by an independent evaluator. The Nanshan Group also claimed that, alternatively, other land use transactions by other group companies could be used as proxy in order to determine the price of the transactions of Nanshan Group Co. Ltd.

(141)

As regards the requested information concerning purchases of imported and domestic machinery and the related VAT exemptions and import tariff rebates for the use of imported equipment and technology, the Nanshan Group claimed that it had provided fixed assets register for most of the companies. It further claimed that the VAT exemption programme was terminated already in 2009 and that any benefit potentially received in this context would be fully depreciated before the start of the investigation period.

(142)

As regards the fact that the cooperation by Nanshan Group Co., Ltd., was only limited, the Nanshan Group argued that it had acted to the best of its ability and that the lack of cooperation was due to the timing of the RCC and other challenging conditions. The Nanshan Group claimed that the Commission should not discard all the information provided by Nanshan Group Co., Ltd., and that the Commission should complement this data by data from comparable land and loan transactions by the company or other companies of the group. The Commission disagreed with the comments concerning the LURs. It is the price of the original transaction with the Land Bureau which determines the amount of subsidisation for the group, not the intra-company transfers of land, and in the absence of the necessary documentation from the company which was party to the original purchase transaction, i.e. Nanshan Group Co., Ltd., it was impossible to determine the full extent of the subsidies received by the group..

(143)

As regards the requested information concerning purchases of imported and domestic machinery and the related VAT exemptions and import tariff rebates, the Commission disagreed with the comments made by Nanshan Group. First, although Nanshan Group provided a fixed assets register for some of the group companies, it failed to provide comprehensive data about the VAT exemptions and import tariff rebates that the Commission had requested. Second, the Commission identified exemptions of both VAT and import duty during the investigation period in the sampled companies. These included exemptions for equipment purchased in previous years, but for which the benefit was amortized over the lifespan of that equipment and was thus partially allocated to the investigation period. Thus, the Commission established that the sampled companies still availed itself of benefits under this programme.

(144)

Finally, the claim that other transactions by Nanshan Group Co., Ltd., or other companies of the Nanshan Group, could be used as a proxy for transactions concerning LURs or equipment where no sufficient data was provided was unsubstantiated, since none of the companies in the group provided the complete information requested.

(145)

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

(146)

According to the information provided by the three sampled groups of exporting producers, 48 financial institutions located within the PRC had provided financing to them. Of these 48 financial institutions, 47 were State-owned. The remaining financial institutions were either privately owned or the Commission was not able to determine whether they were State-owned or privately owned. 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.

(147)

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 (31): “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.”

(148)

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.

(149)

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

(150)

Only one State-owned bank, namely EXIM bank, provided a questionnaire reply.

(151)

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

(152)

Concerning the formal indicia of government control of the cooperating State-owned bank, the Commission qualified it as a ‘key State-owned financial institution’. In particular, the notice ‘Interim Regulations on the Board of Supervisors in Key State-owned Financial Institutions’ (32) 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” .

(153)

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’. 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.

(154)

In addition to these generally applicable indicia, the Commission found the following with respect to EXIM bank. EXIM bank 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 bank. According to its Articles of Association, the State directly nominates the management of EXIM bank. 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.

(155)

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

(156)

The Articles of Association also state that EXIM bank 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.

(157)

Furthermore, in its annual report of 2019, EXIM bank stated that it fully implemented all major policies and decisions made by the CPC Central Committee and the State Council.

(158)

The Commission also found that State-owned financial institutions, including EXIM bank, 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 (33).

(159)

These new Articles of Association stipulate that:

(160)

This evidence shows that the GOC exercised meaningful control over the conduct of these institutions.

(161)

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

(162)

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.

(163)

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

(164)

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.

(165)

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” .

(166)

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 (94), projects of the ACF 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.

(167)

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 (36):

(168)

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.

(169)

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 this basis, banks are required to provide credit support to the ACF industry.

(170)

Furthermore, even private commercial banking decisions must be overseen by the CCP and remain in line with national policies. In fact, one of the State’s three overarching goals in relation to banking governance is now to strengthen the Party’s leadership in the banking and insurance sector, including in relation to operational and management issues in companies. In this respect, the Three Year Action Plan of the CBIRC for the years 2020 to 2022 instructs to ‘further implement the spirit embodied in General Secretary Xi Jinping’s keynote speech on advancing the reform of corporate governance of the financial sector’. Moreover, the Plan’s section II aims at promoting the organic integration of the Party’s leadership into corporate governance: ‘we shall make the integration of the Party’s leadership into corporate governance more systematic, standardised and procedure-based […] Major operational and management issues must have been discussed by the Party Committee before being decided upon by the Board of Directors or the senior management.’

(171)

Also, the GOC has recently stipulated that even shareholders of financial institutions need to facilitate the exercise of the GOCs control via the institution’s corporate governance framework, as follows: ‘Large shareholders of bank and insurance institutions shall support bank and insurance institutions in establishing an independent and sound corporate governance structure with effective checks and balances, and encourage and support banks and insurance institutions to ensure the organic integration of Party leadership with corporate governance’  (37).

(172)

Finally, the performance evaluation criteria of the CBIRC for commercial banks now, notably, take into account how financial institutions ‘serve the national development objectives and the real economy’, and in particular how they ‘serve strategic and emerging industries’ (38).

(173)

Therefore, the Commission concluded that the GOC has created a normative framework that had to be adhered to by the managers and supervisors of the cooperating State-owned bank, who are appointed by the GOC and accountable to the GOC. Therefore, the GOC relied on this 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 ACF industry.

(174)

The Commission also sought concrete proof of the exercise of control in a meaningful way based on concrete loans provided to the sampled exporting producers. In its questionnaire reply, the cooperating State-owned bank explained that it uses sophisticated credit risk assessment policies and models (rating system) when granting the loans at issue. EXIM bank further explained that there is no policy difference regarding the industry in which the borrower operates, the credit situation and capital status, etc.; nevertheless, such factors impact the credit rating assessment and the cost of the risk of the borrower. It may refer to relevant plans and policies in providing loans; however, in determining individual loan projects it applies a market-based assessment.

(175)

However, the cooperating State-owned bank refused to provide concrete examples of its credit risk assessment relating to the sampled companies on the ground that the information requested is of internal nature and contains business confidential information that is not permitted to be disclosed even though the Commission had a written consent from the sampled companies waiving their confidentiality rights.

(176)

In the absence of concrete evidence of creditworthiness assessments, the Commission therefore examined the overall legal environment as set out above in recitals (161) to (169), in combination with the behaviour of the cooperating State-owned bank regarding loans provided to the sampled companies. The investigation revealed that this behaviour contrasted with the bank’s official stance, as in practice the bank was not acting based on thorough market-based risk assessments.

(177)

In the course of the investigation, the Commission found that loans were provided to the three sampled groups of exporting producers at interest rates below or close to the People’s Bank of China (‘PBOC’) Loan Benchmark Rate and below or close to the Loan Prime Rate as announced by the National Interbank Funding Center (‘NIFC) that was introduced on 20 August 2019 (39), 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.

(178)

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

(179)

Following final disclosure, the GOC claimed that the Commission did not demonstrate that the cooperating State-owned bank, namely EXIM bank, is a public body and that the GOC exercised meaningful control over EXIM bank. The GOC claimed that the formal links are not sufficient to demonstrate meaningful control by the government and the existence of a public body. Also, the GOC claimed that the Commission did not demonstrate the lack of independence of the management of EXIM bank by arguing that the GOC exercises control over EXIM bank only in supervising the appointment of the management of the bank and its board. Further GOC claimed that the Commission relied excessively on Article 34 of the Chinese Banking law, which it considers to be only a guiding document without specificity to deduct that EXIM or other financial institutions would be vested with public authority.

(180)

The GOC further claimed it has not exercised meaningful control over EXIM bank or has been provided with governmental authority. GOC claimed that although Article 34 of the Chinese Bank Law requires that commercial banks act “under the guidance of the industrial policies” of the GOC, this provision should be considered a guiding principle for Chinese banks. Furthermore, the GOC claimed that also Article 15 of the General Rules on loans as well as Decision No 40 are not mandatory but only of a guidance nature. Finally, the GOC disagreed with the assertion that EXIM bank “provided loans at below or close to relevant benchmark rates” and claimed that the Commission has not provided the data to support this statement.

(181)

The Commission disagreed with the allegations of the GOC. The Commission did not rely only on “formal links” in order to qualify the cooperating State-owned EXIM bank as a public body but also demonstrated that the GOC exercised meaningful control over the bank for the following reasons.

(182)

As explained in recital (168) above, the Commission considered that the Chinese Bank law and Decision No 40 are of a mandatory nature. Furthermore, the findings of this investigation as well as the Commission’s findings in previous investigations concerning the same subsidy programme did not support the claim that banks do not take government policy and plans into account when making lending decisions. For example, the Commission found that the exporting producers benefited from preferential lending at below-market interest rates.

(183)

The investigation 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 applicable 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. In fact, while Articles 4 and 5 of the Bank Law are part of Chapter I, which sets the general provisions, Article 34 is part of Chapter IV, which establishes the basic rules governing loans. The wording of Article 34: “commercial banks carry out their loan business upon the needs of national economy and the social development and under the guidance of the State industrial policies”, demonstrates that this provision is not of a guiding nature but has rather a mandatory character and provides a clear instruction to banks to take into account the State industrial policies when carrying out their loan business. 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”. While Article 17 of the same Decision requires banks to respect credit principles, the Commission could not establish during the investigation that this was done in practice. To the contrary, loans were provided to the exporting producers irrespective of their financial situation and creditworthiness.

(184)

Moreover, as concerns specifically EXIM Bank, it is undisputable that this is a policy bank directly pursuing government policies by its own admission. As explained on its website (40), EXIM is a State-funded and State-owned policy bank directly under the leadership of the State Council and dedicated to supporting, inter alia, China’s foreign trade and implementing the ‘going global’ strategy. The Board of Directors (41), the Board of Supervisors (42), and top executives (43) of EXIM Bank contain members with high ranking in the CCP and/or representing a Ministry.

(185)

On that basis, the Commission maintains its position that 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 ACF industry as described in the recital (173) above. This is exemplified in recital (170) above, which clearly indicates that the GOC intervenes in all major decisions taken by the bank’s management. This shows that the normative framework did not leave any margin of manoeuvre to the managers and supervisors of the bank as to whether to follow this framework or not with respect to the sampled exporting producers, thus putting the management of that bank in a position of dependence.

(186)

Finally, as mentioned in recital (177), in the course of the investigation, the Commission found that loans were provided to the three sampled groups of exporting producers at interest rates below or close to the People’s Bank of China (‘PBOC’) Loan Benchmark Rate and below or close to the Loan Prime Rate, regardless of the companies’ financial and credit risk situation. Therefore, considering the risk profile of the sampled exporting producers described in Section 3.4.2.3 below and that, according to the risk analysis performed by the Commission, the exporting producers should have received a lower credit rating and should thus have paid interest rates significantly above the risk-free rate, the Commission concluded that the loans at issue were provided below market rates Due to the sensitive nature of the data the detailed information of these loans can be disclosed to only the respective exporting producers.

(187)

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 ACF industry.

(188)

The Commission established that the cooperating State-owned bank implemented the legal framework set out above in the exercise of governmental functions with respect to the ACF 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.

(189)

As set out in recital (146) above, none of the other State-owned financial institutions, which provided loans to the sampled companies, replied to the specific questionnaire. The GOC provided some information on the ownership of a number of banks, but not on their governance structure, risk assessment or examples relating to specific loans to the ACF industry.

(190)

Therefore, in line with the conclusions reached in Section 3.2.1, the Commission decided to use facts available to determine whether those State-owned financial institutions qualify as public bodies.

(191)

In previous investigations (44), the Commission established that the following banks, which had provided loans to the sampled groups of exporting producers in the investigation at hand, were partially or fully owned by the State itself or by State-held legal persons: Agricultural Bank of China, Bank of Beijing, Bank of China, Bank of Communications, Bank of Jiangsu, Bank of Kunlun, Bank of Nanjing, Bank of Ningbo, Bank of Qingdao, Bank of Shanghai, Bank of Tianjin, Bank of Yantai, CCB, China Bohai Bank, China CITIC Bank, China Construction Bank, China Development Bank, China Everbright Bank, China Guangfa Bank, China Industrial Bank, China Industrial International Trust Limited, China Merchants Bank, China Merchants Bank Financial Leasing Co., Ltd., China Minsheng Bank, Chongqing Rural Commercial Bank, Daye Trust Co., Ltd., Dongying Bank, EverGrowing Bank, Fudian Bank, Guangdong Development Bank, Guosen Securities Co., Hang Fung Bank, Ltd., Hangzhou Bank, Hankou Bank, Hengfeng Bank Co., Ltd., Huaxia Bank, Hubei Bank, Industrial and Commercial Bank of China (ICBC), Minsheng Securities Co.,Ltd., Postal Savings Bank, Qilu Bank, Shanghai Pudong Development Bank, Shanghai Rural Commercial Bank, Shenyang Rural Commercial Bank, Sinotruk Finance Co. Ltd. and Zheshang Bank. Since no information has been provided indicating otherwise, the Commission maintained the same conclusion in the present investigation.

(192)

Using publicly available information, such as their websites, annual reports, information available in bank directories or on the internet, the Commission found that the following financial institutions that had provided loans to the three sampled groups of exporting producers were partially or fully owned by the State itself or by State-held legal persons:

(193)

The Commission further established, in the absence of specific information from the financial institutions at issue indicating otherwise, the GOC’s ownership and control based on formal indicia for the same reasons as set out above in section 3.4.1.3. In particular, based on facts available, managers and supervisors in the non-cooperating State-owned financial institutions 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.

(194)

With regard to the exercise of control in a meaningful manner, the Commission considered that the findings concerning the cooperating State-owned financial institution can be considered representative also for the non-cooperating State-owned financial institutions. The normative framework analysed in section 3.4.1.3 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.

(195)

Following final disclosure the GOC claimed the insufficiency of the Commission’s arguments concluding that all State-owned financial institutions also constituted public bodies. The GOC argued that the Commission relied on previous anti-subsidy cases and its own conclusions with respect to the State-owned financial institutions and lacked to perform a case-by-case analysis giving particular relevance to the specific circumstances of each case and with respect to each of the financial institutions. The GOC further argued that the Commission did not provide sufficient proof to determine the existence of meaningful control over the State-owned financial institutions, and relied merely on formal links constituting of ownership and control.

(196)

In this respect, the Commission recalled that in the absence of cooperation from the other State-owned banks than EXIM, the Commission had to rely on facts available. As already mentioned in its questionnaires, and in the absence of any new information provided by the GOC, the Commission concluded that the information from previous investigations, combined with formal indicia of control and additional findings of the investigation itself regarding EXIM bank and regarding the actual conduct of the banks towards the exporting producers constituted the best facts available in this case. In any event, the normative framework analysed in section 3.4.1.3 above applies to all banks in an identical manner. Furthermore, 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.

(197)

In light of the above considerations, the Commission established that all State-owned Chinese financial institutions that provided financing to the three 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.

(198)

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 Section 3.5.1.2 below. Thus, their conduct would be attributed to the GOC in any event.

