Commission Implementing Regulation (EU) 2021/2287 of 17 December 2021 imposing definitive countervailing duties on imports of aluminium converter foil originating in the People’s Republic of China and amending Implementing Regulation (EU) 2021/2170 imposing definitive anti-dumping duties on imports of aluminium converter foil originating in the People’s Republic of China

(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.

(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

(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.

(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.

(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 %”.

(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).

(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.

(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.

(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.

(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

(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.

(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.

(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.

— 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

— Circular of the National Development and Reform Commission on Reducing Electricity Cost of Enterprises to Supporting Restoration of Work and Production Development and Reform Price [2020] No 258.

(560) Two of the sampled groups of companies purchased their electricity. In addition, Nanshan Group produced electricity in its own in house coal-fired power plant.

(561) The Commission established that investigated companies within these two sampled groups benefitted from reductions or refunds/adjustments of part of their electricity cost because these companies participated in the pilot programme for market-oriented electricity transactions.

(562) The Commission further found that certain investigated companies are allowed to purchase electricity directly from power generators by signing direct purchasing agreements, instead of buying from the grid. Such contracts provide for a certain quantity of electricity at a certain price, which is lower than the official prices set at provincial level for large industrial users.

(563) The possibility to enter into such direct contracts is currently not open to all large industrial consumers. At national level, the Opinions of the Central Committee of the Communist Party of China and the State Council on Further Deepening the Reform of the Power System specify for example that “enterprises that do not conform to the national industrial policy and whose products and processes are eliminated should not participate in direct transactions” (110). The same Opinions also stipulate that “after the access standards are determined, we should also upgrade the catalogues of local power generation enterprises and electricity retailers that meet the standards that are annually publicized by governments and implement dynamic regulation of the user catalogue. The power generation enterprises, electricity retailers and users included in the catalogue can voluntarily register with the trading institutions to become market players”. Therefore, in order to participate in the direct trading system, a company should meet certain standards and be included in the “user catalogue”.

(564) In practice, direct electricity trading is executed by the provinces. Companies have to apply to provincial authorities for approval to participate in the direct electricity pilot scheme, and they have to fulfil certain criteria. For certain companies, there is no actual market-based negotiation or bidding process, since the quantities purchased under direct contracts are not based on the real supply and demand. Indeed, power generators and power users are not free to sell or purchase all of their electricity directly. They are restricted by quantitative quotas, which are allocated to them by the local government. Furthermore, although prices are supposed to be negotiated directly between the power generators and the power users or through intermediary service companies, the invoices to the companies are actually issued by the State Grid Company. Finally, all signed direct purchase contracts need to be submitted to the local government for the record.

(565) In 2018, the GOC issued the 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. Although the Circular aims to increase the number of direct transactions on the electricity market, it specifically mentions certain industries, including high-tech industries such as the ACF industry, as supported and benefitting from liberalisation of the electricity market. In particular, Section III. ‘Opening up to allow entry of user fulfilling requirements’, point (2) provides that “supporting emerging industries with high added value, such as high-tech, internet, big data and high-end manufacturing industries, as well as enterprises with distinct advantages and characteristics and high technology content, to participate in transactions, free from voltage levels and power consumption restrictions”.

(566) Furthermore, according to the Notice on Fully Liberalizing the Electricity Generation and Consumption Plan for Commercially Operational Users, which aims to further liberalise the electricity market, provides that “among the commercial electricity users, those who do not comply with the national industry policies shall provisionally not participate in market-oriented transactions, and the electricity users whose products and processes belong to the eliminated and restricted categories of the ‘Guidance Catalogue for the Industry’s Structural Adjustment’ shall strictly implement the current differential prices policy for electricity.”

(567) Therefore, the legislation provides for a selective application of direct transactions on the electricity market limited to certain industries such as the industries which comply with the national industry policies, with a particular focus on high-tech industries. As a result, these industries pay lower prices for electricity.

(568) The Commission therefore considered that the reduced electricity rate and the refunds/adjustments resulting from the direct electricity trading, in which the sampled companies participated constitute 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 (i.e. the operator of the grid) that confers a benefit to the companies concerned. The benefit for the recipients is equal to the electricity cost saving, either through reduced electricity prices or through refunds/adjustments, since the electricity was provided at a price below the normal grid price paid by other large industrial users that could not benefit from the direct supply or were not part of the pilot project for direct supply.

