China WT/TPR/S/199/Rev.1 
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III. TRADE POLICIES AND PRACTICES BY MEASURE 
(1) INTRODUCTION  
1. Since its previous Trade Policy Review in 2006, China has, by and large, continued to 
liberalize gradually its trade and tr ade-related policies.  In particular, it has eliminated tariff-rate 
quotas on some items, and reduced the number of lines subject to automatic import licensing 
requirements.  Nonetheless, trade and trade-relate d measures, both at the border and internally, are 
still used as instruments of industrial policy. 
2. The tariff remains one of China’s main trade po licy instruments.  The overall average applied 
MFN tariff was 9.7% in 2007 (the same as in 2005).  The average applied MFN tariff rates for 
agricultural and non-agricultural products were 15.3%  and 8.8%, respectively (also the same as in 
2005).  Preferential tariff rates are applied under bila teral free-trade agreements to which China is a 
party;  the tariff averages ranged from 3.5% to 9.1%.  In 2007, China applied preferential tariffs 
unilaterally to 37 LDCs;  the tariff averages ranged from 9.0% to 9.5%, depending on the origin of 
goods.  Tariff-rate quotas on soybean oil, palm oil, and rapeseed oil (ten items) were eliminated in 
2006.  Tariff revenue accounts for a minor shar e of total tax revenue (3.3% in 2006). 
3. Whereas the average applied MFN tariff rate has remained largely unchanged, non-tariff 
barriers have been reduced;  for example, the number of lines subj ect to automatic import licensing 
requirements has declined.  China’s institutional and procedural framework on contingency measures 
has remained largely unchanged.  Between 1 Ja nuary 2005 and 30 June 2007, China initiated 39 anti-
dumping investigations.  China has not taken an y countervailing measures or safeguard measures 
since its previous Review.   
4. China has adopted measures to increase the a lignment of its national standards with 
international norms.  It has notified to the WT O a number of sanitary and phytosanitary (SPS) 
measures and technical barriers to trade (TBT).  With a large number of laws governing SPS measures, the SPS regime remains complex.  Unde r the Law on Government Procurement, goods may 
be purchased from foreigners only under exceptiona l circumstances;  however, in practice, 
procurement from foreign suppliers appears to occu r routinely for some products.  The law does not 
cover purchasing by state-owned enterprises (SOEs).  China is an observer to the WTO Agreement on 
Government Procurement (GPA), and submitte d its application for accession to the GPA in 
December 2007.   
5. China's already complex export regime has become  considerably more restrictive.  A variety 
of measures, including export taxes (notably "int erim export duties"), reduced rebates of VAT on 
exports, and export prohibitions, licensi ng, and quotas, are used to restrain, if not prohibit, exports of 
a considerable and growing numbe r of products.  Although some of  these export restraints are 
implemented to meet China's international obligations, many are intended to, inter alia,  reduce 
exports of products using large am ounts of natural resources and energy, or to reduce China's large 
trade surplus in an attempt to reduce trade friction (related to China's large and growing current 
account surplus).  For instance, the number of ta riff lines subject to interim export duties almost 
doubled in the last two years, VAT rebate rates on exports of some 2,800 lines (HS 8-digit) were eliminated or lowered in July 2007, and the number of lines subject to export quotas and licensing 
requirements has increased. 
6. China has continued to use policy tools to ch annel resources into certain activities, with a 
view, inter alia , to promoting investment in high technology, encouraging innovation, and protecting 
the environment (by, for example, reducing energy  consumption).  These tools include tax incentives, WT/TPR/S/199/Rev.1 Trade Policy Review 
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non-tax subsidies, price controls, and various form s of "guidance" including sector-specific "industrial 
policies".  In April 2006, China notified the Central Government's subsidies programmes to the WTO;  
these included income tax reductions and exemptions granted to enterprises located in selected areas, 
engaging in certain activities, or involving foreign ow nership (foreign-invested enterprises (FIEs)).  
With the entry into force of th e Enterprise Income Tax Law in 2008, tax incentives granted to FIEs 
will be gradually phased out, and after a five-year tr ansition period, there are to be no difference in tax 
incentives accorded to dom estic enterprises and FIEs.  Tax incentives given to FIEs based on export 
performance were removed at the end of 2007.   
7. Reform of the public sector, including SOEs, remains a major challenge.  Recent progress in 
the reform of SOEs by, inter alia , their reorganization, corporati zation, and privatization, has 
improved their performance;  by reducing state involvement or freeing-up resources once owned by the State, the reform has also helped the developm ent of the private (non-public) sector.  Nonetheless, 
SOEs continue to play a dominant role in the economy (accounting for some 35% of GDP), often 
enjoying monopoly positions in certain sectors.  By  contrast, the private sector continues to face 
constraints, including in access to finance.  A main  challenge to SOEs is to raise their productivity 
through further reforms;  private firms operating in China (especially FIEs) are, by and large, more 
productive than SOEs.    
8. Corporate governance has been improved, not only because of the development of the private 
sector and the corporatization of SOEs, but also  because of the entry into force of the Law on 
Enterprise Bankruptcy, which applies to all enterp rises (including SOEs) in China.  In addition, 
China's accounting standards have been  revised to further align them with international practices.  At 
the same time, to promote competition in the economy, the Anti-Monopoly Law was promulgated and 
is to enter into force on 1 August 2008.  All sectors of the economy, apart from certain activities 
related to agriculture, are covered by this law.  Ho wever, the implementing deta ils of the law have not 
yet been formulated. 
9. One of the major targets of the Eleventh Five-Y ear Plan is to ensure adequate returns to 
investment in innovation by protecting intellectual property rights.  Thus, China is revising several 
pieces of legislation, including the Patent Law and the Trademark Law, to achieve an appropriate balance between the protection of intellectual propert y rights (IPR) and the promotion of competition.  
The enforcement of IPR protection has been stre ngthened, although questions remain about the 
sufficiency of fines and criminal penalties to deter IPR violations. 
(2) M
EASURES DIRECTLY AFFECTING IMPORTS  
(i) Procedures  
(a) Customs procedures  
10. Since 2005, China's customs procedures have re mained largely unchanged.  Importers (and 
exporters) must register with MOFCOM or its au thorized bodies before filing customs declarations.1  
Import declarations can be made either in person, or  by an enterprise authorized to do so, in paper or 
                                                      
1 Under the Rules for the Registration of Foreign Trade Operators, issued by MOFCOM and effective 
from 1 July 2004, the registration documents include:  a registration form; a copy of the business certificate and a copy of the organization code certificate of the enterp rise; the certificate of approv al of the foreign-invested 
enterprises, if the trader is an enterprise with fore ign investment; a self-employed entrepreneur must submit a 
notarized property certificate, while a foreign enterprise  (registered outside China) must submit a notarized 
certificate of creditworthiness. China WT/TPR/S/199/Rev.1 
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electronic form.2  Declarations must be made to Customs at the port of entry within 14 days of the 
goods' arrival3, and accompanied by:  contract of import (or export), invoices, bill of lading, 
authorization agreement if declared by agents, import (or export) approva l documents, and processing 
trade handbook (paper or electronic form).  At the ti me of customs declaration, importers must meet 
the requirements of Customs and the General Admini stration of Quality Supervision, Inspection and 
Quarantine (AQSIQ).   
11. Since October 2005, the General Administration of Customs has been implementing pilot 
projects to reform China's regional customs trans it system, under which goods authorized by Customs 
can be transported within China as bonded goods.4  In July 2006, Customs decided to expand the pilot 
projects to some other regions, while local customs authorities in the rest of China can apply to be 
included in the pilot project.  Prior to the refo rm, import and export enterprises had to declare goods 
and undergo clearance at both the port of entry and inland customs.  After the reform, enterprises are 
required to declare only once at the place where they are registered.  Also, the authorities indicate that 
review of customs declaration documents for impo rted or exported products is to be conducted 
electronically after the customs transit reform.  Acco rding to the authorities, the release of goods can 
be completed within one working day under the new customs transit system (previously two working 
days). 
12. Under the Administrative Reconsideration Law,  administrative decisions made by Customs 
may be appealed, either to Customs, or to a People's Court.5  The Provisional Regulations on 
Processing Customs Appeals stipulate that Customs must give its decision within 60 days after the 
appeal for administrative review is file d (with a possible extension of 30 days).6  According to data 
provided by the authorities, about 95% of requests for appeal against decisions were processed in 
2005, and about 55% of the appeals processed were re jected;  data for 2006 was not made available to 
the Secretariat.  
(b) Preshipment inspection 
13. China introduced a preshipment inspection (PSI) requirement by the revision of the 
Implementing Regulation of the Law on Import a nd Export Commodity Inspection;  the revised 
version entered into force on 1 December 2005.7  China has not yet notified this requirement to the 
WTO.  Under the regulation, preshipment inspecti on is required for imports of:  certain commodities 
related to national security, with high value or co mplicated technology;  equipment exceeding certain 
height, length or volume;  solid waste used as raw materials;  and certain used electronic products that 
are deemed to affect public health and environmen t.  The authorities state that the PSI requirement 
was introduced to, inter alia , protect public health, improve the phytosanitary situation, protect the 
                                                      
2 Although almost all declarations can be submitted in electronic form, a paper copy must also be 
submitted. 
3 Customs Law.  Viewed at:  http://www.custo ms.gov.cn/YWStaticPage/433/69eabfa8.htm (in 
Chinese) [11 February 2008]. 
4 Customs transit reform started at 11 Customs in the Yangtze River delta, the Pearl River delta, and 
the Bohai sea region. 
5 In accordance with the Administ rative Reconsideration Law, indivi duals, legal persons, or other 
organizations may choose to apply for administrative review to the customs authority of a higher level, or appeal to a People's Court.  However, appeals of decisions related to tariffs and other taxes must be made to Customs 
first, then to the People's Court in the case of discontent.  
6 Provisional Regulations on Processing Customs A ppeals.  Viewed at:  h ttp://www.customs.gov.cn/ 
YWStaticPage/433/5a80ac4e.htm (in Chinese) [11 February 2008]. 
7 Implementing Regulation of the Law on Import and Export Commodity Inspection (State Council 
Decree No. 447, 2005).  Viewed at:  http://www.chinacourt.or g/flwk/show1.php? file_id=104565 (in Chinese) 
[11 February 2008]. WT/TPR/S/199/Rev.1 Trade Policy Review 
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environment, and prevent counterfeit goods from entering China.8  China has designated 23 foreign 
institutions to conduct PSI and to issue certificates.  It was not clear to the Secretariat whether China 
sent people or institutions abroad to conduct PSI in spections.  PSI certificates are not used for customs 
valuation. 
(ii) Customs valuation and rules of origin 
(a) Customs valuation 
14. Based on the Rules Regarding Determination on Customs Value of Imported and Exported 
Goods9, customs value is determined on the basis of  transaction value, i.e. the c.i.f. price.10 Where it is 
not possible to determine the transaction value, the customs value is based on:  the transaction value 
of identical or similar goods imported into the custom s territory of China at or  about the same time as 
the goods being valued;  the sales value of identi cal or similar goods imported into the customs 
territory of China, allowing the deduction of releva nt expenses incurred in China;  the sum of the 
production cost of the goods, the profit of identical or similar goods sold in China, and the freight, insurance, and relevant expenses incurred before the goods are transported to and unloaded in China.   
(b) Rules of origin 
15. China applies non-preferential rules of origin in accordance with the Regulations on Rules of 
Origin of Import and Export Commodities (State Council Decree No. 416 in 2004).
11  Under Article 3 
of the Regulations, for goods produced or manufactured  wholly within one country or region, origin is 
defined as that country or region;  for goods produ ced in two or more countries or regions, the place 
of origin is the country or region where "substan tial transformation" has been made and finalized.  
"Substantial transformation" is defined either as a change in the tariff heading of the good according 
to China's tariff classification, or if the value a dded is no less than 30% of the total value of the 
product.12  
16. Preferential rules of origin are applied under the Asia-Pacific Trade Agreement (APTA) and 
preferential/free-trade agreements China has concl uded with trading partners.  The China-Pakistan 
rules of origin came into effect on 1 January 2006;  and the China-Chile rules of origin entered into 
force on 1 October 2006 (Table III.1). 
                                                      
8 The authorities consider that th e PSI requirement can function as  a precautionary measure against 
counterfeit. 
9 General Administration of Customs, Decree No. 148, 2006.  The revised version of the rules came 
into force on 1 May 2006.  The revision was mainly intended to achieve further clarification and to better 
incorporate relevant international agreements such as the Agreement on Implementation of Article VII of GATT 
1994. 
10 If freight, insurance or other charges on imports cannot be determined by the importer, they are 
calculated by Customs.  Freight char ges are calculated on "the basis of the freight rate or amount published by 
the transportation industry at the time of importation";  insu rance costs are calculated as 0.3% of the sum of cost 
and freight, for goods imported by land, air or sea, and as 1% of the price for goods imported by rail or road 
(WTO document G/VAL/N/1/CHN/1, 5 July 2002). 
11Regulations on Rules of Origin of Impor t and Export Commodities. Viewed at:  
http://www.chinacourt.org/flwk/s how1.php?file_id=96376 (in Chinese) [11 February 2008]. 
12 Regulations on the Specification of Substantial Ch ange in the Non-Preferen tial Rules of Origin.  
Viewed at:  http://www.chinacourt.org/flwk/show1.php?f ile_id=98464 (in Chinese) [11 February 2008].   China WT/TPR/S/199/Rev.1 
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Table III.1 
China's preferential rules of origin, 2007 
Agreement/Party Rules 
APTA Products must be wholly produced or obtained in the country, or the value of non-originating parts or 
components used in the manufacture must be less than 50% of the f.o.b. value of the product.  The country of 
origin is defined as the country where the last manuf acturing operation takes place.  In addition, goods must 
enter China directly. 
ASEAN Products must be wholly produced or obtained in ASE AN countries;  or the content of products originating in 
any one of the ASEAN countries should be no less than  40% of total content;  or the value of the non-
originating parts or components used in the manufactur e of the products must be no more than 60% of the 
f.o.b. value of the product.  The country of origin is  defined as the country where the last manufacturing 
operation takes place.  In addition,  goods must enter China directly. 
Least developed 
countries Products must be wholly produced in the country of orig in or the value of non-originating parts used in the 
manufacture of a good may be up to 60% of the f.o.b. value of the product.  Goods under the APTA 
(originating in Bangladesh, and the Lao PDR) mu st enter China through "direct transportation". 
Hong Kong, China Products must be wholly produced in Hong Kong, China or have Hong Kong, China content of at least 30% of 
value added;  in addition, the final stage of processing must be carried out  in Hong Kong, China.  Goods must 
enter China directly. 
Macao, China Products must be wholly pr oduced in Macao, China or ha ve Macao, China content of  at least 30% of value 
added or have resulted in a change in the HS 4-digit tari ff heading;  in addition, the final stage of processing 
must be carried out in Macao, China. 
Chile Products must be wholly produced or obtained in Ch ile, or the value of non-originating parts or components 
used in the manufacture must be less than 60% of the f. o.b. value of the product.  The country of origin is 
defined as the country where the last manufacturing operation takes place. 
Pakistan Products must be wholly pr oduced or obtained in Pakistan, or the value of non-originating parts or 
components used in the manufacture must be less than 60% of the f.o.b. value of the product.  The country of 
origin is defined as the country where the last manufacturing operation takes place. 
Source : Information provided by the Chinese authorities. 
(iii) Tariffs  
17. The basic legal framework for China's tariff is provided by the Customs Law and related 
regulations.  China's tariff schedules are part of  the Regulations on the Import and Export Tariffs;  
since 2007, China has adopted the Harmonized System (HS) 2007 (an updated version of the 
HS 2002).  The tariff is set by the Tariff Commission,  which is an inter-ministerial body composed of, 
inter alia , officials from the Ministry of Finance,  Customs, MOFCOM, the NDRC, and the State 
Council General Office.13  In 2006, tariff revenue accounted fo r 3.3% of total tax revenue.  A study 
found that in 2001 China's import tariffs we re equivalent to an export tax of 12%14;  however, it is 
likely that the decline in average tariff protection since then has reduced this export tax burden. 
18. China’s tariff rates on imports comprise bound MF N tariff rates, applied MFN tariff rates 
(either "'standard' applied MFN tariff rates", or "i nterim applied MFN duty rates"), tariff-quota rates, 
"agreement" tariff rates15, "special preferential" tariff rates, and general tariff rates.16  Where goods 
                                                      
