Thirty years after it issued the last directive on enterprise technological renovation in 1982, the State Council of China published Guidelines of the State Council on Promoting Enterprise Technological Renovation (Guo Fa (2012) No. 44) (“Guidelines”) in September 2012. The Guidelines further the Chinese government’s efforts in urging enterprises to undertake technological improvement projects and thus promoting the industry sector to transform its growth pattern, the goal set forth in the Industrial Transformation and Upgrade Plan (2011-2015) in particular (see the March 2012 issue of the Trade & Manufacturing Alert) and the National Economic Social Development 12th Five-Year Plan in general (see the April 2011 issue of the Trade & Manufacturing Alert).

The aim of the Guidelines is to increase technological renovation investment, indigenous innovation, the output of new products, the percentage of advanced production capacity, the efficiency of resources and energy utilization, and the level of clean and safe production. The Guidelines also provide the major focus areas for the 12th five-year period (2011-2015), which are as follows: promoting technological innovation and industrializing scientific and technological achievements, boosting green development, promoting the integration of information technology and industrialization, increasing cooperation between military industries and civilian industries, promoting safe production, strengthening industrial clusters, and enhancing the construction of public service forums. To ensure smooth implementation, the Guidelines call on the central government and local governments to support enterprises engaging in technological renovation by formulating relevant industrial policies, increasing the use of government funds, and utilizing tax incentives. The Guidelines also encourage financial institutions to increase financial support and services to assist enterprises that engage in projects to upgrade their technology.

According to the Vice Minister of the Ministry of Industry and Information Technology, China has significantly increased the government fund used to support enterprise technological renovation since 2008. Approximately 20 billion RMB are put into the fund every year. The Guidelines, however, call for additional investment in the fund. Since the Guidelines’ announcement, the Chinese government added an additional 6.8 billion RMB to this year’s already 16 billion RMB technological renovation special fund, resulting in the largest fund on record. Following the central government’s lead, local governments have been actively increasing support for enterprises in their localities to undertake technological renovation projects. For example, the Fujian provincial government has pledged to add 300 million RMB of government funds in 2012 to support enterprises engaging in technological renovation, in addition to the support the Fujian government intends to provide in the form of tax, financial, and land incentives.

In the past, the U.S. Department of Commerce (“Commerce”) has determined that similar funds and incentives provided countervailable subsidies to Chinese manufactures. U.S. industries that brought countervailing duty (“CVD”) cases against similar funds and incentives received relief.