(569) Following the final disclosure, the GOC claimed that the mere presence of state-owned enterprises in the power generation is not sufficient evidence of subsidisation, and that European ACF producers also received subsidies from respective EU Member States. The GOC also emphasized that in recent years China has proactively promoted electricity market reform. The main aspects of the reform include the expedited establishment of a competitive and effective structure and system for the electricity market, as well as market-oriented pricing mechanisms including the direct purchasing contracts. For the power plants selling the electricity directly to industrial and other users, the electricity price is established through negotiations and market bidding process between suppliers and users.

(570) The GOC referred to several legal documents underlying its reasoning. However, most of these documents concerned the formation of the grid price in China, which is not at issue here. Similarly, possible subsidies received by European companies are also outside the scope of this investigation. The only document referring more specifically to direct power purchase transactions only contained a general statement on “reasonable price formation”. As highlighted in recitals (561) to (567) above, this general statement does not correspond to what the Commission found in practice. These claims were therefore rejected.

(571) 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 conform with certain industrial policy objectives determined by the State and whose products or processes are deemed eligible.

(572) Thus, the Commission concluded that the subsidy scheme was in place during the investigation period and that it is specific within the meaning of Articles 4(2)(a) and 4(3) of the basic Regulation.

(573) 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 electricity price payable according to the standard electricity price and the total electricity price paid by the sampled groups of companies under the reduced rate and/or by deducting various forms of refunds/adjustments.

(574) Following the final disclosure, the Daching group claimed that the power factor adjustment, as an evaluation mechanism to encourage the users to use power more efficiently, should not have been treated as a subsidy. The Commission confirmed that, indeed, as per final disclosure to the group, it was deducted from the benefit calculated.

(576) As mentioned in section 3.2 above, the Commission informed the GOC that, given the absence of questionnaire replies from suppliers of input materials under investigation, namely primary aluminium and steam coal, it might have to base its findings on facts available pursuant to Article 28(1) of the basic Regulation as far as the information relating to suppliers of the above mentioned input materials was concerned. The Commission investigated whether the sampled companies received input materials for producing ACF at subsidised prices from the GOC.

(577) In the complaint, the complainants provided evidence that Chinese ACF producers operate in an encouraged industry and that it is reasonable to conclude that the subsidies provided to producers of primary aluminium used in the production of ACF ultimately benefit ACF producers. This benefit would be accrued by ACF manufacturers directly, to the extent that they are vertically integrated, and indirectly, to the extent those subsidies result in lower prices for inputs on the Chinese domestic market than would otherwise be the case.

(578) Since the investigated groups of companies were vertically integrated, the related raw material suppliers have been included in the investigation by the Commission, and the subsidies received at the level of these related suppliers have been integrated into the calculations for each subsidy scheme. The Commission also found that that since the three groups of sampled exporting producers were vertically integrated, only very minor quantities of primary aluminium (aluminium ingots and slabs) were purchased from unrelated suppliers. Furthermore, in the separate anti-dumping investigation (111) the Commission found that primary aluminium had been purchased by the sampled companies at prices in line with international benchmarks.

(579) In the absence of any evidence of material benefit conferred on the sampled exporting producers, the Commission therefore decided not to continue the investigation on this alleged subsidy scheme.

(580) The complaint contained allegations on the provision of steam coal for less than adequate remuneration. Indeed, almost all smelters in China, including ACF producers, use coal for generating at least part of the electricity they need in their captive power plants. Evidence available in the complaint showed that Chinese SOEs had provided steam coal to ACF producers for LTAR at prices that are intended to provide downstream aluminium producers, such as ACF, with a comparative advantage.

(581) As explained in section 3.2.3 above, the Commission requested the GOC to forward the specific questionnaire intended for suppliers of steam coal to known suppliers in China. The GOC did not do so. Furthermore, the Commission also requested GOC to provide data on prices and pricing mechanisms, as well as the name and ownership structure of the Chinese suppliers of steam coal. However, the GOC did not provide any of the requested information. On this basis, the Commission was unable to verify how prices were established, which Chinese producers were state-owned and which share of the Chinese production they accounted for.