13 Other members of the Tariff Commission are:  the State Administration of Taxation, the Legislative 
Affairs Office of the State Council, the Commission of Science, Technology and Industry for National Defence, 
the Ministry of Land and Resources, the Ministry of Information Industry, and the Ministry of Agriculture.  The 
Commission's functions include:  reviewing and adjusting tariff headings and import and export duty rates;  
determining products subject to interim tariffs and their ra tes;  determining tariff quotas and associated rates;  
and determining the imposition of: anti-dumping, counterva iling, safeguard duties, retaliatory duties, and other 
tariff measures.  "Retaliatory" tariffs are applied when Ch ina's trading partners impose a discriminatory tariff or 
measure against goods originating in China;  according to the authorities, since its entry into the WTO, no 
retaliatory duty has been applied, but China reserves its rights to do so in the future.  
14 Tokarick (2006). 
15 "Agreement tariffs", as classified in China's tari ff schedule, include various preferential tariffs under 
bilateral/regional trading agreements or arrangements. 
16 Regulations on Import and Export Tariff, Article 9. WT/TPR/S/199/Rev.1 Trade Policy Review 
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from countries or customs territories appear in more than one of these categories, the more favourable 
rate applies.  Inward article duties apply (secti on (2)(iii)(d)) for articles exceeding a certain amount 
and entering the Customs Territory of China for personal use. 
(a) MFN tariff rates 
Bound tariff rates 
19. All tariff lines are bound at ad valorem  rates, and applied MFN tariff rates have tended to be 
close to the bound rates, thereby imparting a high degr ee of predictability to China's MFN tariff.  In 
2007, the average bound rate was 9.9%;  15.3% for ag ricultural products (WTO definition) and 9.0% 
for non-agricultural products (Table III.2 and Char t III.1).  Bound rates vary from zero to 65% for 
agricultural products, and from zero to  50% for non-agricultural products.   
Applied tariff rates 
20. China's 2007 applied MFN tariff consisted of 7, 645 lines at the HS 8-digit level (HS 2007), 
compared with 7,550 lines (HS 2002) in 2005.17  Some 99.3% of the tariff lines were ad valorem .  Of 
the 52 lines subject to non- ad valorem  rates, 44 were at specific rates, 3 at alternate rates, and 5 at 
rates involving either an ad valorem  rate, if the price was below or equal to a certain amount, or a 
compound rate, if the price was higher.18   The authorities have provided the ad valorem  equivalents 
(AVEs) for 40 lines out of 44 lines subject to specific  rates;  the simple average AVE of the 40 lines is 
14.2%.    
21. While the "standard" applied MFN tariffs must  be adopted on an annual basis, "interim" 
applied MFN tariffs (interim tariffs) may be introduced or amended by the Tariff Commission 
whenever it considers it necessary.  Interim tariffs ar e usually applied for a specific period, such as 
one year.19  As at 1 January 2007, 149 tariff lines were fully subject to interim tariffs.20  Where a 
particular tariff line has an interim tariff rate, the lower of the interim tariff and the standard applied 
MFN tariff is adopted for countries or customs te rritories to which China accords at least MFN 
treatment.  Interim rates do not apply to imports to  which general tariff rates are applied.  As MFN 
tariffs and interim tariffs both appl y on an annual basis, and the inte rim rates are usually lower than 
the standard applied MFN tariff rates, the interi m tariff effectively replaces the MFN tariff for the 
relevant products.  The authorities state that interi m duties have been introduced to encourage imports 
of products with a view to reducing China’s trade surplus;  however, the effect of these lower duties 
                                                      
17 China revised its tariff schedule in December 2007, so that the 2008 applied MFN tariff consists of 
7,758 lines.  The applied MFN tariff rates were lowered on 45 lines at the HS 8-digit level.  Apparently, the simple average tariff rate remains the same as in 2007 (State Council Tariff Commission Notice on 2008 Tariff 
Schedule.  Viewed at:  http://www.china.com.cn/policy/txt/2007-12/27/content_9442200.htm (in Chinese) 
[8 February 2008]). 
18 The tariff lines subject to specific rates were mainly in Chapters 37 (photographic and 
cinematographic goods), 2 (meat and edib le offal of poultry), and 5 (frozen gi zzards).  The tariff lines subject to 
alternate rates were mainly in Chapter 40 (natural rubber), and the compound rates applied to five lines in 
Chapter 85 (video tape record ers and television cameras). 
19 The authorities indicate that the criteria used to sel ect goods subject to interim tariffs are different for 
different types of products.  For example, for raw materials, the criterion is domestic demand, and for some 
parts and equipment, it is the level of processing.    
20 If including "ex-" lines, interim tariffs applied to a nother 164 tariff lines.  However, the analysis here 
includes only the 149 lines that were fully subject to interim rates.  In the 2008 tariff schedule, there are 
624 tariff lines subject to interim tariffs, of which, 2 12 are "ex-" lines.  These interim tariffs, however, apply 
from 1 January to 31 March 2008 (MOF online inform ation.  Viewed at:  http://www.mof.gov.cn/news/file/ 
20071226shuiweihuei200725f3_20071226.pdf (in Chinese) [8 February 2008]).  China WT/TPR/S/199/Rev.1 
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on imports is likely to be small, as they redu ced the overall average applied MFN rate by a mere 
0.1 percentage point (from 9.8% to 9.7%) in 2007.   Tariff-rate quotas (TRQs) are specified in the 
applied MFN tariff schedule;  the quotas currently appl y to wheat, maize, rice, sugar, wool, wool tops, 
cotton, and chemical fertilizers (see below).  In 2007, China's applied MFN tariff contained 
65 different ad valorem  rates, ranging from zero to 65% (s ame as in 2005) (Chart III.2).   
Table III.2 
Structure of the MFN tariff, 2007 
(Per cent) 
  2001 2003 2005 2007 2007 
(including 
AVEs)a Final 
boundb 
rate 
 Bound tariff       
1. Bound tariff lines (% of all tariff lines) n.a. 100.0 100.0 100.0 n.a. 100.0 
2. Simple average bound rate n.a. 11.3 10.0 9.9 n.a. 9.9 
    Agricultural products (HS 01-24) n.a. 16.4 14.7 14.6 n.a. 14.6 
    Industrial products (HS 25-97) n.a. 10.4 9.1 9.1 n.a. 9.1 
    WTO agricultural products n.a. 16.9 15.3 15.3 n.a. 15.3 
    WTO non-agricultural products n.a. 10.4 9.1 9.0 n.a. 9.0 
         Textiles and clot hing n.a. 15.1 11. 5 11.5 n.a. 11.5 
3. Tariff quotas (% of tariff lines) n.a. 0.7 0.7 0.6 n.a. 0.6 
4. Duty-free tariff lines (% of tariff lines) n.a. 5.9 7.7 7.7 n.a. 7.7 
5. Non- ad valorem  tariffs (% of tariff lines) n.a. 0.0 0.0 0.0 n.a. 0.0 
6. Non- ad valorem  tariffs with no AVEs (% of tariff lines) n.a. 0.0 0.0 0.0 n.a. 0.0 
7. Nuisance bound rates (% of tariff lines)c n.a. 2.3 2.6 2.6 n.a. 2.6 
 Applied tariff       
8. Simple average applied rate 15.6 11.1 9.7 9.7  9.7 n.a. 
    Agricultural products (HS 01-24) 23.2 16.3 14.6 14.5  14.5 n.a. 
    Industrial products (HS 25-97) 14.3 10.1 8.9 8.8  8.9 n.a. 
    WTO agricultural products 23.1 16.8 15.3 15.3  15.2 n.a. 
    WTO non-agricultural products 14.4 10.1 8.8 8.8  8.8 n.a. 
        Textiles and clot hing 21.1 15.1 11.5 11.5  11.5 n.a. 
9. Domestic tariff "peaks" (% of all tariff lines)d 1.7 1.9 2.6 2.3  2.4 n.a. 
10. International tariff "peaks" (% of all tariff lines)e 40.1 25.2 15.6 15.4 15.6 n.a. 
11. Overall standard deviation of tariff rates 12.2 8.4 7.6 7.5  7.5 n.a. 
12. Coefficient of variation of tariff rates 0.8 0.8 0.8 0.8  0.8 n.a. 
13. Tariff quotas (% of all tariff lines) 0.9 0.7 0.7 0.6  0.6 n.a. 
14. Duty free tariff lines (% of all tariff lines) 3.0 6.7 8.6 8.7  8.7 n.a. 
15. Non- ad valorem  tariffs (% of all tariff lines) 0.7 0.7 0.7 0.7  0.7 n.a. 
16. Non- ad valorem  tariffs with no AVEs (% of all tariff lines) 0.7 0.7 0.7 0.7  0.2 n.a. 
17. Nuisance applied rates (% of all tariff lines)c 1.5 2.1 2.6 2.7  2.7 n.a. 
n.a. Not applicable. 
a AVEs for specific rates provided by the authorities, as available.   
b Based on 2007 tariff schedule.  Implementa tion of final bound rates to be reached in 2010.  Currently all but 45 tariff lines  have 
 reached the U.R. implementation rate;  40 tariff lines are to follow in 2008 and 5 more in 2010. 
c Nuisance rates are those greater than zero, but less than or equal to 2%. 
d Domestic tariff peaks are defined as those exceeding three ti mes the overall simple average applied rate (indicator 8). 
e International tariff peaks are defined as those exceeding 15%. 
Note: The 2001 tariff is based on HS96 nomenclature and consists  of 7,111 tariff lines; the 2003 and 2005 tariffs are based on HS02 
nomenclature and consist of 7,445 and 7, 550 tariff lines, respectively;  the 2007 ta riff is based on HS07 nomenclature and 
consists of 7,645 tariff lines.  Calculations ex clude in-quota rates and specific rates.  The ad valorem  part of alternate rates were 
taken into account for the calculations.  Ca lculations for MFN applied tariffs were based on app lied duty rates including the 
interim duty rates.  The simple averages  not including interim rates are respectively 15.9%, 11.2%, 9.9% and 9.8% for 2001, 
2003, 2005 and 2007.  For 2007, interim duty rates are only included when fully applied at the 8-digit level.  For the other ye ars, 
interim duty rates are also included when pa rtly applied to an 8-digit tariff line. 
Source:  WTO Secretariat calculations, based on data provided by the Chinese authorities.  WT/TPR/S/199/Rev.1 Trade Policy Review 
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02468101214161820
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Calculations exclude specific and in-quota tariff rates and include the ad valorem  part of alternate rates.   Applied averages are 
calculated including interim duty rates.
WTO Secretariat calculations, based on data provided by the Chinese authorities.Per centChart III.1                       
Average applied MFN rates 2005 and 2007 an d final bound tariff, by HS section
Note:
Source :01   Live animals & products   
02   Vegetable products
03   Fats & oils      04   Prepared food, etc.
05   Mineral products
06   Chemicals & products07   Plastic & rubber
08   Hides & skins
09   Wood & articles10   Pulp, paper, etc.
11   Textiles & articles
12   Footwear, headgear13   Articles of stones
14   Precious stones, etc.
15   Base metals & products16   Machinery
17   Transport equipment
18   Precision instrument19   Arms & ammunition
20   Miscellaneous manufacturing
21   Works of art, etc.Average applied rate
 2005 and 2007
  (9.7%)Average final bound rate
(9.9%)
MFN 2005
MFN 2007 
Final bound 2010
 
22. In 2007, the overall simple average applied MFN duty rate in China remained at 9.7%21, the 
same as in 2005, owing partly to changes in the HS nomenclature, a nd to the small proportion of tariff 
lines had their rates reduced or increased.22  The simple average applied MFN duty rate for 
agricultural products (WTO definition) and non-agri cultural products in 2007 al so remained the same 
as in 2005, at 15.3% and 8.8%, respectively.23   
                                                      
21 The analysis in this report includes interim rates and out-of-quota rates (instead of in-quota rates);  as 
China acceded to the WTO Agreement on Information Techno logy (ITA) in April 2003, the analysis also uses 
ITA tariff rates, which are incorporated in China's sche dule of applied MFN tariffs. Further, the analysis here 
excludes both inward article duties, an d tariff exemptions for imports under processing trade (section (2)(iii)(c)). 
With AVEs included, the overall simple average applied MFN duty rate in China still remains at 9.7% in 2007. 
22 Between 2005 and 2007, China reduced its applied MFN rates unilaterally on around 3% of total 
lines, with rates reduced between 0.2 percentage points  and 12.9 percentage points.  Applied MFN duty rates 
were reduced, for example, on:  143 lines (at the HS 8-digit) on 1 January 2006, 42 lines on 1 July 2006, and 
44 lines on 1 January 2007.  On 1 June 2007, interim duties were lowered on 209 tariff lines, including natural resources and parts and components.  Tariff rates were in creased for:  fresh cheese an d curd (from 10% in 2005 
to 12% in 2007);  belts and bandoliers (from 0 to 10%);  electro-thermal water dispensers and other electro-
thermal appliances (from 18.3% to 32%);  and certain swimwear of synthetic fibres (from 16% to 17.5%).  The number of tariff lines for which applied MFN duty rates were increased was less than the number of lines for 
which duty rates were reduced. 
23 The simple average applied MFN duty rates for agricultural products (WTO definition) and non-
agricultural products in 2007 including AVEs were 15.2% and 8.8%, respectively.  China WT/TPR/S/199/Rev.1 
 Page 51 
 
 
 (2.7%)  (3.4%)  (9.5%)  (15.7%)  (41.9%)  (17.5%)  (8.6%) 
 (9.2%) 
(3.8%)(15.4%)(42.8%)(17.1%)(8.7%)
(2.4%)
05001,0001,5002,0002,5003,0003,5004,000
Duty free >0-5 >5-10 >10-15 >15-20 >20-25 >25
Figures in parentheses indicate the share of total lines.   To tals do not add to 100% as no tariff rates are available for 
0.6% of the tariff lines (i.e. those that have specific tariff rates) for both year s.  Calculations ex clude in-quota rates 
and specific rates, and include interim duty rates.
WTO Secretariat calculations, based on data provided by the authorities.Number of tariff linesChart III.2
Distribution of MFN tariff rates, 2005 and 2007
Tariff rates (%)
Note:
Sourc e:MFN 2005
MFN 2007
 
23. The dispersion in applied MFN rates, indicated by the coefficient of variation, has also 
remained unchanged since 2005, at 0.8%.  The standa rd deviation of tariff rates was 7.5%, slightly 
lower than the 7.6% in 2005. 
24. Tariff "escalation" occurs when import tari ffs on products increase as they undergo 
processing (or add value).  Tariff escalation results in  a bias against imports of more processed goods 
and therefore gives an effective rate of tariff prot ection to the processed goods that is higher than the 
nominal rate.24  China's applied MFN duties are subject to negative escalation between unprocessed 
and semi-processed products, and positive escala tion between semi-processed and fully processed 
products (Chart III.3).25   
                                                      
24 The effective rate of protection (ERP) measures the protection provided by the entire structure of 
tariffs, taking into account those levied on inputs as well as those on final products. 
25 The discrepancy between tariffs applied to semi-processed and processed goods can be a potential 
impediment to the efficient allocation of domestic resources, as well as an obstacle to local processing of semi-
finished goods in the exporting countries;  consequen tly, it can impede the industrialization of developing 
countries and LDCs seeking to export products with hi gher value-added to China, if not mitigated by 
preferential schemes. WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 52 
 
 
n.a.n.a.051015202530
Food,
beverages and
tobaccoTextiles and
leather Wood and 
furniturePaper printing
and publishingChemicals Non-metallic
mineral
productsBasic metals Fabricated
metal products
and machineryOther
manufacturingPer centChart III.3
Tariff escalation by 2-digit ISIC industry, 2007
n.a.
Note:
Source :Not applicable.
Calculations exclude in-quota and specific rates, and include interim duty rates.
WTO Secretariat calculations, based on data provided by the Chinese authorities.Average applied rate in 
manufacturingFirst stage of processing
Semi-processed
Fully processed
 
