Commission Implementing Regulation (EU) 2025/1723 of 6 August 2025 imposing a provisional anti-dumping duty on imports of certain prepared or preserved sweetcorn in kernels, originating in the People’s Republic of China

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	2025/1723	7.8.2025

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) 2016/1036 of the European Parliament and of the Council of 8 June 2016 on protection against dumped imports from countries not members of the European Union ¹ (‘the basic Regulation’), and in particular Article 7 thereof,

After consulting the Member States,

Whereas:

1. PROCEDURE

1.1.   Initiation

• (1) On 9 December 2024, the European Commission (‘the Commission’) initiated an anti-dumping investigation with regard to imports of sweetcorn originating in the People’s Republic of China (‘the country concerned’ or ‘the PRC’ or China) on the basis of Article 5 of the basic Regulation. It published a Notice of Initiation in the Official Journal of the European Union ² (‘the Notice of Initiation’).

• (2) The Commission initiated the investigation following a complaint lodged on 25 October 2024 by the Association Européenne des Transformateurs de Maïs Doux (AETMD) (‘the complainant’). The complaint was made on behalf of the Union industry of certain prepared or preserved sweetcorn in kernels in the sense of Article 5(4) of the basic Regulation. The complaint contained evidence of dumping and of resulting material injury that was sufficient to justify the initiation of the investigation.

1.2.   Registration

• (3) The Commission made imports of the product concerned subject to registration by Commission Implementing Regulation (EU) 2025/309 of 14 February 2025 (‘the registration Regulation’) ³.

1.3.   Interested parties

• (4) In the Notice of Initiation, the Commission invited interested parties to contact it in order to participate in the investigation. In addition, the Commission specifically informed the complainant, other known Union producers, the known exporting producers, and the Chinese authorities, and known importers and traders about the initiation of the investigation and invited them to participate.

• (5) Interested parties had an opportunity to comment on the initiation of the investigation and to request a hearing with the Commission and/or the Hearing Officer in trade proceedings. Following the initiation, a hearing took place with the European Federation of the Trade in Dried Fruit, Edible Nuts, processed fruit & vegetables and processed fishery products (‘FRUCOM’) and its national member associations Waren-Verein der Hamburger Börse e.V. (‘Waren-Verein’) and Nederlandse Vereniging voor de Handel in Gedroogde Zuidvruchten, Specerijen en Aanverwante Artikelen (‘NZV’), as well as representatives of several importing members.

1.4.   Comments on initiation

• (6) The Commission received comments on initiation from the China Chamber of Commerce of Import and Export of Foodstuffs, Native Produce and Animal By-Products (‘CFNA’) and from Waren-Verein.

• (7) The CFNA criticised that the investigation period of the complaint was not updated close to the submission date. The association argued that it may present a different injury picture as when compared to the investigation period of the investigation, due to significant changes in the EU market as from the second quarter of 2024 and until the end of 2024. The CFNA further considered that Thailand and the PRC are the only major producers and exporters of sweetcorn and that Thai market shares could be taken over by imports from the PRC, if imports from Thailand are restricted by anti-dumping measures. Additionally, the CFNA argued that the increase in imports from the PRC in 2022 was possibly caused by unforeseen developments, such as (1) natural disasters and floods in Thailand that reduced the output of corn and sufficient supply; (2) a bad harvest in Europe due to dry climate conditions, in particular in France; and (3) the war in Ukraine that might have increased energy costs of sweetcorn producers and reduced sweetcorn supply. The CFNA further considered that in 2022, the pattern in export sales from the PRC was changed due to a large order from Lidl. It considered that the bad harvest in Europe may have affected the sweetcorn supply in Europe and purchasers such as Lidl might have stockpiled to avoid shortage of supply.

• (8) The Commission reminds the CFNA that the investigation period was defined in line with Article 6 of the basic Regulation, covering a period of no less than six months immediately prior the initiation of proceedings. Therefore, the claim was rejected.

• (9) With regards to the claim that the increased market share of imports from the PRC was due to the imposition of anti-dumping measures on imports from Thailand, the Commission reminds CFNA that these measures have been in place since 2009. Therefore, the claim was rejected.

• (10) The CFNA did not provide any supporting evidence related to the claim that the change in exports was due only to a major order of the retailer Lidl. The claim was therefore rejected.

• (11) The CFNA also argued that the complaint did not demonstrate the material injury of the Union industry and stated that the increased imports from the PRC did not have any negative impact on the development of the complainant in terms of production, capacity, capacity utilisation, stocks, sales prices.

• (12) According to the Commission’s assessment of the information provided in the complaint, there was sufficient evidence pointing to material injury that justified the initiation of the investigation. The claim was therefore rejected.

• (13) The CFNA further claimed that imports from the PRC are not the sole cause of the injury to the complainant and referred to the factors described in recital 6. It recalled the anti-dumping investigation concerning soy protein imports originating in the PRC ⁴, where the Commission found that the coincidence of a price increase with the poor financial performance of the Union industry indicated the volatility of the raw material market and was a major cause of injury suffered by the Union industry, which broke the causal link between the Chinese imports and material injury suffered by the Union industry. The CFNA claimed a similar situation for this investigation.

• (14) In the Commission’s view, none of the other possible explanations mentioned above disprove the conclusion that there was sufficient evidence in the complaint concerning the injury caused by dumped imports to the Union industry which justified the initiation of an anti-dumping proceeding.

• (15) Waren-Verein requested to extend the period considered to assess the effect of the poor crops for 2020. It requested to consider also other one-off effects, such as freight and currency conditions that were favorable for purchase decisions.

• (16) The complaint analysed the positive causal link between the dumped imports from the PRC and the material injury of the Union industry by analysing the trends of import volumes, the Union sales prices during the period considered, and the main injury indicators over the period considered. A positive link could be demonstrated, while showing that no other factors attenuated the causal link. At this stage, the Commission considered the evidence present in the complaint concerning causality as reasonable and refers to section 5 below on causation. Therefore, this claim was rejected.

• (17) Finally, the CFNA requested the Commission to apply the lesser duty rule pursuant to Article 7(2) of the basic Regulation. It argued that the complaint failed to present specific evidence on the existence of raw material distortions.

• (18) The complainant provided credible and relevant evidence that all the legal requirements to waive the lesser duty rule were met at initiation, including evidence on distortions on the steel market in the PRC that could affect the price of steel cans. At this stage, the Commission considered the evidence present in the complaint concerning raw material distortions as reasonable. Therefore, this claim was rejected.