(582) Only one of the sampled groups of companies purchased steam coal from unrelated suppliers. However, the Commission found that in view of the global price depression on the coal market caused by the Covid-pandemic during the IP, steam coal had been purchased by the sampled companies at prices in line with international benchmarks. In the absence of any evidence of material benefit conferred on the sampled exporting producers, the Commission therefore decided not to continue the investigation on this alleged subsidy scheme.

(583) Based on the information available, the Commission calculated the amount of countervailable subsidies for the sampled companies in accordance with the provisions of the basic Regulation by examining each subsidy or subsidy programme, and added these figures together to calculate a total amount of subsidisation for each exporting producer for the investigation period. To calculate the overall subsidisation, the Commission first calculated the percentage subsidisation, being the subsidy amount as a percentage of the company’s total turnover. This percentage was then used to calculate the subsidy allocated to exports of the product concerned to the Union during the investigation period. The subsidy amount per tonne of the product concerned exported to the Union during the investigation period was then calculated, and the margins calculated as a percentage of the Costs, Insurance and Freight (‘CIF’) value of the same exports per tonne.

(584) Following the final disclosure, the Daching group claimed that the consolidated turnover of the exporting producer Xiamen Xiashun and its related company Daching Enterprises Ltd. should be used as the denominator for the calculation of the subsidy amount. The Commission noted that Daching Enterprises Ltd acted as a related exporter for the group, and that all the export turnover of Daching Enterprises Ltd was sourced from Xiamen Xiashun. The Commission thus considered that all subsidies found in Daching Enterprises Ltd. related to the goods exported by the exporting producer. Hence the subsidy amount was calculated as a percentage of the export turnover of Xiamen Xiashun. The claim of the party was therefore rejected.

(585) Following the final disclosure, the Wanshun Group claimed that the total company turnover of the exporting producer Jiangsu Zhongji used by the Commission was erroneous, since it failed to include the mark-up taken by Jiangsu Zhongji Lamination Materials Co., (HK) Ltd., who resold the product of Jiangsu Zhongji Lamination Materials Co., Ltd. to overseas markets. Indeed, countervailing duties are collected based on the CIF export value (which includes the mark-up of Zhongji HK).

(586) The Commission disagreed with this claim. For export-related subsidies, the Commission indeed used the export turnover of the related trader. However, for non-export-related subsidies, in accordance with the Commission’s consistent practice, the Commission uses the total turnover of the exporting producer. The Commission is trying to establish the benefit at the level of the exporting producer. The turnover of the exporting producer is thus the relevant point of reference to establish the benefit of the subsidisation at the level of the exporting producer. This claim was therefore dismissed.

(588) The financing in question was indeed provided via a Singaporean bank (OCBC), located in Singapore. However, the loan contracts also stipulated that the loan was secured by a letter of credit issued by the state-owned Bank of Ningbo (located in mainland China), and that “the bank must receive the relevant SBLC (standby letter of credit) before it disburses a relevant advance proposed for drawdown by you”. In addition, the contract specifically provided for the sharing of information with Bank of Ningbo related to the borrower, the borrower’s accounts with OCBC, its credit standing and financial position, as well as the facilities granted to such entity. The loan was thus granted thanks to the intervention of a Chinese bank subject to the same normative framework as any other bank in the PRC. The claim was therefore rejected.

(589) Concerning the second point, the Commission found that Shantou Wanshun had taken out financing on behalf of its subsidiaries. For example, when reviewing loans and bonds, the Commission noted that the purpose of the financing also mentioned the financial needs of the subsidiaries. Furthermore, Shantou Wanshun acted as a guarantor for various loans taken out by the related companies in the group, and even provided intercompany loans itself. These transactions, as well as various other intercompany flows, show that there is a clear link between the subsidies received by Shantou Wanshun and the production and exportation of the product concerned. The fact that some of the subsidies received by Shantou Wanshun related to land or grants is in this respect irrelevant. The main point is that the benefits reaped from these subsidies could easily flow to the related companies in the group since money is fungible. In these circumstances, considering this close proximity between these group entities, the relevant WTO jurisprudence affirms that pass-through between related entities can be presumed, which is clearly the case here. The claim of the party was therefore rejected.