Tariff-rate quotas 
25. Tariff-rate quotas (TRQs) are regulated under the Interim Measures on Administration of- 
Tariff Rate Quota for Importation of Agricultu ral Products and the Interim Measures on the 
Administration of Tariff Rate Quota for Importation of Fertilizers.  Quantities of TRQs, their allocation methods, and appli cation conditions are published annually in MOFCOM and NDRC 
online information. 
26. On 1 January 2006, TRQs on soybean oil, pa lm oil, and rapeseed oil (10 items) were 
eliminated;  these items are currently subject to automatic import licences (section (2)(v)).  As a 
consequence, in 2007, TRQs were applied to 8 cat egories of imported goods, involving 45 tariff lines 
at the HS 8-digit level.  These were wheat (6 lines), ma ize (5), rice (14), sugar (6), wool (6), wool tops 
(3), cotton (2), and chemical fertilizers (3).  In  2007, a sliding duty, ranging from 6% to 40%, was 
applied to out-of-quota imports of cotton
26;  the average applied in-quota rate was 4.8%, while the 
out-of-quota rate around 50%. 
27. TRQs for the next calendar year are allocated to users no later than 31 December of the 
current year;  quotas are then valid throughout the next calendar year.  Unused quotas must be returned to the authorities (within  a scheduled time limit) for reallocation.  TRQ holders that do not 
                                                     
 
26 Application of the sliding duty (5%-40%) on out-of-quota imports of cotton began in 2005.  The duty 
rates were changed to 6%-40% in 2006.  In 2007, it was applied so that, for cotton valued above a certain threshold, the 6% tariff rate applied;  for cotton valued below the threshold, the rate was calculated based on an 
equation, but no higher than 40%, taking into considera tion the interim tariff rate, c.i.f. price of cotton, and the 
exchange rate.  The threshold for year 2007 was Y 11.397 per kg.  The sliding duty rates were again changed, to 
5%-40% in 2008.  China WT/TPR/S/199/Rev.1 
 Page 53 
 
 
fully use the TRQ for the year and do not return the unfilled quota within the scheduled time limit, 
will have their quota allocation for the subsequent year reduced. 
28. Applications must be submitted to entities with  the authorization of either MOFCOM (for 
sugar, wool, wool tops, and chemical fertilizers) , or the NDRC (for grain and cotton).  MOFCOM and 
NDRC, through the authorized entities, allocate impor t tariff-rate quotas to applicants.  The allocation 
of TRQs for agricultural products is based on the nu mber of applicants, previous import performance, 
production capacity, and other relevant standards.  Th e allocation of TRQs for wool and wool tops is 
on a "first come, first served" basis.27  TRQs for chemical fertilizers are allocated on the basis of the 
number of applicants, previous import performan ce, capacity of production and operation, quota 
utilization record, and other factors. 
(b) "Agreement", "special preferential", and general rates 
Agreement tariff rates 
29. Under its bilateral and regiona l trade agreements, China offers preferential tariff rates 
(agreement rates) to:  members of the Asia-Pacific Trade Agreement (APTA);  members of ASEAN;  
the Special Administrative Regions of Hong Kong an d Macao;  Chile;  and Pakistan (Table III.3).   
30. Under the APTA28, tariffs were reduced on certain imports from Bangladesh, India, the 
Republic of Korea, Lao PDR, and Sri Lanka  on 1 January 2006 and 1 September 2006.29  
Consequently, the average preferential tariff under the APTA fell to 9.1% in 2007 (from 9.5% in 
2005).  The rates for imports of agricultural produc ts (WTO definition) and non-agricultural products 
were 14.3% and 8.3% respectively, slightly lo wer than the corresponding applied MFN duty rates 
(15.3% and 8.8%). 
31. Under the Framework Agreement on Comprehe nsive Economic Cooperation between China 
and ASEAN, zero tariffs were applied to some  imports from six ASEAN countries on 20 July 2005 
(Brunei, Indonesia, Malaysia, Myanmar, Si ngapore and Thailand).  On 1 July 2006 and 
1 January 2007, tariff reductions  were implemented to some imports from the Philippines and 
Viet Nam.30  Imports from Cambodia and Lao PDR are subject to reduced tariffs under the Early 
Harvest Programme under the Framework Agreem ent on Comprehensive Economic Cooperation 
between China and ASEAN.  In 2007, the aver age preferential rates for ASEAN members ranged 
from 6.0% to 9.0%, lower than the overall applied MFN average (9.7%).   
32. Under the Closer Economic Partnership Ag reements (CEPAs), the overall average 
preferential rates for goods originated in H ong Kong and Macao SARs were 7.5% and 8.5%, 
respectively, in 2007.  In the same year, the av erage preferential tariff under the China – Chile FTA 
was 3.5%, the lowest among "agreement rates".31  Under the China – Pakistan FTA, which entered 
into force on 1 July 2007, China applied preferential tariffs to 5,874 tariff lines including 2,171 lines 
subject to preferential tariffs under the Early Ha rvest Programme for the Free Trade Agreement 
between China and Pakistan.32  This lowered the overall average preferential tariff to 7.9% 
(from 8.2%). 
                                                      
27 Reallocation of TRQs is also on a "first come, first served" basis.  
28 The Bangkok Agreement was renamed the Asia -Pacific Trade Agreement in 2 December 2005. 
29 Further reductions were made on 1 January 2008. 
30 The authorities state that the average agreement tariff rate with the eight ASEAN members was 
6.3%. 
31 Further reductions were made on 1 January 2008. 
32 Under the Agreement on the Early Harvest Progra mme for the Free Trade Ag reement between China 
and Pakistan, from 1 January 2006, China reduced tariffs on 2,171 lines (HS 8-digit) originating in Pakistan.  Further reductions were made on 1 January 2008. WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 54 
 
 
Table III.3 
Summary analysis of China' s preferential tariff, 2007 
(Per cent) 
 Number of 
preferential 
lines Overall 
average WTO 
agriculture Grains WTO non-
agriculture Leather, 
rubber, 
footwear & 
travel goods Textiles 
& 
clothing Transport 
equipment Petroleum 
MFN  9.7 15.3 33.9 8.8 12.7 11.5 12.5 5.5 
Preferential tariff rates         
APTAa 1,652 9.1 14.3 33.8 8.3 11.5 10.4 12.0 5.4 
ASEANb          
   Brunei Darussalam 5,188 6.1 6.5 33.9 6.0 7.5 7.8 11.7 4.9 
   Cambodia 486 8.8 10.3 33.9 8.5 12.7 11.5 12.5 5.5 
   Indonesia 4,941 6.2 6.5 33.9 6.1 8.5 8.2 11.8 5.4 
   Laos 372 9.0 12.0 33.9 8.5 12.7 11.5 12.5 5.5 
   Malaysia 4,973 6.1 6.5 33.9 6.1 8.2 8.3 10.9 4.9 
   Myanmar 5,146 6.0 7.5 33.9 5.8 7.5 7.2 9.7 4.9 
   Philippines 4,974 6.5 8.7 33.9 6.1 8.0 8.1 11.3 4.9 
   Singapore 5,270 6.0 6.5 33.9 5.9 7.4 7.8 9.6 4.9 
   Thailand 4,939 6.2 6.9 33.9 6.1 8.6 7.8 11.3 4.9 
   Viet Nam 4,929 6.2 7.1 33.9 6.1 7.7 8.0 11.0 5.5 
Hong Kong, China 1,443 7.5 13.3 33.9 6.6 9.3 5.4 12.4 5.2 
Macao, China 644 8.5 14.3 33.9 7.6 11.3 7.8 12.5 4.9 
Pakistan (up to 30 June) 2,171 8.2 13.6 33.8 7.4 11.1 6.3 12.0 5.4 
Pakistan (as of 1 July) 5,874 7.9 13.4 33.6 7.0 10.8 6.1 11.6 5.1 
Chile 6,722 3.5 8.3 33.2 2.8 4.2 0.3 0.7 4.0 
Unilateral preferential tariff rates for LDCs  
Special rates for 
28 African LDCsc 186 9.5 15.0 33.9 8.6 12.0 11.1 12.5 5.2 
Special rates for          
   Bangladesh 165 9.5 15.1 33.9 8.6 11.2 10.7 12.5 5.5 
   Cambodia 242 9.3 13.9 33.9 8.5 12.7 10.7 12.5 5.5 
   Laos 446 9.0 13.1 33.6 8.3 11.2 9.7 12.5 5.5 
   Myanmar 390 9.1 12.6 33.9 8.5 12.0 10.5 12.5 5.5 
Special rates for some 
Asia and Pacific 
countriesd 278 9.2 14.9 33.9 8.3 12.0 10.1 12.5 5.5 
Bangladeshe 1,708 8.9 14.2 33.8 8.1 10.3 9.7 12.0 5.4 
Laosf 2,144 8.0 9.6 33.5 7.7 10.3 8.8 12.0 5.4 
Cambodiag 606 8.6 9.8 33.9 8.4 12.7 10.7 12.5 5.5 
Myanmarg 5,197 5.9 6.7 33.9 5.8 7.1 7.1 9.7 4.9 
a Preferential rates under APTA apply to Bangladesh, I ndia, the Republic of Korea, Lao PDR, and Sri Lanka. 
b Including Early Harvest Ar rangement as applicable. 
c These are Angola, Benin, Burundi, Cape Verde, Central Afri can Republic, Comoros, Democratic Republic of Congo, Djibouti, 
Equatorial Guinea, Eritrea, Ethiopia, Guin ea, Guinea-Bissau, Lesotho, Liberia, Ma dagascar, Mali, Mauritania, Mozambique, 
Niger, Rwanda, Senegal, Sierra Leone, S udan, Tanzania, Togo, Uganda, and Zambia. 
d These are Afghanistan, the Maldives, Samoa, Vanuatu, and Yemen. 
e Including APTA preferential rates, a nd special preferential tariff rates. 
f Including APTA preferential rates, ASEAN preferen tial rates, and special pr eferential tariff rates. 
g Including ASEAN preferential rates, a nd special preferential tariff rates. 
Note: Calculations exclude in-quota and sp ecific rates and include interim duty rates.  The number of preferential lines only 
corresponds to tariff lines that are lower than MFN applied (including interim) rates. 
Source:  WTO Secretariat calculations, based on information provided by the Chinese authorities.  China WT/TPR/S/199/Rev.1 
 Page 55 
 
 
Special preferential tariff rates 
33. In 2007, unilateral special preference tariffs (z ero rated) were offered to imports of some 
goods from 37 least developed countries (LDCs) w ith which China has certain tariff agreements.33  
Average tariffs on these LDCs ranged from 9.0% to 9.5%, slightly lower than the overall simple 
average applied MFN rate (9.7%).  The authoriti es indicate that 98% of imports from these LDCs 
enjoy zero tariff rates. 
General tariff rates 
34. General tariff rates have remained unchanged since China's previous Trade Policy Review;  
they are applied to imports from countries or customs territories that do not have reciprocal trade 
agreements with China or to im ports whose origin cannot be dete rmined.  These rates apply to 
El Salvador, as well as the territories of some EC member States.34 
(c) Tariff exemptions and reductions 
General tariff exemptions and reductions 
35. Duty exemptions and reductions may appl y to goods imported into or exported from 
designated areas, by designated enterprises, or for designated uses, "in accordance with the provisions 
set out in the relevant regulations by the State Council".35  In addition, tariff exemptions apply to:  
goods whose value per unit including the tariff is Y 50  or less;  advertising materials and samples of 
no commercial value;  goods and materials provided free by international organizations or foreign 
governments;  goods damaged prior to  customs release;  and fuels, stores, beverages, and provisions 
for use en route, loaded on any means of  transport in transit across the frontier.36 
Border trade 
36. Preferential treatment, including through tariff pr eferences, is applied to some border trade 
activities under the Circular of the State Council on Issues Concerning Border Trade, issued in 1996.37  
Since the previous Review, there have been no polic y changes in relation to border trade.  In 2006, 
border trade accounted for 0.92% of total imports pl us exports in terms of volume, the same as 
in 2005.   
                                                      
33 In 2008, unilateral special preference tariffs were  also offered to imports of some goods from 
Somalia and Chad. 
34 China applies general rates to:  Afghanistan, Andorra, Aruba, Bahamas, Bermuda, Bhutan, Bonaire 
Islands, Canary Islands, Cayman Islands, Ceuta, Comorin, Curacao, El Salvador, French Guyana, Gambier 
Islands, Gibraltar, Guadeloupe, Liberia, Marquesas Is lands, Marshall Islands, Ma rtinique, Melilla, Montserrat 
Island, Nauru, Norfolk, Island, New Caledonia, Palau,  Palestine, Reunion, Sabah, Saint Martins Island, 
Sao Tome and Principe, the Republic of San Marino, Seychelles, Society Islands, Tuamotu Islands, Tubai Islands, Turks and Caicos Islands, Tuvalu, Vatican  City, British Virgin Isla nds, and Western Sahara. 
35 "Designated areas" refer to areas for which certain  policies are designed and implemented, such as 
the special economic zones.  "Designa ted enterprises" refer to enterprises for which certain policies are designed 
and implemented on the basis of type of enterprise, such  as foreign-invested enterprises.  "Designated use" 
refers to imports for which certain policies are designed and implemented based on use of the product.   
36 Regulations on Import and Export Tariff. 
37 For details of the preferential treatment regarding border trade, see WTO (2006). WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 56 
 
 
Processing trade 
37. Goods imported under "processing trade", where by the imported goods are processed into 
exports, can be imported in bond and exempt fro m payment of import duties as long as they are 
processed and exported within a certain period.  Processing trade has played a significant role in 
China's international trade:  in the first half of 2007, imports plus exports under processing trade 
accounted for 45% of China's total trade.38 
38. To reduce energy consumption and protect the environment, the Government may not grant 
preferential treatment under processing trade on certain goods.  Such exclusion of certain goods from preferential treatment is called "import prohib ition under processing trade".  However, these goods 
can be imported if import tariffs ar e paid, subject to any applicable non-tariff restrictions.  Since 2005, 
various products have been subject to "import pr ohibition under processing tr ade", including:  some 
iron and steel;  alumina and ferro-alloy ore;  a nd certain "highly energy-consuming" or "highly 
polluting" products.  Some 269 HS 8-digit tariff lin es comprising mainly animal products, minerals, 
and chemical products were cove red in 2007, up from 143 lines in 2005.
39  In addition, 128 lines of 
used electronic and mechanical products are also subject to import prohibitions under processing 
trade. 
(d) "Inward article" duty 
39. An inward article duty is levied on luggage and other personal items  belonging to persons 
entering the Customs Territory of China in excess of a "reasonable amount that suffices for personal 
use", which is determined by the General Admini stration of Customs, based on an "internationally 
exercised principle".40  From 1 January 2007, four duty rates, i.e. 50%, 30%, 20%, and 10%, apply, 
depending on products (Table AIII.1).  No import tariff, excise tax, or VAT is charged once inward 
article duties are paid.  Some imported goods, irresp ective of quantity, are subject to inward article 
duties.  The scope of such articles is determin ed by the Tariff Commission under the State Council;  
currently, no products are designated in this way.   
(iv) Indirect taxes affecting imports  
40. Imports, like domestic products, are subject to valu e-added tax;  the current rates are 17% and 
13% for most goods (section (4)(i)).  Agricultural produc ts sold by farmers directly to consumers are 
exempt from VAT, while imports of like products are subject to VAT (Chapter IV(2)(iii)).  On 15 September 2007, China lowered the VAT rate, fr om 17% to 13%, on imported audio and video 
products and other forms of electronic publications.
41  Thus, these imports appear to pay lower VAT 
than domestically produced products.  Some imports may be subject to tax reductions or exemptions, 
such as those destined for special economic zones (section (4)(i)(d)).  
41. In addition to import tariffs and VAT, an excise tax (consumption tax) is also levied at the 
border on certain items.  The list of excisable pr oducts and excise rates was revised on 1 April 2006 
                                                      
38 MOFCOM online information.  Viewed at:  http://www.mofcom.gov.cn/aarticle/zhengcejd/bl/bu/ 
00707/20070704916710.html (in Chinese) [8 February 2008]. 
39 Of the 269 lines, 138 were also subject to export prohibitions under processing trade.   
40 The authorities state that, "reasonable amount" refe rs to the usual amount each person is allowed to 
bring inward for personal use, considering his/her duration of stay and destination.  "Internationally exercised  principle" refers to the Kyoto Convention and relevant  regulations implemented by customs of many other 
countries. 
41 Central Government online information.  View ed at:  http://www.gov.cn/zwgk/2007-09/20/content_ 
756025.htm (in Chinese) [8 February 2008]. China WT/TPR/S/199/Rev.1 
 Page 57 
 
