A-570-053 Investigation Public Document E&C VI
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Barcode:3634494-01 A-570-053 INV - Investigation - A-570-053 Investigation Public Document E&C VI: MJH/TB MEMORANDUM FOR: Gary Taverman Deputy Assistant Secretary for Antidumping and Countervailing Duty Operations, performing the non-exclusive functions and duties of the Assistant Secretary for Enforcement and Compliance THROUGH: P. Lee Smith Deputy Assistant Secretary for Policy and Negotiations James Maeder Senior Director, performing the duties of the Deputy Assistant Secretary for AD/CVD Operations Robert Heilferty Acting Chief Counsel for Trade Enforcement and Compliance Albert Hsu Senior Economist, Office of Policy FROM: Leah Wils-Owens Office of Policy, Enforcement & Compliance DATE: October 26, 2017 SUBJECT: China’s Status as a Non-Market Economy Filed By: Tom Bellhouse, Filed Date: 10/30/17 11:23 AM, Submission Status: Approved Barcode:3634494-01 A-570-053 INV - Investigation - Contents EXECUTIVE SUMMARY ............................................................................................................ 4 INTRODUCTION AND BACKGROUND ................................................................................... 8 SUMMARY OF COMMENTS FROM PARTIES......................................................................... 9 ANALYSIS ................................................................................................................................... 11 Factor One: The extent to which the currency of the foreign country is convertible into the currency of other countries. .......................................................................................................... 12 A. Framework of the Foreign Exchange Regime ................................................................ 12 B. Capital Account Restrictions .......................................................................................... 13 C. Foreign Exchange Market and the Exchange Rate Regime ........................................... 14 D. Assessment of Factor ..................................................................................................... 19 Factor Two: The extent to which wage rates in the foreign country are determined by free bargaining between labor and management. ................................................................................. 20 A. Legal and Institutional Framework ................................................................................ 20 B. Constraints on Wage Formation ..................................................................................... 23 1. Wage Growth Trends.................................................................................................. 23 2. Labor Law Dispute Resolution ................................................................................... 25 3. Trade Unions and Collective Bargaining ................................................................... 26 4. The Hukou System ..................................................................................................... 28 C. Assessment of Factor ..................................................................................................... 30 Factor Three: The extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country. ............................................................................. 32 A. Legal and Institutional Framework ................................................................................ 32 1. Laws Establishing FIEs .............................................................................................. 32 2. Foreign Investment Catalogue .................................................................................... 33 3. Foreign Investment Approval Process ........................................................................ 35 B. Constraints on Foreign Investment ................................................................................ 38 1. Foreign Investment Trends ......................................................................................... 38 2. Equity Limits and Local Partner Requirements ......................................................... 40 3. Investment Approval and Regulatory Process............................................................ 44 4. Technology Transfer and Localization Requirements ................................................ 47 5. Anti-Monopoly Law Enforcement and National Security Reviews ........................... 49 C. Assessment of Factor ..................................................................................................... 51 Factor Four: The extent of government ownership or control of the means of production. ......... 52 A. State-Invested Enterprise (SIE) Sector ........................................................................... 52 1. Legal and Institutional Framework............................................................................. 52 2. The Prevalence of SIEs in China’s Economy ............................................................. 58 3. Bankruptcy, Consolidations and State Enterprise Groups.......................................... 69 4. Government and CCP Influence over the Behavior of SIEs ...................................... 82 B. Land and Land-Use Rights ............................................................................................. 94 2 Filed By: Tom Bellhouse, Filed Date: 10/30/17 11:23 AM, Submission Status: Approved Barcode:3634494-01 A-570-053 INV - Investigation - 1. Legal and Institutional Framework............................................................................. 95 2. Barriers to the Efficient Allocation of Land Resources ........................................... 107 C. Assessment of Factor ................................................................................................... 115 Factor Five: The extent of government control over the allocation of resources and over the price and output decisions of enterprises. ............................................................................................ 117 A. Industrial Policies ......................................................................................................... 117 1. Framework of State Planning and Industrial Policymaking ..................................... 118 2. Implementation Mechanisms for Industrial Policies ................................................ 131 3. Examples of Industrial Policy Implementation ........................................................ 141 4. Supply-Side Structural Reforms ............................................................................... 149 B. Price Regulation ........................................................................................................... 158 1. The Prevalence of Price Distortions ......................................................................... 158 2. The Status of Formal Price Controls ........................................................................ 159 C. The Financial Sector ..................................................................................................... 167 1. Institutional Features of the Formal Banking Sector ................................................ 168 2. Interest Rate Controls and Dynamics ....................................................................... 171 3. Shadow Banking ....................................................................................................... 173 4. Bond Markets ........................................................................................................... 176 D. Assessment of Factor ................................................................................................... 178 Factor Six: Such other factors as the administering authority considers appropriate. ................ 181 A. China’s Legal System and the CCP ............................................................................. 181 1. The Legislature ......................................................................................................... 182 2. The Judicial System .................................................................................................. 184 B. Administrative Law and Regulatory Transparency ..................................................... 188 1. Administrative Litigation Law ................................................................................. 189 2. Administrative Reconsideration Law ....................................................................... 190 3. Regulatory Transparency .......................................................................................... 191 C. Corruption .................................................................................................................... 192 D. Assessment of Factor ................................................................................................... 194 FINAL ASSESSMENT .............................................................................................................. 196 APPENDIX ................................................................................................................................. 198 LIST OF ABBREVIATIONS ..................................................................................................... 202 3 Filed By: Tom Bellhouse, Filed Date: 10/30/17 11:23 AM, Submission Status: Approved Barcode:3634494-01 A-570-053 INV - Investigation - EXECUTIVE SUMMARY The Department