(199)

Overseas-Chinese Banking Corporation, Limited was considered to be privately owned, based on the findings established in previous anti-subsidy investigations (45) and complemented by publicly available information. The Commission analysed whether this financial institution had been entrusted or directed by the GOC to grant subsidies to the ACF sector within the meaning of Article 3(1)(a)(iv) of the basic Regulation.

(200)

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 (46). 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”  (47). At the same time, Article 3(1)(a)(iv) does not allow Members to impose countervailing measures to products “whenever the government is merely exercising its general regulatory powers”  (48) 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”  (49). Rather, entrustment or direction implies “a more active role of the government than mere acts of encouragement”  (50).

(201)

The Commission noted that the normative framework concerning the industry mentioned above in recitals (161) to (168) 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.

(202)

Furthermore, the majority of loan contracts with private financial institutions had similar conditions as the contracts with State-owned banks, and the lending rates provided by the private financial institutions were similar to the rates provided by the State-owned financial institutions.

(203)

In the absence of any divergent information received from the private financial institutions, the Commission concluded that, in so far as the ACF 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 ACF industry.

(204)

Following final disclosure, the GOC claimed that the Commission failed to demonstrate entrustment or direction by the GOC, in particular a link between the government and the specific conduct of all financial institutions. The GOC argues that exercising its general regulatory powers by giving a mere guidance or encouragement are not sufficient to show entrustment and direction. In addition, the GOC claimed that the Commission failed to its duty to conduct such an analysis for each entity.

(205)

The Commission disagreed with this view. Since the normative framework explained in recitals (161) to (173), which applies to all banks in China i.e. whether publicly-owned or private, is legally binding as further confirmed in recitals (182) and (183), it does not amount to a mere encouragement or guidance by the government. The Commission already established in recital (169) 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. Furthermore, the Commission established in recital (185) that the GOC relied on this normative framework in order to exercise control in a meaningful way over the financial institutions not leaving them any margin of manoeuvre as to whether to implement it or not. Therefore, there is a clear link between the GOC and the specific conduct of the private banks, which demonstrates entrustment and direction by the GOC.

(206)

In addition, the Commission recalled that in the absence of cooperation from the private banks, it had to rely on facts available. Since there was partial cooperation from only one State-owned bank, the Commission used the information available for this bank, which was proven to be a public body, and compared it with the lending conditions offered by the non-cooperating private banks. Moreover, the RCCs with the sampled companies did not reveal any significant differences between loan conditions or rates provided by the private financial institutions and those provided by State-owned financial institutions. The fact that there was an overlap in rates shows that the private banks also provided loans below market terms in compliance with the normative framework referred to above. Therefore, the GOC’s claim that the Commission failed to its duty to conduct such an analysis for each entity is unfounded.

(207)

After final disclosure, the Nanshan Group also argued that since financial institutions varied their rates, conditions and types of products depending on the company to which they extended financing, this indicated that they are not being entrusted and directed by the State to offer specific or preferential lending conditions, but rather provide financing following market terms and the financial position of their customer.

(208)

The fact that the sampled companies benefitted from different types of loans during the investigation period with variances in respect of rates and other conditions, does not necessarily mean that these loans were received at market conditions. Indeed, as mentioned already in recital (177) above, the Commission found that loans were provided to the three sampled groups of exporting producers at interest rates below or close to the People’s Bank of China (‘PBOC’) Loan Benchmark Rate and below or close to the Loan Prime Rate as announced by the National Interbank Funding Center (‘NIFC) that was introduced on 20 August 2019 (51), regardless of the companies’ financial and credit risk situation. Hence, the loans were provided below market rates, and the claim is dismissed.

(209)

Consequently, the Commission confirmed its conclusion that, in so far as the ACF industry is concerned, all financial institutions, including private financial institutions, operating in China 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 ACF industry.

(210)

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 (52), 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 from AA to AAA by local rating agencies. This is not comparable to other markets, such as the Union or the USA. 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 high 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 (53). According to the China bond market insight 2021 by Bloomberg (54), five Chinese local rating agencies dominate the bond market: China Chengxin, Dagong, Lianhe, Shanghai Brilliance, and Golden credit rating, and around 90 % of the bonds are rated AAA by local rating agencies. However, many of the issuers have received a lower ‘S&P’ (Standard and Poor) global issuer rating of A and BBB (55).

(211)

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 (56).

(212)

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 the information provided by the GOC, during the investigation period, there were 12 domestic credit rating agencies active on China’s bond market a majority of which are State-owned. In total, 60 % of all rated bonds in China had been rated by a State-owned ratings agency (57).

(213)

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 (58). 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. The Commission also found that during the investigation period, there were two foreign-owned and two Sino-foreign joint venture credit rating agencies operating on the Chinese market. However, these credit rating agencies follow Chinese rating scales and are thus not exactly comparable with international ratings, as explained above.

(214)

Finally, a 2017 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”  (59).

(215)

In view of the situation described in recitals (210) to (214) 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, such as the ACF industry.

(216)

Following final disclosure, the GOC contested that the terms of loans and financing are always connected with credit ratings and claimed that more reliable, i.e. less favourable, credit ratings would not mean that the loan would be issued at higher interest rates. The GOC also disagreed with Commissions reference to PBOC Working Paper No 2017/5 mentioned in the recital (214) above, which confirmed the difference between the average domestic rating and the international ratings. The GOC argued that it is not a working paper issued by the PBOC, instead, it is an academic paper co-authored by a staff member of the PBOC, and thus does not represent the views of the PBOC.

(217)

Furthermore, according to the GOC, the paper tries to explain that there is a difference in notches regarding a Chinese company’s credit rating between the domestic system and the international system, due to the fact that the former is based on the company’s risk ranking among Chinese domestic companies, while the latter is based on the same company’s risk ranking among all the companies of the world. Finally, the GOC argued that several Chinese companies had received higher credit ratings by international agencies.

(218)

The Commission noted first that the claim that difference in credit ratings would not impact the pricing of loans does not have any support in financial literature. Indeed, the basic rationale of credit ratings is to assist financial operators to correctly price the credit risk in their lending decisions. An absence of correlation between credit rating and the price (interest rate) of loans, would indeed indicate that the market is distorted and that the financial institutions are entrusted or directed to provide loans to the companies irrespective of their financial situation and creditworthiness.

(219)

Second, the fact that some companies received higher credit ratings by international agencies does not put into question the Commission’s overall assessment as such. Indeed, as mentioned in recital (211) above, foreign rating agencies 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.

(220)

Concerning the PBOC Working Paper No 2017/5, the Commission noted that it was found under the research section of the PBOCs website which indicates the following: “Working Papers carry academic papers by the PBC staff. The views expressed in the papers are those of the authors and may not represent those of their organization. Reports and citations thereof should specify the source as “PBC working papers”  (60).” Therefore, even though it may not represent as such the official view if the PBOC, it is correct to refer to it as a working paper of the PBOC. In addition, as these papers are released on the official website of the organization, one can reasonably assume that the PBOC at least considers that these papers meet the criteria for valid academic research.

(221)

The Commission also disagrees with the assumption that there is a difference in notches due to the fact that the domestic rating is based on a risk ranking among Chinese domestic companies, while the foreign rating is based on a risk ranking among all the companies of the world. Following this hypothesis, and in view of the fact that around 90 % of the bonds within China are rated AAA, this would lead to the conclusion that nearly all companies in China are ranked the same in terms of risk because they are all performing exceptionally well compared to each other, which seems highly unlikely in terms of economic reality.

(222)

In any event, the Commission noted that since none of the banks providing the loans to the exporting producers cooperated with the investigation, it could not verify whether and how the risk assessment and the credit rating is taken into account. Therefore, it had to rely on facts available, which confirmed that the interest rates for the loans provided were well below market rates and thus that these governmental policies and working paper did play a role in the setting of interest rates as not linked to the real underlying risk.

(223)

Finally, the Commission recalled that its assessment of appropriate credit rating is not based on a mechanistic approach but that the Commission assessed individually the financial situation of each sampled group of exporting producers in order to reflect their particularities, as described in recital (237).

(224)

The Commission established that companies in all three sampled groups used various short-term and long-term loans to finance their activities. These loans were mainly used for daily operations, working capital needs, for special projects, investments or to replace other loans. Each group also used short-term and long-term export credits.

(225)

In the course of the investigation, the Commission found that all sampled groups contracted loans with the specific purpose of replacing loans from other banks. The Commission established that with this practice some companies could rearrange their liabilities and obtain the funds without which they would not be able to meet their repayment obligations, evidencing therefore problems to repay debt.

(226)

Following final disclosure, the GOC claimed that revolving loans are not necessarily a sign of liquidity issues. It claimed that such operations are common by any commercial company, including those in the Union. GOC further claimed that there are various reasons for such refinancing and that there is nothing suggesting that companies making use of such operations would be unable to repay debt.

(227)

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 (61). 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.

(228)

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, or a predetermined management fee.

(229)

On the other hand, the revolving loans found 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 RCCs, 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.

(230)

As demonstrated in recitals (161) to (168), several legal documents, which specifically target companies in the sector, direct the financial institutions to provide loans at preferential rates to the ACF industry. These documents demonstrate that the financial institutions only provide preferential financing to a limited number of industries/companies, which comply with the relevant policies of the GOC. The Commission considered that the reference to the ACF industry is 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.

(231)

Following final disclosure, the GOC disagreed with the Commission’s finding of specificity within the meaning of Article 4(2)(a) of the basic Regulation. The GOC reiterated its claims that that the legal framework under which the financial institutions are entrusted or directed to provide loans to encouraged industries is only of non-binding nature and that the ACF industry is not encouraged.

(232)

First, the binding nature of the legal framework is already confirmed under recitals (182) and (183). Second, the fact that ACF industry is encouraged has also already been extensively discussed and confirmed in section 3.1..

(233)

The Commission therefore maintained its conclusion that subsidies in the form of preferential lending are not generally available to all industries but are specific within the meaning of Article 4(2)(a) of the basic Regulation.

(234)

The Commission calculated the amount of the countervailable subsidy based on 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 has paid on the preferential loan and the amount that the company would have paid for a comparable commercial loan, which the company could have obtained on the market.

(235)

As explained in Sections 3.4.1 and 3.4.2 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.

(236)

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

(237)

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 financing through loans established in the anti-subsidy investigation on hot-rolled flat steel products originating in the PRC, as well as in the anti-subsidy investigations on tyres originating in the PRC and certain woven and/or stitched glass fibre fabrics originating in the PRC (62), as explained in the recitals below. As a result, the Commission calculated the benefit from the preferential financing through loans practices for each sampled group of exporting producers on an individual basis, and allocated such benefit to the product concerned.

(238)

Following the final disclosure, the Daching group claimed that there was no analysis by the Commission provided as to whether any calculation methodology used in these anti-subsidy investigations on tyres originating in the PRC and certain woven and/or stitched glass fibre fabrics originating in the PRC (63) should be legally and factually adequate to apply in the current investigation. Also, there was no indication that the calculation methodology was the same.

(239)

The analysis of the preferential financing, as provided in the recitals (224) to (236) was comparative to the analysis made in the previous cases (64) mentioned in the recital (237). The calculation methodology followed the same principles, while the benefit from the preferential financing through loans practices for each sampled group of exporting producers was made on an individual basis, as explained in recital (237) and disclosed to these producers. The claim of the party was therefore rejected.

(240)

The Commission noted that Donghai Foil, the exporting producer in the Nanshan Group, had not received a credit rating for the period considered. Other companies within the Nanshan Group were awarded credit ratings ranging between AA+ and AAA– by Chinese credit rating agencies. In light of the overall distortions of Chinese credit ratings mentioned in Section 3.4.1.8, the Commission concluded that these ratings are not reliable.

(241)

As mentioned in recitals (176) to (178) above, the Chinese lending financial institutions did not provide any creditworthiness assessment in this investigation. Therefore, in order to establish the benefit, the Commission had to assess whether the interest rates for the loans accorded to the Nanshan Group were at market rates.

(242)

Donghai Foil presented itself in a generally profitable financial situation with profit margins ranging between 0,5 % and 7,2 % according to its own financial accounts although the profit margins had declined in the recent years and since 2018 they remained below 1 %. This company only used short-term debt to finance its operations. The Commission assessed the short-term liquidity situation of the company.

(243)

Regarding short-term liquidity, the Commission used liquidity ratios such as current ratio, quick ratio, cash ratio and cash flow ratio. These ratios measure the company’s ability to pay short-term obligations, including short-term debt. The company presented an average current ratio of 1,6 during the IP. Although the current ratio is above 1, the company’s current assets are just enough to pay the short-term obligations, which is not sufficient to justify a high credit rating, for which a company should present a ratio of at least 2. The quick ratio of the company was 1,3 in 2019 and 1,2 in 2020, while a quick ratio of at least 1 is considered as a reference. In fact, a company that has a quick ratio below 1 may not be able to pay off its current liabilities in the short-term. The cash ratio of the company was on average 0,01 in the IP; therefore, the company had insufficient cash at hand to pay its short-term debt. The company also showed a negative cash flow from operating activities (‘CFO’) in 2016, 2017 and 2019. The CFO ratio was extremely low, – 0,02 in 2019 and – 0,04 in 2020. A CFO ratio lower than 1 means that the company does not generate enough cash to cover its current liabilities.

(244)

Considering the liquidity indicators described in recital (243), the Commission concluded that the company at issue presented short-term liquidity problems which results in having a high risk debtor profile.

(245)

The Commission based the long-term solvency risk assessment on various solvency ratio such as debt ratios and coverage ratios. The solvency ratios measure the company’s ability to meet its long-term debt obligations. They are used by lenders and bond investors when assessing the company’s creditworthiness.

(246)

Debt ratios measure the amount of liabilities, in particular long-term debt. The company had a high Debt-to-Assets ratio of 0,54, which means that 54 % of the assets of the company are financed by short-term debt. In addition, this ratio has been sharply increasing over the years. The Debt-to-Equity ratio also increased continuously from 0,3 in 2016 to 1,2 in 2020, which points to the fact the company is financing more and more of its activity mainly through debt. The higher the Debt-to-Assets and the Debt-to-Equity ratios are, the higher the financial risk of the company is, which means that the company may have a harder time servicing its existing debts.

(247)

The coverage ratios measure the company’s ability to serve its debt and meet its financial obligations. Since the company had a negative cash flow from operations in most years, the average CFO-to-Debt ratio of the company in the IP was also negative. This means that the company would not be able to repay its total debt with the operating cash flow it generates. The data from 2020 shows a slightly better situation. Nevertheless, it would still take the company 25 years to repay its debt, thus indicating serious problems of the company to generate enough cash in order to repay is debt.

(248)

Therefore, considering the liquidity and solvency issues described in recitals (242) to (247), the Commission considered that the company presented a fragile financial situation and a high risk profile for potential lenders and investors. In view of the precarious cash situation of the exporting producer, it is therefore not surprising to see that it had no external financing at all, but was financed exclusively via intercompany loans.

(249)

The Commission therefore also looked at the financial situation of the two parent companies of the group, Nanshan Group and Shandong Nanshan. Although their financial situation looked better at first sight, with higher profitability figures (around 8 to 10 %) and lower debt ratios (with a Debt-to-Assets ratio of around 25 % for both of them), similar liquidity issues could be observed. Indeed, the cash ratios of the parent companies stayed consistently below 1 and were on average 0,6 in the IP. Therefore, they had insufficient cash at hand to pay their short-term debt. The companies also showed a consistently low CFO-to-Debt ratio, amounting to 0,4 in the IP, meaning that they did not generate enough cash to cover their current liabilities.