(591) On the first point, the Commission noted that during the course of the investigation, the company presented the turnover of company A and the sales flows to related companies per division, instead of at the level of the full company. It was the Commission’s understanding that Divisions A1 to A4 represented all relevant data of company A. However, it now seems that not all relevant information was submitted by the company during the course of the investigation. Indeed, the Commission cannot take into consideration the turnover of the missing divisions producing other products, since the company did not provide the corresponding information on sales to related parties originating from these missing divisions let alone being able to verify it, despite this being a crucial element to determine the allocation key. Therefore, in the absence of all relevant information submitted by the company, the Commission had to maintain the calculation as it is.

(592) On the second point, the Commission disagreed with the statement that there were no financial or other types of transactions between the parent company and its subsidiaries. Indeed, during the investigation, the Commission found that Nanshan Group Co. Ltd. had originally obtained almost all the titles to the land that the related companies were using, and had then distributed these land plots among its subsidiaries via intercompany transfers. Furthermore, Nanshan Group Co. Ltd. had also taken out financing on behalf of its subsidiaries. For example, when reviewing loans and bonds, the Commission noted that the purpose of the financing also mentioned the financial needs of the subsidiaries. Furthermore, Nanshan Group Co. Ltd. acted as a guarantor for various loans taken out by the related companies in the group. Finally, a large part of the financing of the group occurred through the in-house bank, Nanshan Finance. This entity is financed mainly via deposits of the companies of the group, of which Nanshan Group Co. Ltd. constitutes a significant part. Through this in-house vehicle, external financing can thus be passed on to its subsidiaries. Since Nanshan Group Co. Ltd.’s subsidies benefitted all the related companies in the group, the Commission considered that calculating the subsidies as a proportion of the consolidated turnover was the most adequate approach. Contrary to the assertions of the company, this methodology is also identical to the one used in the GFF case, where subsidies received by the ultimate parent company in the CNBM Group, which was at the same level in the organisational structure of the group as Nanshan Group Co. Ltd., were also divided by the consolidated turnover and then allocated to the exporting producer. These claims were therefore rejected.

(593) In accordance with Article 15(3) of the basic Regulation, the total subsidy amount for the cooperating companies not included in the sample was calculated on the basis of the total weighted average amount of countervailing subsidies established for the cooperating exporting producers in the sample with the exclusion of negligible amounts as well as the amount of subsidies established for items which are subject to the provisions of Article 28(1) of the basic Regulation. However, the Commission did not disregard findings partially based on facts available to determine those amounts. Indeed, the Commission considers that the facts available used in those cases did not affect substantially the information needed to determine the amount of subsidisation in a fair manner, so that exporters who were not asked to cooperate in the investigation will not be prejudiced by using this approach (114).

(595) As indicated in recital (86), the transition period for the UK withdrawal from the EU ended on 31 December 2020 and the UK ceased to be subject to Union law as of 1 January 2021. Consequently, the Commission requested the interested parties to provide updated information on EU27 basis. The indicators below as well as undercutting and underselling margins were consequently calculated exclusively based on EU27 data.

(596) The like product was manufactured by eleven producers in the Union during the investigation period. They constitute the ‘Union industry’ within the meaning of Article 9(1) of the basic Regulation.

(597) The total Union production during the investigation period was established at around 209 000 tonnes. The Commission established this figure on the basis of all the available information concerning the Union industry, such as the data provided by the sampled Union producers, as well as the non-sampled Union producers. This data was cross-checked with the figures in the complaint for reliability and completeness. As indicated in recital (37), the three sampled Union producers represented above 50 % of the total Union production of the like product.

(598) To establish whether the Union industry suffered injury and to determine consumption and the various economic indicators related to the situation of the Union industry, the Commission examined whether and to what extent the subsequent use of the Union industry’s production of the like product had to be taken into account in the analysis.

(599) In doing so, and to provide a picture of the Union industry that was as complete as possible, the Commission obtained data for the entire ACF activity and determined whether the production was destined for captive use or for the free market.

(600) The Commission found that a part of the total Union producers’ production was destined for the captive market, as shown in Table 1 below. The captive market increased over the period considered but remained at a relatively low level of around 15 % of consumption in the IP. However, the Commission has no conclusive evidence whether the companies using ACF for downstream production have a free choice of supplier or not, as the information on captive sales and production is based on data collected from companies outside the sample. The Commission considered that there might be competition between them, and consequently all the market shares are calculated on the basis of total EU consumption. At this stage, this is the most conservative approach and in any event, it does not alter the findings on injury.

