"The government is studying how best to modify the current policy of paying interest on bank loans for technology upgrades of State enterprises," said Shi Dinghuan, secretary-general of the Ministry of Science and Technology. "The subsidies would easily lead to unfair competition, which is a taboo for the WTO and must be reconsidered."

The official said the government is trying to find a more fair and appropriate way of subsidizing the interest on such loans so as to make State enterprises more competitive.

In 1999 and 2000, China spent 19.5 billion yuan (US$2.4 billion) covering the interest on loans for technological upgrades. The money was raised from treasury bonds. Industries including textile, petrochemical, machinery and non-ferrous metal have enjoyed the discounted loans.

Shi declined to say whether tweaking the policy would lead to reduced subsidies or their abolishment.

But Xie Xuren, vice-minister of the State Economic and Trade Commission, said the government would "continue to expand the scope of loans and subsidies for technology innovation."

"The government will give subsidies to those key profit-making products, enterprises and industries needed in the market," Xie said.

The vice-minister said such a programme has played an important role in China in the last two years.

Sun Zhenyu, vice-minister of foreign trade and economic co-operation, said China's exports of high-tech products expanded this year, amid the slowdown of the world high-tech industry.

(China Daily November 16, 2001)