(250)

Moreover, some companies in the group had contracted loans and bonds to repay preceding loans or loans from other banks. This type of loan is considered as 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 their short and long term financing. Finally, the Commission found that Shandong Nanshan had undergone a debt restructuring exercise in the past, and had benefited from a debt-to equity swap deal, as further explained below in Section (358).

(251)

Taking into account the serious liquidity and solvency problems that the financial analysis of the companies in the Nanshan Group, as described in recitals (242)to (247) pointed out, the Commission considered that the overall financial situation of the Nanshan 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 rating agencies as likely enough to meet payment obligations and that banks are allowed to invest in them.

(252)

Based on publicly available data on Bloomberg, the Commission used as a benchmark the premium expected on bonds issued by firms with a BB rating, which was applied to the PBOC Loan Benchmark Rate, or after 20 August 2019 to the Loan Prime Rate as announced by the NIFC (65) in order to determine the market rate.

(253)

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 Loan Benchmark Rate published by the PBOC or, after 20 August 2019, to the Loan Prime Rate published by the NIFC, at the date when the loan was granted (66) and for the same duration as the loan in question. This was done individually for each loan provided to the group of companies

(254)

As for loans denominated in foreign currencies, 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.

(255)

The benefit was established by applying the benchmark described in recital (252) – (253) to the period of loan financing during the investigation period.

(256)

Following final disclosure, the GOC considered that the Commission incorrectly disregarded the credit rating of the cooperating exporting producers and disagreed with the methodology used by the Commission to establish a benchmark, which should be based on finding a comparable benchmark on the domestic market instead of applying “out-of-country credit ratings”. The Commission should instead have used comparable loans not affected by the market distortions in the country concerned. The GOC also considered that the Commission reached an arbitrary conclusion when stating that most of the sampled Chinese exporters should correspond to a BB rating.

(257)

The GOC furthermore objected to the use of the relative spread between AA and BB rated bonds as the mark-up and its addition to the PBOC rates. According to the GOC, the method of the relative spread is flawed as the level of the upward adjustment in the first place depends on the level of the going interest rates, and as the PBOC reference rates in the PRC during the relevant years were much higher than the reference rate in the US. Moreover, the use of a relative spread entails that the mark-up becomes a variable figure.

(258)

In response to these claims, the Commission noted the following.

(259)

First, on the use of a benchmark outside the country, as explained above, domestic credit ratings awarded to Chinese companies were considered distorted by the policy objectives of the GOC to encourage key strategic industries and therefore unreliable. As a result, the Commission had to look for a benchmark based on undistorted credit ratings, which can only be found outside the country.

(260)

Second, on the BB rating applied to the companies, the Commission recalls that it did not make an arbitrary decision, but performed an individual financial analysis of all the companies concerned, which pointed to a financial situation corresponding to a BB rating.

(261)

Third, the use of the relative spread was already explained in previous investigations (67). Indeed, the relative spread captures changes in the underlying country specific 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. (332) 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.

(262)

After final disclosure, the Nanshan group also contested the BB rating established by the Commission for the companies in the group, arguing that credit ratings should have been looked at separately for each company, that the analysis was incorrectly limited to the IP, and that there is no evidence that Nanshan actually defaulted on its financial obligations.

(263)

Furthermore, the Commission’s benefit analysis is also defective because the benchmark used by the Commission: (A) fails to reflect the market conditions prevailing in China, (B) contradicts the Commission assertions that financial markets in China are distorted (because the starting point is the PBOC benchmark rate), and (C) is based on two separate financing tools (loans and bonds), which an unrealistic hybrid benchmark that does not reflect standard market practices.

(264)

Nanshan Group also provided a list of RMB-dominated bonds issued in the Hong Kong market for foreign investors, obtained from Bloomberg, submitting that a Hong Kong-based benchmark (purely based on bond yield rates) would more closely reflect the market conditions in China than a constructed US-China loan-bond hypothetical model.

(265)

On Nanshan Group’s credit ratings, the Commission noted that it did make an individual assessment of the main companies within the scope of the investigation, i.e. the exporting producer, and those with the largest proportion of financing in the group, i.e. the intermediate parent company and the ultimate parent company, as highlighted in recitals (242) and (249) to (250) above. Contrary to the assertions of the company, the Commission did take into account the evolution of the financial indicators over the entire period considered (i.e. 2017 to the IP). The Commission did not find any meaningful differences between the financial situation of these companies. It also did not find any meaningful differences in the interest rates. The fact that Nanshan did not default on its obligations does not in itself contradict the conclusions on the overall financial situation of Nanshan Group. Therefore, the Commission maintained its conclusions on the credit rating.

(266)

On the benchmark used for the calculation of the benefit, the Commission wishes to highlight that the use of the PBOC benchmark rate as a starting point for establishing the benchmark is exactly the way in which the benchmark is adjusted to prevailing market conditions in China, as it represents the risk-free rate in China, which is country-specific, as already mentioned in recital (261). Therefore, there is no contradiction as such. Furthermore, the Commission sees no issue with the combination of the risk-free rate on loans, and the use of a relative spread based on bonds. Indeed, the Commission does not simply add up the PBOC loan rate and the USD BB bond yield rate. Instead, it calculates a spread between AA and BB-rated bonds, which corresponds to a risk factor to be applied to the risk-free rate.

(267)

In addition, loans and corporate bonds are in principle similar financial debt instruments. In fact, a corporate bond is a kind of a loan used by large entities to raise capital. Both loans and corporate bonds are contracted/issued for a certain period of time and bear an interest/coupon rate. The fact that the financing through a loan is provided by a financial institution and that the financing through a corporate bond is provided by investors, which in most cases are also financial institutions, is irrelevant for the determination of the core characteristics of both instruments. Indeed, both instruments serve to finance business operations, bear the same kind of remuneration and have similar repayment term and conditions. One can thus reasonably assume that the risk factor between AA and BB rated companies remains the same, whether it be for the issuance of loans or bonds. This claims was thus rejected.

(268)

The Commission also examined the alternative benchmark proposed by the Nanshan Group. However, the RMB-denominated bonds issued in Hong Kong which were submitted concerned almost exclusively bonds issued by the government of China or financial institutions, and are thus not comparable to corporate bonds. Most of the bonds issued also did not provide any credit rating indication. The Commission thus found that this could not be used as a reasonable alternative for the benchmark currently used.

(269)

Finally, the Nanshan Group claimed that the Commission made some calculation errors for several companies in the group because of cell formatting, duplication of loans, incorrect initial amount of loans in the submitted tables or errors spotted in the formulas. The Commission indeed noticed that it had made some clerical errors and the calculation of the benefit from loans was thus adapted accordingly.

(270)

The Commission noted that the Wanshun Group was awarded an AA+ rating by a Chinese credit rating agency in 2018.

(271)

As mentioned in recitals (176) to (178) above, the lending Chinese 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 Wanshun Group were at market level.

(272)

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

(273)

The exporting producer used short-term and long-term debt to finance its operations. The Commission assessed the short-term liquidity and the long-term solvency situation of the company.

(274)

Regarding short-term liquidity, the Commission used liquidity ratios such as (a) current ratio, (b) cash ratio, (c) quick ratio, and (d) cash from operations ratio. These ratios measure the company’s ability to pay short-term obligations, including short-term debt.

(275)

The company’s current ratio was at 1,04 in 2018, decreased to 0,96 in 2019 and then increased again to 0,98 in 2020). Despite the AA+ rating attributed to the company in 2019, the company’s current assets were thus not enough to pay the short-term obligations. This does not justify a high credit rating, for which a company should present a ratio of at least 2.

(276)

The cash ratio of the company was on average 0,1 in 2016-2019 and 0,2 by the end of the IP; therefore, the company had insufficient cash at hand to pay its short-term debt.

(277)

The quick ratio of the company was 0,11 in 2018 and 0,14 in 2019 and 2020, while a quick ratio of at least 1 is considered as a reference. In fact, a company that has a quick ratio below 1 may not be able to pay off its current liabilities in the short-term.

(278)

The company showed a positive cash flow from operating activities since 2017, after having doubled in 2018, it decreased by 90 % until 2020. The operating cash ratio was 0,25 in 2018, 0,04 in 2019 and 0,02 by 2020. An operating cash ratio lower than 1 means that the company has not generated enough cash to cover its current liabilities.

(279)

Considering the short-term liquidity indicators described in recital (297), the Commission concluded that the company at issue presented short-term liquidity problems which results in having a high-risk debtor profile.

(280)

The Commission based the long-term solvency risk assessment on various solvency rations such as (a) debt ratios and (b) coverage ratios. These ratios measure the company’s ability to meet its long-term debt obligations. They are used by lenders and bond investors when assessing the company’s creditworthiness.

(281)

Debt ratios measure the amount of liabilities, in particular long-term debt. The company had a high debt to assets ratio of 0,5, which means that 50 % of the assets of the company are financed by debt. The debt to equity ratio was 0,5 in the IP, which points to the fact the company is financing its activity through debt. The higher the debt to assets and the debt to equity ratios are, the higher the financial risk of the company is, which means that the company may have a harder time servicing its existing debts.

(282)

The coverage ratios measure the company’s ability to serve its debt and meet its financial obligations. The Commission based its assessment on the interest coverage ratio and the cash from operations to debt ratio, which shows the ability of the company to repay its debt with cash generated from operating activities. The average CFO-to-Debt ratio of the exporter in the IP was 0,03. This means that the company would need 33 years to repay its total debt with the operating cash flow it generates in the IP. Therefore, there are indications of serious problems of the company to generate enough cash in order to repay is debt.

(283)

Therefore, considering the long-term solvency ratios described in recital (303), the Commission considered that the company was not in a solid financial situation and had a risky profile for potential lenders and investors.

(284)

Moreover, the company has contracted loans with the purpose to repay loans from other banks. This type of loan is considered as 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.

(285)

Following the above and in view of the overall distortions of Chinese credit ratings, mentioned in Section 3.5.2, the Commission concluded that the AA+ credit rating awarded to Wanshun Group is not reliable.

(286)

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’.

(287)

The benefit was established by applying the methodology described in recitals (252) to (255) to the period of loan financing during the investigation period.

(288)

Following the final disclosure, the Wanshun Group requested the Commission to clarify the factual basis for the allegation that the company of the group “contracted loans with the purpose to repay loans from other banks”. The party also claimed that:

(289)

On the first point, the Commission confirmed that the indicators mentioned in this section are based on the financial statements of Zhongji Lamination Materials Co. Ltd. As already explained in recital (265), the Commission made an individual assessment of the main companies within the scope of the investigation, i.e. the exporting producer, and those with the largest proportion of financing in the group, i.e. the parent company. Indeed, this approach seems reasonable, as loans are provided to legal entities, not to the group as such. The Commission also took into account the evolution of the financial indicators over the entire period considered (i.e. 2017 to the IP).

(290)

In any event, the Commission did not find any meaningful differences between the financial situation of the companies in the group. Indeed, even taking into account the consolidated data provided by the company itself upon disclosure, we still see a fragile cash situation, with a low cash ration and cash from operations to debt ratio. The debt-to-assets ratio is also very similar to that of the sole exporting producer. The Commission also did not find any meaningful differences in the interest rates of the loans issued to the various companies in the group. This claim was thus rejected.

(291)

The Commission did not accept the claim presented under the second point, since the date proposed by the company post-dated the starting date of the loan, whereas the Commission used the benchmark figure for the date immediately preceding the starting date of the loan, and which was thus still applicable on that starting date.

(292)

The Commission agreed with the claim presented under the third point, and adapted the calculations accordingly.

(293)

The Commission noted that the Daching Group was awarded an AAA- rating by a Chinese credit rating agency in 2019.

(294)

As mentioned in recitals (176) to (178) above, the lending Chinese 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 Daching Group were at market level.

(295)

The exporting producer Xiamen Xiashun presented itself in a generally profitable financial situation according to its own financial accounts.

(296)

Xiamen Xiashun used short-term and long-term debt to finance its operations. The Commission assessed the short-term liquidity and the long-term solvency situation of the company.

(297)

Regarding short-term liquidity, the Commission used liquidity ratios such as (a) current ratio, (b) cash ratio, (c) quick ratio, and (d) cash from operations ratio. These ratios measure the company’s ability to pay short-term obligations, including short-term debt.

(298)

The company’s current ratio was at 0,9 in 2018, increased to 1,0 in 2019 and then decreased again to 0,9 by the end of the IP (first half of 2020). Despite the AAA- rating attributed to the company in 2019, the company’s current assets was just enough to pay the short-term obligations. This is not sufficient to justify a high credit rating, for which a company should present a ratio of at least 2.

(299)

The cash ratio of the company was on average 0,1 in 2016-2019 and 0,2 by the end of the IP; therefore, the company had insufficient cash at hand to pay its short-term debt.

(300)

The quick ratio of the company was 0,4 in 2017-2018 and 0,5 in 2019-by the end of the IP, while a quick ratio of at least 1 is considered as a reference. In fact, a company that has a quick ratio below 1 may not be able to pay off its current liabilities in the short-term.

(301)

The company showed a positive cash flow from operating activities, however it decreased nearly by half from 2016 to 2019 and the end of the IP. An operating cash ratio was 0,2 in 2019 and by the end of the IP. An operating cash ratio lower than 1 means that the company has not generated enough cash to cover its current liabilities.

(302)

Considering the short-term liquidity indicators described in recital (297), the Commission concluded that the company at issue presented short-term liquidity problems which results in having a high risk debtor profile.

(303)

The Commission based the long-term solvency risk assessment on various solvency rations such as (a) debt ratios and (b) coverage ratios. These ratios measure the company’s ability to meet its long-term debt obligations. They are used by lenders and bond investors when assessing the company’s creditworthiness.

(304)

Debt ratios measure the amount of liabilities, in particular long-term debt. The company had a high debt to assets ratio of 0,6, which means that 60 % of the assets of the company are financed by debt. The debt to equity ratio was 1,5 in the IP, which points to the fact the company is financing its activity through debt. The higher the debt to assets and the debt to equity ratios are, the higher the financial risk of the company is, which means that the company may have a harder time servicing its existing debts.

(305)

The coverage ratios measure the company’s ability to serve its debt and meet its financial obligations. The Commission based its assessment on the interest coverage ratio and the cash from operations to debt ratio. The interest coverage ratio shows the ability of the company to finance interest costs. This ratio of the exporter was around 1,2 in the IP. Such a ratio of less than 1,5 indicates that the company has difficulties meeting its interest expenses. A cash from operations to debt ratio shows the ability of the company to repay its debt with cash generated from operating activities. The average cash from operations to debt ratio of the exporter in the IP was 0,1. This means that the company would need 10 years to repay its total debt with the operating cash flow it generates in the IP. Therefore, there are indications of serious problems to generate enough cash in order to repay debt.

(306)

Moreover, the company has contracted loans with the purpose to repay loans from other banks. This type of loan is considered as 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.