• (19) Waren-Verein criticised the date chosen for the initiation of the proceeding, which restricted the possibility of interested parties to participate in the investigation.

• (20) The Commission services have no impact on the Union industry’s decision on when they lodge a complaint. Once a complaint is lodged, the Commission is legally obliged to take a decision on the case and inform the parties concerned within 45 days, in accordance with Article 5(9) of the basic Regulation, either by the publication of a notice in the Official Journal in case of initiation of an investigation or by informing the Union industry in case of a rejection of the complaint.

• (21) With regards to the selection of the sample of exporting producers, Waren-Verein requested to select exporters based on a representative basis.

• (22) The Commission highlighted that in accordance with Article 17(1) of the basic Regulation, the selection of the sample should be statistically valid on the basis of information available at the time of the selection or be based on the largest representative volume of production, sales or exports which can reasonably be investigated within the time available.

• (23) Waren-Verein requested to limit the selection of the product covered by the investigation to TARIC code 2005 80 00 , while TARIC code 2001 90 30 10 should not be included.

• (24) The Commission noted that no further evidence was provided to justify the request of product exclusion. The claim was therefore rejected.

• (25) Waren-Verein argued the negative impact of freight and exchange rates on product prices and requested to consider them during the calculation of the normal value. Moreover, Waren-Verein questioned the comparability of prices of products falling within the product description but varying in size, end-consumers, packaging or delivery conditions.

• (26) With regards to the questions raised on price comparability, the Commission reassured Waren-Verein that, in accordance with Article 2(10) of the basic Regulation, the comparison between export prices and the normal value is made at the same level of trade and in respect of sales made at, as closely as possible, the same time and with due account taken of other differences which affect price comparability. If necessary, adjustments can be made to account for differences on physical characteristics, transport and freight conditions, packing, currency conversion and other factors.

• (27) Waren-Verein requested to consider the interests of consumers and traders during the investigation. The association claimed that sweetcorn prices will likely increase to the disadvantage of consumers, in case anti-dumping duties will be imposed. Considering future poor crops and other unforeseen events in the EU affecting imports, the association considered that no measures should be imposed. It also claimed that EU sweetcorn producers are economically strong enough and do not need to be protected by anti-dumping measures.

• (28) The Commission reminds Waren-Verein that the assessment of the Union interest is carried out as part of the investigation and not at complaint stage. The views of all parties are therefore assessed in section 7 of this regulation.

1.5.   Sampling

• (29) In the Notice of Initiation, the Commission stated that it might sample the interested parties in accordance with Article 17 of the basic Regulation.

Sampling of Union producers

• (30) In its Notice of Initiation, the Commission stated that it had provisionally selected a sample of Union producers. The Commission selected the sample on the basis of the estimated volume of production and sales of the like product in the EU during the investigation period. This sample consisted of two Union producers. The sampled Union producers accounted for more than [29 – 38] % of the estimated total volume of production and more than [39 – 48] % of the estimated total sales in the Union. The Commission invited interested parties to comment on the provisional sample. No comments on the sample were received. The sample of the Union industry was therefore confirmed.

Sampling of unrelated importers

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

• (32) Six unrelated importers provided the requested information and agreed to be included in the sample. In accordance with Article 17(1) of the basic Regulation, the Commission selected a sample of two unrelated importers on the basis of the largest import volume of the product concerned in the Union. In accordance with Article 17(2) of the basic Regulation, all known importers concerned were consulted on the selection of the sample. One of the sampled importers informed the Commission it no longer wished to cooperate and would not provide a questionnaire reply. The Commission therefore decided to replace this importer with another importer. Interested parties were informed of the change accordingly. No comments were received on the adjusted sample.

Sampling of exporting producers

• (33) To decide whether sampling is necessary and, if so, to select a sample, the Commission asked all exporting producers in the PRC to provide the information specified in the Notice of Initiation. In addition, the Commission asked the Chinese mission to identify and/or contact other exporting producers, if any, that could be interested in participating in the investigation.

• (34) Twenty-three companies in the country concerned provided the requested information and agreed to be included in the sample. Two of these companies were related, one of which was not an exporting producer. In accordance with Article 17(1) of the basic Regulation, the Commission selected a sample of two exporting producers on the basis of the largest representative volume of exports to the Union which could reasonably be investigated within the time available. In accordance with Article 17(2) of the basic Regulation, all known exporting producers concerned and the authorities of the country concerned were consulted on the selection of the sample. No comments were received on the selection of the sample and the Commission confirmed the sample.

1.6.   Questionnaire replies and verification visits

• (35) The Commission sent a questionnaire concerning the existence of significant distortions in the PRC within the meaning of Article 2(6a)(b) of the basic Regulation to the Government of the People’s Republic of China (‘GOC’).

• (36) Furthermore, the complainant provided in the complaint sufficient prima facie evidence of raw material distortions in China regarding the product concerned. Therefore, as announced in the Notice of Initiation, the investigation covered those raw material distortions to determine whether to apply the provisions of Article 7(2a) and 7(2b) of the basic Regulation with regard to China. For this reason, the Commission sent additional questionnaires in this regard to the GOC.

• (37) The Commission sent questionnaires to the complainant, Union producers, exporting producers, and the known importers. The same questionnaires were made available online ⁵ on the day of initiation.

• (38) The Commission sought and verified all the information deemed necessary for a provisional determination of dumping, resulting injury and Union interest. Verification visits pursuant to Article 16 of the basic Regulation were carried out at the premises of the following companies:

Union producers

• — Bonduelle Europe Long Life, France and Bonduelle Central Europe, Hungary

• — Dawtona Sp z o.o., Poland

Importers

• — Otto Franck Import GmbH & Co. KG, Augsburg, Germany

Exporting producers in the People’s Republic of China

Sunflower Group

• — Sun Flower Food Industry (Xinfeng) Co., Ltd, Ganzhou City, China

• — Sunny Food Industry Co., Ltd, Ganzhou City, China

Tongfa Group

• — Zhangzhou Tongfa Foods Industry Co., Ltd, Zhangzhou, China

• — Fujian Tongfa Foods Group Co., Ltd, Xiamen City, China.

• (39) In addition, the Commission verified the macro-questionnaire submitted by the complainant AETMD in Paris, France.

1.7.   Application of Article 18 of the basic Regulation

• (40) The Commission informed the GOC that it would use facts available within the meaning of Article 18 of the basic Regulation for the determination of the existence of the significant distortions in the PRC as described at section 3.2.1 below.