 
(section (4)(i));  as a result, in addition to cigarett es, alcoholic beverages, gasoline, cosmetics, and 
cars, excise tax is also applied to golf balls and e quipment, luxury watches, yachts, disposable wooden 
chopsticks, and wooden floorboards.42  The tax rates are the same for domestically produced goods 
and imports.43  In 2006, excise tax revenues collected from imports and from domestically produced 
goods were Y 10.6 billon and Y 188.6 billon, respectively.  
(v) Import prohibitions, restrictions, and licensing 
(a) Import prohibitions 
42. The number of tariff lines subject to import pr ohibitions increased from 30 (at the HS 8-digit 
level) in 2005 to 54 in 2007.44  In addition, 441 lines were partially subject to import prohibition in 
2007 ("ex" lines mainly referring to used or scrap  machinery, transport and precision equipment) 
(458 lines in 2005).  Thus, around 6.5% of tariff li nes were subject to import prohibitions (0.7% if 
taking only the lines fully covered) in 2007.  Acco rding to the authorities, import prohibitions are 
maintained on grounds of, inter alia , public interest, environmental protection, or in accordance with 
international commitments.  Prohibitions include some products of animal origin, opium, mineral 
products, rubber, chemicals, raw hides, waste of skins and leather, used clothes, ash of precious 
metals, base metals, second-hand  precision equipment, games, and imports of used articles of 
HS sections 16 and 17 (machinery and transport equipment).45 
43. In accordance with the Foreign Trade La w, MOFCOM may issue temporary import 
prohibitions or restrictions, which are mainly relate d to restrictions under international conventions.  
According to the authorities, apart from certain TBT/SPS measures, the only product subject to 
temporary import prohibition is diamonds from Liberia. 
(b) Restrictions and licensing 
44. Quantitative restrictions on imports were elimin ated on 1 January 2005, and the relevant 
products were moved into the category of free im portation, or automatic import licences.  China 
notified its import licensing regime in 200646;  the licensing regime applies equally to goods from all 
countries or customs territories. 
45. The import licensing regime is regulated by the Foreign Trade Law, the Administrative 
Permission Law, as well as the Measures on Admi nistration of Import Licences for Goods, and the 
Measures on Administration of Automatic Import Licensing for Goods.  Details of commodities subject to import licensing are published annually by the MOFCOM in the Catalogue of Goods 
Subject to Import Licence Administration and the Ca talogue of Goods Subject  to Automatic Import 
Licensing Administration.  Licences are not transferable.  No fees, charges, deposits or advance 
payments are required for the issuance of licences. 
                                                     
 
42 Notice on Adjustment and Improvement of Consum ption Tax Policy.  Viewed at:  http://www.gov. 
cn/banshi/2006-03/23/content_234946.htm (in Chinese) [11 February 2008]. 
43 The authorities maintain that the purpose of imposing excise tax on some products is to "guide" 
production and consumption of these products, not to restrict imports. For like products, the same tax rate is applied to imported and domestically produced goods.   
44 The 2005 figures are based on HS 2002 nomenclature, and the 2007 figures are based on HS 2007 
nomenclature. 
45 Customs online information.  Viewed at:  h ttp://www.customs.gov.cn/YWStaticPage/4239/5f1b7 
a39.htm (in Chinese) [11 February 2008], and http://w ww.customs.gov.cn/YWStatic Page/4239/ffe9c4cb.htm (in 
Chinese) [11 February 2008]. 
46 WTO document G/LIC/N/3/ CHN/5, 3 October 2006. WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 58 
 
 
Non-automatic import licences 
46. Non-automatic import licences were mostly issu ed in accordance with  China’s obligations 
under international conventions.  In 2007, the number of HS 8-digit tariff lines fully subject to import licensing fell to ten (less than 0.1% of total tariff lines), from 90 (1.20%) in 2004.  The ten lines were 
mainly ozone-depleting substances.
47  No lines are partially subject to import licensing requirements 
(compared with 32 lines in 2004).   
47. Applicants must apply for an import permit prior to applying for an import licence.  Import 
permits for ozone-depleting substances are issu ed by the State Environmental Protection 
Administration.  Applicants are required to subm it the business certificate of registered companies 
and "record registration form" of foreign trade oper ators.  Foreign-invested enterprises must also 
submit their certificates of approval.  If the im porters are state-owned enterprises, additional 
requirements include "related documents of MOFC OM or the departments concerned". Once the 
permit is obtained, a licence is granted automatically by MOFCOM to the importer.  The licence is issued within ten working days;  however, if ju stification for importation is "unconvincing", the 
application may be refused.  The definition of " unconvincing" was not clear to the Secretariat.  
Importers can appeal to the MOFCOM if they are not  satisfied with the decision.  The licence is valid 
throughout the calendar year, and can be exte nded once, for a maximum of three months. 
48. Until 2007, products subjected to import licen ces included chemicals used for military 
purposes, and toxic materials.  These produc ts are now covered under the Provisions on 
Administration of Import and Export Licences for Dual-Purpose (civilian and military) Goods and 
Technologies (issued by MOFCOM and Customs, effective 1 January 2006).
48  Thus, the decline in 
the number of tariff lines subject to import licensing (from 90 to 10) is because of the issuance of the 
Provisions.  Import permits for these products ar e issued by NDRC or MOFCOM, depending on the 
product.49  Once the permit is obtained, a licence is  granted by MOFCOM.  Licences are valid until 
the end of the calendar year, and can be extended once for a maximum of three months. 
Automatic import licences 
49. Products that are not subject to import restricti ons but require import monitoring for statistical 
purposes are subject to automatic import licences, which involves no restriction in terms of import quantity or value.  The number of tariff lines fully and partially subject to automatic import licences  
was lowered from 1,205 in 2005 (16% of the tariff) to  604 (7.9%) in 2007.  The number of lines fully 
subject to automatic import licences decreased from 478 in 2006 to 108 in 2007.
50  These tariff lines 
                                                      
47 Catalogue of Goods Subject to Import Licence Administration of 2007,  MOFCOM and GAC 
Announcement No. 99 of 2006.  Viewed at:  http://www.mofcom.gov.cn/aarticle/b/c/200612/ 2006120418 5369.html (in Chinese) [11 February 2008]. 
48 Provisions on Administration of Import and Export Licences for Dual-Purpose Goods and 
Technologies.  Viewed at:  http://www.law-lib.c om/law/law_view.asp?id=1 26558 (in Chinese)  
[11 February 2008]. 
49 For chemicals licensed under the Chemical Weapon s Convention, permits were issued by the Office 
of Implementing the Convention on the Prohibition of the Development of Chemical Weapons, based in the 
NDRC;  for chemicals used to produce narcotics, permits were issued by MOFCOM. 
50 Under MOFCOM and GAC Announcement No. 14 (promulgated on 10 March 2007), 338 tariff lines 
fully subject to automatic import licences were eliminated from the Catalogue of Goods Subject to Automatic 
Import Licensing ;  as a result, 140 tariff lines were fully subject to automatic import licences as of 1 April 2007.  
MOFCOM and GAC Announcement No. 43, of 20 May 2007, eliminated a further 32 tariff lines effective on 
10 June 2007. China WT/TPR/S/199/Rev.1 
 Page 59 
 
 
concerned poultry, vegetable oil, tobacco, copper, copper ore and concentrates, coal, natural rubber, 
waste paper, cellulose diacetate filament tow, aluminium, and scrapped steel.51 
50. Applications for automatic import licences mu st be submitted to the relevant entities 
authorized by MOFCOM.52  As long as the content and format of the application are correct, the 
licence is granted immediately;  under special circ umstances, it may take up to ten days to issue a 
licence.  An automatic import licence is valid for a maximum 180 days within a given calendar year;  
it can be extended in case of an incomplete impor tation, or an unperformed business contract.  The 
licence may be cancelled at any time by MOFCOM if it decides to temporarily prohibit imports of the 
goods or to impose a quantitative restriction.53  Such temporary prohibitions or restrictions may be 
imposed, inter alia , under international conventio ns or due to a disease outbreak;  the authorities state 
that since China's accession to  the WTO, there have been no such temporary prohibitions or 
restrictions. 
(vi) State trading 
51. Since its previous Review, while China has not made any notification to the WTO regarding 
its state trading activities, the number of products subj ect to state trading has ap parently been reduced.  
52. Imports of vegetable oil (rapeseed oil, palm oil, and soybean oil) were removed from state 
trading from 1 January 2006.  In 2007, China maintained state trading in, inter alia :  grain (including 
wheat, maize, and rice), sugar, tobacco, crude oil and processed oil, chemical fertilizer, and cotton 
(Table AIII.2).  MOFCOM issues and adjusts annually the lists of goods subject to state trading and of 
authorized state trading enterprises (STEs).  The crite ria used to adjust the list of goods subject to 
state trading were not provided to the Secretariat.      
53. Data provided by the authorities show that th e shares of tariff rate quotas allocated to STEs 
remain high and relatively unchanged.  In 20 07, STEs accounted for 90%, 70%, 60%, 50% and 33% 
of total quotas allocated for wheat, sugar, maize, rice, and cotton, respectively.  Under China's WTO 
Accession Protocol, imports of processed and crude oil are to be increased annually by 15% for the first ten years after accession, after which increases are to be reviewed by Members.
54  I t  w o u l d  
appear that no review of the annual growth in volume of processed oil imported by non-state-trading 
enterprises has been conducted with interested Members.55  Further, substantial amounts of cotton 
continued to be imported beyond the amount set under the tariff rate quotas.  In 2007, the quota 
amount was set at 894,000 tonnes, while 2.46 million tonnes were imported;  data on the share of 
STEs in the out-of-quota imports were not available to the Secretariat.   
54. Some products subject to state trading can also  be imported by other enterprises that meet 
certain criteria.  For wheat, maize, rice, sugar, a nd cotton, such criteria are described in the annual 
announcement of the quota volume and allocation methods;  for fertilizers, crude and processed oil, they are set out in MOFTEC Decree No. 27 of 2002 and MOFTEC Announcement No. 19 of 2002.   
                                                     
 
51 MOFCOM online information.  Viewed at:  http://www.mofcom.gov.cn/aarticle/b/c/200703/ 
20070304505934.html (in Chinese) [11 February 2008], and http://www.mofcom.gov.cn/aarticle/b/c/200705/ 20070504710894.html (in Chinese) [11 February 2008]. 
52 See WTO (2006) for details of issuing entities for automatic import licences. 
53 The temporary measures are to be published 30 days before their entry into force (WTO document 
G/LIC/N/3/CHN/5, 3 October 2006, p. 4).  The authorities state that China reserves its legitimate right to impose 
quantitative restriction on imports, but has no intention of doing so in practice.  
54 WTO document WT/ACC/CHN/49, 1 October 2001.  
55 WTO document G/C/W/591, 19 November 2007. WT/TPR/S/199/Rev.1 Trade Policy Review 
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(vii) Contingency measures  
(a) Anti-dumping and countervailing measures 
Anti-dumping measures 
55. Since its previous Trade Policy Review, Chin a’s institutional and procedural framework on 
anti-dumping measures has remained largely unchang ed.  Anti-dumping measures may be taken under 
the Foreign Trade Law and the Regulations on Anti-Dumping.  MOFCOM is responsible for 
investigating and determin ing dumping and injury.56  Anti-dumping complaints may be brought to 
MOFCOM in writing by any domestic industry, or  by natural or legal persons, or relevant 
organization, on behalf  of domestic industry.57  MOFCOM can decide to self-initiate an anti-dumping 
investigation, if it has sufficient evidence of the existence of dumping, injury, and the causal link;  
MOFCOM has not self-initiated any inves tigations during the review period. 
56. MOFCOM’s Rules on Information Access and Disclo sure in Industry Injury Investigations 
entered into force on 3 September 2006.  According to  the rules, information related to an industry-
injury investigation, apart from cl assified information, must be notified to all interested parties.58  
MOFCOM usually notifies the relevant information to interested parties 30 days before making its 
final decision.59 
57. If MOFCOM determines in a preliminary investigat ion that a firm's pricing behaviour has led 
to the injury of a domestic industry, provisional measures can be applied;  these include imposition of provisional anti-dumping duties, or provision of deposits, bonds, or other forms of guarantees.
60  
Provisional measures may not exceed four months, but, in "special circumstances", may be extended 
to nine months.  According to the authorities,  "special circumstances" refer to cases where the 
authorities need to examine whether a duty lower than  the margin of dumping would be sufficient to 
compensate the industries for their loss.  Following the preliminary decision, MOFCOM continues the investigation, which must be completed within 12  months of the decision to initiate, or 18 months 
under special circumstances, including  particularly complicated cases. 
                                                     
 
56 The Bureau of Fair Trade for Imports and Exports (BOFT) is in charge of the investigation process 
and determining whether dumping has occurred.  The Investigation Bureau of Industry Injury investigates and 
determines injury caused to industry.  These two bure aux in MOFCOM are jointly responsible for determining 
the causal link between dumping and injury.  When the anti-dumping investigation involves agricultural products, the injury investigation is conducted jo intly by MOFCOM and the Ministry of Agriculture. 
57 The application should contain details of, inter alia , the product, source of imports, identity of known 
exporters, price, and volume and value of domestic production of the like product, and should have supporting evidence on the existence of dumping, injury caused to the domestic industry, and of a causal link between 
dumping and injury.  
58 Classified information refers to the information that cannot be obtained through public channels and 
that, once published, will result in substantive profits to competitors, or cause substantive harmful effects to the 
information provider or the information source, or cause other harmful effects.  Interested parties refer to, inter 
alia, producers, exporters, importers, governments of the exporting country or region, domestic producers of 
similar products (Articles 4 and 9, Rules on Inform ation Access and Disclosure  in Industry Injury 
Investigations, MOFCOM Decree 19, 2006). 
59 If the authorities consider that it is not appropri ate to publish certain relevant facts 30 days before 
making a final decision, MOFCOM is required to publish such information, "within a reasonable time" before 
the final decision is made. 
60 The decision to levy provisional anti-dumping duties is made by the Tariff Commission of the State 
Council on the recommendation of the MOFCOM.  The decision on the provision of deposits and bonds is made 
by MOFCOM.  Provisional measures may not be applied w ithin 60 days from the date of publication of the 
decision to initiate the investigation. China WT/TPR/S/199/Rev.1 
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58. During the investigation period, the exporter may offer price undertakings to MOFCOM and 
MOFCOM can suggest price undertakings to an e xporter:  if the revised price is acceptable, 
MOFCOM may suspend or terminate the anti-dumping  investigation in the interest of the public.61  If 
MOFCOM does not accept the revised price, it must provide the reasons to the exporter.  Price 
undertakings cannot be sought or accepted unless MO FCOM has made a preliminary determination 
on the causal link between dumping and the industry injury.  A suspended/terminated investigation 
can be resumed if the exporter violates the pri ce undertaking, or if MOFCOM considers it necessary 
for other reasons. 
59. Final measures (i.e., anti-dumping duties) are for five years, and may be extended following a 
review.  The decision to levy anti-dumping duties is made by the Tariff Commission of the State 
Council, based on suggestions made by MOFCOM.  Any review conducted by MOFCOM, except the 
"new shipper" review62, must be concluded within 12 months from the date of the decision to initiate 
the review.  The new shipper review must  be concluded within nine months.  
60. If any party is not satisfied with a MOFCOM decision, the case may be reviewed under the 
Administrative Reconsideration Law.  Alternatively, an appeal may be made to the Court;  procedures 
for these are specified under the Rules of the Supr eme People's Court on Certain Issues Related to 
Application of Law in Hearings of Antidumping Administrative Cases.63  Since 2005, two appeals 
have been made to the authorities;  MOFCOM's decision was maintained in one case and revoked in 
the other.64 
61. Between 1 January 2005 a nd 30 June 2007, China initia ted 39 new anti-dumping 
investigations.  Most of the cases initiated involved  imports from Japan (9 case s), Chinese Taipei (7), 
the European Communities (4), the Republic of Korea (4), Singapore (4 ), and the United States (4).  
The majority (27 out of 39 cases) concerned chemicals and chemical products.  As at 30 June 2007, among the 24 investigations initiate d in 2005, final measures had been adopted in 13 cases;  and 
among the 11 investigations initiated in 2006, fi nal measures had been adopted in 3 cases 
(Chart III.4). 
62. MOFCOM’s Provisions on Responding to Anti- dumping Cases Relating to Export Products 
entered into force in August 2006.  Under the provi sions, MOFCOM must promptly publish relevant 
information relating to investigations of or respon ses to anti-dumping cases, and the local counterparts 
of MOFCOM must immediately inform relevant enterprises of such information. 
Countervailing measures 
63. Countervailing measures may be ta ken under the provisions of the Foreign Trade Law and the 
Regulations on Countervailing Measures.  Th e institutional and procedural framework on 
countervailing measures has remain ed largely unchanged since China's previous Review.  China has 
not taken any counterva iling actions since its accession to the WTO. 
                                                     