(307)

Therefore, considering the long-term solvency ratios described in recital (276), the Commission considered that the company was not in a solid financial situation and had a risky profile for potential lenders and investors.

(308)

Taking into account the liquidity and solvency elements of the exporting producer, as described in recitals (297) to (305), the Commission considered that the overall financial situation of the Daching Group corresponds to a B/BB rating (where B rating was applied for loans with the purpose to repay loans from other banks), which is the highest rating that does no longer qualify as ‘investment grade’.

(309)

The benefit was established by applying the benchmark described in recitals (252) – (253) to the period of loan financing during the investigation period.

(310)

After final disclosure, the Daching group claimed that:

(311)

First, regarding the comment on the use of the Benchmark Interest Rate published by the PBOC or the Loan Prime Rate published by NIFC as a starting point in the calculation of the benchmark, the Commission pointed out that these rates are considered to be risk-free rates which, in a conservative approach, would be applied to companies having an AA rating. As found by the Commission in the current investigation, the PBOC Loan Benchmark Rate and the Loan Prime Rate published by NIFC rates applied to the best clients of these banks, thus the companies that were rated the highest. Indeed, as mentioned in the documentation submitted by the GOC during the course of the investigation, “LPR has been quoted by each LPR quoting bank in accordance with the loan rates issued to their prime clients (emphasis added) on the 20th of each month (69) ” Also, the Commission noted that the rating of the companies in the group in the last four years, as re-evaluated by the party using Bloomberg’s methodology, was not classified as the ‘investment grade’,

(312)

Second, the credit rating methodology used by the Commission involved a number of ratios measuring the company’s current ability to pay the short-term obligations, which demonstrated to be not sufficient neither by selling the current assets (current ratio), nor using the cash at hand (cash ratio), not using the operating cash (operating cash ratio). All these ratios demonstrated short-term liquidity problems of the exporting producer, which resulted in having a high risk debtor profile, as explained in the recitals (296) – (302). At the same time the party did not demonstrate why these ratios should have been treated in any other way specific to the ACF industry. In addition, these ratios indicate company’s ‘current’ ability to pay the short-term obligations and are used for the purpose of the risk evaluation of the debtor only for the purpose of this investigation. This evaluation is separate and may be different from the assumption of the management in the preparation process of the financial statements, evaluating the company’s ability of going concern.

(313)

Third, the guarantees provided to loans were provided by related parties in the group, to which the same credit rating applies. This should therefore have no impact as such on the Commission’s assessment. The claims of the party were therefore rejected.

(314)

The Daching group further alleged that the Commission had used a wrong principal balance when calculating the loan interest benefit for the group on two loans. Namely, for the two loans initially borrowed, its principal was partially paid off and the principal applicable to the interest payment should have been less than the initial amount. Also, the actual interest payment for two other loans was paid after the IP and the Commission should have not treated the interest payment as zero in the calculation. The Commission reviewed the calculation and corrected it with regard to these claims.

(315)

The Commission established that all sampled groups of exporting producers benefited from preferential financing through loans 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 financing through loans a countervailable subsidy.

(316)

The subsidy rates established with regard to the preferential financing through loans during the investigation period for the sampled groups of companies amounted to:

Preferential financing: loans

(317)

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. Therefore, the Commission considered that in principle, all short-term financing of the sampled companies, such as short-term loans, bank acceptance drafts etc., should be covered by a credit line instrument.

(318)

The Commission established that Chinese financial institutions provided credit lines to each sampled group in connection with the provision of financing. 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 and other forms of trade financing within a certain maximum amount.

(319)

As mentioned in recital (317) above, all short-term financing should be covered by a credit line. 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. Where 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.

(320)

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 each sampled group of companies benefited from credit lines provided free of charge. Therefore, a benefit was conferred to the investigated groups of companies within the meaning of Article 6(d) of the basic Regulation.

(321)

As mentioned in recital (99), according to Decision No 40, financial institutions shall provide credit support to encouraged industries.

(322)

The Commission considered that credit lines are a form of a preferential financial support by financial institutions to encouraged industries such as the ACF sector. As specified in Section 3.1 above, the ACF sector is among the encouraged industries and is therefore eligible for all possible financial support.

(323)

Following final disclosure, the GOC claimed that the credit lines allegedly being provided to the ACF industry procure no benefit and that they are not specific. The GOC reiterated its arguments concerning the non-binding nature of Decision 40, as well as the reasoning contesting the qualification of Chinese financial institutions as public bodies. In this respect, the Commission noted that the GOC failed to demonstrate that companies in the PRC can equally benefit from the preferential conditions observed as regards the ACF industry. Moreover, as credit lines are intrinsically linked to other types of preferential lending such as loans and as they are part of the credit support specifically provided to encouraged industries, the public body analysis and the specificity analysis as developed in Sections 3.4.1.1 to 3.4.1.5, as well as Section 3.4.2.2 above for loans is also applicable to credit lines. As a result, these claims were rejected.

(324)

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

(325)

The appropriate benchmarks for the arrangement fee and for the renewal fee were established at 1,5 % and 1,25 % respectively by reference to publicly available data (70) and benchmarks used in previous investigations (71).

(326)

In principle, the arrangement fee and the renewal fee are payable on a lump sum basis at the time of the opening of a new credit line or the renewal of an existing credit line respectively. However, for calculation purposes, the Commission took into account credit lines which had been opened or renewed before the investigation period but which were available to the sampled groups during the investigation period and also the credit lines that were opened during the investigation period. Then, the Commission calculated the benefit based on the period within the investigation period during which the credit line was available.

(327)

Following the final disclosure, the Daching group claimed that the Commission should not have calculated a subsidy benefit in respect of credit line agreements concluded by the Daching group, because:

(328)

First, the Commission noted that preferential financing to Daching Enterprises Ltd. was provided by the same Chinese banks, as in the analysis in section 3.4.1.5. Therefore, it considered that such preferential financing through loans was a countervailable subsidy. Second, the Commission has also noted that all the export turnover of Daching Enterprises Ltd was sourced from Xiamen Xiashun, thus the subsidy amount was calculated as a percentage of the turnover of Xiamen Xiashun and was linked to the creditworthiness assessment of Xiamen Xiashun. Third, the absence of an arrangement fee, as explained in recitals (320) was considered as the benefit conferred on the recipients. No evidence was collected during the investigation or provided by the claiming party that a bank incurs no cost or risks at the opening of a credit line and is, therefore, not charging any fee. The claims of the party were therefore rejected.

(329)

Following the final disclosure, the Nanshan Group claimed that the Commission should not have calculated a subsidy benefit in respect of credit line agreements concluded by the Nanshan group, because:

(330)

The renewal rate of 1,25 % and arrangement rate of 1,5 % cited in the Barclays price list used by the Commission apply to credit lines above 15 000 GBP. However, conditions applicable to credit lines of 40 000 GBP or even 100 000 GBP are not comparable to the conditions that would apply to the credit lines ranging from tens to hundreds of millions of USD taken out by Nanshan Group. It is thus apparent that the fees described in the Commission’s price list for small businesses would be waived in the interest of securing a financing agreement of such size. The second source of benchmark provided by the commission in Annex 2.2 (HSBC UK) is also misleading because it does not contain any fees. As an alternative, Nanshan Group proposed to use fees charged by PNC Bank in the United States, which does not charge an arrangement fee and only charges an annual 0,25 % annual renewal fee for a committed credit line of between 100 001 and 3 million USD.

(331)

On the first and second points, the Commission noted that even though individual fees of clients may vary, no evidence was provided by the claiming party that a bank incurs no cost or risks at the opening of a credit line and is, therefore, not charging any fee.

(332)

On the third point, regarding the benchmark fees used by the Commission, as stated in recital (325), the Commission used findings in previous anti-subsidy cases and publicly available data to conclude that the application of an arrangement fee benchmark of 1,5 % and a renewal benchmark fee of 1,25 % was reasonable. In this respect, the Commission pointed out that for instance Barclays Bank charges a set-up fee of 1,5 % of the arranged overdraft limit, and a renewal fee of 1,5 % for overdrafts over GBP 15 000. In this case, the renewal fee benchmark used by the Commission is lower. A further search also showed that Barkley charges higher business overdraft fees, from 1,6 % up to 2,5 % of the limits for the business bands GBP 15 001 – GBP 20 000 and GBP 20 001 – GBP 25 000. Finally, the Commission noted that the alternative benchmark proposed by Nanshan Group specifically related to small business clients, which is not relevant according to the statements of the company itself, and to secured credit lines, i.e. credit lines with lower risk as they are secured by certain collateral. Therefore, the Commission reiterated its conclusion that the benchmark fees it has used are reasonable and based on available market data and thus rejected the claim.

(333)

Finally, Nanshan submitted that the Commission should not calculate a credit line benefit for Nanshan Finance because all short-term borrowings obtained by Nanshan Finance were related to re-discounted notes, which do not warrant a credit line. The Commission accepted this claim because the re-discounted bills were provided through inter-bank borrowings, and adjusted calculations accordingly.

(334)

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 (74). In addition, as stated by the PBOC 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”  (75). In addition, on its website DBS Bank advertises bank acceptance drafts as a means to “improve working capital by deferring payments”  (76).

(335)

The Commission already established in a previous investigation 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 (77). 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 drafts, the drawer uses the supplied goods or services for a period of 3 months to 1 year without advancing any cash and without bearing any cost.

(336)

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 was in general 0,05 % 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.

(337)

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 (354) to (356) below, in accordance with Article 3(1)(a)(i) and 3(2) of the basic Regulation.

(338)

The Commission established in a previous investigation (78) that bank acceptance drafts effectively have the same purpose and effects as short-term working capital loans, as they are used by companies to finance their current operations instead of using short-term working capital loans, and that consequently, they should bear a cost equivalent to a short-term working capital loan financing.

(339)

Following final disclosure, the GOC, Wanshun and Nanshan Group argued that bank acceptance drafts are actually credits provided by the supplier (i.e. the bearer of the draft) to the buyer (the drawer), not by a bank to the seller. This is due to the fact that the terms of payment of the contract clearly mention that the supplier agrees with the payment by way of a bank acceptance draft. Therefore, by signing such a contract, the supplier already anticipated that the payment will not be made at sight, but in a certain period of time (depending on the maturity of the bank acceptance draft). Any supplementary cost related to the late payment should already be included in the purchase cost. As such, the bank’s acceptance is merely there to facilitate transactions between unacquainted parties. The role of the bank is to provide a guarantee, for which it charges a certain fee upon the opening of the bank acceptance draft. However, ultimately it is the money in the bank account of the company that will be used to pay for the transaction for which the bank acceptance draft was issued. The bank will only pay in case the company defaults on its obligation to have sufficient funds in its bank account for the payment.

(340)

The Commission observed that in fact, the bank acceptance draft is an actual means of payment acknowledged in the sales contract, and the payment obligation of the drawer towards the supplier is cancelled by the payment with a bank acceptance draft. 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. In addition, as acknowledged by the GOC itself, the supplier has the option to endorse the draft towards other parties, and thus to use the bank acceptance draft immediately as a means of payment for its own purchases. Therefore, the bank acceptance draft cannot be classified as a credit by the supplier or as an additional guarantee of a future payment by the bank, and this claim was rejected.

(341)

Concerning specificity, as mentioned in recital (102) according to Decision No 40, financial institutions shall provide credit support to encouraged industries.

(342)

The Commission considered that bank acceptance drafts are another form of preferential financial support by financial institutions to encouraged industries such as the ACF sector. Indeed, as specified in Section 3.1 above, the ACF sector is among the encouraged industries and is therefore eligible for all possible financial support. 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 ACF industry.

(343)

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.

(344)

Following final disclosure, both the GOC, Wanshun Group and Nanshan Group argued that bank acceptance drafts are not specifically provided to the ACF industry, as they are available to any company in China and are widely used. Furthermore, the GOC repeated its arguments concerning the non-binding nature of Decision 40, as well as the reasoning contesting the qualification of Chinese financial institutions as public bodies.

(345)

In this respect, the Commission noted that the GOC and Nanshan Group failed to demonstrate that all companies in the PRC can equally benefit from the preferential conditions observed as regards the ACF industry. Moreover, similar to credit lines, bank acceptance drafts are intrinsically linked to other types of preferential lending such as loans and as they are part of the credit support specifically provided to encouraged industries, so the public body analysis and the specificity analysis as developed in Sections 3.4.1.1 to 3.4.1.5, as well as Section 3.4.2.2 above for loans is equally applicable. Furthermore, even if a form of financing could be in principle available to companies in other 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. There was no evidence submitted by any of the interested parties demonstrating that the preferential financing through bank acceptance drafts of companies in the aluminium sector is based on objective criteria or conditions in the sense of Article 4(2)(b) of the basic Regulation. As a result, these claims were rejected.

(346)

Both the Wanshun and the Nanshan Group requested that, even if the Commission were to maintain its decision to treat the bank acceptance draft as a subsidy, there should be the following changes in the calculation of the benefit, namely:

(347)

On the first point, the Commission already established in recital (338) that bank acceptance drafts have the same purpose and effects as short-term working capital loans and that consequently, they should bear a cost equivalent to a short-term working capital loan financing. The party did not substantiated further why the benchmark for the bank acceptance draft should be the same as for the credit line. Therefore, the claim was rejected.

(348)

On the second point, the Commission already noted in recital that 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 was in general 0,05 % of the face value of the 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. Therefore, the claim was rejected.

(349)

On the third point, as the Commission concluded in previous investigations (79), 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.

(350)

On the last point, 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. There is also no double-counting, as bank acceptance drafts received as a means of payment were not countervailed at all in any of the companies. Consequently, the claim was dismissed.

(351)

Following final disclosure, the Nanshan Group also requested a correction of calculation errors due to formula errors. The Commission accepted the claim and adapted the calculations accordingly.

(352)

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

(353)

As mentioned in recitals (334) and (335), the Commission found that the sampled exporting producers used bank acceptance drafts to address their needs for short-term financing without paying a remuneration.

(354)

The Commission thus concluded that bank acceptance drawers should pay a remuneration for the period of financing. The Commission considered that the period of financing started on the date of the issuance of the bank acceptance draft and ended on the maturity date of the bank acceptance draft. Regarding bank acceptance drafts issued before the investigation period and bank acceptance drafts with a maturity date after the end of the investigation period, the Commission calculated the benefit only for the period of financing covered by the investigation period.

(355)

In accordance with Article 6(b) of the basic Regulation, considering that bank acceptance drafts are a form of short-term financing and that they effectively have the same purpose as short-term working capital loans, 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.

(356)

The Commission determined the benefit resulting from the non-payment of a short-term financing cost. The Commission considered, as established in previous investigations (80), 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 above.

(357)

Companies from two sampled groups have issued convertible corporate bonds before the investigation period. One company within the sampled groups (Shantou Wanshun) issued convertible corporate bonds before the investigation period, which were partly converted into capital during the investigation period. This convertible bond has a progressive interest rate structure with very low interest rates, ranging between 0,4 % and 2 %, which is far below the Loan Benchmark/Prime Rate set by the GOC.

(358)

Another company (Shandong Nanshan) had issued convertible bonds before the investigation period, which had been converted into capital in 2015 as part of a debt-to-equity swap. The holders of the bonds of both companies were mainly state-owned financial institutions. The Commission also found that the convertible bonds of both companies were converted into capital at a significantly higher price than the prevailing market price of the shares at the time of conversion.