• (41) A partial application of Article 18 was made to the Sunflower Group for issues relating to information supplied in respect of the calculation of the CIF prices and credit costs relevant to the findings on export prices as described at section 3.3 below.

• (42) A partial application of Article 18 was made to the Tongfa Group also for issues relating to information supplied in respect of the calculation of the CIF prices relevant to the findings on export prices as described in section 3.4 below. In addition, Article 18 was also applied to determine labour hours input to the calculation of labour as a factor of production as described at section 3.2.3.1 below.

1.8.   Investigation period and period considered

• (43) The investigation of dumping and injury covered the period from 1 October 2023 to 30 September 2024 (‘the investigation period’). The examination of trends relevant for the assessment of injury covered the period from 1 January 2021 to the end of the investigation period (‘the period considered’).

2. PRODUCT UNDER INVESTIGATION, PRODUCT CONCERNED AND LIKE PRODUCT

2.1.   Product under investigation

• (44) The product under investigation is sweetcorn (Zea mays var. saccharata) in kernels, prepared or preserved by vinegar or acetic acid, not frozen and sweetcorn (Zea mays var. saccharata) in kernels prepared or preserved otherwise than by vinegar or acetic acid, not frozen, other than products of heading 2006 , currently falling under CN codes ex 2001 90 30 (TARIC code 2001 90 30 10) and ex 2005 80 00 (TARIC code 2005 80 00 10 (‘the product under investigation’).

• (45) Sweetcorn is used for human consumption. The product is usually presented in a canned format, but also in glasses, tetra packs or pouches.

2.2.   Product concerned

• (46) The product concerned is the product under investigation originating in the PRC (‘the product concerned’).

2.3.   Like product

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

• — the product concerned when exported to the Union;

• — the product under investigation produced and sold on the domestic market of country concerned; and

• — the product under investigation produced and sold in the Union by the Union industry.

• (48) The Commission decided at this stage that those products are therefore like products within the meaning of Article 1(4) of the basic Regulation.

3. DUMPING

3.1.   Procedure for the determination of the normal value under Article 2(6a) of the basic Regulation

• (49) In view of the sufficient evidence available at the initiation of the investigation pointing to the existence of significant distortions within the meaning of point (b) of Article 2(6a) of the basic Regulation with regard to the PRC, the Commission considered it appropriate to initiate the investigation with regard to the exporting producers from this country having regard to Article 2(6a) of the basic Regulation.

• (50) Consequently, in order to collect the necessary data for the eventual application of Article 2(6a) of the basic Regulation, in the Notice of Initiation the Commission invited all exporting producers in the PRC to provide information regarding the inputs used for producing certain prepared or preserved sweetcorn in kernels (sweetcorn). Fourteen exporting producers submitted the relevant information.

• (51) In order to obtain the information it deemed necessary for its investigation with regard to the alleged significant distortions, the Commission sent a questionnaire to the GOC. In addition, in point 5.3.2 of the Notice of Initiation, the Commission invited all interested parties to make their views known, submit information and provide supporting evidence regarding the application of Article 2(6a) of the basic Regulation within 37 days of the date of publication of the Notice of Initiation in the Official Journal of the European Union. No questionnaire reply was received from the GOC and no submission on the application of Article 2(6a) of the basic Regulation was received within the deadline. Subsequently, the Commission informed the GOC that it would use facts available within the meaning of Article 18 of the basic Regulation for the determination of the existence of the significant distortions in the PRC.

• (52) In point 5.3.2 of the Notice of Initiation the Commission also specified that, in view of the evidence available, it had provisionally selected Türkiye as an appropriate representative country pursuant to Article 2(6a)(a) of the basic Regulation for the purpose of determining the normal value based on undistorted prices or benchmarks. The Commission further stated that it would examine other possibly appropriate representative countries in accordance with the criteria set out in 2(6a)(a) first indent of the basic Regulation.

• (53) On 12 March 2025, the Commission informed by a note (‘the First Note’) interested parties on the relevant sources it intended to use for the determination of the normal value. In that note, the Commission provided a list of all factors of production such as raw materials, labour and energy used in the production of the product concerned. In addition, based on the criteria guiding the choice of undistorted prices or benchmarks, the Commission identified possible representative countries, namely Colombia, Malaysia, Mexico, Serbia, Thailand and Türkiye as appropriate representative countries.

• (54) On 6 June 2025, the Commission informed interested parties by a second note (‘the Second Note’) on the relevant sources it intended to use for the determination of the normal value, with Malaysia as the representative country. It also informed interested parties that it would establish selling, general and administrative costs ('SG&A') and profits based on available information for the Fraser and Neave Holdings BHD, a producer in the representative country.

• (55) The Commission concluded that Colombia, Serbia and Türkiye should not be considered as representative countries, notably because of the lack of relevant, publicly available financial data concerning companies producing the product under investigation and/or similar products. Moreover, Thailand does not appear to be an appropriate representative country within the meaning of Article 2(6a)(a), as the prices of imports of fresh sweetcorn in Thailand is affected by distortions, due to their quantity of imports from China.

• (56) The Commission did not propose Mexico as representative country due to the absence of import data for fresh sweetcorn, which is the main factor of production representing around 50 % of the total cost of manufacturing.

• (57) The Commission noted that Malaysia would provide a suitable benchmark for the most important factors of production (fresh sweetcorn and cans). The Commission noted the availability of a suitable import price for fresh sweetcorn due to the low quantities of imports from the PRC. In respect of cans, although 78 % of quantities were sourced from the PRC, the Commission noted a large difference in prices between cans sourced from the PRC and those from other sources (around 14 CNY per kilo and 28 CNY per kilo respectively). Therefore, in the absence of evidence that the price of cans from other sources was distorted, the Commission proposed to use this price as a benchmark. Imports of cans from other sources were found not to have been influenced by the Chinese prices and the quantities and prices of the rest of imports remained representative. In addition, the information of Fraser and Neave Holdings BHD was particularly suitable as a source of SGA and profit data as the annual report of 2024 was for the investigation period (30 October 2023 to September 2024).

• (58) The Commission therefore provisionally decided to choose Malaysia as the most appropriate representative country. The comments made by interested parties concerning the First and Second Note, and in particular relating to the choice of representative country, are discussed below at section 3.2.2.

3.2.   Normal value

• (59) According to Article 2(1) of the basic Regulation, ‘the normal value shall normally be based on the prices paid or payable, in the ordinary course of trade, by independent customers in the exporting country’.