(601) The Commission examined certain economic indicators relating to the Union industry exclusively on the basis of data for the free market. These indicators are: sales volume and sales prices on the Union market, growth, export volume and prices, profitability, return on investment, and cash flow. Where possible and justified, the findings of the examination were compared with the data for the captive market in order to provide a complete picture of the situation of the Union industry.

(602) However, other economic indicators could meaningfully be examined only by referring to the whole activity, including the captive use of the Union industry. These are: production, production capacity, capacity utilisation, investments, stocks, employment, productivity, wages, and ability to raise capital. These indicators depend on the whole activity, whether the production is captive or sold on the free market.

(603) The Commission established the Union consumption on the basis of the data provided by the sampled and non-sampled Union producers, as well as the imports based on the Eurostat data.

(605) During the period considered, consumption first increased slightly by less than 1 % in 2018 before dropping by 5 % in 2019 and then by a further 1 % in the IP. As a result, consumption decreased by 6 % during the period considered. The decrease is at least partially caused by the general guidelines announced by the EU in 2019 for a Circular Economy including recyclability targets for basic materials such as aluminium, steel, glass etc. The laminates for which light gauge foils are used in combination with other basic materials like plastic films, paper, etc. are under severe scrutiny since they can hardly be recycled with the existing technologies. This had a negative effect on the demand for light gauge aluminium foil.

(606) It appears that the consumption was not affected by the COVID-19 pandemic. According to the information supplied by the Union producers, food products stockpiling at the beginning of the pandemic actually initially increased the consumption, but then these products were consumed over the following months slightly decreasing the sales of the food packing.

(607) The Commission established the volume of imports on the basis of two TARIC codes (115) extracted from Eurostat database. The market share of the imports was established on the basis of import volume from the country concerned as compared to the volume of total Union consumption as shown in Table 2.

(609) The volume of imports from the PRC increased by 21 % over the period considered and their market share increased by 5 percentage points, reaching 23 % in the IP. Prior to the pandemic, i.e. in 2019, the market share of Chinese imports even reached 24 %.

(610) The Commission established the prices of imports on the basis of Eurostat data, using the TARIC codes indicated in recital (607).

(612) Average import prices from China decreased by 3 % over the period considered from 2 869 EUR/tonne to 2 782 EUR/tonne. Those prices remained significantly below the sampled Union producers’ sales prices and cost of production during the period considered, as shown in Table 7.

(614) The price comparison was made on a type-by-type basis for transactions at the same level of trade, duly adjusted where necessary, and after deduction of rebates and discounts. The result of the comparison was expressed as a percentage of the sampled Union producers’ theoretical turnover during the investigation period. It showed a undercutting margins of between 3,9 % and 14,2 % by the imports from the country concerned on the Union market. The weighted average undercutting found was 10,8 %.

(615) In accordance with Article 8(3) of the basic Regulation, the examination of the impact of the subsidised imports on the Union industry included an evaluation of all economic indicators having a bearing on the state of the Union industry during the period considered.

(616) As mentioned in recital (37), sampling was used for the determination of possible injury suffered by the Union industry.

(617) For the injury determination, the Commission distinguished between macroeconomic and microeconomic injury indicators. The Commission evaluated the macroeconomic indicators on the basis of data provided by the sampled producers and non-sampled producers, crosschecked with the data in the complaint. The Commission evaluated the microeconomic indicators on the basis of data provided by the sampled Union producers. Both sets of data were found to be representative of the economic situation of the Union industry.

(618) The macroeconomic indicators are: production, production capacity, capacity utilisation, sales volume, market share, growth, employment, productivity, magnitude of the subsidy margin, and recovery from past subsidisation.

(619) The microeconomic indicators are: average unit prices, unit cost, labour costs, inventories, profitability, cash flow, investments, return on investments, and ability to raise capital.

(621) The production volume remained almost unchanged between 2017 and 2018 then it went down in 2019 and then further in the IP. The overall production volume decreased over the period considered by 13 %. Considering the situation on the free market and diminishing sales (see Table 5), in order to maintain production and dilute fixed costs, the Union producers increased their captive sales (see Table 5), as well as their export sales (see Table 12). Despite these efforts, the production volume still went down.