(359)

The Commission established that both sampled companies benefited from preferential financing in the form of convertible bonds.

—

Law of the People’s Republic of China on Securities (version 2014) (‘Securities Law’) (81);

—

Administrative Measures on Issuance of Securities by Listed Companies (version 2008) (82);

—

Administrative Measures on Sponsorship for Securities Issuance and Listing (version 2008) (83);

—

Administrative Measures on Issue and Underwriting of Securities (version 2018);

—

Regulations on the Administration of Corporate Bonds, issued by the State Council on 18 January 2011;

—

Administrative Measures for the Issuance and Trading of Corporate Bonds, Order of the China Securities Regulatory Commission No 113, 15 January 2015;

—

Measures of the Administration of Debt Financing Instruments of Non-financial Enterprises on the Inter-bank Bond Market Issued by the People’s Bank of China, Order of the People’s Bank of China [2008] No 12, 9 April 2008.

(360)

The Regulations on the Administration of Corporate Bonds and the Administrative Measures for the Issuance and Trading of Corporate Bonds set the general legal framework applicable to corporate bonds. However, there is a set of specific legislation applicable to convertible corporate bonds, namely the Administrative Measures on Issuance of Securities by Listed Companies, the Administrative Measures on Issue and Underwriting of Securities and the Administrative Measures on Sponsorship for Securities Issuance and Listing.

(361)

Article 14 of the Administrative Measures on Issuance of Securities by Listed Companies defines ‘convertible corporate bonds’ as “corporate bonds which are issued by an issuing company pursuant to law and which may be converted to shares during a certain period and under stipulated conditions” .

(362)

Pursuant to Article 11 of the Securities Law, which was applicable at the time of the issuance of the convertible bonds by the sampled companies, as well as Article 45 of the Administrative Measures on Issuance of Securities by Listed Companies and Article 2 of the Administrative Measures on Sponsorship for Securities Issuance and Listing, companies that want to issue convertible corporate bonds need to solicit the services of a securities sponsor, which acts as an underwriter. The sponsor organizes the issuance of the bonds, recommends the issuer, submits the application file to the CSRC for approval, negotiates the interest rates at which the bond will be presented to investors and is responsible for finding investors which would accept the agreed terms of issuance of the bond, including the interest rate.

(363)

In line with the regulatory framework, convertible bonds cannot be issued and traded freely in China. The issuance of each bond must be approved by the CSRC. Article 16 of the Securities Law stipulates that “listed companies issuing convertible corporate bonds shall […] satisfy the requirements stipulated in this Law for public offering of shares; and shall obtain the approval of the securities regulatory authorities of the State Council” . According to Article 3 of the Administrative Measures on Issue and Underwriting of Securities, which applies to convertible bonds, “the CSRC shall supervise and administer the offering and underwriting of securities to the law” . Furthermore, according to Article 10 of the Regulations on the Administration of Corporate Bonds, there are annual quotas for the issuance of corporate bonds.

(364)

According to Article 16 of the Securities Law, the public issuance of bonds should satisfy the following requirements: “the usage purpose of the proceeds shall comply with State industrial policies” and “the proceeds from a public offering of corporate bonds shall be used for approved purpose(s) only” . 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. Furthermore, Article 10(2) of the Administrative Measures for the Issuance of Securities by Listed Companies, which is a lex specialis applicable to convertible bonds, stipulates that “the purposes of use of the fund raised are in line with the industrial policies of the State” .

(365)

As explained in recital (100), Decision No 40 refers to ‘The Guiding Catalogue for Industry Restructuring’ and provides that if “the investment project belongs to the encouragement content it 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” . It follows that the issuance of convertible corporate bonds, which, as shown, necessarily target an encouraged industry, corresponds with the practice of financial institutions to support those industries.

(366)

The interest rates on corporate bonds are also strictly regulated. Article 16 of the Administrative Measures for the Issuance of Securities by Listed Companies provides that “the interest rate of a convertible corporate bond shall be determined by the issuing company and the leading underwriter through negotiations, but it shall satisfy the relevant provisions of the State” . According to Article 16(5) of the Securities Law, “the coupon rate of the corporate bonds shall not exceed the coupon rate stipulated by the State Council” . In addition, Article 18 of the Regulations on the Administration of Corporate Bonds, which is generally applicable to all bonds, provides further details by stating 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”.

(367)

According to Article 17 of the Administrative Measures for the Issuance of Securities by Listed Companies, “to publicly issue convertible corporate bonds, a company shall entrust a qualified credit rating agency to make credit ratings and follow-up ratings” . In addition, Article 18 of the generally applicable Administrative Measures for the Issuance and Trading of Corporate Bonds stipulates that only certain bonds complying with strict quality criteria, such as an AAA credit rating, may be issued in a public manner to public investors or be issued in a public manner to qualified investors. The corporate bonds that fail to meet these standards can be issued in a public manner only to qualified investors.

(368)

According to the China bond market insight 2021 by Bloomberg, the bonds listed in the interbank bond market account for 88 % of the total trading volume of bonds (84). According to the same study, most of the investors are institutional investors, including financial institutions. In particular, State-owned commercial banks represent 57 % of the investors and policy banks represent 3 % (85). Furthermore, the Commission found that all of the investors of the convertible bonds issued by one of the sampled companies are institutional investors, a category of investors that includes financial institutions.

(369)

Furthermore, as an encouraged industry under the ‘Guiding Catalogue for Industry Restructuring’, the ACF industry is entitled to credit support by financial institutions based on Decision No 40. The fact that convertible bonds, such as the convertible bonds issued by the sampled companies, bear a low interest rate is a strong indication that financial institutions, which are the major investors in these bonds, are obliged to provide “credit support” to these companies and take into account other considerations than commercial considerations when taking the investment or financing decision, such as government policy objectives. Indeed, an investor operating in market conditions would be more sensitive to the financial return on the investment and would most probably not invest in convertible bonds bearing very low interest rates. Moreover, the conclusions reached by the Commission about the financial situation of both groups of exporting producers in Section 3.4.2.3 above in terms of their liquidity and solvency profiles further indicate that investors operating in market conditions would not invest in financial instruments such as convertible bonds, offering low financial returns, while the issuer presents high liquidity and solvency risks. Therefore, in the Commission’s view only investors having motivations other than a financial return on their investment, such as compliance with the legal obligation to provide financing to companies in encouraged industries, would make such an investment.

(370)

On the basis of the above, the Commission considered that there is a body of corroborating evidence, according to which a major proportion of the investors in the convertible bonds issued by the sampled companies, are financial institutions which have a legal obligation to provide credit support to ACF producers.

(371)

Furthermore, as described in Section 3.4.1 above, the financial institutions are characterized by a strong State presence, and the GOC has the possibility to exercise a meaningful influence on them. The general legal framework in which these financial institutions operate is also applicable to convertible bonds.

(372)

In Section 3.4.1 above, the Commission concluded that State-owned financial institutions are public bodies within the meaning of Article 2(b) read in conjunction with Article 3(1)(a)(i) of the basic Regulation and that they are in any event 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. In Section 3.4.1.7 above, the Commission concluded that private financial institutions are also entrusted and directed by the government.

(373)

The Commission also sought concrete proof of the exercise of control in a meaningful way based on concrete issuances of convertible bonds. It therefore examined the overall legal environment as set out above in recitals (360) to (367), in combination with the concrete findings of the investigation.

(374)

The Commission found that the convertible bonds were issued by the two groups of sampled exporting producers at very low and similar interest rates, regardless of the companies’ financial and credit risk situation. The Commission also found that a meaningful amount of these bonds were converted into shares at a significantly higher price than the prevailing market price of the shares. Thus, even when the bonds were converted into shares, the rate of return remained below market value.

(375)

In light of the above considerations, the Commission concluded that the Chinese financial institutions, which are the major investor in the convertible bonds issued by the sampled companies, followed the policy orientations laid down in Decision No 40 by providing preferential financing to companies pertaining to an encouraged industry and thus acted either as public bodies within the meaning of Article 2(b) of the basic Regulation or as bodies which are entrusted or directed by the government within the meaning of Articles 3(1)(a)(iv) of the basic Regulation.

(376)

By accepting to invest in convertible bonds with a very low rate of return irrespective of the risk profile of the issuer, including below the risk free reference rate offered by the PBOC or published by the NIFC as referred to in recital (387) below, and by agreeing to convert the bonds into shares at a price much higher than their current market value, the financial institutions provided a benefit to the sampled exporting producers.

(377)

Following final disclosure, the GOC claimed that the purchase of corporate bonds and convertible corporate bonds is a regular commercial practice that occurs in all major jurisdictions, including the European Union and the US. According to the GOC, the fact that many of the investors in bonds are institutional investors, including financial institutions, is also similar to the situation in the EU. The GOC argued that, in any event, even if the figures provided in the Disclosure are accepted, so that 57 % of the investors would be State-owned commercial banks, and 3 % would be policy banks, this would still leave a market share of 40 %, which should not be ignored.

(378)

According to the GOC, the Commission also failed to make a separate analysis of the roles carried out by financial institutions in the Chinese market for convertible bonds. as these are different types of instruments compared to loans, and the roles carried out by investing financial institutions are fundamentally different was well. The same reasoning was also applied to corporate bonds referred to in section 3.6.2 below.

(379)

The Commission disagreed with the statement of the GOC that it did not carry out a specific assessment of the conduct of financial institutions as public bodies for the function of buying bonds. In addition to the conclusions reached by the Commission in Section 3.4.1 above, the Commission also sought concrete proof of the exercise of control in a meaningful way based on the concrete issuances of convertible bonds and carried out a specific assessment in recitals (373) and (374). While the Commission agreed with the GOC that the purchase of corporate bonds and convertible bonds may be in principle a regular commercial practice that occurs in all major jurisdictions, it pointed out that the purchase of corporate bonds by Chinese financial institutions is characterised by a State interference as demonstrated in recital (375).

(380)

The Commission considered that the preferential financing through convertible bonds is specific within the meaning of Article 4(2)(a) of the basic Regulation. Convertible bonds cannot be issued without the approval of the CSRC, which checks if all the regulatory conditions for the issuance of the convertible bonds are met. As explained in recital (364), according to the Securities Law and the Administrative Measures on Issuance of Securities by Listed Companies specifically applicable to convertible bonds, the issuance of convertible bonds must be in line with the State’s industrial policies. The Commission considered in recital (366) that “in line with the industrial policies of the State” means that the investment project falls under the ‘encouraged’ content in the Guiding Catalogue of Industry Restructuring to which the ACF industry belongs.

(381)

No evidence was provided that any undertaking in the PRC (other than within encouraged industries) can benefit from convertible bonds at the same preferential terms and conditions.

(382)

Following final disclosure, the GOC submitted that the criteria that must be met by a company in order to issue bonds are financial in nature and are not policy-oriented. The GOC disagreed with the stance that the issuance of convertible bonds must be in line with the State’s industrial policies and repeated that the ACF industry is not an encouraged industry. The same reasoning was also applied to corporate bonds referred to in section 3.6.2 below.

(383)

In this respect, although the Commission agreed that bonds markets are regulated in every country and that most of the criteria that must be met by a company in order to issue bonds are financial in nature, it disagreed with the claim of the GOC that the issuance of convertible bonds is not policy-oriented in China. First, the Commission reiterated its stance that the ACF sector is an encouraged industry. Second, the Commission considered that the wording of the Securities Law of the PRC (version 2014) and the Administrative Measures on Issuance of Securities by Listed Companies specifically applicable to convertible bonds, according to which the issuance of convertible bonds must be in line with the State’s industrial policies is clear enough. Finally, the Commission established in recital (376) that by accepting to invest in convertible bonds with a very low rate of return irrespective of the risk profile of the issuer, the financial institutions provided a benefit to the sampled exporting producers. Therefore, the claims of the GOC were rejected.

(384)

Convertible bonds are a hybrid debt instrument which have features of a bond such as interest payments while also providing the opportunity to convert the invested amount into shares under certain conditions.

(385)

The Commission found that the interest rate on the convertible corporate bond issued by the sampled companies in the IP was at such a low level that only investors having motivations other than a financial return on investment, for example compliance with the legal obligation to provide financing to companies in encouraged industries, would invest in them. This was supported by the fact that a major proportion of the investors in the convertible bonds issued by the sampled companies is constituted by state-owned financial institutions.

(386)

The Commission found that the part of the convertible bonds of both the sampled companies that has not been converted into shares provided investors a return in the form of an interest similarly to loans or standard bonds. Since the calculation methodology for loans described in recital (248) is based on bonds, the Commission decided to follow the same methodology (86). This means that the relative spread between US AA corporate bonds and US BB corporate bonds with the same duration is applied to the Loan Benchmark Rates published by the PBOC or, after 20 August 2019, the Loan Prime Rate published by the NIFC (87), to establish a market-based interest rate for bonds.

(387)

The benefit is the difference between the interest amount that the company should have paid by applying the market-based interest rate referred to in recital (419) and the actual interest paid by the company.

(388)

The Commission also found that a meaningful amount of these bonds were converted into shares. The Commission found that the convertible bonds of both companies were converted into capital at a significantly higher price than the prevailing market price of the shares. In this case, the Commission considered the debt converted into shares as a countervailable equity injection. The benefit of this capital injection was considered to be the difference between the stock price of the shares at the time of conversion, and the additional premium paid by the bondholders. This benefit was allocated to the IP using the average depreciation period of the assets of the companies.

(389)

Following final disclosure, the GOC and Wanshun Group objected the use of the same benchmark for bonds and convertible bonds as the one applied to loans, since the convertibility of a bond is an essential element thereof, which also makes it a substantially different loan instrument. The GOC also claimed that there is no basis for the Commission to use the PBOC benchmark as a starting point and then add a mark-up. According to the GOC, European ACF producers with a BB rating also issued bonds for a similar maturity period at significantly lower rates than the calculated benchmark rate during the same period. The same reasoning was also applied to corporate bonds referred to in section 3.6.2 below.

(390)

In addition, Wanshun pointed out that bonds are highly tradable in the market (a person holding the bond can sell it in the market without waiting for its maturity). By contrast, a loan is an agreement between two parties, where one party borrows money from the other. The loan is not generally tradable in the market. In addition, Shantou Wanshun’s bond could be converted into shares, thus providing a further advantage to the bondholder. Accordingly, the interest rates for convertible bonds would logically be lower than for loans, as well as other types of bonds (investors would be willing to accept a lower coupon rate on a convertible bond because of its conversion feature). As an alternative, Wanshun proposed to use a Hong Kong-based benchmark based on bond yield rates, i.e. the same benchmark as the one proposed by the Nanshan Group for loans in recital (264).

(391)

The Commission pointed out that loans and corporate bonds are in principle similar financial debt instruments. In fact, a corporate bond is a kind of a loan used by large entities to raise capital. Both loans and corporate bonds are contracted/issued for a certain period of time and bear an interest/coupon rate. The fact that the financing through a loan is provided by a financial institution and that the financing through a corporate bond is provided by investors, which in most cases are also financial institutions, is irrelevant for the determination of the core characteristics of both instruments. Indeed, both instruments serve to finance business operations, bear the same kind of remuneration and have similar repayment term and conditions. Furthermore, during the investigation, the Commission found out that the corporate bonds issued by the cooperating exporting producers had coupon rates and purposes which were very similar to the interest rates and purpose of loans with similar duration, and thus they could be considered interchangeable from the producer’s perspective, thus justifying the application of the same benchmark for both instruments in the specific circumstances of this case.