• (60) However, according to Article 2(6a)(a) of the basic Regulation, ‘in case it is determined … that it is not appropriate to use domestic prices and costs in the exporting country due to the existence in that country of significant distortions within the meaning of point (b), the normal value shall be constructed exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks’, and ‘shall include an undistorted and reasonable amount of administrative, selling and general costs and for profits’ (‘administrative, selling and general costs’ is referred hereinafter as ‘SG&A’).

• (61) As further explained below, the Commission concluded in the present investigation that, based on the evidence available, and in view of the lack of cooperation of the GOC, the application of Article 2(6a) of the basic Regulation was appropriate.

3.2.1.   Existence of significant distortions

• (62) Article 2(6a)(b) of the basic Regulation states that ‘significant distortions are those distortions which occur when reported prices or costs, including the costs of raw materials and energy, are not the result of free market forces as they are affected by substantial government intervention. In assessing the existence of significant distortions regard shall be had, inter alia, to the potential impact of one or more of the following elements:

• — the market in question being served to a significant extent by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country;

• — state presence in firms allowing the state to interfere with respect to prices or costs;

• — public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces;

• — the lack, discriminatory application or inadequate enforcement of bankruptcy, corporate or property laws;

• — wage costs being distorted;

• — access to finance granted by institutions which implement public policy objectives or otherwise not acting independently of the state.’

• (63) As the list in Article 2(6a)(b) of the basic Regulation is non-cumulative, not all the elements need to be given for a finding of significant distortions. Moreover, the same factual circumstances may be used to demonstrate the existence of one or more of the elements of the list.

• (64) However, any conclusion on significant distortions within the meaning of Article 2(6a)(a) of the basic Regulation must be made on the basis of all the evidence at hand. The overall assessment on the existence of distortions may also take into account the general context and situation in the exporting country, in particular where the fundamental elements of the exporting country’s economic and administrative set-up provide the government with substantial powers to intervene in the economy in such a way that prices and costs are not the result of the free development of market forces.

• (65) Article 2(6a)(c) of the basic Regulation provides that ‘[w]here the Commission has well-founded indications of the possible existence of significant distortions as referred to in point (b) in a certain country or a certain sector in that country, and where appropriate for the effective application of this Regulation, the Commission shall produce, make public and regularly update a report describing the market circumstances referred to in point (b) in that country or sector’.

• (66) Pursuant to this provision, the Commission issued a country report concerning China (‘the Report’) ⁶, which contains evidence of the existence of substantial government intervention at many levels of the economy, including specific distortions in many key factors of production (such as land, energy, capital, raw materials and labour) as well as selected sectors (such as the steel sector). Interested parties were invited to rebut, comment or supplement the evidence contained in the investigation file at the time of initiation. The Report was placed on the investigation file at initiation.

• (67) The complainant argued that prices or costs of the product under investigation, including the costs of raw materials, energy and labour, are not the result of free market forces because they are affected by substantial government intervention within the meaning of Article 2(6a)(b) of the basic Regulation and that, as a result, it is not appropriate to use domestic prices and costs to establish normal value.

• (68) To support this position, the complainant referred to the evidence contained in the Report, in particular with regard to distortions in the key sectors of production, such as land, energy, capital, raw materials and labour, as well as key raw materials in the production of preserved sweetcorn such as steel and aluminium. The complainant claimed the existence of significant distortions regarding all points listed in Article 2(6a)(b) of the basic Regulation.

• (69) Specifically, the complainant claimed that the GOC exercises control, supervision and guidance over the Chinese preserved sweetcorn industry, which is an integral part of the canned food industry. The complainant listed several policy measures which result in: the Chinese producers adhering to the Chinese Communist Party (‘CCP’) ideology; pursuing an export oriented approach in particular through the Belt and Road Initiative (‘BRI’); in the sector displaying strong consolidation with only a handful market players present; the Chinese producer receiving government support.

• (70) Among the most important national policy measures to achieve the mentioned objectives, the complainant noted:

• — the national 14th Five Year Plan (‘FYP14’) which aims at supporting, consolidating and strengthening agricultural products and production capabilities ⁷;

• — the 14th FYP for the Development of China’s Canned Food Industry, which highlights the importance of a stable export policy and the need to improve the sector’s international competitiveness and which contains incentives to the canned food industry to achieve the objectives listed ⁸;

• — the Opinions of the Central Committee of the CCP and the State Council on Comprehensively Promoting Key Works of Rural Revitalisation in 2023, which concerns the modernisation of agricultural and rural areas ⁹;

• — the China Canned Food industry Association (‘CCFIA’) Three Year Special Action Plan (2021-2023), with the objective to improve cooperation among canned industry producers ¹⁰.

• (71) Among the provincial and municipal policy measures in support of the canned food industry, the complainant noted:

• — in Guandong, the Agricultural Products Processing Industry Development Plan (2018-2025), which aims at building and optimizing primary processing facilities, and guaranteeing support to several projects ¹¹;

• — in Heilongjiang, the Three Year Action Plan (2023-2025) for Accelerating the High Quality Development of the Agricultural Product Processing Industry, which also aims at improving the industrial system of agricultural products processing ¹², as well as the related Notice of the Issuance of Three-year Action Plan (2023-2025) for Accelerating the High-quality Development of the Agricultural Product Processing Industry (Notice from the General Office) ¹³ and the Notice on the Issuance of Several Policies to Support the High-quality Development of the Intensive Processing Industry of Agricultural Products ¹⁴;

• — in the Suiha municipality (Heilongjiang), the Implementation Opinions on Accelerating the High-Quality Development of the Agricultural Products Processing Industry (2023-2025), which states that agricultural products processing enterprises, among which the corn processing industry, should benefit from increased policy support, including through the use of innovative financial services ¹⁵.

• (72) In addition, the complainant noted that the GOC also keeps control over the economy through its presence in State-owned enterprises (‘SOEs’) and private companies, through CCP committees within companies, and by appointments of key managerial personnel, who are usually not only CCP members but also occupy senior positions in the CCP hierarchy ¹⁶. The complainant illustrated this by specific examples of producers in the sector, among which:

• — Hangzhou Wahaha group Co Ltd, the founder and chairman of which was a representative of the CCP in Congress in Zhejiang ¹⁷;

• — Huanlejia Food Group: the chairman and general manager, consistently referred to in the company’s regulatory filings as ‘communist politician’ ¹⁸;

• — Hebei Yaxiong Modern Agriculture Co. Ltd.: the controlling shareholder of which has been member of the Hebei Provincial Committee of the Chinese People's Political Consultative Conference and of the Hebei Federation of Industry and Commerce, as well as the chairman of Chamber of Commerce of the Vegetable Industry ¹⁹.