 
61 The revised price is acceptable if the level of the price increase under a price undertaking is 
equivalent to the dumping margin established in the preliminary determination. 
62 A "new shipper" review involves the determination of an individual margin of dumping for an 
exporter or producer that did not export the product during the investigation, provided that they are not related to any of the producers or export ers subject to the measures.  
63 WTO document G/ADP/N/1/CHN/2/Suppl.5, 11 January 2007. 
64 Both appeals were made by Japan, with respect to unbleached kraft linerboard case, and the sunset 
review for stainless steel cold-rolled sheets case.  WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 62 
 
 
0510152025
2005 2006 2007Initiations
Final measuresa
b
Source :  Notifications to the WTO.Singapore
10.3United States
10.3
 EU25
10.3India
5.1Chemicals & 
products thereof
69.2(b) Initiations b y product 
Per cent(c) Initiations b y origin 
Per centChart III.4
Anti-dumping cases, 1 January 2005 to 30 June 2007
(a) By number of initiations and final measures
Othera
7.7
Textiles   
5.1
Chinese Taipei
17.9Korea, Rep. of
10.3Otherb
12.8
Plastics 
17.9Japan
23.1
a             Potato starch, paper for electrolytic capacitor and compact disk, with one case each. 
b             Indonesia, Malaysia, Russia, Saudi Arabia, and South Africa, with one case each.a     Final measures for the reported initiations.
b     Up to 30 June 2007 only.
 China WT/TPR/S/199/Rev.1 
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(b) Safeguards 
64. Safeguard actions may be taken under the Foreign Trade Law and the Regulations on 
Safeguards.  The institutional and procedural fra mework on safeguard measures is unchanged since 
the previous Review.  Safeguard measures are applie d on imports irrespective of their source.  Since 
2005, China has not taken any safeguard actions.  Appeals cannot be made against safeguard 
decisions taken by the authorities. 
65. China's Protocol of Accession to the WTO specifies that transitional product-specific 
safeguard measures may be adopted by WTO Members against their imports from China.65  S i n c e  
2005, five provisional safeguard measures and one final measure have been adopted.  Products 
covered are mainly:  textiles and clothing, ceramic  tiles, float glass, and polyvinyl chloride (PVC).66 
(viii) Standards and other technical requirements 
(a) Standards, certification, and accreditation 
Standards 
66. Legislation on standards includes mainly the St andardization Law and the Regulations for the 
Implementation of the Standardization Law.   The Standardization Administration of China (SAC), 
under the General Administration of Quality Su pervision, Inspection and Quarantine (AQSIQ) 
administers standardization work in China.67 
67. China has been gradually increasing alignment of  its national standards with international 
norms.  Currently, 46.4% of national standards ha ve been aligned, up from 45.9% in 2005;  the 
authorities aim to align 85% by 2010.  To prom ote international alignment, the SAC has signed 
agreements on standards cooperation with Denmark, Germany, New Zealand, and the United States.   
68. Between April 2004 and September 2005, China re viewed all its national standards (around 
21,000).  It was decided that 2,513 (11.6%) standa rds would be abolished, and 9,536 (44.2%) would 
be revised by 2008.68  With the development of the econom y, the number of national standards 
increased to 21,410 at the end 2006. 
69. According to the authorities, SAC publishes a catalogue that prioritizes the products for 
which standards are to be aligned with internatio nal ones.  However, the criteria used in listing 
products were not provided to the Secretariat.  Th e alignment rate for the products listed are much 
higher than those that are not.  For example, the a lignment rates with international standards are high 
in, inter alia , cables and cords (100%), capacitors as components (100%), measuring instruments 
(100%), low voltage and high power switching e quipment (100%), electronics and entertainment 
                                                      
65 WTO document WT/L/432, 23 November 2001.  Application of this section of the Protocol is to be 
terminated 12 years af ter the date of China's accession to the WTO. 
66 WTO documents G/SG/N/16/COL/1, 3 October 2005;  G/SG/N/16/COL/2, 3 October 2005;  
G/SG/N/16/COL/3, 23 February 2006;  G/SG/N/16/TUR/1/Suppl.1, 24 April 2006;  G/SG/N/16/TUR/2, 
21 August 2006;  and G/SG/N/16/TUR/3, 21 August 2006. 
67 The main responsibilities of SAC include:  to formulate and implement laws and regulations as well 
as policies and development strategies for standards;  to develop and revise national standards, including their 
examination, approval, and publication;  to manage and guide scientific research, and provide education and training on standardization;  to represent China in international and regional standardization organizations;  and 
to carry out other work assigned by the AQSIQ  (SAC online information.  Viewed at:  
http://www.sac.gov.cn/templet/eng lish/  [18 January 2008]). 
68 WTO document WT/TPR/M/161/Add.3, 16 January 2007, p. 39. WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 64 
 
 
(100%), lighting (99%).  However, the alignment ra te is only 1% for safety transformers and similar 
equipment, 29% for portable tools, and 30% for electrical equipment for medical use.69   
70. In addition to national standards, which are deve loped for technical requirements that need to 
be adopted nationally, there are also sectoral, local, and enterprise standards.70  In each of the national, 
sectoral, and local standards categories, there ar e voluntary and mandatory standards.  Around 14.4% 
of national standards are currently mandatory (c ompared with 14.6% in 2005) (Table III.4).   
Table III.4 
China's standards, 2002-06 
 2002 2003 2004 2005 2006 
National standards 20,206 20,906 21,342 20,688 21,410 
Equivalent to ISO/IEC standa rds (%) 31.7 31.9 32.0 34.2 34.8  
Equivalent to international st andards (%) 44.2 44.2 44.0 45.9 46.4 
Mandatory (%)a 13.8 .. .. 14.6 14.4 
Voluntary (%) 86.2 .. .. 85.4 85.6 
Sectoral standards 25,573 27,284 29,131 31,348 33,552 
Mandatory (%)a 17.1 .. .. 15.6 15.2 
Voluntary (%) 82.9 .. .. 84.4 84.8 
Local standards 12,204 12,877 13,166 16,005 18,128 
Mandatory (%)a 29.5 .. .. 20.7 19.7 
Voluntary (%) 70.5 .. .. 79.3 80.3 
Enterprise standards 1,051,432 1,178,083 1,320,800 1,340,679 1,243,238 
National advisory techni cal documents 48 54 62 76 95 
.. Not available. 
a Mandatory standards are technical regulations.  
Source:  Data provided by the authorities. 
71. There has been no change to the process of devel oping new standards or revising old ones.  In 
areas where technology is changing fast and standards need to be developed rapidly, national advisory 
technical documents may be developed.  The pro cess of developing these documents is the same as 
that for developing standards, but their review period is within three years, two years shorter than that 
for standards.  Hence, national advisory technical  documents are more likely to reflect the fast 
changing technology. 
72. Concerning standards for automobiles, China is a Member of the UNECE 1998 Agreement, 
and is considering joining the 1958 Agreement at "a proper time in the future".  China does not 
directly implement UNECE standards;  instead, some technical content of the UNECE is  
incorporated into China’s own co mpulsory certification standards. 
                                                      
69 APEC (2006).  For electrical equipment for medical use, it would appear that local authorities have 
been setting local standards, some of which may deviate from international norms (European Union Chamber of 
Commerce in China (2007), p. 160). 
70 Sectoral standards are developed when there are no national standards available, but unified technical 
requirements are needed in a certain professional field at the national level. Local standards may be developed 
where neither national nor sectoral st andards are available, but unified requirements for safety and hygiene of 
industrial products are needed within a local area.  Once equivalent national standards are developed, they 
replace these local or sectoral standards.  Further, ther e are also enterprise standards, which may be developed 
within an enterprise when national, sectoral or local st andards are not available.  However, an enterprise is 
encouraged to adopt national,  sectoral, or local standard s if they are available. China WT/TPR/S/199/Rev.1 
 Page 65 
 
 
73. Enforcement of standards needs to be improved,  particularly when this also involves IPR 
infringement.  As technical regulations are not fo llowed, counterfeit products , linked with inferior 
quality, could have a significant negative effect on th e health of humans, animals and plants, and the 
environment.   
Food standards 
74. The SAC administers China's food standards work  in general, while relevant departments 
under the State Council are in charge of various aspects of specific food standards.  The Ministry of Agriculture is in charge of supervising the pl anting, harvesting, and processing of agricultural 
products, the Ministry of Health for hygiene related issues, the State Administration of Industry and 
Commerce (SAIC) for food sold in markets, the AQSIQ for the production, processing, and export of 
food, and the State Food and Drug Administration (SFDA) for coordinating, and investigating serious food-safety-related accidents.  China has promulga ted over 1,800 national standards concerning food 
safety, and more than 2,900 sectoral standards for the food industry.   
75. China started to implement the Hazard-free F ood Action Plan from 2001, to address the issues 
of, inter alia , toxic pesticides residues in vegetables, and vi olations of residue standards.  Also from 
2001, the food quality and safety market access system began, under which all food processing 
enterprises are required to apply for permits from th e competent authorities for quality inspection.  To 
issue a permit, factors taken into consideration incl ude national standards.  In addition, food products, 
as well as the site where production occurs, must undergo strict inspection.  Food-producing enterprises also conduct inspections after food products leave the factory.  The competent quality 
inspection authorities are to supervise enterprises' routine production and conduct random sampling of 
products in the markets. 
76. Food safety is partly dependent on the state of the environment;  pollution of soil and rivers, 
for example, tends to be detrimental to the quality of food.  The authorities state that, to ensure food safety, the Government gives priority to the ro ot of the production chain:  for example, the 
Government has strengthened monitoring of soil and irrigating water in major crop producing areas.  
The State Council also issued an Eleventh Five -Year Plan on Food and Drug Safety in April 2007, 
whose targets include, inter alia , covering 90% of food in a safety monitoring system by 2010.
71 
Certification and accreditation 
77. Certification and accreditation contribute an estimated average of 0.671% of GDP.72  China’s 
Compulsory Product Certification System and the China Compulsory Certification (CCC) mark are 
administered by the Certification and Accreditation Administration of China (CNCA) under AQSIQ.  
Products requiring the CCC mark are listed in a Ca talogue of Products Subject to Compulsory 
Certification.  They cover 22 groups, consis ting of 159 subcategories (19 groups and 
132 subcategories in 2003), and include, inter alia,  household electrical appliances, motor vehicles 
and safety parts and accessories, electric  tools, and audio and video apparatus.73  Products listed in the 
                                                      
71 Central Government online information.  Viewed at:  http://www.gov.cn/zwgk/2007-06/05/content 
_637391.htm (in Chinese) [8 February 2008]. 
72 Central Government online information.  Viewed at:  http://www.gov.cn/gzdt/2008-
01/14/content_857361.htm (in Chinese) [11 February 2008]. 
73 CNCA online information.  Viewed at:  http ://www.cnca.gov.cn/cnca/rd ht/qzxcprz/rzml/images/ 
20070123/994.htm (in Chinese) [11 February 2008].  New categories added since 2003 included:  safety parts 
and accessories of motor vehicles a nd motor cycles, some safety protec tion products, home decoration and 
remodelling products, and toys.   WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 66 
 
 
catalogue must not be marketed or imported without CCC marks.74  A random conformity sampling 
test is conducted on imports that have already acquired CCC. 
78. Products exempted from CCC are listed in CNCA Announcement No. 3, of 200575, and 
include:  goods for personal use by diplomatic st aff;  goods for commercial exhibition (but not for 
marketing in China);  and products for the purpose of research and conducting tests.  In addition, 
spare parts and components listed in the catalogue ar e exempt from separate C CC if incorporated in 
manufactured products;  however, if spare parts an d components listed in the catalogue are sold 
separately, the component manufacturer must apply for the CCC mark.76  For these exempted 
products, a Special Exempt Approval is required.77  However, exemption from CCC does not mean 
exemption from import inspection. 
79. The procedures for obtaining a CCC mark include application, type testing, initial factory 
inspection, evaluation of certification results, a pproval of certification, and follow-up inspection.78  
Applications for CCC marks must be made to designated certification bodies (DCBs).  At end-
March 2007, there were 180 DCBs (172 in 2005), 34 of  which were foreign-invested joint ventures 
established in China;  another three were wholly foreign invested.79  CNCA also accepts certification, 
test, and examination results of foreign certifi cation and testing bodies, through the multilateral 
recognition system, bilateral cooperation ag reements or memoranda of understanding.80 
80. If a product conforms to the basic requirements of  the relevant standard , an applicant must 
send samples to an accredited testing laboratory (ATL), authorized by the CNCA for type testing.  At end 2006, there were 146 ATLs appr oved by CNCA, up from 124 in 2005.  Each ATL is authorized 
to conduct testing for specific products, and at least one follow-up inspection is conducted every 
12 months.  Test results are sent to the relevant DCB, which issues a CCC to the manufacturer if the 
results meet the requirements.  The manufactur er may purchase the CCC mark labels from the CCC 
Mark Service Centre. 
81. The China Quality Certification Centre (CQC ) is responsible for the CQC voluntary product 
certification system (the CQC mark), covering aroun d 500 categories of products that are not covered 
under the CCC mark.  CQC applies equally to imported and domestically produced products. 
82. As of 2007, China is formulating a food certification and accreditation system.  Certification 
categories include certification of feeds, good agri cultural practices (GAP), hazard-free agricultural 
products, organic products, food quality, and the hazar d analysis and critical control points (HACCP) 
                                                     
 
74 Although wireless LAN products are included in the catalogue, the requirement to obtain CCC mark 
is currently suspended. 
75 CNCA online information.  Viewed at:  http ://www.cnca.gov.cn/cnca/zwxx/ggxx/4003.shtml (in 
Chinese)  [11 February 2008].    
76 WTO document G/TBT/W/237, 13 November 2003. 
77 See WTO (2006) for details.   
78 WTO document G/TBT/W/237, 13 November 2003. 
79 By end 2006, there were also 14 accredited certifi cation bodies (ACBs) (up from 11 in 2005), each of 
which has been authorized to cover one or more of the 159 categories of products requiring a CCC mark (CNCA online information.  Viewed at:  http://www.cnca.gov.cn/cnca/rdht/qzxcprz/jcjggljg/images/20070123/1000.htm 
(in Chinese) [11 February 2008]).  The authorities stat e that ACBs are approved by certification authorities 
(including CNCA) to conduct all types of certification,  while the DCB is authorized by the CNCA to conduct 
CCC certification specifically.   
80 The IECEE-CB multilateral recognition system reco gnizes 58 foreign certification bodies and more 
than 200 foreign testing laboratories .  Their certification, testing, and examination results are accepted by the 
CNCA. China WT/TPR/S/199/Rev.1 
 Page 67 
 
 
management system.  China has also established a nu mber of food inspection and testing institutions, 
to set up a  nationwide food safety inspection and testing framework.81  
International cooperation 
83. China is an active member of many international standard-setting bodies82, and participates in 
some APEC mutual recognition agreements (MRAs) of conformity assessment.83  AQSIQ, on behalf 
of the Chinese Government, has signed some inte rgovernmental agreements on cooperation in the 
field of conformity assessments.  China has also been participating actively in regional and international MRAs.
84 
84. China has established the national accreditation system for certification and inspection bodies, 
and laboratories in accordance with the ISO17020,  ISO17021, and ISO17025 standards.  The China 
National Accreditation Service (CNAS) is also accr edited by QS9000 in cooperation with AIAG.   
(b) Sanitary and phytosanitary measures (SPS) 
85. China's current legislation related to its SPS re gime includes:  the Law on the Entry and Exit 
of Animals and Plant Quarantine, the Food Hygien e Law, the Law on Animal Disease Prevention, the 
Law on Import and Export Commodity Inspection, the Law on Frontier Health and Quarantine, as 
well as accompanying implementing regulations a nd rules.  MOFCOM is in charge of submitting 
notifications regarding SPS measures to the WT O, and the AQSIQ is the Enquiry Point under 
paragraph 3 of Annex B of the SPS Agreement.   
86. China's quarantine system has remained la rgely unchanged during the review period.  
AQSIQ, through its 35 local level Inspection and Quar antine Bureau (CIQs), h as been in charge of 
entry/exit inspection as well as quarantine.85 
87. AQSIQ formulates a Catalogue of Entry-Exit Commodities Subject to Inspection and 
Quarantine, and revises it on the basis of "actual need".86  Entry/exit inspection (and quarantine) is 
also required for some products not listed in the cat alogue, but found to have unexpected problems, or 
                                                      