(392)

Furthermore, the Commission considered the comments of the GOC referring to interest rates applicable to BB-rated companies in the European Union as unfounded since the risk-free rate in the European Union is not the same as the risk-free rate in the PRC and thus it is not possible to compare interest rates in absolute terms.

(393)

The Commission agreed that convertible corporate bonds are a hybrid debt instrument which also provides the opportunity to convert the invested amount into shares under certain conditions and are as such in principle different from corporate bonds. The Commission did look into the possibility to quantify this convertibility element. However, the benchmark proposed by Wanshun did not take into consideration such convertibility. In addition, it was not an appropriate benchmark in general for bonds for the reasons already set out in recital (268). No other possible benchmarks were submitted, and no further public information was available to provide for a more accurate benchmark for convertible bonds (e.g. indices for the premium on US AA rated convertible bonds and US BB rated convertible bonds) or for the convertibility aspect of these bonds. Moreover, the benchmark used as the basis for the conversion was in any event a risk-free rate. These claims were therefore rejected.

(394)

In relation to the convertible corporate bonds, the Wanshun Group claimed that:

(395)

The Commission notes that Wanshun did not provide sufficient evidence to support its claim that a majority of investors of Shantou Wanshun convertible bonds were individuals operating on the Shenzhen Stock Market. Indeed, the source of this claim could not be verified, the supporting document did not provide a clear definition for what it considers to be private and state-owned investors, and it did not contain the individual names of the investors either. Therefore, this claim was rejected.

(396)

The Commission accepted the claim of Wanshun on the deduction of the coupon payments from the benchmark interest payments, and deducted the coupon payment regarding the investigation period from the benchmark interest payments.

(397)

The Wanshun Group further claimed that the Commission erred when countervailing the equity injection (the conversion of some of Shantou Wanshun bonds into shares), since:

(398)

The Commission disagreed with the comments regarding the initial conversion price set in July 2018. It noted that in case the stock market price of a given share at the moment of conversion is materially lower than its market price, a rational investor would refrain from converting the bonds into shares, and continue to keep the bonds instead. Thus, the rational investor would try to minimize the risk of an unfavourable price evolution.

(399)

The Commission disagreed also with the comment regarding the incorrect conversion price. From the information submitted to the Commission, it appeared that the price change claimed by the Wanshun Group actually only took place after the conversion of the shares. Therefore, the Commission maintained that it has used the correct conversion price when calculating the benefit.

(400)

One of the sampled groups benefited from preferential financing in the form of corporate bonds.

—

Securities Law;

—

Administrative Measures for the Issuance and Trading of Corporate Bonds, Order of the China Securities Regulatory Commission No 113, 15 January 2015;

—

Regulations on the Administration of Corporate Bonds, issued by the State Council on 18 January 2011;

—

Measures of the Administration of Debt Financing Instruments of Non-financial Enterprises on the Inter-bank Bond Market Issued by the People’s Bank of China, Order of the People’s Bank of China [2008] No 12, 9 April 2008.

(401)

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.

(402)

Furthermore, according to Article 16 of the Securities Law applicable during the IP, a public offering of corporate bonds should satisfy the following requirements: “the usage purpose of the proceeds shall comply with State industrial policies […]” and “the proceeds from a public offering of corporate bonds shall be used for approved purpose(s) only” . 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. As explained in recitals (364) and (365), the issuance of corporate bonds under such conditions targets an encouraged industry such as the ACF industry and corresponds with the practice of financial institutions to support those industries.

(403)

According to Article 16(5) of the Securities Law, “the coupon rate of the corporate bonds shall not exceed the coupon rate stipulated by the State Council” . In addition, Article 18 of the Regulations on the Administration of Corporate Bonds provides further details by stating 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”.

(404)

Furthermore, Article 18 of the Administrative Measures for the Issuance and Trading of Corporate Bonds stipulates that only certain bonds complying with strict quality criteria, such as an AAA credit rating, may be issued in a public manner to public investors or be issued in a public manner to qualified investors only at the sole discretion of the issuer. The corporate bonds that fail to meet these standards can be issued in a public manner only to qualified investors. Therefore, it results that most corporate bonds are issued to qualified investors which have been approved by the CSRC and which are Chinese institutional investors.

(405)

As explained in recitals (369) and (370) above, the Commission considered that there is a body of corroborating evidence, according to which a major proportion of the investors in convertible bonds issued by the sampled companies are financial institutions, which have a legal obligation to provide credit support to ACF producers. The same reasoning and conclusion also applies to corporate bonds as the conditions of issuance are very similar, in particular the condition to comply with the requirements of national laws, regulations and policy, and with the industrial policy of the State.

(406)

As described in recital (403), Article 16 of the Securities Law and Article 12 of the Regulations on the Administration of Corporate Bonds require that a public offering of corporate bonds complies with the industrial policies of the State. This has the effect that corporate bonds can only be issued for purposes that are in line with the targets of the planning of the GOC regarding encouraged industries as explained in recitals (357) and (359). The institutional investors, which are, as shown in recital (368), to a large extent commercial banks and policy banks, have to follow the policy orientations laid down in Decision No 40, which read together with the Guiding Catalogue for Industry Restructuring, provides for specific treatment of certain projects within certain encouraged industries, such as the ACF industry. The beneficial treatment to one of the sampled groups resulted in the decision to invest in corporate bonds issued with an interest rate that does not reflect market based criteria.

(407)

As described in Section 3.4.1 above, the financial institutions are characterized by a strong State presence, and the GOC has the possibility to exercise a meaningful influence on them. The general legal framework in which these financial institutions operate is also applicable to corporate bonds.

(408)

In Section 3.4.1 above, the Commission concluded that State-owned financial institutions are public bodies within the meaning of Article 2(b) read in conjunction with Article 3(1)(a)(i) of the basic Regulation and that they are in any event 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. In Section 3.4.1.7above, the Commission concluded that private financial institutions are also entrusted and directed by the government.

(409)

The Commission also sought concrete proof of the exercise of control in a meaningful way based on concrete issuances of corporate bonds. It therefore examined the overall legal environment as set out above in recitals (402) to (405), in combination with the concrete findings of the investigation.

(410)

The Commission found that the corporate bonds were issued with an interest rate below the level that should have been expected given the companies’ financial and credit risk situation, including below the risk free reference rate offered by the PBOC or published by the NIFC as referred to in recital (419) below.

(411)

In practice, interest rates on corporate bonds are influenced by the credit rating of the company, similar to loans. However, the Commission concluded in recital (215)that the local credit rating market is distorted and credit ratings are unreliable.

(412)

In light of the above considerations, the Commission concluded that the Chinese financial institutions followed the policy orientations laid down in Decision No 40 by providing preferential financing to companies pertaining to an encouraged industry and thus acted either as public bodies within the meaning of Article 2(b) of the basic Regulation or as bodies which are entrusted or directed by the government within the meaning of Articles 3(1)(a)(iv) of the basic Regulation.

(413)

By organising the issuance of a corporate bonds with the interest rate below the market rate corresponding to the actual risk profile of the issuer and by accepting to invest in such corporate bond, the financial institutions provided a benefit to the sampled exporting producer.

(414)

As described in recital (380) above, 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 states that the issuance of bonds must comply with the State’s industrial policies. As already mentioned in recital (104), the ACF industry is regarded as an encouraged industry in the Guiding Catalogue of Industry Restructuring.

(415)

Since bonds are in essence another type of debt instrument, in principle 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 3.4.2.3. This means that the relative spread between US AA corporate bonds and US BB corporate bonds with the same duration is applied to the PBOC Loan Benchmark Rate, or after 20 August 2019 to the Loan Prime Rate published by the NIFC, 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.

(416)

Following the final disclosure, the Wanshun Group and the Nanshan Group claimed that the Commission wrongly assumed that all bondholders are financial institutions acting as public bodies. Since the Bloomberg report referred to by the Commission itself found that State-owned banks represents 57 % of the investors and policy banks represent 3 % of the holders of convertible corporate bonds in China, only 60 % (57 % + 3 %) of the institutional investor bonds are countervailable.

(417)

The Commission pointed out that there is a body of corroborating evidence, according to which a major proportion of the investors in the bonds issued by the sampled companies is constituted by financial institutions which have a legal obligation to provide credit support to ACF producers. In addition, the Commission wishes to highlight that the Bloomberg report also indicates that 27 % of the bonds are held by “fund products”, which are essentially funds managed by the same financial institutions. Taking into account 3 % “other” financial institutions, the total proportion of financial institutions investing in bonds is actually 90 %. Considering the high proportion of institutional investors, including financial institutions, the Commission was of the opinion that they have determined the characteristics of the corporate bonds at issue, in particular the low coupon rate, and that other investors, such as private investors only adhered to such conditions. Finally, the Commission considered that the Chinese financial supervision system with respect to corporate bonds and convertible bonds is only an element, which together with the normative framework governing financing by financial institutions described in section 3.4.1, as well as with the concrete behaviour of the financial institutions pointed to the interference from the GOC. Therefore, these claims of were rejected

(418)

Finally, the Nanshan Group claimed that the Commission did not deduct from its calculation the coupon payments that were made by Nanshan Group Co., Ltd. The Commission did not accept this point, as no information on coupon payments was provided in the tables provided by the company, neither before nor during the RCC. The Commission also recalls that this information is part of the missing information for which Article 28 was applied. In any event, it is impossible to verify at this stage of the investigation the additional information provided as an Annex to the comments on disclosure.

(419)

The Commission established that all sampled groups of exporting producers benefited from preferential financing in the form of credit lines, bank acceptance drafts and convertible and corporate bonds. 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.

(420)

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

Preferential financing: other types of financing

(421)

The Commission found that Sinosure provided export credit insurances to the sampled groups of companies. On its website, Sinosure states that it promotes Chinese exports of goods, especially the exporting of high-tech products. According to a study undertaken by the Organisation for Economic Cooperation and Development (‘OECD’), the Chinese high-tech industry, of which the ACF industry is part, received 21 % of the total export credit insurance provided by Sinosure (88). 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 (89).

—

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;

—

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

—

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)

—

Notice on the issuance of the 2006 edition of China’s High-tech Products Export Catalogue No 16 of the National Science and Technology Department (2006).

(422)

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

(423)

As mentioned in recital (122) above, Sinosure failed to provide the supporting documentation requested concerning its corporate governance such as Articles of Association.

(424)

In addition, Sinosure did not provide more specific information about the export credit insurance provided to the ACF industry, the level of its premiums or detailed figures relating to the profitability of its export credit insurance business.

(425)

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

(426)

According to information provided in previous anti-subsidy investigations (90) and according to Sinosure’s website (91), Sinosure is a policy-oriented 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 GOC 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.

(427)

The Commission further sought information about whether the GOC exercised meaningful control over the conduct of Sinosure with respect to the ACF industry.

(428)

According to the Notice on the issuance of the 2006 edition of China’s High-tech Products Export Catalogue No 16, “products included in the 2006 edition of the Export Catalogue may enjoy preferential policies granted by the State for the export of high-tech products” . The Export Catalogue of High-Tech Products specifically mentions aluminium foil. (92)

(429)

Furthermore, according to the Notice on the Implementation of the Strategy of Promoting Trade through Science and Technology by Utilising Export Credit Insurance (93), Sinosure should increase its support for key industries and products by strengthening its overall support for the export of high and new technology products, including ‘new materials’ products. It should treat high and new technology industries, such as the ACF industry, listed in the China’s High-tech Products Export Catalogue, 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 (89)and (98), the ACF industry is included in the more general category of ‘new materials’. Furthermore, the Annual Report of Sinosure for 2019 states that Sinosure has “supported steady development of key Industries” and “accelerated growth of strategic emerging Industries”  (94).

(430)

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

(431)

The Commission also sought concrete proof of the exercise of control in a meaningful way based on concrete insurance agreements. However, no specific examples with respect to the ACF industry or the sampled companies were provided.

(432)

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 Sinosure’s official stance, as Sinosure was not acting based on market principles.

(433)

After comparing the total claims paid with the total insured amounts, based on the data in the Sinosure’s Annual Report for 2019 (95), the Commission concluded that on average Sinosure would need to charge 0,33 % 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 lower than the minimum fee needed to cover operational costs.

(434)

Following final disclosure, the GOC repeated that Sinosure is not a public body, that it follows market principles in its business operations. In assessing the possibility of granting export credit insurance, Sinosure considers factors such as the national risks, industry risks, importer’s credit risks in a comprehensive way. The GOC also noted again that the Commission should have used an in-country benchmark.

(435)

Since the GOC did not present any new evidence concerning the function of Sinosure as a public body, the Commission maintained its conclusions in this respect. Furthermore, as Sinosure held a predominant market position during the investigation period, the Commission could not find a market-based domestic insurance premium, as highlighted in section 3.6.4.3 below. This claim was thus also rejected.

(436)

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 ACF sector. Sinosure acted as a public body in the sense of Article 2(b) 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.

(437)

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.

(438)

As Sinosure held a predominant market position during the investigation period, the Commission could not find a market-based domestic insurance premium. Therefore, in line with previous anti-subsidy investigations, the Commission used the most appropriate external benchmark for which information was readily available, i.e. the premium rates applied by the Export-Import Bank of the United States of America to non-financial institutions for exports to OECD countries.

(439)

The Commission considered that the benefit conferred on the recipients is the difference between the amount that they had actually paid as insurance premium and the amount that they should have paid by applying the external benchmark premium rate mentioned in recital (438).

(440)

In relation to the export credit insurance, Wanshun Group claimed that the Commission should have examined whether the premium rates charged were adequate to cover the insurer’s operating costs and losses. The party provided information that the annual premiums collected by Sinosure during these years were adequate to cover its long-term operating costs and losses.

(441)

Wanshun also claimed that the Commission should not only consider the insured amount and the claims paid to calculate an appropriate fixed premium rate, but should have also considered the recoveries of the claims. In addition, the party requested the Commission to disclose its exact calculation. It also stressed that not all companies paid insurance premiums at a fixed rate.

(442)

It further claimed that if the Commission maintains its decision to treat the export credit insurance given by Sinosure as a countervailable subsidy, it should revise the unreasonably high premium rate. The Commission did not provide any analysis or explanations as regards the reasonableness of the selected benchmark and invited the Commission to at least explain on what basis it considered the US EXIM rates to be more appropriate.