• (73) The complainant also stated that the distortions in the sector of product under investigation stem from the GOC’s intervention in the upstream sectors, in particular those of raw corn and steel.

• (74) Regarding the raw corn industry, the complainant noted that the vast majority of corn exporters are SOEs, which are, according to the complainant, vehicles of the GOC to achieve its policy goals and benefitting from related government support.

• (75) Regarding the steel sector, the complainant noted that most of the steel producers in China are SOEs, and it referred to previous investigations in which the Commission established the existence of distortions within the sector ²⁰.

• (76) In conclusion, the complainant argued that significant distortions pursuant to Article 2(6a) of the basic Regulation are present in the sweetcorn sector.

3.2.1.1.   Significant distortions affecting the domestic prices and costs in China

• (77) The Chinese economic system is based on the concept of a ‘socialist market economy’. That concept is enshrined in the Chinese Constitution and determines the economic governance of China. The core principle is the ‘socialist public ownership of the means of production, namely, ownership by the whole people and collective ownership by the working people’ ²¹.

• (78) The state-owned economy is the ‘leading force in the national economy’ and the state has the mandate to ensure its ‘consolidation and growth’ ²². Consequently, the overall setup of the Chinese economy not only allows for substantial government interventions into the economy, but such interventions are expressly mandated. The notion of supremacy of public ownership over the private one permeates the entire legal system and is emphasized as a general principle in all central pieces of legislation.

• (79) The Chinese property law is a prime example: it refers to the primary stage of socialism and entrusts the state with upholding the basic economic system under which the public ownership plays a dominant role. Other forms of ownership are tolerated, with the law permitting them to develop side by side with the state ownership ²³.

• (80) In addition, under Chinese law, the socialist market economy is developed under the leadership of the CCP. The structures of the Chinese state and of the CCP are intertwined at every level (legal, institutional, personal), forming a superstructure in which the roles of CCP and the state are indistinguishable.

• (81) Following an amendment of the Chinese Constitution in March 2018, the leading role of the CCP was given an even greater prominence by being reaffirmed in the text of Article 1 of the Constitution.

• (82) Following the already existing first sentence of the provision: ‘[t]he socialist system is the basic system of the People’s Republic of China’ a new second sentence was inserted which reads: ‘[t]he defining feature of socialism with Chinese characteristics is the leadership of the Communist Party of China’ ²⁴. This illustrates the unquestioned and ever-growing control of the CCP over the economic system of China.

• (83) This leadership and control is inherent to the Chinese system and goes well beyond the situation customary in other countries where the governments exercise general macroeconomic control within the boundaries of which free market forces are at play.

• (84) The Chinese state engages in an interventionist economic policy in pursuance of goals, which coincide with the political agenda set by the CCP rather than reflecting the prevailing economic conditions in a free market ²⁵. The interventionist economic tools deployed by the Chinese authorities are manifold, including the system of industrial planning, the financial system, as well as the level of the regulatory environment.

• (85) First, on the level of overall administrative control, the direction of the Chinese economy is governed by a complex system of industrial planning which affects all economic activities within the country. The totality of these plans covers a comprehensive and complex matrix of sectors and crosscutting policies and is present on all levels of government.

• (86) Plans at provincial level are detailed while national plans set broader targets. Plans also specify the means in order to support the relevant industries/sectors as well as the timeframes in which the objectives need to be achieved. Some plans still contain explicit output targets.

• (87) Under the plans, individual industrial sectors and/or projects are being singled out as (positive or negative) priorities in line with the government priorities and specific development goals are attributed to them (industrial upgrade, international expansion etc.).

• (88) The economic operators, private and state-owned alike, must effectively adjust their business activities according to the realities imposed by the planning system. This is not only because of the binding nature of the plans, but also because the relevant Chinese authorities at all levels of government adhere to the system of plans and use their vested powers accordingly, thereby inducing the economic operators to comply with the priorities set out in the plans ²⁶.

• (89) Second, on the level of allocation of financial resources, the financial system of China is dominated by the state-owned commercial and policy banks. Those banks, when setting up and implementing their lending policy need to align themselves with the government’s industrial policy objectives rather than primarily assessing the economic merits of a given project ²⁷.

• (90) The same applies to the other components of the Chinese financial system, such as the stock markets, bond markets, private equity markets etc. Also, these parts of the financial sector are institutionally and operationally set up in a manner not geared towards maximizing the efficient functioning of the financial markets but towards ensuring control and allowing intervention by the state and the CCP ²⁸.

• (91) Third, on the level of regulatory environment, the interventions by the state into the economy take a number of forms. For instance, the public procurement rules are regularly used in pursuit of policy goals other than economic efficiency, thereby undermining market-based principles in the area. The applicable legislation specifically provides that public procurement shall be conducted in order to facilitate the achievement of goals designed by state policies. However, the nature of these goals remains undefined, thereby leaving broad margin of appreciation to the decision-making bodies ²⁹.

• (92) Similarly, in the area of investment, the GOC maintains significant control and influence over destination and magnitude of both state and private investment. Investment screening as well as various incentives, restrictions, and prohibitions related to investment are used by authorities as an important tool for supporting industrial policy goals, such as maintaining state control over key sectors or bolstering domestic industry ³⁰.

• (93) In sum, the Chinese economic model is based on certain basic axioms, which provide for and encourage manifold government interventions. Such substantial government interventions are at odds with the free play of market forces, resulting in distorting the effective allocation of resources in line with market principles ³¹.

3.2.1.2.   Significant distortions according to Article 2(6a)(b), first indent of the basic Regulation: the market in question being served to a significant extent by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country

• (94) In China, enterprises operating under the ownership, control and/or policy supervision or guidance by the state represent an essential part of the economy.

• (95) Sweetcorn is mainly produced by private companies, such as Sunflower Food Industry Xinfeng Co. Ltd. ³², Zhangzhou Tongfa Food Industry Co. Ltd. ³³ or Runfeng Food Co. Ltd. ³⁴. The canned food sector is also served by companies partially state-owned like Hangzhou Wahaha Group ³⁵ featuring 46 % state ownership ³⁶.

