Commission Implementing Regulation (EU) 2020/776 of 12 June 2020 imposing definitive countervailing duties on imports of certain woven and/or stitched glass fibre fabrics originating in the People's Republic of China and Egypt and amending Commission Implementing Regulation (EU) 2020/492 imposing definitive anti-dumping duties on imports of certain woven and/or stitched glass fibre fabrics originating in the People's Republic of China and Egypt

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(b) Specificity

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

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

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

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

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

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

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

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

(c) Calculation of the benefit

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3.4.3.3.   Discounted instruments

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

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

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

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

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

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

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

3.4.3.4.   Equity programmes

3.4.3.4.1.   Debt-to-equity swap

(a) General

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

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

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

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

(b) Specificity

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

(c) Calculation of the benefit

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

3.4.3.4.2   Other forms of equity injections

(a) General

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

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

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

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

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

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

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

(b) State-controlled investing companies acting as public bodies

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

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

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

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

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

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

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

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

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

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

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

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

(c) Specificity

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

(d) Calculation of the benefit

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

3.4.3.5.   Bonds

• (447) All of the sampled companies benefited from preferential financing in the form of bonds.

(a) State-owned institutions acting as public bodies

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

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

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

• (1) Law of the People's Republic of China on Securities, revised and adopted at the 18th Meeting of the Standing Committee of the Tenth National People's Congress of the People's Republic of China on October 27, 2005, and effective as of January 1, 2006 (current version promulgated on August 31, 2014) (‘Securities Law’);

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

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

• (4) Regulations on the Administration of Corporate Bonds, issued by the State Council on 18 January 2011.

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

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

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

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

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

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

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

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

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

(b) Specificity

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

(c) Calculation of the benefit

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

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

3.4.3.6.   Conclusion on preferential financing: other types of financing

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

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

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

Preferential financing: other types of financing

3.5.   Preferential insurance: export credit insurance

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

(a) Legal basis

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

• (2) 840 plan included in the Notice by the State Council of 27 May 2009;

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

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

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

(b) Findings of the investigation

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

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

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

• (470) Therefore, the Commission had to complement the information provided by facts available.

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

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

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

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

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

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

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

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

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

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

(c) Calculation of the subsidy amount

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

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

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

Preferential financing and insurance: export credit insurance

3.6.   Government provision of goods at less than adequate remuneration

3.6.1.   Raw materials for less than adequate remuneration

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

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

3.6.2.   Land use rights (LUR)

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

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

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

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

(a) Legal basis

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

• (1) Property Law of the People's Republic of China (Order of the President of the People's Republic of China No. 62)

• (2) Land Administration Law of the People's Republic of China (Order of the President of the People's Republic of China No. 28)

• (3) Law of the People's Republic of China on Urban Real Estate Administration (Order of the President of the People's Republic of China No. 18);

• (4) 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 the Urban Areas (Decree No. 55 of the State Council of the People's Republic of China);

• (5) Regulation on the Implementation of the Land Administration Law of the People’s Republic of China (Order of the State Council of the People's Republic of China [2014] No. 653);

• (6) Provision on Assignment of State-owned Construction Land Use Right through Bid Invitation, Auction and Quotation (Announcement No. 39 of the CSRC);

• (7) Notice of the State Council on the Relevant Issues Concerning the Strengthening of Land Control (Guo Fa (2006) No. 31).

(b) Findings of the investigation

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

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

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

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

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

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