(443)

The Commission disagrees with the claims of Wanshun concerning export credit insurance.Sinosure did not cooperate in the investigation and did not submit any specific information about the export credit insurance provided to the ACF industry, the level of its premiums or detailed figures relating to the profitability of its export credit insurance business. Therefore, it was not possible make a comparison between the premium rates charged by Sinosure and the insurer’s operating cost and losses on the level of any given industry, let alone on the level of exporting producers. Therefore, any cross subsidisation between industries and companies could not be assessed. Also, due to non-cooperation by Sinosure, it was not possible make a comparison between claims and recoveries of claims as suggested by Wanshun. Finally, Wanshun did not provide any evidence or substantiated arguments to support its claim that the external benchmark, i.e. the premium rates applied by the Export-Import Bank of the United States of America to non-financial institutions for exports to OECD countries as explained in the recital (438), would be unreasonable or manifestly erroneous. Therefore these claims were rejected

(444)

The subsidy rate established with regard to the scheme described above during the investigation period for the sampled groups of companies amounted to:

Preferential financing: export credit insurance

(445)

The Commission found that the sampled groups of companies benefitted from a variety of grants programmes such as grants related to technology, innovation and development, asset-related grants, interest discounts on loans and grants supporting exports. Grants related to technology, innovation and development constituted a significant part of the grants reported by the sampled groups of companies. Therefore, the Commission grouped the grants in two categories: (i) grants related to technology, innovation and development and (ii) other grants.

(446)

All sampled groups received grants related to research and development (‘R&D’) and industrialisation, technological upgrading and innovation during the investigation period.

—

The 13th Five-year Plan on Technological Innovation;

—

Guiding Opinions on Promoting Enterprise Technology Renovation, State Council, Guo Fa (2012) 44;

—

Industry Revitalization and Technology Renovation Work Plan, NDRC, MIIT, 2015

—

Industry support funds and special funds for R & D and industrialization, Dong Ban Fa (2018) No 62;

—

National High-Tech Research and Development Program (863) Management Measures;

—

Notice on Issuing the First Batch of Provincial Industrial and Information Industry Transformation and Upgrading Special Fund Indicators in 2019;

—

Notices on allocating special funds for technical renovation, special funds for industrial revitalization, special funds for technical transformation, and special funds for industrial development.

(447)

The Commission found that the grants related both to technological upgrading, renovation or transformation of the manufacturing process as well as to research and development of high, ‘advanced’ and new technologies.

(448)

According to the Guiding Opinions on Promoting Enterprise Technology Renovation, central and local governments are called upon to further increase the amount of financial support and increase investment with a focus on industrial transformation and upgrading in key areas and critical issues of technology renovation. Furthermore, authorities should continuously innovate and improve fund management methods, flexibly carry out multiple types of support and raise the usage efficiency of fiscal funds.

(449)

The Industry Revitalization and Technology Renovation Work Plan implements the above mentioned Guiding Opinions in practice by setting up special funds for promoting technological progress and technological transformation projects. These funds include investment subsidies and loan discounts. The use of the funds must be in line with national macroeconomic policies, industrial policies and regional development policies

(450)

The grant programmes from which the sampled groups of companies benefitted are to a large extent similar in their design. Depending on the purpose, criteria are set upon which enterprises can apply and if the criteria are complied with, the financial support is granted.

(451)

For example, some of the grants that were provided to the sampled companies have their legal basis in the National High-Tech Research and Development Program which once more illustrate the functioning of State planning in the PRC as described above in recital (88). Article 2 states that “The National High-Tech Research and Development Plan (863) is a science and technology program with clear national objectives, which is supported by central financial allocations.” Article 29 of the same document establishes the procedure for the approval of projects that are eligible. It reflects the mechanism described above: after an application, the acceptance and evaluation of it, an expert group will put forward the proposals of the project and the project funding estimates and eventually a joint office will approve and sign the grant.

(452)

The grants related to technology, innovation and development, including the grants for R & D projects described above, constitute subsidies within the meaning of Article 3(1)(a)(i) and Article 3(2) of the basic Regulation, i.e. a transfer of funds from the GOC to the producers of the product concerned in the form of grants. As mentioned in recital (445) above, these funds are booked as government subsidies in the accounts of the sampled exporting producers.

(453)

These subsidies are specific within the meaning of Article 4(2)(a) of the basic Regulation because only companies operating in key areas or technologies, as listed in the guidelines, administrative measures and catalogues that are published on a regular basis, are eligible to receive them and ACF is among the eligible sectors. In any event, the grants reported by the companies and cross-checked by the Commission are company-specific.

(454)

Following final disclosure, the GOC argued that the Commission did not demonstrate that the R & D grants at issue are specific within the meaning of Article 4(2)(a), since attributing R & D grants is common across the world, and not limited to certain enterprises.

(455)

The Commission has already demonstrated the specificity of grants, since only companies operating in key areas or technologies as listed in the guidelines, administrative measures and catalogues are eligible. Furthermore, the cooperating exporting producers provided grants-related documents, such as legal documents and granting notices, which demonstrated that the grants were provided to companies belonging to certain specified industries or sectors and/or involved in specific industrial projects encouraged by the State. Therefore, the Commission reiterated its conclusion that these grants are only available to a clearly specified subset of certain enterprises and/or sectors of the economy. In addition, the Commission found that the eligibility conditions of these grants were not clear and objective and they did not apply automatically; consequently, they did not meet the non-specificity requirements of Article 4(2)(b) of the basic Regulation.

(456)

In order to establish the benefit during the investigation period, the Commission considered grants received during the investigation period as well as grants received before the investigation period but for which the depreciation period continued during the investigation period. Regarding grants which are not depreciated, the benefit was considered the amount received during the investigation period. Concerning project-related grants and asset-related grants, the benefit was considered the portion of the total grant amount that was depreciated during the investigation period.

(457)

The Commission considered whether to apply an additional annual commercial interest rate in accordance with section F.a) of the Commission’s Guidelines for the calculation of the amount of subsidy (96). However, such an approach would have involved a variety of complex hypothetical factors for which there was no accurate information available. Therefore, the Commission found it more appropriate to allocate amounts to the investigation period according to the depreciation rates of the R & D projects and assets, in line with the calculation methodology used in previous cases (97).

(458)

The Commission found that the three sampled groups of companies also received other grants, such as asset-related grants, interest discounts on loans, grants supporting exports, and other one-off or recurring grants from different levels of government authorities.

(459)

These grants were awarded to the companies by national, provincial, city, county or district government authorities and all appeared to be specific to the sampled companies, or specific in terms of geographical location or type of industry. The information regarding the legal basis under which these grants were awarded was not disclosed by all sampled companies. However, the Commission received from some companies a copy of documents issued by a government authority which awarded the funds, referred to as ‘the notice’.

(460)

Examples of such other grants are asset-related grants, patent funds, science and technology funds and awards, business development funds, export promotion funds, grants for industry quality increase and efficiency enhancement, municipal commerce support funds, foreign economic and trade development funds and production safety awards.

(461)

Given the large amount of grants that the Commission found in the books of the sampled groups of companies, only a summary of the key findings is presented in this Regulation. Evidence of the existence of numerous grants and the fact that they had been granted by government authorities at various levels was initially provided by the three sampled groups. Detailed findings on these grants were provided to the individual companies in their specific disclosure documents.

(462)

These other grants constitute subsidies within the meaning of Article 3(1)(a)(i) and (2) of the basic Regulation as a transfer of funds from the government in the form of grants to the sampled groups of companies took place and a benefit was thereby conferred.

(463)

The sampled groups of companies provided information as to the amount of the grants and the authority that awarded and paid each grant. The companies concerned also mostly booked this income under the heading ‘subsidy income’ in their accounts and had these accounts independently audited. The information on these grants has been taken by the Commission as positive evidence of a subsidy that conferred a benefit.

(464)

Following final disclosure, the GOC argued that the Commission has not sufficiently provided detail on which grants it refers to, since it did not point to specific grants or legal sources. As mentioned in recitals (459) and (461), the grants referred to in this section consisted of numerous small amounts, provided at various levels of the government, and for which in many cases no supporting documentation was provided by the sampled companies, except for some high-level designations. As such, the Commission is not in a position to provide a precise legal basis to the GOC. However, as mentioned in recital (461) above, detailed findings on these grants were provided to the individual companies in their specific disclosure documents.

(465)

These grants are also specific within the meaning of Articles 4(2)(a) and 4(3) of the basic Regulation given that, from the documents provided by the cooperating exporting producers, they appear to be limited to certain companies, certain industries, such as the ACF industry, or specific projects in specific regions. In addition, some of the grants are contingent upon export performance within the meaning of Article 4(4)(a) of the basic Regulation.

(466)

Furthermore, these grants do not meet the non-specificity requirements of Article 4(2)(b) of the basic Regulation, given that the eligibility conditions and the actual selection criteria for enterprises to be eligible are not transparent, not objective and do not apply automatically.

(467)

Following the final disclosure, the Nanshan Group claimed that regarding grants:

(468)

The Commission noted that the non-depreciable subsidies referred to in recital (467) are related to fixed assets. Consequently, the Commission has allocated the benefit to the same time period over which the fixed assets are depreciated. Therefore, the comment is rejected.

(469)

Following the comments by Nanshan Group the Commission reviewed the depreciation periods used in the calculations. In the cases where an incorrect period had been used, the calculation was corrected.

(470)

Following the final disclosure Wanshun Group claimed that the Commission had made an error when calculating the benefit of one grant to one of its group companies. More specifically, it claimed that one of the projects for which the grant was give only started from the third quarter of 2019 and therefore it was wrong to allocate one fifteenth of the value (corresponding to the depreciation period of 15 years) to the investigation period.

(471)

The Commission notes that according to the established practise, grants related to the investigation period are allocated using the number of calendar years as the basis of the calculation. Therefore this claim was rejected.

(472)

The Commission calculated the benefit in accordance with the methodology described in recital (457) above.

(473)

The subsidy rates established with regard to all grants during the investigation period for the sampled exporting producers were as follows:

Grants

(474)

The legal basis of this programme is Article 28 of the EIT Law (98)and Article 93 of the Implementation Rules for the Enterprise Income Tax Law of the PRC (99), as well as:

(475)

Chapter IV of the EIT Law contains provisions regarding ‘Preferential Tax Treatment’. Article 25 of the EIT Law, which is a chapeau for Chapter IV, provides that “The State will offer income tax preferences to Enterprises engaged in industries or projects the development of which is specially supported and encouraged by the State” . Article 28 of the EIT law provides that “the rate of enterprise income tax on high and new technological enterprises needing special support of the State shall be reduced to 15 %” .

(476)

Article 93 of the Implementation Rules for the Enterprise Income Tax Law clarifies that:

" The important high and new technology enterprises to be supported by the state as referred to in Clause 2 of Article 28 of the Enterprise Income Tax Law refer to the enterprises which own key intellectual property rights and satisfy the following conditions:

(477)

The above-mentioned provisions clearly specify that the reduced enterprise income tax rate is reserved to “important high and new technology enterprises to be supported by the State” which own key intellectual property rights and satisfy certain conditions such as “complying with the scope of the Key State Supported High and New Technology Areas” .

(478)

According to Article 11 of the Administrative Measures for the Recognition of High-Tech Enterprises, to be recognized as high-tech an enterprise must simultaneously meet certain conditions among which: “it has obtained the ownership of intellectual property rights, which plays a central role in technically supporting its main products (services), through independent research, transfer, grant, mergers and acquisitions, etc.” and “the technology that plays a central role in technically supporting its main products (services) is within the range predetermined in the high-tech fields supported by the state” .

(479)

The key high technology fields supported by the State are listed in the 2016 Catalogue of High-tech Fields Supported by the State. This catalogue clearly mentions under ‘new materials’/‘metal materials’ aluminium foil as a high technology product supported by the State.

(480)

The Commission found that companies within the sampled exporting producer groups qualified as high-tech companies during the investigation period and thus enjoyed a reduced EIT rate of 15 %.

(481)

The Commission considered that the tax offset at issue is a subsidy within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation because there is a financial contribution in the form of revenue foregone by the GOC that confers a benefit to the companies concerned. The benefit for the recipients is equal to the tax saving.

(482)

This subsidy is specific within the meaning of Article 4(2)(a) of the basic Regulation as the legislation itself limits the application of this scheme only to enterprises that are operating in certain high technology priority areas determined by the State as demonstrated in recital (477) to (479). As pointed out in recital (479), the ACF industry is such a high technology priority.

(483)

The amount of countervailable subsidy was calculated in terms of the benefit conferred on the recipients during the investigation period. This benefit was calculated as the difference between the total tax payable according to the normal tax rate and the total tax payable under the reduced tax rate.

(484)

The subsidy rate established for this specific scheme was 0,55 % for the Nanshan Group, 0,43 % for the Wanshun Group and 0,47 % for the Daching Group.

(485)

The tax offset for research and development entitles companies to preferential tax treatment for their R & D activities in certain high technology priority areas determined by the State when certain thresholds for R & D spending are met.

(486)

More specifically, R & D expenditures incurred to develop new technologies, new products and new techniques, which do not form intangible assets and are accounted into the current term profit and loss, are subject to an additional 75 % deduction after being deducted in full in light of the actual situation. Where the above-mentioned R & D expenditures form intangible assets, they are subject to amortization based on 175 % of the intangible asset costs. Since January 2021, the additional pre-tax deduction for R & D expenses was increased to 100 % (101).

(487)

The legal basis for the programme is Article 30(1) of the EIT Law, and Article 95 of the Implementation Rules for the Enterprise Income Tax Law of the PRC as well as the following notices:

(488)

In previous investigations (102), the Commission established that the “new technologies, new products and new crafts” , which can benefit from the tax deduction, are part of certain high technology fields supported by the State. As mentioned in recital (480), the key high technology fields supported by the State are listed in the 2016 Catalogue of High-tech Fields Supported by the State.

(489)

As set out in recital (479), Chapter IV of the EIT Law contains provisions regarding ‘Preferential Tax Treatment’, in particular Article 25. Article 30(1) of the EIT Law, which is also part of Chapter IV, provides that “research and development expenses incurred by enterprises in the development of new technologies, new products and new techniques” may be additionally deducted at the time of calculating taxable income. Article 95 of the Implementation Rules for the Enterprise Income Tax Law clarifies the meaning of “R & D expenditures incurred for the purpose to develop new technologies, new products and new crafts” laid down in Article 30(1) of the EIT Law.

(490)

According to the Circular on Raising the Proportion of Pre-tax Super Deduction of Research and Development Expenses (Cai Shui [2018] No 99), “with respect to research and development (R & D) expenses actually incurred by an enterprise from its R & D activities, an extra 75 % of the actual amount of expenses is deductible before tax, in addition to other actual deductions, during the period from January 1, 2018 till December 31, 2020, provided that the said expenses are not converted into the intangible asset and balanced into this enterprise’s current gains and losses; however, if the said expenses have been converted into the intangible asset, such expenses may be amortized at a rate of 175 % of the intangible asset’s costs before tax during the above-said period” .

(491)

The Commission found out that the companies within the sampled groups enjoyed “additional deduction on research and development expenses incurred from the research and development of new technologies, new products and new techniques” .

(492)

The Commission considered that the tax offset at issue is a subsidy within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation because there is a financial contribution in the form of revenue foregone by the GOC that confers a benefit to the companies concerned. The benefit for the recipients is equal to the tax saving.

(493)

This subsidy is specific within the meaning of Article 4(2)(a) of the basic Regulation as the legislation itself limits the application of this measure only to enterprises that incur R & D expenses in certain high technology priority areas determined by the State, such as the ACF sector.

(494)

The amount of countervailable subsidy was calculated in terms of the benefit conferred on the recipients during the investigation period. This benefit was calculated as the difference between the total tax payable according to the normal tax rate and the total tax payable after the additional 75 % deduction of the actual expenses on R & D.