• (96) However, CCP interventions into operational decision making have become the norm not only in SOEs, but also in private companies ³⁷, with the CCP claiming leadership over virtually every aspect of the country’s economy. Indeed, the state’s influence by means of CCP structures within companies effectively results in economic operators being under the government’s control and policy supervision, given how far the state and Party structures have grown together in China.

• (97) Moreover, the sweetcorn sector is subject to several government policies, such as the 2022 key policies announced by the Ministry of Finance and the Ministry of Agriculture and Rural Affairs: ‘[i]ntegrated development of agricultural industry. Coordinate the layout and construction of a number of national modern agricultural industrial parks, advantageous and characteristic industrial clusters, and agricultural industrial strong municipalities. Focusing on ensuring national food security and effective supply of important agricultural products, focusing on rice, wheat, corn, […] build a modern rural industrial system based on strong industrial towns, industrial parks as the engine, and industrial clusters as the backbone, provincial, county and township layouts, and coordinated promotion of points, lines, and areas, so as to improve the quality and efficiency of industrial development as a whole’ ³⁸.

• (98) Similarly, the 14th FYP on Promoting the Modernization of Agriculture and Rural Areas sets the following objectives: ‘[n]ational food security industry belt construction: [b]ased on the production and supply of rice, wheat, corn, soybeans, etc., coordinate the layout of capacity building in production, processing, storage, and circulation, and build food safety industrial belts […]’ ³⁹.

• (99) Government control and policy supervision can be also observed at the level of the relevant industry associations ⁴⁰.

• (100) For instance, the canned food sector is covered by the China National Light Industry Council (‘CNLIC’) ⁴¹. Article 2 of CNLIC’s Articles of Association ⁴² describes the Council’s purpose as being ‘to thoroughly study and implement the spirit of General Secretary Xi Jinping’s series of important speeches.’ Furthermore, Article 3 mandates that ‘[t]he Council adheres to the overall leadership of the Communist Party of China, and in accordance with the provisions of the Constitution of the Communist Party of China, establishes the organization of the Communist Party of China, carries out the activities of the Party, and provides the necessary conditions for the activities of the Party organization’ ⁴³.

• (101) The CNLIC provides guidance to the sector ⁴⁴, as well as to CCFIA ⁴⁵, in particular as regards Party building activities and policy making. In 2022 the Council recommended that the CCFIA ‘should adhere to the guidance of Party building, guide the industry to unswervingly listen to the Party, and unswervingly follow the Party’ and that it ‘should encourage enterprises to develop new varieties on the basis […] of canned vegetable’ and ‘develop, strengthen and support enterprises, develop canning industry clusters’ ⁴⁶ .

• (102) Accordingly, according to Article 4 of CCFIA’s Articles of Association ⁴⁷, the Association ‘adheres to the overall leadership of the [CCP], establishes the organization of the [CCP] in accordance with the provisions of the [CCP] Constitution […], carries out Party activities, and provides necessary conditions for the activities of Party organizations. The registration and management authority of this Association is the Ministry of Civil Affairs of the People’s Republic of China, and the Party building leading authority is the Party Committee of the State-owned Assets Supervision and Administration Commission of the State Council’. Moreover, the Association ‘accepts the business guidance, supervision and management’ by the Ministry of Civil Affairs and by the Party Committee of State-owned Assets Supervision and Administration Commission ⁴⁸. Additionally, Article 24 of CCFIA’s Articles of Association requires the chairman, vice chairman and secretary general of the association to ‘[a]dhere to the Party’s line, principles, policies and have good political qualities’ ⁴⁹. Sunflower Food Industry Xinfeng Co. Ltd. ⁵⁰, Zhangzhou Tongfa Food Industry Co. Ltd. and Runfeng Food Co. Ltd. ⁵¹ are all members of CCFIA ⁵².

• (103) Consequently, even privately owned producers in the sector of the product concerned are prevented from operating under market conditions. Indeed, both public and privately owned enterprises in the sector are subject to policy supervision and guidance.

3.2.1.3.   Significant distortions according to Article 2(6a)(b), second indent of the basic Regulation: State presence in firms allowing the state to interfere with respect to prices or costs

• (104) The GOC is in position to interfere with prices and costs through state presence in firms. Indeed, CCP cells in enterprises, state-owned and private alike, represent an important channel through which the state can interfere with business decisions.

• (105) According to China’s company law, a CCP organisation is to be established in every company (with at least three CCP members as specified in the CCP Constitution ⁵³) and the company shall provide the necessary conditions for the activities of the Party organisation.

• (106) In the past, this requirement appeared not to have always been followed or strictly enforced. However, since at least 2016 the CCP has been reinforcing its claims to control business decisions in companies as a matter of political principle ⁵⁴, including exercising pressure on private companies to put ‘patriotism’ first and to follow Party discipline ⁵⁵.

• (107) Already in 2018, it was reported that Party cells existed in 73 % of some 2,57 million privately owned companies, with growing pressure for the CCP organisations to have a final say over the business decisions within their respective companies ⁵⁶. These rules are of general application throughout the Chinese economy, across all sectors, including to the producers of the product concerned and the suppliers of their inputs.

• (108) In addition, on 15 September 2020 a document titled General Office of CCP Central Committee’s Guidelines on stepping up the United Front work in the private sector for the new era (‘the Guidelines’) ⁵⁷ was released, which further expanded the role of the Party committees in private enterprises.

• (109) Section II.4 of the Guidelines states: ‘[w]e must raise the Party’s overall capacity to lead private-sector United Front work and effectively step up the work in this area’; and section III.6 states: ‘[w]e must further step up Party building in private enterprises and enable the Party cells to play their role effectively as a fortress and enable Party members to play their parts as vanguards and pioneers’. The Guidelines thus emphasise and seek to increase the role of the CCP in companies and other private sector entities ⁵⁸.

• (110) While it has not been possible to establish systematic overlaps between managerial positions and CCP membership/functions among producers of the product concerned, the investigation confirmed direct CCP interference in their management. For instance, the Party Working Committee and the General Party Branch of the Chamber of Commerce of Pancheng Street District located in Nanjing Jiangbei area ⁵⁹, where a subsidiary of Runfeng Food Co. is located, describes its work as ‘[c]losely focusing on the main line of Party building leading the work of the Chamber of Commerce, […] taking multiple measures to promote the deep integration of Party building and the work of the Chamber of Commerce. […] In the process of serving enterprises, the General Party Branch of the Chamber of Commerce regularly carries out “service enterprises, face-to-face” symposiums and visits to help enterprises become bigger and stronger, and in the process of serving enterprises, it has successfully introduced many projects […] and promoted Jiangsu Runfeng Food Co., Ltd. to invest in the construction of a comprehensive demonstration park agricultural product sorting centre’ ⁶⁰ .