(622) Production capacity decreased over the period considered by 6 %. This was a measured response to limit the injury when faced with the diminishing sales on the free market that pulled down the production over the period considered. As production decreased more sharply than production capacity, capacity utilisation dropped by 7 % over the period considered reaching 75 % in the IP.

(624) Total sales in the EU followed a downward trend over the period considered reaching (–11 %). Between 2018 and 2019 the drop was most significant (–10 %), followed by a slight increase by 2 %, which coincided with global supply chain disruptions due to the outbreak of the COVID-19 pandemic in the PRC.

(625) As mentioned in recital (600), a part of the total Union producers’ production was destined for the captive market. That part accounted for 15 % of the Union consumption during the IP and increased over the period considered by 12 %. The growth occurred mainly between 2018 and 2019 and during the IP.

(626) Total sales on the free market by the Union industry decreased by 15 % during the period considered. As a result, the market share of free market sales of the Union industry decreased from 63 % in 2017 to 57 % in the investigation period. After dropping by 5 percentage points in 2018-2019, it increased by 1 percentage point by the end of the IP.

(627) In a context of decreasing consumption, the Union industry not only lost sales volumes in the EU but also market share on the free market as demonstrated in recital (623).

(629) Employment decreased by 10 % over the period considered as the Union industry tried to ensure its sustainability and align with the demand in the domestic market.

(630) Consequently, its productivity first improved in 2018 from 108 to 112 tonnes/FTE before decreasing following the reduction of the production volume. Overall productivity thus deteriorated by 3 %. This is because in 2018 the employment was reduced whilst the production remained relatively stable. From 2019 to the end of the IP, however, production dropped quicker than employment due to the lower sales, which resulted in a corresponding decrease in productivity.

(631) All subsidy margins were significantly above the de minimis level. The impact of the magnitude of the actual margins of subsidisation on the Union industry was substantial, given the volume and prices of imports from the country concerned.

(632) This is the first anti-subsidy investigation regarding the product concerned. Therefore, no data were available to assess the effects of possible past subsidisation.

(634) Sales prices on the free market first increased from 3 396 to 3 557 EUR/tonne in 2018. Subsequently, they decreased to 3 408 in 2019 before dropping further to 3 359 EUR/tonne in the investigation period.

(635) The unit cost of production of the sampled producers increased from 3 423 EUR/tonne by 6 % in 2018 and then further by 3 % in 2019, reaching 3 733 EUR/tonne. This figure remained more or less stable during the IP. One of the sampled Union producers incurred costs related to restructuring (mainly redundancy packages), which had an impact on cost of production in the IP. However, even without these costs, the unit cost of production of the sampled Union producers would be 3 % higher in the IP than in 2017.

(636) The overall increase of the unit cost of production over the period considered was mainly caused by the drop in the production volume by 13 % (15 % for the sampled Union producers). Extraordinary restructuring costs aside, this is particularly visible in 2019, where these costs were minor but a production drop was very significant for the sampled Union producers (-19 %). Afterwards, all sampled Union producers started adapting, which resulted in the sales and production volume during the IP improving slightly also due to lower imports from the PRC following the outbreak of the pandemic. This elimination and dilution of some of the fixed costs resulted in lowering of unit cost of production in the IP (if the restructuring costs are not taken into consideration).

(638) The average labour costs per employee increased by 6 % in 2018 and then decreased by 7 % in 2019. It then increased by 26 % in the IP, which is a factor of the restructuring costs a Union producer incurred. If these extraordinary costs are disregarded, the figure in the IP would be [77 000 – 81 000], which is a [2 – 7] % increase from 2017.

(640) Closing stocks remained at a reasonable level throughout the period considered. Since the ACF industry generally operates on a production to order basis, this indicator is of a lesser importance in the overall injury analysis.

(641) The percentage of closing stocks expressed on production shows a slight decrease in 2019 and a slight increase in the IP. These are however not extraordinary stock variations.

(643) The Commission established the profitability of the sampled Union producers by expressing the pre-tax net profit of the sales of the like product to unrelated customers in the Union as a percentage of the turnover of those sales.