(495)

The amount of subsidy established for this specific scheme was 1,24 % for Nanshan Group, 0,14 % for Wanshun Group and 0,37 % for Daching Group.

(496)

The EIT Law offers income tax preferences to Enterprises engaged in industries or projects the development of which is specifically supported and encouraged by the State and in particular, exempt from tax the income from equity investment, such as dividends and bonuses, between eligible resident enterprises.

(497)

The legal basis for the programme is Article 26(2) of the EIT Law, along with the Implementation Rules for the Enterprise Income Tax Law of the PRC.

(498)

Article 25 of the EIT, which is a chapeau for Chapter IV ‘Preferential Tax Policies’, provides that “The State will offer income tax preferences to Enterprises engaged in industries or projects the development of which is specially supported and encouraged by the State” . Furthermore, Article 26(2) specifies that the tax exemption is applicable to income from equity investments between “eligible resident enterprises”, which appears to limit its scope of application to only certain resident enterprises.

(499)

The Commission found that one company in one of the sampled groups received an exemption from tax of dividend income between qualified resident enterprises.

(500)

The Commission considered that this scheme constitutes a subsidy under Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation because there is a financial contribution in the form of revenue foregone by the GOC that confers a benefit to the company concerned. The benefit for the recipient is equal to the tax saving.

(501)

This subsidy is specific within the meaning of Article 4(2)(a) of the basic Regulation as the legislation itself limits the application of this exemption only to qualified resident enterprises engaged in industries or projects the development of which is specially supported and encouraged by the State, like the ACF industry.

(502)

Following the final disclosure, the Nanshan Group claimed that the dividend tax exemption between resident enterprises is not a countervailable subsidy since it is not specific, is applicable to all enterprises and is aimed merely to avoid double taxation.

(503)

Although the Commission agreed that the elimination of double taxation is a legitimate tax practice, Article 26(2) of the EIT is part of Chapter IV ‘Tax Preferences’, which provides for a number of preferential tax treatments that are exemptions to the general taxation rules. Furthermore, as explained in recital (491), Article 25 of the EIT, which stands as a chapeau for Chapter IV ‘Preferential Tax Policies’, provides that “The State will offer income tax preferences to Enterprises engaged in industries or projects the development of which is specially supported and encouraged by the State”. In addition, Article 26(2) specifies that the tax exemption is applicable to income from equity investments between “eligible resident enterprises”, which appears to limit its scope of application to only certain resident enterprises. Therefore, the Commission considered that such preferential tax policy is limited to certain industries, which are specifically supported and encouraged by the State, such as the ACF industry, and is therefore specific within the meaning of Article 4(2)(a) of the basic Regulation. Consequently, the Commission confirmed its conclusion that this scheme is a countervailable subsidy. This claim is therefore rejected.

(504)

The Commission has calculated the amount of the subsidy by applying the normal tax rate to the dividend income that has been deducted from taxable income.

(505)

The amount of subsidy stablished for this specific scheme was 0,15 % for Nanshan Group.

(506)

An organisation or individual using land in cities, county towns and administrative towns and industrial and mining districts shall normally pay urban land use tax. Land use tax is collected by the local tax authorities where the land is used. However, certain categories of land, such as land reclaimed from the sea, land for the use of government institutions, people’s organisations and military units for their own use, land for use by institutions financed by government allocations from the Ministry of Finance, land used by religious temples, public parks and public historical and scenic sites, streets, roads, public squares, lawns and other urban public land are exempted from the land use tax.

(507)

The legal basis for this programme is:

(508)

One company in one of the sampled groups benefited from a reduction in the land use tax amount of 50 % based on a special policy applicable to the high-tech companies in Shandong province pursuant to the ‘Notice of the People’s Government of Shandong Province on Issuing Several Policies to Support the High-quality Development of the Real Economy’ .

(509)

The company at issue did not fall under any of the exempted categories set by Article 6 of the Interim Regulations of the People’s Republic of China on Urban Land Use Tax (Revised in 2019).

(510)

The Commission considered that the land use tax reduction for high-tech companies described above constitutes a subsidy within the meaning of either Article 3(1)(a)(i) or Article 3(1)(a)(ii), and Article 3(2) of the basic Regulation because there is a financial contribution in the form of either direct transfer of funds (refund of the tax paid) or revenue foregone by the GOC (the non-paid tax) that confers a benefit to the company concerned. The subsidy is specific as it targets only high-tech companies in Shandong.

(511)

The benefit for the recipients is equal to the amount refunded/tax saving.

(512)

Following the final disclosure, the Wanshun Group claimed that:

(513)

The Commission disagrees with the first claim. Wanshun did not provide any documentation or further reasoning supporting its claim that the category of land had been changed from one class to another. This claim was therefore rejected.

(514)

As regards the second and third claim, the Commission accepted the claims and made a correction to the calculation of the benefit.

(515)

The amount of countervailable subsidy was calculated in terms of the benefit conferred on the recipient during the investigation period. This benefit was considered the reduced amount during the investigation period. The amount of subsidy established for this specific scheme was 0,06 % for Nanshan Group and 0,01 % for Wanshun Group.

(516)

This programme provides an exemption from VAT and import tariffs for imports of capital equipment used in their production. To benefit from the exemption, the equipment must not fall in a list of non-eligible equipment and the claiming enterprise has to obtain a Certificate of State-Encouraged project issued by the Chinese authorities in accordance with the relevant investment, tax and customs legislation.

(517)

The legal basis for this programme is:

(518)

Equipment imported in order to develop domestic or foreign investment projects in line with the policy of encouraging foreign or domestic investment projects may be exempted from payment of the VAT and/or import duty, unless the equipment category is listed in the catalogue of non-duty exemptible article.

(519)

The GOC claimed that with effect from 1 January 2009, only the import duty was exempted and VAT on importation of equipment for self-use was collected.

(520)

However, exemptions of both VAT and import duty during the investigation period were identified in the sampled companies. These included exemptions for equipment imported in previous years, but for which the benefit was amortized over the lifespan of that equipment and was thus partially allocated to the investigation period. While the Commission saw no evidence that this exemption was operating during the investigation period, the Commission established on the basis of the evidence on the file relating to the sampled companies that the sampled companies still availed themselves of benefits under this programme during that period.

(521)

This programme thus provides a financial contribution in the form of revenue forgone by the GOC within the meaning of Article 3(1)(a)(ii) of the basic Regulation as FIEs and other eligible domestic enterprises are relieved from payment of VAT and/or tariffs which would be otherwise due. It also confers a benefit on the recipient companies in the sense of Article 3(2) of the basic Regulation.

(522)

The programme is specific within the meaning of Article 4(2)(a) of the basic Regulation. The legislation pursuant to which the granting authority operates limits its access to enterprises that invest under specific business categories defined exhaustively by law and belonging either to the encouraged category or the restricted category B under the Catalogue for the guidance of industries for foreign investment and technology transfer or those which are in line with the Catalogue of key industries, products and technologies the development of which is encouraged by the State. In addition, there are no objective criteria to limit eligibility for this programme and there is no conclusive evidence to infer that eligibility is automatic under Article 4(2)(b) of the basic Regulation.

(523)

Following the final disclosure, the Wanshun group claimed that Anhui Maximum Aluminium Industries Co., Ltd did not benefit from the VAT exemption scheme, since it was terminated on 31 December 2008, while the machinery of Maximum was purchased in 2020. In addition, the difference between the VAT actually paid by the company the amount of VAT payable calculated by the Commission results from the fact that the purchase prices used by the Commission include other expenses.

(524)

The Commission accepted the claims made by Wanshun and adapted the calculations accordingly.

(525)

Nanshan Gropup also claimed that in establishing the benefit for the import duty exemptions on machinery, the Commission committed three errors which Nanshan Group elaborates upon below

(526)

the Commission wrongly allocated a benefit to the investigation period for certain equipment purchased far preceding the investigation period and thus fully depreciated.

(527)

for one of the companies in Nanshan Group, the Commission used the fixed asset registry for the entire company, which includes numerous machinery and devices used by other business units than those related to ACF. As such, the Commission should exclude import duty exemptions related to equipment not used for the product under investigation.

(528)

the Commission also improperly classified the equipment into imported and domestically procured.

(529)

The Commission accepted the claim concerning equipment that was fully depreciated before the investigation period and corrected the calculation accordingly. However, the Commission notes that Nanshan Group had not filled in the relevant part of the anti-subsidy questionnaire concerning its machinery and therefore Nanshan Group could not demonstrate by which business unit certain machinery was used nor could it provide sufficient evidence as regards the division between imported and domestically procured machinery. Therefore, these claims were rejected.

(530)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the investigation period. The benefit conferred on the recipients is considered to be the amount of VAT and duties exempted on imported equipment. In order to ensure that the countervailable amount only covered the investigation period the benefit received was amortized over the useful life of the equipment according the company’s normal accounting procedures.

(531)

The subsidy rate established for this specific scheme was 0,47 % for Nanshan Group, 0,12 % for Wanshun Group and 0,21 % for Daching Group.

(532)

Following final disclosure, the GOC claimed that all abovementioned tax programmes contain objective criteria that govern the eligibility for accessing the benefit. Once these criteria are met, the attribution of the benefit is automatic. However, as explained for each programme separately in the preceding sections, these schemes only apply to enterprises that are operating in certain high technology priority areas or encouraged industries. This claim was thus rejected.

(533)

The Nanshan Group also claimed that the Commission made a clerical error, and erroneously included a tax exemption for one of the group companies. This claim was accepted and the calculations were changed accordingly

(534)

The total subsidy rate established with regard to all tax schemes during the investigation period for the sampled exporting producers was as follows:

Tax exemptions and reductions

(535)

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.

(536)

Pursuant to the PRC Constitution 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.

(537)

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.”

(538)

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.

(539)

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

(540)

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 updated every three years, and the government’s industrial policy.

(541)

In previous investigations, the Commission found that prices paid for LURs 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.

(542)

The current investigation did not show any noticeable changes in this respect. For instance, the Commission found that most of the sampled companies obtained their LUR through allocation by local authorities and not through a bidding procedure.

(543)

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 LUR.

(544)

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 only had to be paid several years after the land had been put into use. Concerning LURs owned by companies within the Nanshan Group, as mentioned in recitals (135) to (137), no evidence of any purchasing process could be provided for most of the plots of land in the group.

(545)

The above evidence contradicts the claims of the GOC that the prices paid for LUR in the PRC are representative of price determined by free market supply and demand. To the contrary, the findings of this investigation show that acquisition of LUR in the PRC was non-transparent and the prices were arbitrarily set by the authorities.

(546)

Following final disclosure, the GOC claimed that no benefit has been conferred to the sampled companies through the provision of land use rights because there is a free market for land in the PRC. In this respect, the GOC referred to Article 347 of the Civil Code of the PRC, according to which, “where land is used for industrial, commercial, tourist or entertaining purposes, as commodity residence, or for other profit-making purposes, or there are two or more persons who are willing to use the same piece of land, the right to the use of land for construction shall be assigned through bid invitation, auction or other open bidding. The price of the land is established through market competition”.

(547)

However, the Commission found that, although there are legal provisions that aim at allocating land use rights in a transparent manner and at market prices, for instance by introducing bidding procedures, these provisions are regularly not respected, with certain buyers obtaining their land for free or below market rates. Moreover, authorities often pursue specific political goals including the implementation of the economic plans when allocating land. In any event, as mentioned in recital (543) above, in the rare cases where land was provided through an auction process, the information provided was insufficient to conclude that prices were set independently and corresponded to the market value of the land.

(548)

Therefore, the provision of LURs by the GOC constitutes 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 (541) to (545) above, there is no functioning market for land in the PRC and the use of an external benchmark (see recitals (551) to (554) below) demonstrates that the amount paid for LURs by the sampled exporting producers is well below the normal market rate.

(549)

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 (541). Within this industrial policy, the ACF industry is listed as an encouraged industry (103). In addition, Decision No 40 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 LURs. 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 ACF industry, and government practices in this area are unclear and non-transparent.

(550)

Following final disclosure, the GOC disagreed with the Commission that the measures are specific, but without providing any additional evidence. The Commission therefore maintained its conclusions.

(551)

As in previous investigations (104) 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 (105). 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 LURs and the amount that should normally have been paid on the basis of the Chinese Taipei benchmark.

(552)

For the plots of land of the Nanshan Group for which no supporting evidence could be provided, the price actually paid was considered to be 0.

(553)

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

(554)

Following the methodology applied in previous investigations (106), 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 LUR 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 (107). 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.

(555)

Following the final disclosure, the GOC claimed that the Commission should have used a domestic benchmark for land. However, the GOC failed to provide any statistics or data that could be used for this purpose.

(556)

The GOC also maintained that prices in Chinese Taipei are not at all comparable to those in mainland China, for population and geographical reasons, but also because land in China is leased, not owned, whereas the Chinese Taipei land market is subject to purchasing rights. Therefore, the GOC claimed that an adjustment needs to be made to reflect these factors.

(557)

Furthermore, both the Wanshun Group and Nanshan Group claimed that the benchmark used by the Commission with respect to the land use rights was unreasonably high and did not reflect the prevailing market conditions in China. This was due to the fact that Taiwan was facing in recent years an exceptional situation of land shortage and industrial land-hoarding, inexistent in China. Therefore, such a high benchmark has artificially and unfairly increased the benefit with respect to the land use rights, and the whole subsidy amount determined for the group. They added that Taiwan did not have much available land for industry and was at a different economic level in comparison to China. Instead, the land prices in Thailand should be used as an appropriate benchmark with respect to the land use rights.

(558)

In this respect, the Commission noted that the selection of Chinese Taipei as a benchmark was based on the examination of several factors listed in recital (553). Although there are certain differences in the market conditions between land use rights in mainland China and sale of land in Chinese Taipei, these are not of such nature to invalidate the choice of Chinese Taipei as a reasonable benchmark. Moreover, looking closer at population density of the actual locations of the exporting producers, it appears that on average the population density figures are similar to Chinese Taipei. For example, the population density of Jiangyin was 1 600 people per m2 in 2020 (108); and the density of Xiamen was 3 036 people per m2 (109). The Commission also does not see the effects of the land crisis in the evolution of the benchmark prices. Although there was a steep increase in prices in the years 2015-2016, prices have remained rather stable in recent years. In any event, most land plots were acquired by the sampled companies long before that, and could thus not be affected by recent events. Therefore, the Commission considered that no adjustment was warranted.

(559)

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

Provision of land for less than adequate remuneration

—

Circular of the National Development and Reform Commission and the National Energy Administration on Actively Promoting the Market-oriented Power Transactions and Further Improving the Trading Mechanism, Fa Gua Yun Xing [2018] No 1027, issued on 16 July 2018;

—

Several Opinions of the Central Committee of the Communist Party of China and the State Council on Further Deepening the Reform of the Power System (Zhong Fa [2015] No 9);

—

Notice on Fully Liberalizing the Electricity Generation and Consumption Plan for Commercially Operational Users (National Development and Reform Commission [2019] No 1105);

—

Rules for Electricity Trading for Medium and Long Term Transactions in Jiangsu Province;

—

Notice of the Price Bureau of Jiangsu Province about Reasonable Adjustment of the Electricity Price Structure, Su Jia Gong [2017] No 124; and