• (111) Furthermore, the Law on Promoting the Private Sector Economy (‘Private Economy Law’) mandates that ‘[p]rivate economic organizations and their operators shall support the [CCP] leadership […], adhere to the socialist system with Chinese characteristics, and actively participate in the construction of a socialist modern power’ ⁶¹.

• (112) The state’s presence and intervention in the financial markets as well as in the provision of raw materials and inputs further have an additional distorting effect on the market ⁶². Thus, the state presence in firms, in the sweetcorn and other sectors (such as the financial and input sectors) allows the GOC to interfere with respect to prices and costs.

3.2.1.4.   Significant distortions according to Article 2(6a)(b), third indent of the basic Regulation: public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces

• (113) The direction of the Chinese economy is to a significant degree determined by an elaborate system of planning which sets out priorities and prescribes the goals the central, provincial and local governments must focus on. Relevant plans exist at all levels of government and cover virtually all economic sectors. The objectives set by the planning instruments are of a binding nature and the authorities at each administrative level monitor the implementation of the plans by the corresponding lower level of government.

• (114) Overall, the system of planning in China results in resources being driven to sectors designated as strategic or otherwise politically important by the government, rather than being allocated in line with market forces ⁶³.

• (115) Furthermore, the Private Economy Law sets out that ‘[t]he state shall strengthen the construction of a team of operators of private economic organizations, strengthen ideological and political guidance, and give play to their important role in economic and social development; […] guide operators of private economic organizations to practice the core socialist values, be patriotic and dedicated, […] and firmly become builders of socialism with Chinese characteristics and promoters of Chinese-style modernization’ and also that ‘[p]rivate economic organizations and their operators shall […] accept government and social supervision when engaging in production and operation activities’ ⁶⁴.

• (116) The Chinese authorities have enacted a number of policies guiding the functioning of the sector of the product concerned.

• (117) The 2022 key policies of the Ministry of Finance and the Ministry of Agriculture and rural affairs mentioned above (see recital 97) contain also the following provision influencing the functioning of the sector: ‘[t]he state will continue to implement policies such as subsidies for corn and soybean producers, subsidies for rice, and incentives for large grain-producing counties, so as to consolidate the effectiveness of supply-side structural reform in agriculture and ensure national food security’. Moreover, the document provides for ‘[r]ewards for major seed production counties. Expand the scope of support for major seed production counties of rice, wheat, corn […], and promote the transformation and upgrading of the seed industry’ ⁶⁵.

• (118) The 14th FYP on Promoting the Modernization of Agriculture and Rural Areas ⁶⁶ aims to ‘[i]mprove grain production support policies. Stabilize grain farmers’ subsidies, improve the minimum purchase price policy for rice and wheat, and the subsidy policy for corn and soybean producers. Improve the compensation mechanism for the interests of major grain-producing areas and improve the support policy system for major grain-producing counties’ ⁶⁷. According to the 14th FYP on Developing the Planting Sector at National Level ⁶⁸, ‘[d]uring the 14th [FYP] period, we will explore potential expansion, increase production capacity, optimize structure, promote diversified development, and improve supply guarantee capabilities’ ⁶⁹.

• (119) Furthermore, ‘in order to implement the Party’s and Government’s decisions and guidelines ⁷⁰’, the CCFIA issued the 14th FYP for the Development of China’s Canned Food Industry ⁷¹ setting quantitative targets such as ‘build three demonstration bases for high-quality raw materials for canned food, create five innovation demonstration units, cultivate one new national canned food industry cluster, cultivate ten influential brands with high reputation’, as well as qualitative targets like ‘actively develop canned food varities such as vegetables [and] guide agricultural areas […] to develop green and high-quality crops and breeds […] and create corresponding industry clusters’ ⁷².

• (120) At the provincial level, Jiangxi issued the 14th FYP on Developing a High Quality Manufacturing Industry seeking to ‘further extend and expand the food industry chain, increase product added value [so that] [b]y 2025, the scale of the province’s food processing industry will reach RMB 850 billion yuan. […] In the canned fruit and vegetable sector, [we shall] build vegetable and fruit processing bases […] and expand and strengthen the fruit and vegetable processing cluster in southeastern Fujian’ ⁷³.

• (121) Sunflower Food Industry Xinfeng Co. Ltd is located in Jiangxi and Zhangzhou Tongfa Food Industry Co. Ltd is located in Fujian.

• (122) Moreover, Heilongjiang, in its 14th FYP on Economic and Social Development and 2035 Perspectives, aims at ‘[m]oderately expanding high-yield food crops such as corn, […] and building a national corn and soybean high-quality grain production base’ ⁷⁴.

• (123) More specifically for the sector of the product concerned, Heilongjiang issued a Development Plan for the Corn Processing Industry (2021-2025) ⁷⁵, according to which the province plans to ‘cultivate and create a group of leading and backbone enterprises led by [RMB] “10 billion-level” enterprises, so as to provide the main support for building a modern corn processing industry system’ and to ‘[p]romote the transformation and upgrading of enterprises to become better and stronger, […] [p]romote corn processing enterprises to accelerate technological transformation, adopt advanced and applicable technologies and processes, eliminate old equipment, introduce and purchase advanced equipment and production lines, and enhance core competitiveness.’ ⁷⁶ .

• (124) Furthermore, in 2024, Shandong launched a ‘pilot project’ to promote, upgrade and develop the corn industry ⁷⁷, providing important tax support for research and development.

• (125) Similarly, Jilin issued specific preferential policies benefitting the industry of the product concerned. According to a report released on its website, the Jilin Provincial Taxation Bureau ‘formulates and adjusts the list of policy benefits as well as the list of topics requiring quick response. Enterprises have needs, taxation responds. On the way to industry upgrading, there are enough policy tools available’ ⁷⁸ .

• (126) Through these and other means, the GOC therefore directs and controls virtually every aspect in the development and functioning of the sector, as well as the upstream inputs.

• (127) In sum, the GOC has measures in place to induce operators to comply with the public policy objectives concerning the sector. Such measures impede market forces from operating freely.