81 State Council Information Office (2007). 
82 These include the International Organization for Standardization (ISO), the International 
Electrotechnical Commission (IEC ), and the Pacific Area Sta ndards Congress (PASC).   
83 These include the APEC Umbrella  Arrangement for Mutual Recognition of Conformity Assessment 
of Foods and Food Products (APEC Food MRA);  the APEC MRA on Conformity Assessment of Electrical and 
Electronic Equipment (APEC EE MRA);  the APEC MRA for Conformity assessment of Telecommunications 
Equipment (APEC Tel MRA), and the APEC Arrangement for the Exchange of Information on Toy Safety. 
84  These include:  the International Laboratory  Accreditation Cooperation (ILAC) MRA;  the Asia 
Pacific Laboratory Accreditation Cooperation (APLAC) MRA; the Pacific Accred itation Cooperation (PAC) 
multilateral MRA pertaining to quality management system;  the International Accreditation Forum (IAF) 
Multilateral Agreement;  and the International Auditor an d Training Certification Association (IATCA) MRA.  
China National Accreditation Committee for Laborato ries (CNACL) and the La boratory Accreditation 
Committee on Import and Export Commodity Inspection of China (CCIBLAC) are both members of ILAC and 
APLAC. 
85 Other functions of AQSIQ include:  quality ma nagement, metrology management, food safety, 
certification and accreditation, and standardization. 
86 Since China's previous Review, there has been only one modification to the catalogue, which added 
toilet paper, tissue, paper handkerchiefs, napkins, paper sanitary towels, paper diapers, paper cloths, and paper bed sheets. WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 68 
 
 
if specified in import or export contracts.87  In particular, the Administration Methods for Import and 
Export Commodities Spot-Check require spot check s on products on grounds of safety, sanitary, and 
environmental protection, or on products a bout which consumers constantly complain.   There are no 
geographic restrictions on the source of these im ports as long as they meet health and safety 
requirements under the law.   
88. For imports subject to quarantine, importers must  submit applications, together with relevant 
documents, to local CIQ authorities.88  Animals, plants, and their products also require sanitary or 
phytosanitary certificates issued by the appr opriate authority in the place of origin.   AQSIQ is 
required to issue the "quarantine permit" or notice of  refusal within 20 working days of receipt of the 
application once it is accepted by the local CIQ (e xcept items that need more time for laboratory 
testing or risk analysis).89  In practice, the majority of items n eed more time for inspection, testing, 
and quarantine evaluation.  If the procedure takes more than 20 working days, the authorities must 
inform the applicant of the "detailed permission time" in writing.  The permit, if issued, is valid for six 
months, irrespective of the calendar year.  In additi on, the applicant must reapply for the permit:  if 
the quantity shipped exceeds by 5% the quantity indicated in the permit;  if the species indicated in 
the permit are altered;  or if there is an altera tion of the exporting country or region, entry port, 
designated port, or transport routes.  Pe rmits must not be transferred or sold. 
89. Exports of animals and plants and their products listed in the Catalogue are subject to similar 
quarantine requirements.  Exporters must apply to CIQs at the port of export for quarantine approval 
before the export of the goods.  Goods failing to m eet the quarantine requirements are not allowed to 
leave the country.   
90. Certain imports and exports can be exempt ed from certain quarantine requirements as 
prescribed by the Measures for Import and Export Commodity Inspection Exemption.90  If approved 
by AQSIQ, commodities listed in the Catalogue of  Entry-Exit Commodities Subject to Inspection and 
Quarantine can be exempt from certain quarantine requirements.  Applications can be made by 
importers, exporters, or manufacturers.  The products  must meet specific requirements;  for example, 
have their own brand names and ha ve a leading position in the industry in their country/region of 
origin in terms of product ranking and quality;  mu st enjoy a "good reputation" in the international 
market, with no quality defects or claims;  and th e product inspection pass rate must be 100% for the 
past three consecutive years.  Food, animals and pl ants and their products;  dangerous goods and their 
packaging;  products with a highly variable qualit y;  and bulk goods (such as mineral ores) are not 
eligible for exemption. 
91. AQSIQ is in charge of import and export SPS re lated issues.  Since the previous Review, 
AQSIQ has signed MOUs on SPS cooperation with agencies in the European Communities, the United States, and the Philippines.  China is a memb er of the World Organization for Animal Health 
(OIE);  it became a member of the Codex A limentarius Commission in 1983, and joined the 
International Plant Protection Convention in 2005. 
                                                     
 
87 TDC online information.  Viewed at:  http://www.tdctrade.com/chinaguide/3-1.htm 
[11 February 2008]. 
88 The documents include the registration document issued by the AQSIQ, the business certificate 
issued by SAIC, the trading rights document issued by  MOFCOM, as well as evidence of storage facilities for 
meat, and other documents required by CIQ.   
89 AQSIQ online information.  Viewed at:  http ://www.aqsiq.gov.cn/bsdt/jyjy/jjdzwyxspjysp4 (in 
Chinese) [11 February 2008]. 
90 AQSIQ online information.  Viewed at:  http://jyjgs.aqsiq.gov.cn/wjgg/jlgg/200610/t20061026_ 
6776.htm (in Chinese) [11 February 2008]. China WT/TPR/S/199/Rev.1 
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92. Under the Implementing Regulations on the Safe ty of Import of Agricultural Genetically 
Modified Organisms, issued by the Ministry of Agriculture, imports of GMOs and their products are divided into three categories:  for research and tes ting;  for production;  and for raw materials for 
processing.  In all three categories, importers need to apply for approval from the Ministry of 
Agriculture, which is in charge of evaluation and issuing the approval document.  The Ministry must 
decide whether to approve within 270 days after acce pting the application, and notify the applicant of 
its decision.
91  In addition, AQSIQ, together with its local CIQs, is responsible for managing the 
import and export of GMOs, as well as testing an d checking conformity with the GMOs' safety 
certificates issued by the Ministry. 
(c) Labelling  
93. Labelling requirements are maintained under the Standardization Law, the Food Hygiene 
Law, and the Law on Product Quality.  Labels  must be written in Chinese and state, inter alia , name 
and trade mark of the product, type of product, th e manufacturer's name and address, place of origin, 
usage instructions, batch number, a nd the relevant standard code.   
94. The SAC is in charge of food labelling.  For f ood, the label must also include ingredients in 
descending order by weight or volume, net weight a nd solid content, date of manufacture, and best 
before or expiry date.  Until April 2006, food importe rs had to submit the certificates for sale issued 
by the authorities in the manufacturing country or  region when applying for Chinese-language labels 
for the imported food.92  Examination of labelling of importe d and exported food is now conducted 
together with quarantine procedures, and the certif icates for sale and prior approval by the AQSIQ are 
no longer required.93  
95. Apart from a few sectors, China's labelling requi rement is in general product-based (rather 
than sector-based).94  Exceptions include some sector-specifi c requirement for food, pharmaceuticals, 
cosmetics, and GMOs.  The AQSIQ released its draft Provisions of the Contents of Food Labelling in June 2007, and is soliciting public opinion.  Th e labelling requirement for pharmaceuticals is 
specified under the Rules on Administration of Instructions and Labelling for Drugs, issued by State 
Food and Drug Administration (SFDA) a nd came into effect on 1 June 2006.
95  The labelling 
requirement for Chinese medicines is provided in three separate documents issued by SFDA.  The 
Ministry of Health is soliciting opinions on the Rules on the Administration of Labelling for Cosmetics, drafted in October 2006, under which labe lling for cosmetics sold in  China needs to be in 
Chinese.  This requirement does not apply to co smetics manufactured in China for export only. 
96. In addition, based on the Regulations on the Safety Administration of Agricultural GMOs 
(State Council, 23 May 2001), the Ministry of Agriculture (MoA) issued the Rules on Administration of Labelling of Agricultural GMOs (revised on 1 July 2004).  Under the rules, "GMO" should be 
specified clearly in the labelling for GMO and pr oducts processed using GMOs.  The labelling should 
be in Chinese.  Without proper labelling, GMOs a nd their products cannot be imported or sold in 
                                                     
 
91 CAFTE online information.  Viewed at:  http://www .cafte.gov.cn/gjmyxy/falv/1671.asp (in Chinese) 
[12 February 2008]. 
92 WTO document G/TBT/W/237, 13 November 2003. 
93 The removal of the prior approval requirement reportedly led to some confusion at the local level as 
local CIQ staff have a different understanding of some national standards (European Union Chamber of Commerce in China (2007), p. 152). 
94 WTO document WT/TPR/M/161/Add.2, 11 September 2006, p. 49. 
95 Central Government online information.  View ed at:  http://www.gov.cn/ziliao/flfg/2006-03/16/ 
content_228465.htm (in Chinese) [12 February 2008]. WT/TPR/S/199/Rev.1 Trade Policy Review 
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China.  The MoA is in charge of the labelling issu es for GMOs and their products, and the AQSIQ is 
responsible for labelling inspection at  the border for imported GMOs.   
(ix) Government procurement 
(a) General framework 
97. The Government Procurement Law prescrib es the principles underlying government 
procurement, and regulates such activities conducted in China using fiscal funds and by government 
departments, institutions, and public  organizations at all levels.  The Law does not apply to SOEs, 
which may be performing non-commercial or quasi-governmental functions.   
98. The total value of government procurement h as been increasing since the previous review, 
and reached Y 368.2 billion in 2006 (compared with  Y 165.9 billion in 2003);  it accounted for about 
1.8% of GDP, much below the international average (around 10-15%).96  Local government entities 
continue to play a major role, accounting for more  than 80% of the total value of government 
procurement in China (Table III.5). 
Table III.5 
Government procurement of goods, cons truction projects, and services, 2004-06 
(Y billion) 
 2004 2005 2006 
TOTAL 213.6 292.8 368.2 
Goods 104.9 140.9 164.7 
Central government entities 14.9 23.5 22.2 
Local government entities 89.9 117.4 142.5 
Construction and engineering services 94.8 132.3 176.4 
Central government entities 12.7 14.3 20.7 
Local government entities 82.2 118.0 155.7 
Other services 13.9 19.6 27.1 
Central government entities 1.7 3.0 4.3 
Local government entities 12.1 16.6 22.8 
Source: Data provided by the authorities. 
99. China has not signed any bilateral, regiona l, or multilateral agreement on government 
procurement.97  It is an observer to the WTO Government Procurement Agreement (GPA), and 
submitted its offer to join the GPA, together with its initial Appendix I offer of coverage, on 
28 December 2007.98  China's government procurement fra mework is designed for a "closed 
economy"99, with a major target to facilitate the achiev ement of state goals for economic and social 
development, including protecting the environment, assisting underdeveloped or ethnic minority areas, and promoting SMEs.
100  Nonetheless, the Law does not specify measures to be taken to 
promote the development of SMEs in the government procurement framework. 
                                                      
96 The proportion is even higher in some developing countries (CCPG online information.  Viewed at:  
http://www.ccgp.gov.cn/web/cgf/zongze5.asp  (in Chinese) [12 February 2008]). 
97 CCGP online information.  Viewed at:  http://www .ccgp.gov.cn/web/cgf/zongze3.asp (in Chinese)  
[12 February 2008]. 
98 WTO document GPA/93, 14 January 2008. 
99 CCGP online information.  Viewed at:  http://www .ccgp.gov.cn/web/cgf/zongze3.asp (in Chinese) 
[12 February 2008]. 
100 Article 9 of the Government Procurement Law. China WT/TPR/S/199/Rev.1 
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100. Article 10 of the Government Procurement Law provides that the Government shall procure 
domestic goods, projects, and services.  However, ther e are no provisions on local content, or rules of 
origin, under the government procurement framewo rk, to determine whether a product is produced 
domestically.  Purchasing from foreign suppliers may be allowed under exceptional circumstances;  
e.g. when the goods, projects, and services requi red are unavailable or unavailable on reasonable 
commercial terms, in China;  the goods, projects and services are procured for use outside China.101  
Further, procurement of imports need examination and approval from the Ministry of Finance, or its 
corresponding department s at the local level.102  However, in practice, procurement from foreign 
suppliers occurs routinely for products such as car s, copying machines, and computers, although there 
are no data on the annual value or proportion of government procurement from foreign suppliers. 
101. The Government Procurement Law applies to procurement of goods, projects, and services 
listed in a Centralized Procurement Catalogue.  The cat alogue is issued by the Ministry of Finance, or 
provincial bureau of finance, and is revised from ti me to time.  For items listed in the catalogue, 
purchase must be carried out by centralized procur ement agencies, which are non-profit legal persons.  
This "centralized" procurement accounted for more than 80% of government procurement in 2006 
(Table III.6).  "Decentralized" procurement refers to the procurement of items not listed in the 
catalogue, but with a value above a certain procuremen t threshold, which is specified by governments 
at various levels.103  Decentralized purchasing can be carried out by the procuring agency itself, or 
through some centralized procurement agencies.   
Table III.6 
Government procurement by entity, 2004-06 
(Y billion) 
Year Total Centralized procurement Decentralized procurement 
2004 213.6 172.8 40.8 
2005 292.8 235.9 56.9 
2006 368.2 298.6 69.6 
Source: Data provided by the authorities. 
(b) Procurement methods 
102. Procurement of projects (construction and engin eering) is regulated by both the Government 
Procurement Law, and the Law on Bid Invitation and Bidding or Tendering.  For goods and services, 
the following methods can be used:  public tend ering, invited bidding, competitive negotiation, 
single-source procurement, request for quotations, and other methods confir med by the supervising 
department under the State Council, i.e. the Ministry of Finance.104   
                                                      
