2011 report to congress - U.S.-China Economic and Security Review ...

dkrause on DSKHT7XVN1PROD with $$_JOB75tion catalogs, foreign affiliates of U.S. and European companies willcontinue to face discrimination, according to U.S. business groups. 242Policies Favoring Chinese EnterprisesAlthough China’s government procurement policies have garneredthe greatest attention from the international media andbusiness community, Chinese indigenous innovation strategy ismultifaceted, incorporating numerous other laws and regulationsthat promote domestic industry.Tax IncentivesChina has implemented a number of tax laws that favor innovativedomestic industries. In September 2006, China’s Tax Bureauissued the Circular on Preferential Tax Policies for InnovationEnterprises, which offers ‘‘innovation enterprises’’ a two-yearexemption from the enterprise income tax. 243 In January 2008,the National People’s Congress issued the Enterprise Income TaxLaw of the People’s Republic of China, Article 28 of which states,‘‘Enterprise income tax for State-encouraged high and new technologyenterprises shall be levied at a reduced rate of 15 percent’’rather than the standard 25 percent top corporate taxrate.244, 245Subsidies and LoansThe Chinese government has long provided extensive subsidiesto favored industries and companies, both private and stateowned. The direct subsidies include low-interest-rate loans andloan forgiveness, discounted or free land, electricity, fuel, water,and sewerage. Indirect subsidies can include lax enforcement ofenvironmental standards and workers’ rights laws. The Chinesegovernment in particular provides subsidies to a large number ofdesignated ‘‘strategic industries’’ and included $216 billion insubsidies for its green technology sector as part of its economicstimulus package. 246At the May 5, 2011, hearing before the Commission, Thea Leeof the American Federation of Labor and Congress of IndustrialOrganizations (AFL–CIO) characterized Chinese industrial policyas ‘‘targeting favored sectors and technologies through belowmarketloans and subsidies.’’ 247 (For more on subsidies, see theCommission’s 2009 Annual Report to Congress, chap. 1, sec. 3,‘‘China’s Industrial Policy and its Impact on U.S. Companies,Workers, and the American Economy.’’)Patent RegulationsThe development of the Chinese patent system follows thegoals specified in the 15-year MLP and the 12th Five-Year Plan(2011–2015). Provincial and municipal governments providetechnical assistance for preparing patent applications as well assubsidies for patent application fees. 248 The Chinese governmenthas encouraged state-owned enterprises (SOEs) to file numerouspatents. 249 These measures have already made China’s State IntellectualProperty Office ‘‘the 3rd largest patent office in theworld in terms of the number of invention patent applications receivedper year’’ and put it on track to become the largest patentoffice in the world by 2010. 250VerDate Nov 24 2008 13:46 Nov 10, 2011 Jkt 067464 PO 00000 Frm 00087 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2011\067464.XXX 067464