3.2.1.5.   Significant distortions according to Article 2(6a)(b), fourth indent of the basic Regulation: the lack, discriminatory application or inadequate enforcement of bankruptcy, corporate or property laws

• (128) According to the information on file, the Chinese bankruptcy system delivers inadequately on its own main objectives such as to fairly settle claims and debts and to safeguard the lawful rights and interests of creditors and debtors. This appears to be rooted in the fact that while the Chinese bankruptcy law formally rests on principles that are similar to those applied in corresponding laws in countries other than China, the Chinese system is characterised by systematic under-enforcement.

• (129) The number of bankruptcies remains notoriously low in relation to the size of the country’s economy, not least because the insolvency proceedings suffer from a number of shortcomings, which effectively function as a disincentive for bankruptcy filings. Moreover, the role of the state in the insolvency proceedings remains strong and active, often having direct influence on the outcome of the proceedings ⁷⁹.

• (130) In addition, the shortcomings of the system of property rights are particularly obvious in relation to ownership of land and land-use rights in China ⁸⁰. All land is owned by the state (collectively owned rural land and state-owned urban land) and its allocation remains solely dependent on the state. 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. However, these provisions are regularly not respected, with certain buyers obtaining their land for free or below market rates ⁸¹. Moreover, authorities often pursue specific political goals including the implementation of the economic plans when allocating land ⁸².

• (131) Much like other sectors in the Chinese economy, the producers of the product concerned are subject to the ordinary rules on Chinese bankruptcy, corporate, and property laws. That has the effect that these companies, too, are subject to the top-down distortions arising from the discriminatory application or inadequate enforcement of bankruptcy and property laws. Those considerations, on the basis of the evidence available, appear to be fully applicable also in the chemical, and therefore sweetcorn, sector. The present investigation revealed nothing that would call those findings into question.

• (132) In light of the above, the Commission concluded that there was discriminatory application or inadequate enforcement of bankruptcy and property laws in the sector of the product concerned.

3.2.1.6.   Significant distortions according to Article 2(6a)(b), fifth indent of the basic Regulation: wage costs being distorted

• (133) A system of market-based wages cannot fully develop in China as workers and employers are impeded in their rights to collective organisation. China has not ratified a number of fundamental ILO conventions, in particular those on freedom of association and on collective bargaining ⁸³.

• (134) Under national law, only one trade union organisation is active. However, this organisation lacks independence from the state authorities and its engagement in collective bargaining and protection of workers’ rights remains rudimentary ⁸⁴. Moreover, the mobility of the Chinese workforce is restricted by the household registration system, which limits access to the full range of social security and other benefits to local residents of a given administrative area.

• (135) This typically results in workers who are not in possession of the local residence registration finding themselves in a vulnerable employment position and receiving lower income than the holders of the residence registration ⁸⁵. Those findings lead to the distortion of wage costs in China.

• (136) No evidence was submitted to the effect that the sweetcorn sector would not be subject to the Chinese labour law system described. The sector is thus affected by the distortions of wage costs both directly (when making the product concerned or the main raw material for its production) as well as indirectly (when having access to capital or inputs from companies subject to the same labour system in China).

3.2.1.7.   Significant distortions according to Article 2(6a)(b), sixth indent of the basic Regulation: access to finance granted by institutions which implement public policy objectives or otherwise not acting independently of the state

• (137) Access to capital for corporate actors in China is subject to various distortions.

• (138) First, the Chinese financial system is characterised by the strong position of state-owned banks ⁸⁶, which, when granting access to finance, take into consideration criteria other than the economic viability of a project. Similar to non-financial SOEs, the banks remain connected to the state not only through ownership but also via personal relations (the top executives of large state-owned financial institutions are ultimately appointed by the CCP) ⁸⁷ and they regularly implement public policies designed by the GOC.

• (139) In doing so, the banks comply with an explicit legal obligation to conduct their business in accordance with the needs of the national economic and social development and under the guidance of the industrial policies of the state ⁸⁸. While it is acknowledged that various legal provisions refer to the need to respect normal banking behaviour and prudential rules such as the need to examine the creditworthiness of the borrower, the overwhelming evidence, including findings made in trade defence investigations, suggests that these provisions play only a secondary role in the application of the various legal instruments.

• (140) For example, the GOC has clarified that even private commercial banking decisions must be overseen by the CCP and remain in line with national policies. One of the state’s three overarching goals in relation to banking governance is now to strengthen the Party’s leadership in the banking and insurance sector, including in relation to operational and management issues ⁸⁹. Also, the performance evaluation criteria of commercial banks have now to, notably, take into account how entities ‘serve the national development objectives and the real economy’, and in particular how they ‘serve strategic and emerging industries’ ⁹⁰ .

• (141) For instance, Sunflower Food Industry Xinfeng Co. Ltd., under the supervision of the Ganzhou Municipality’s Financial Office, signed a cooperation agreement with the Ganzhou subsidiary of the state-owned Jiujiang Bank ‘to support the enterprise to expand its business scale, increase its market share and help the development of the enterprise’ ⁹¹ .

• (142) Furthermore, bond and credit ratings are often distorted for a variety of reasons including the fact that the risk assessment is influenced by the firm's strategic importance to the GOC and the strength of any implicit guarantee by the government ⁹². This is compounded by additional existing rules, which direct finances into sectors designated by the government as encouraged or otherwise important ⁹³. This results in a bias in favour of lending to SOEs, large well-connected private firms and firms in key industrial sectors, which implies that the availability and cost of capital is not equal for all players on the market.

• (143) Second, borrowing costs have been kept artificially low to stimulate investment growth. This has led to the excessive use of capital investment with ever lower returns on investment. This is illustrated by the growth in corporate leverage in the state sector despite a sharp fall in profitability, which suggests that the mechanisms at work in the banking system do not follow normal commercial responses.

• (144) Third, although nominal interest rate liberalization was achieved in October 2015, price signals are still not the result of free market forces but are influenced by government-induced distortions. The share of lending at or below the benchmark rate still represented at least one-third of all lending as of the end of 2018 ⁹⁴. Official media in China have recently reported that the CCP called for ‘guiding the loan market interest rate downwards’ ⁹⁵. Artificially low interest rates result in under-pricing, and consequently, the excessive utilization of capital.

• (145) Overall credit growth in the China indicates a worsening efficiency of capital allocation without any signs of credit tightening that would be expected in an undistorted market environment. As a result, non-performing loans have increased rapidly, with the GOC a number of times opting to either avoid defaults, thus creating so called ‘zombie’ companies, or to transfer the ownership of the debt (e.g. via mergers or debt-to-equity swaps), without necessarily removing the overall debt problem or addressing its root causes.