101 Thus, in principle, procuring from foreign suppliers when domestic produced goods are available is 
illegal and subject to punishment. 
102 Ministry of Finance issued Measures on Administration of Government Procurement of Imports on 
27 December 2007.  Under the measures, the procuremen t of scientific equipment or technology, which is 
subject to import restriction, needs opinions from the Ministry of Science and Technology, or the NDRC. 
103 Article 8 of the Government Procurement Law specifies that the thresholds for government 
procurement items under the central budget are prescribed and published by the State Council, and the thresholds for items under local budget are prescribed and published by local governments (of provinces, 
autonomous regions, municipalities), or the department authorized by them.  
104 Invited tenders may be used for goods or services th at have special characteristics so that they have 
to be procured from a limited number of suppliers or if the cost of purchasing through public tenders is too high 
as a proportion of the total value of the procurement.  In  this case, the procurement agency must invite at least 
three qualified suppliers to submit bids.  Competitive negotiations may be authorized when:  a public tender has failed to result in the award of a contract;  the goods or services are technologically complex or have other WT/TPR/S/199/Rev.1 Trade Policy Review 
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103. Public tendering involves publishing a request for tender, and accepting submissions from any 
potential suppliers (domestic) who sa tisfy conditions for participation.105  Public tendering accounted 
for 67.6% of total government proc urement value in 2006 (Table III.7).  It is the required method for 
procurement of items over the prescribed thresholds;  the authorities state that in 2007, the thresholds 
for central government procurement through pub lic tendering were Y 1.2 million for goods and 
services and Y 2 million for construction projects, respectively (same as in 2004). 
Table III.7 
Government procurement by method, 2004-06 
(Y billion) 
Procurement method  
Year  
Total  Public 
tendering  Invitation for 
tendering  Competition 
negotiation  Request for 
quotations  Single-source 
procurement  
2004 213.6 127.2 23.4 22.6 28.1 12.3 
2005 292.8 191.7 22.7 31.1 33.3 14.0 
2006 368.2 248.9 24.2 42.2 36.7 16.2 
Source: Data provided by the authorities. 
(c) Other provisions 
104. Article 11 of the Government Procurement Law, and the Rules on Information Openness of 
Government Procurement106, both provide that procuring entities must announce government 
procurement and bidding information in media designated by the Ministry of Finance in a timely and standard manner.
107   
105. Under Chapter 6 of the Law, suppliers who believe  that they have been or are being unfairly 
excluded from procurement processes or treated in  a discriminatory way can complain to the 
procuring agency, followed by appeal to the Government Procurement Division of the Ministry of 
Finance, or further file a lawsuit to the court.  The authorities state that in 2006, of the 760 appeals 
made, 629 were accepted for processing;  of these,  decisions were taken on 352 cases, 183 cases were 
rejected, and 94 were withdrawn. 
106. The authorities are currently seeking opini ons on the Draft Implementation Measures on 
Government Procurement of Soft ware;  however, there is no specific timetable to publish the 
measures.  On the other hand, the Ministry of  Finance and the State Environmental Protection 
                                                                                                                                                                     
special characteristics;  the procurement is to be conducted urgently;  or it is not possible to calculate the total 
price in advance.  Single source procurem ent is used:  when there is only one supplier;  in case of an emergency;  
and for purposes of maintaining uniformity or compleme ntarities of services procured previously, provided that 
the total amount of the additional procurement does not exceed 10% of the value of the original contract.  A 
request for quotation can be made when :  the specifications and standards of the goods are unifor m;  there is an 
abundant stock of existing goods;  and fluctuations in prices are small (WTO (2006)). 
105 CCGP online information states that, suppliers specified under the Law are domestic suppliers 
(Viewed at:  http://www.ccgp.gov.cn/web/cgf/dangshiren8. asp).  Other requirements for potential suppliers 
include: having sound financial and accounting systems, having the equipment and professional expertise to perform contracts, having a clean record of paying ta xes, and not having committed any major breaches of law 
in the business operation in the three years prior to participation in the procurement. 
106 The Rules on Information Openness of Government Procurement were issued by the Ministry of 
Finance in August 2004 and entered into force on 11 September 2004. 
107 The official government procurement website is www.ccgp.gov.cn.  Other designated media include 
the China Government Procurement Magazine, which is circulated nationally, and the  China Fiscal and 
Economics News , a newspaper circulated nationally.  China WT/TPR/S/199/Rev.1 
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Administration issued Opinions on the Government  Procurement of Products  with Environmental 
Protection Marks on 24 October 2006.  Under the Opin ions, preference is given to products with 
environmental protection marks when c onducting government procurement activities.108 
(x) Import-related financing 
107. In 2006, the Export-Import Bank of China (EXIM Bank) started to offer import credit to 
importers in China, mainly to f acilitate imports of key technologi es and equipment, or petroleum, 
natural gas, and other mineral products in the form of large-volume and long-term contracts. 
(3) MEASURES DIRECTLY AFFECTING EXPORTS  
(i) Procedures  
(a) Customs procedures 
108. China’s customs procedures with regard to expor ts have remained largely unchanged since its 
previous Trade Policy Review.  Export declarati on procedures are similar to those for imports 
(section (2)(i)).  Exporters must register with Customs before making cu stoms declarations, and 
export declarations must be made after the goods  arrive at the customs surveillance zone, and 
24 hours before loading, unless otherwise approved by Customs.  Licences are required for exports 
subject to restrictions (section (v) below).   
109. Exports of animals and plants and their produc ts are subject to similar SPS requirements as 
imports and to the requirements of the importing country.  Goods that do not meet the SPS requirements are not allowed to leave the country.  The Catalogue of Entry-Exit Commodities Subject to Inspection and Quarantine is issued annually by AQSIQ;  exports of certain products in the 
catalogue, such as food and goods affecting health, need  to be registered with relevant government 
agencies.
109   
(b) Preshipment inspection 
110. China does not require preshipment inspection ( PSI) for exports;  its PSI agencies engage in 
preshipment export inspection for its trading partners that require PSI.   
(ii) Export taxes 
111. Export taxes are levied at statutory rates in relation to f.o.b. values and on an MFN basis.110  
In addition, lower interim rates may be applied, and also on an MFN basis.  The Tariff Commission 
under the State Council sets and publishes the statut ory rates annually and revises the list of items 
subject to interim duty together with the rates of duty.   
112. In 2007, statutory export taxes applied to 88 tariff lines at the HS 8-digit level, including 
metals, phosphorous, benzene, and eel;  64 of th ese lines were subject to lower interim export 
                                                      
108 Among all the products with environmental protection marks, the Ministry of Finance (MOF) and 
SEPA listed certain products in a catalogue, covering 14 categories, around 1,000 types of products.  The 
catalogue is revised regularly by MOF and SEPA.  The Opinions became effective on 1 January 2007 for governments at and above provincial level, and was effective nationally on 1 January 2008. 
109 Article 31 of the Implementing Regulation of the Law on Import and Export Commodity Inspection. 
110 In the Annex 6 of its Protocol of Accession, China listed 84 lines at the HS 8-digit level at statutory 
export tax rates. WT/TPR/S/199/Rev.1 Trade Policy Review 
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duties.111  In the same year, interim export duties applied to an additional 110 lines at the HS 8-digit 
level, which were not subject to statutory export ta xes.  They included:  some mineral products; iron, 
copper, nickel, and aluminium ores;  certain chemic al products;  as well as iron and steel products.  
The interim duty rates on 142 tariff lines were increased on 1 June 2007112, with a view to reducing 
exports of products that are highly energy consum ing and polluting, as well as those consuming large 
amounts of raw materials.  On 1 January 2008, the coverage of interim export duties increased again 
to include some more steel products;  in total, 334  lines (at the HS 8-digit level and including 4 "ex-" 
lines) are now subject to interim export duties.  In addition to these products, exports of grain, rice, 
maize, and soybeans are subject to interi m export duties, to discourage their export.113  Though the 
main objective of these export taxes may be to im prove the environment by reducing exports of 
products considered to be highly energy consumin g or polluting, such taxes tend to increase the 
domestic supply of the products con cerned.  As a consequence, their domestic prices tend to be lower 
than would otherwise be the case; thus, export taxes may implicitly assist domestic downstream 
processing of the products concerned.  Not fully re bating VAT on exports of certain products has a 
similar outcome (see below). 
113. Some interim duty rates are zero.  According to the authorities, these apply to products that 
have been subject to interim export duties for one or two decades. 
(iii) Tax rebates on exports 
114. Under the Interim Regulations on Value-added Tax, a standard  17% VAT rate is levied on 
goods produced domestically or imported.  Some ite ms are subject to a VAT rate of 13%, 6%, and 
4%;  VAT exemptions may apply to others. 
115. VAT and excise tax may be rebated on exports.114  However, VAT rebate rates on exports are, 
by and large, lower than the VAT rates actually  paid.  The difference between the two rates 
constitutes a levy on exports, which may, in turn , constitute an assistance to downstream processing 
of the products affected.115  For example, in 2005 China removed an 8% VAT rebate for exports of 
primary aluminium and, in addition,  imposed a 5% interim export tax.116  Removal of the VAT rebate 
together with the imposition of the export tax tends  to reduce exports of primary aluminium and thus 
increase its domestic supply.  As a result, the domestic price of primary aluminium tends to be lower 
                                                      
111 The 24 lines at the HS eight-digit level, which we re subject to statutory export taxes only, included 
some lead ores and concentrates, tungsten ores and co ncentrates, tantalum/niobium materials, crude antimony, 
some phosphorous, some raw hides and skins of goat, some pig iron, and some waste and scrapped iron and 
steel products. 
112 Central Government online information.  Viewed at:  http://English.gov.cn/2007-05/22/content_ 
621737.htm [12 February 2008];  http://www.gov.cn /jrzg/2007-05/22/content _621833.htm (in Chinese) 
[12 February 2008];  and http://www.gov.cn/zfjg/content _622184.htm (in Chinese) [12 February 2008].  Export 
taxes on more than 80 steel products were increased, and started to be applied to some primary commodities. 
113 MoA online information.  Viewed at:  h ttp://www.agri.gov.cn/gndt/t2 0080102_94708 2.htm (in 
Chinese) [8 February 2008].  It would appear that such interim export duties are not levied on exports to the 
SARs of Hong Kong and Macao. 
114 Tax rebates for exports are regulated under the Measures on Administration of Tax Rebate 
(Exemption) for Exports, issued by the State Administration of Taxation.  
115 The authorities do not believe that the difference between the VAT rates and rebates constitutes a 
levy on exports.  
116 The rebate rate was reduced from 15% to 8% in 2004.  In 2006, a 5% export tax on primary 
aluminium with a purity of 99.95% and above was remove d, while the tax on primary aluminium with a purity 
below 99.95% remained (from 1 November 2006, the rate was increased to 15%).  MOFCOM online 
information, "Aluminium Industry  Faces Challenges".  Viewed a t: http://eg2.mofcom.gov.cn/aarticle/ 
chinanews/200504/20050400033130.html [14 February 2008]. China WT/TPR/S/199/Rev.1 
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than would otherwise be the case; primary aluminiu m is a major input into aluminium foil (which, 
upon exportation, qualifies for a VAT rebate of  13% rather than the full rebate of 17%). 
116. The VAT rebate rates are adjusted from time to time to, inter alia , meet industrial 
development goals, and control exports of certain pr oducts.  For example, in September 2006, rebate 
rates were lowered on, inter alia , some steel products, cements, and some textiles, as well as furniture, 
plastics, and wood products.  At the same time, re bate rates were increased:  from 13% to 17% for 
manufacturing equipment, some IT products, and medical equipment and some high-tech products; 
and from 5% or 11% to 13% for some products  using agricultural products as raw materials.117  On 
1 July 2007, China eliminated rebates for some  553 items regarded as highly energy consuming, 
highly polluting, and consuming large amount of raw materials, and lowered rebate rates for 
2,268 lines (HS 8-digit) that the authorities consider ed prone to trade friction;  such items included 
textiles and steel products.118  On 20 December 2007, China remove d the VAT rebate on exports of 
84 agricultural tariff lines, such as wheat, maize, rice , and soybean, with a view to easing inflation.  
As a consequence, current VAT rebates are:  17%, 13%, 11%, 9%, and 5%.  The authorities state that 
VAT rebates on exports amounted to Y 487.7 billion in  2006 (Y 420 billion in 2004), or about 6.3% 
of total merchandise exports.  In addition, exports of ten items (including peanut kernels, painting, 
sculpture board, stamps, and stamp tax note) were exempted from paying VAT as of 1 July 2007.  
117. For small amounts of exports in border trade in Yunnan province and adjoining areas, the 
VAT and excise tax rebate rate increases from 70% to 100% of the tax paid if the payment is by bank 
transfer;  it remains at 40% for payment in cash.119 
118. China reformed its excise taxes in April 2006 ( section (4)(i)(b)).  Excise taxes on exports are 
fully rebated.  In 2006, exci se tax rebates on exports reached Y 934 million, up from Y 716 million 
in 2005. 
(iv) Tax concessions under processing trade 
119. China does not grant bonded status for all imports used as inputs for exports under 
"processing trade".  The authorities call the non-gr anting of bonded status  "export prohibition under 
processing trade".  Exports of products "prohib ited under processing trade" are allowed if import 
duties are paid on imported inputs. In 2007, there were 617 such items at the HS 8-digit level, 
compared with 305 in 2004.120  By increasing the number of goods  subject to export prohibition under 
processing trade, the Government aimed to discourag e exports of products using large amounts of raw 
materials for processing, products with low value ad ded, and products that consume relatively large 
amounts of energy or are highly polluting.  
                                                      
117 Xinhua News  online information.  Viewed at: http://news.xinhuanet.com/fortune/2006-09/14/ 
content_5092806.htm (in Chinese) [12 February 2008]. 
118 Central Government online information.  Viewed at: http://www.gov.cn/xwfb/2007-06/19/content_ 
653538.htm (in Chinese) [8 February 2008]. 
119 MOF and SAT order No. 178 of 2004, as of 1 October 2004.  Viewed at:  http://www.fdi.gov.cn/ 
pub/FDI/zcfg/jck/ck/P020060619703623901098.pdf  (in Chinese) [8 February 2008]. 
120 They include mineral products, chemical products, raw hides and skins, wood and articles of wood, 
pulp of wood, paper, base metals and articles thereof.  Of the 617 tariff lines, 138 were also subject to import prohibition under processing trade (section (2)(iii)(c)). WT/TPR/S/199/Rev.1 Trade Policy Review 
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(v) Export prohibitions, restrictions, and licensing  
(a) Export prohibitions 
120. In 2007, China maintained general export prohib itions on 40 items at the HS 8-digit level (up 
from 25 items in 2004).  Prohibited items include ma inly materials relating to State secrets, precious 
and rare animals and plants (such as horn- cores, bezoars, musk, and wood charcoal).121  The added 
lines are mineral products (HS Chapter 25) and some chemicals (HS Chapter 29).  
(b) Export quotas and licensing 
Overview 
121. The Measures for the Administration of E xport Commodities Quotas, and the Measures on 
Invitations to Tender for Export Commodities Quot as contain China’s export quota requirements. 
China maintains both global export quotas and des tination-specific quotas.  Global quotas are applied 
regardless of destination.  Destination-specific quotas apply to live cattle, live swine, and fowl to be 
exported to the Hong Kong and Macao SARs.  Quot a amounts and allocation rules are determined by 
the NDRC, or MOFCOM.  When determining the size of quotas, the authorities consider, inter alia :  
national security, availability of domestic resource s for downstream processing, development plans 
for certain domestic industries, and international and domestic demand.  After the exporter obtains a 
quota, an export licence is issued by MOFCOM. 
122. There has been little change in China's export licensing regime since its previous Review.122 
The regime includes automatic and non-automatic export licences, and is regulated by the Administrative Measures on Export Licence for Goods.  In addition, MOFCOM and Customs issued 
the Provisions on Administration of Import and Export Licences for Dual-Purpose Goods and 
Technologies, effective 1 January 2006
123;  and at end 2006, MOFCOM issued the Provisional 
Administrative Measures on Automatic Licensing for Exports (Draft) and solicited public opinions on the draft. 
123. In 2007, 447 tariff lines at HS 8-digit level were subject to export quotas and licensing 
administration (316 in 2005 and 319 in 2004).  In 2004,  the latest year for which data were provided, 
the value of exports subject to licensi ng accounted for 4.1% of total exports. 
Export quotas 
124. Global export quotas applied to 146 lines at the HS 8-digit level in 2007 (down from  179 lines 
in 2004).  From 1 January 2008, global export quot as are also applied to flours of some grain 
products.
124  Quotas for five products (rice, maize, cotton, coal, and wheat) are allocated by the NDRC 
in consultation with MOFCOM;  all ot hers are allocated by the MOFCOM.125  For exports subject to 
state trading (i.e. rice, maize, cotton and coal),  global quotas are first allocated to state-trading 
                                                      
121 WTO document WT/ACC/CHN/49, 1 October 2001. 
122 WTO (2006). 
123 Provisions on Administration of Import and Export Licenses for Dual-Purpose Goods and 
Technologies.  Viewed at:  http://www.law-lib.c om/law/law_view.asp?id= 126558 (in Chinese) 
[8 February 2008]. 
124 China Economic Net online information.  Viewed at:  http://finance.ce.cn/futures/qhgdbd/200801/ 
03/t20080103_12777869.shtml (in Chinese) [8 February 2008]. 
125 Mainly wood and articles of wood, mineral fuels and oil, chemicals, and compounds of precious 
metals.   China WT/TPR/S/199/Rev.1 
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enterprises.  For all other exports, MOFCOM allocat es quotas either directly to enterprises, or to 
departments at the provincial level, which allocat e them to enterprises.  When allocating quotas, 
provincial governments take into account enterpri ses' export performance, their quota usage, business 
performance, and production volume in the past thr ee years.  Unused quotas must be returned to 
MOFCOM before 31 October of the year for which they are issued, and cannot be traded. 
125. Quotas on certain exports can also be allocat ed through a bidding process.  These include 
exports:  using large amounts of exhaustible natura l resources;  having a dominant share in the 
international market;  whose overall export amount s are "unlikely to be affected by price 
fluctuations";  of products that authorities consider  may face anti-dumping actions in other countries;  
and those subject to trade restrictions under b ilateral agreements.  Unused quotas under the bidding 
system can be returned to MOFCOM, or transf erred between enterprises after examination and 
approval by tendering offices under MOFCOM. 
Export licences 
126. For exports subject to non-automatic licensing, as for imports, applicants must obtain an 
export permit prior to applying for a licence (section (2)(v)(b)).  Export permits are granted by different 
authorities (NDRC, MOFCOM, or the State Enviro nmental Protection Administration), depending on 
the product.126  After obtaining the permit, exporters are granted an export licence automatically by 
MOFCOM or its authorized agencies;  the li cence is issued within ten working days. 
127. China's non-automatic export licensing requirements are implemented mainly to fulfil its 
obligations under international agreements, such as:  Articles XX and XXI of GATT 1994;  the 
Montreal Protocol on Substances that Deplete the Ozone Layer;  the Conventions on the Prohibition 
of the Development, Production, Stockpiling and Use of Chemical Weapons and on their Destruction;  
and the Convention against Illicit Traffic in Narco tic Drugs and Psychotropic Substances.  MOFCOM 
and Customs issue and publish the Catalogue of  Goods Subject to Export Licence Administration 
annually.  In 2007, ten lines at the HS 8-digit le vel were subject to export licensing requirements, 
down from 84 lines in 2006.  This difference is because the Provisions on Administration of Import 
and Export Licences for Dual-Purpose Goods and Tec hnologies require exporters of chemicals that 
may be used for military purposes, and toxic materials, to obtain a permit and licence from the MOFCOM.  Export licences have also been used to  reduce exports of certain products:  some steel 
products (83 tariff lines at the HS 8-digit level) have been subject to licensing requirements since 
20 May 2007.
127   
128. Unless otherwise specified, an export licence is  valid for six months (within one calendar 
year).  The licence for steel products is valid for three months. Licences issued may be:  "one licence 
one customs", requiring the export licence to be declared once at only one customs post;  "one lot licence", requiring a separate licence for each batc h of goods exported.  Licences may not be bought, 
sold, transferred, or altered. 
                                                     
 
126 The Office of Implementing the Convention on the Prohibition of the Development of Chemical 
Weapons, based in the NDRC, grants permits for chem icals under supervision and control;  MOFCOM grants 
permits for chemicals that may be used for narco tics production, and steel products;  and the State 
Environmental Protection Administration for ozone-depleting substances. 
127 MOFCOM and Customs, Announcement No. 41 of 2007, Promulgating Licence Administration on 
Export of A Part of Steel.  Viewed at: http://eng lish.mofcom.gov.cn/aarticle/ policyrelease/domesticpolicy/ 
200705/20070504643194.html  [12 February 2008]. WT/TPR/S/199/Rev.1 Trade Policy Review 
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129. Automatic export licences, which apply largely for statistical purposes, were required for 
284 lines (at the HS 8-digit level) in 2007 (40 in 2004).128  Exporters of these products can obtain a 
licence from MOFCOM or its authorized agencies if they have the relevant export contracts.  Under the MOFCOM draft Administrative Measures on Automatic Licensing for Exports (see above), 
exports subject to automatic licences would be listed in a MOFCOM catalogue. 
Export restrictions on textiles and automobiles 
130. Under the memoranda of understanding (M OUs) between China and the European 
Communities, China and the United States, and China and South Africa
129, growth rates of Chinese 
textiles and clothing exports are limited;  the restri ctions on exports to the EC were eliminated at end 
2007 and are to be eliminated by the end of 2008 on exports to the United States and South Africa 
(Chapter IV(4)(ii)).130 
131. Under MOFCOM's Measures for the Administ ration of Textiles Exports (Provisional), 
effective on 18 September 2006131, a Catalogue of Textiles Products Subject to Interim Export 
Administration sets out textiles and clothing pro ducts subject to export restrictions imposed 
unilaterally by countries or regions, and those subject  to temporary quantitative control under bilateral 
agreements.  To export products in the catalogue, exporters require a "pr ovisional export licence", 
from the local counterparts of MOFCOM, and a cer tificate of origin from the relevant agency 
authorized by AQSIQ.  Quotas are allocated either through a bidding system, or based on the exporter's past export performance, and other factors.
132  The licence is valid for six months during 
each calendar year and is transferable.133 
132. Notice on Regulating Automobile Exports, i ssued by MOFCOM, NDRC, Customs, AQSIQ, 
and CNCA on 31 December 2006, stipulates that e xporters of completely built up units (CBUs), 
including passenger vehicles, business vehicles, chassis, and "components in complete form", must apply for licences from local departments of MOFCOM.  Qualified enterprises are included in a "list" 
issued every year.  Enterprises on the list must obtain export licences from MOFCOM, then apply for approval from the AQSIQ before Customs release th eir exports. Enterprises not on the list cannot 
export automobiles.   
                                                     
 
128 Including mainly meat and edible meat offal (31 lines), platinum (14), iron and steel (97), other base 
metal (39), machinery (12), and vehicles (71).     
129 China signed an MOU with South Africa, which enables South Africa to impose unilateral import 
restrictions on 31 textiles and apparel products originating in China between 2007 and 2008. 
130 See WTO (2006) for details of the MOUs betw een China and the EC and China and the United 
States.  The MOUs were signed against the backdrop of Article 242 of China's Working Party Report.  Article 242 permits WTO Members to request consultations  with China if the Member believes that imports of 
textiles and apparel products of Chinese origin covered by the ATC are causing market disruption;  during the 
consultation, China will hold exports of the products in question at a level no greater than 7.5% (6% for wool) 
above the amount entered during the first 12 months or the most recent 14 months preceding the month in which 
consultations were requested.  The restraints established as a result of these consultations will be effective for a 
year from the date on which consultations were requested unless otherwise agreed.  Members cannot use 
simultaneously measures under this provision and the transitional product-specific safeguard measures under 
Article 16 of China's Protocol of Accession.  Article 242 covers the period up to 2008. 
131 The measures are based on the Interim Measures for the Administration of Textiles Exports, first 
issued on 19 June 2005, and revised later to become effective 22 September 2005.   
132 These are:  total export quotas  for the product, as determined by MOFCOM;  the enterprise's total 
export value in the previous year, and the enterprise's export value to the country or region imposing quotas on 
Chinese textile exports;  and China's total export value in the previous year, and China's export value to the 
country or region imposing quotas on Chinese textile exports. 
133 The quotas can be transferred online (http://xk.ec .com.cn), or through MOFCOM's local agencies. China WT/TPR/S/199/Rev.1 
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(vi) Measures maintained by importing countries 
133. MOFCOM identified major trade barriers for Chinese exports in its annual Foreign Market 
Access Report .134  The trade barriers identified in the Report remain the same as at the time of China's 
previous Trade Policy Review. 
(vii) State trading 
134. State trading is maintained to, inter alia , ensure stable domestic s upply, avoid drastic price 
fluctuations in international markets, ensure food safety, and protect exhaustible and non-recyclable 
natural resources and the environment.135  In 2007, exports subject to state trading were rice, maize, 
cotton, coal, crude oil, processed oil, tungsten or e and products, antimony ore and products, silver, 
and tobacco (Table AIII.3). 
135. State trading is undertaken by SOEs and forei gn invested enterprises.  However, only SOEs 
can conduct state trading of rice, maize, cotton, cr ude oil, processed oil, and tobacco exports, while 
FIEs can export silver, tungsten ore and products, and antimony ore and products.  
(viii) Export promotion and marketing assistance 
136. China's schemes to promote exports comprise mainly tax concessions, export finance 
operated by the Export-Import Bank of China (EXIM Bank), export credit insurance by the China 
Export & Credit Insurance Corporation (SINOSURE), and export fairs. 
(a) Tax and non-tax measures 
137. The authorities state that China does not provide export subsidies.  China notified to the WTO 
that no export subsidies have been maintained or introduced for agricultural products since 2002.136 
138. Before the entry into force of the Enterpri se Income Tax Law in 2008, preferential tax 
treatment was provided to certain enterprises to enc ourage exports.  For example, if foreign investors 
of export-oriented FIEs reinvested their profits to expand production in China, the proportion of 
enterprise income tax paid on the rei nvested amount was eligible for refund.137  If in any given year an 
FIE exported over 70% of the year's production value, it could be eligible for enterprise income tax at 
half the rate specified in the Income Tax Law fo r Enterprises with Foreign Investment and Foreign 
Enterprises;  the reduction applied after the income tax holiday period expired.  In addition, FIEs 
established in the special economic zones or economic and technology development zones, or any other FIEs otherwise enjoying an income tax rate of 15%, paid income tax at 10% if the same export 
requirement was met (section (4)(ii)(b)).  These pr eferences were removed in 2008 (section (4)(i)(c)). 
                                                     
 
134 MOFCOM (2007b). 
135 WTO (2006). 
136 WTO documents  G/AG/N/CHN/12 (14 September 2007), G/AG/N/CHN/10 (25 October 2006), 
G/AG/N/CHN/6 (5 April 2005), and G/AG/N/CHN/4 (7 September 2004). 
137 WTO document G/SCM/N/123/CHN, 13 April 2006.   WT/TPR/S/199/Rev.1 Trade Policy Review 
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(b) Export finance and insurance  
Export-Import Bank of China 
139. The Export-Import Bank of China (EXIM Bank), the only policy bank providing export 
credit, is wholly owned by the Central Government.138  Its functions cover, inter alia , financial 
support to promote exports of mechanical and electronic products, and high and new technology 
products, including through export credit, and export bu yers' credit.  The auth orities state that there 
are no local-content requirements for exporters  to apply for loans from the bank.  In 2006, export 
credits provided by the EXIM Bank amounted to Y 102.8 billion, an increase of 25% from the previous year.  Of this, 32.9% was for exports of high and new-tech products, and 22.9% for ships and 
vessels.
139  In the same year, US$2.27 billion was provided as export buyers' credit, an increase of 
more than 80% from the previous year.140 
140. The EXIM Bank raises its funds mainly by i ssuing financial bonds.  Data provided by the 
authorities show that the NPL ratio for the EXIM Bank fell by 1.44 percentage points from 2005, and 
reached 3.47% at end 2006. 
Export & Credit Insurance Corporation 
141. The China Export & Credit Insurance Corporati on (SINOSURE), the only official export and 
credit insurance company in China, was set up in  2001 to promote exports, in particular high 
value-added and high-tech capital goods.  SINOSUR E is a wholly state-owned company;  it 
implements government policy on export credit in surance, and assumes commercial export credit 
risks.  In 2006, the share of total exports with  SINOSURE credit insurance was 3% (same as 2003).  
According to the authorities, there are no local-cont ent requirements to be eligible for SINOSURE’s 
export credit insurance. 
(c) Other export assistance 
142. MOFCOM provides online information to help enterprises export.141  The China Foreign 
Trade Centre under MOFCOM holds export fairs, including the China Import and Export Fair in 
Guangzhou twice a year.   
143. The International Market Exploration Fund for SMEs is operated by MOFCOM and MOF, to 
facilitate SMEs' participation in overseas exhibitions, so as to promote their presence in international 
markets and encourage them to explore new markets.   
144. The China Council for the Promotion of Interna tional Trade (CCPIT) also helps to promote 
international trade, by, inter alia, establishing contacts with foreign governments, offering various 
consultation services, and helping enterprises to appl y for patents and register trade marks.  As a 
non-profit agency, the CCPIT obtains some  financial support from government.   
                                                      
138 It has ten branches and five representative offices in China, as well as three overseas representative 
offices (in Johannesburg, Paris, and St. Petersburg) (EXIM Bank online information. Viewed at:  http://english.eximbank.gov.cn/profile/in troduction.jsp [11 February 2008]). 
139 EXIM Bank (2007). 
140 Export buyers' credit refers to medium- or long-term loans offered to foreign borrowers to support 
the export of Chinese capital goods, serv ices, and overseas construction projects. 
141 Information on, inter alia , international market, China's trade policies, exhibitions, relevant 
statistics, and SME trade related information.  Trade Promotion online information.  Viewed at:  http://www.tdb.org.cn. China WT/TPR/S/199/Rev.1 
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(4) MEASURES AFFECTING PRODUCTION AND TRADE  
(i) Taxation and tax incentives 
(a) Overview 
145. China appears to be a relatively low tax country , with total tax revenue as a percentage of 
GDP at around 16.5% in 2006 (up from 15.7% of GDP in 2005) (Table III.8).  During the period 
under review, China adopted various tax reforms, in cluding the unification of income tax rates for 
domestic enterprises and FIEs through the Enterprise Income Tax Law, which entered into force on 
1 January 2008.  Other major tax reforms include:  abolition of the agricultural tax with a view to 
relieving burdens on farmers;  con tinuation of the pilot project in north-east China to transform the 
VAT from a production to a consumption-based tax;  the increase in the exemption threshold for 
personal income tax;  reform of consumption (exc ise) tax;  the increase in stamp tax on securities 
transactions (May 2007), and the reduction of tax on interest from bank deposits (August 2007).142 
Table III.8 
Tax revenue, 2004-06 
(Y billion) 
  2004 2005 2006 
Total government revenue 2,639.6 3,164.9 3,876.0 
Tax revenue 2,416.6 2,877.9 3,481.0 
Indirect taxes 1,847.2 2,134.0 2,531.6 
Consumption (excise) taxa 150.2 163.4 188.6 
Value-added taxb 901.8 1,079.2 1,278.5 
Consumption tax and VAT on imports 370.0 421.2 496.3 
Tariffs 104.4 106.6 114.2 
Business tax 358.2 423.2 512.9 
Agriculture-related taxesc 90.2 93.6 108.4 
Direct taxes 569.4 743.9 949.4 
- Enterprise income tax 395.7 534.4 704.0 
- Individual income tax 173.7 209.5 245.4 
a Not including the excise tax on imports. 
b Not including the VAT on imports. 
c Before 2004, agriculture-related taxes were:  agriculture tax, animal husbandry tax, special agriculture tax, slaughter tax, deed 
tax, and farmland occupati on tax. Special agriculture tax (apart from tobacco  leaf tax) was removed in 2004;  animal husbandry 
tax was removed in 2005;  and agriculture tax and slaughter ta x were removed in 2006.  As of 2006 the deed tax and the 
farmland occupation tax remain in place. 
Source:  National Bureau of Statistics of China, China Statistical Yearbook, various issues;  and WTO Secretariat 
calculations. 
146. China's tax legislation and policy-making frame work is highly centralized;  local governments 
can only formulate implementing regulations.  The Mi nistry of Finance, together with the State 
Administration of Taxation (SAT), is responsible for tax policy (including tax reforms), while the 
SAT is the major tax collection agency.143  Taxes are classified into cen tral taxes (collected by the 
national tax service (NTS)), local taxes (collected by local tax services (LTSs)), and shared taxes 
                                                      
142 In addition, on 1 January 2007, the tax base of the "city and township land use tax" was expanded, 
from domestic enterprises and individuals to all enterprises and individuals using land in China.  The "land use 
charge" on FIEs and foreign individuals was removed.  In addition, the "vehicle and vessel usage tax" on domestic enterprises and individuals, and the "vehicle and vessel licence tax", on foreign enterprises and 
individuals, were unified into a new "vehicle and ve ssel tax", levied on domestic and foreign enterprises, 
individuals, or organizations. 
143 The Ministry of Finance also collects some taxes, such as the deed tax. WT/TPR/S/199/Rev.1 Trade Policy Review 
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(collected by both the NTS and the LTSs) (Table AIII.4);  the NTS and LTSs  are tax collecting 
agencies under the SAT.  
(b) Indirect taxation 
147. Most tax revenue (72.7% in 2006) comes from indirect taxes, including consumption tax, 
VAT, and business tax.144  Tariffs accounted for 3.3% of total tax revenue in 2006. 
Consumption tax 
148. Consumption (or excise) tax is levied on cer tain domestic and impor ted goods.  Under the 
Notice on Adjustment and Improvement of Consumption Tax Policy, issued by the Ministry of Finance and the State Administration of Taxation (effective from 1 April 2006), product coverage and 
rates were adjusted.
145  For example, some luxury items and "resource-consuming" products, such as 
golf balls and equipment, luxury watches, yach ts, disposable wooden chopsticks, and wooden 
floorboards, were added to the list of products subject to consumption tax;  five types of refined oil 
products (aviation kerosene, fuel, lubricants, naphtha, and solvents) were also included.  On the other 
hand, skin-care and hair-care products that have already become "daily necessities" were removed 
from the list.  Rates for automobiles, motorcycles, automobile tyres, and white spirits were adjusted 
(Table III.9).  Excise tax is fully rebated for exports.  
Table III.9 
Excise (or consumption) tax, 2007 
Product Rate 
Tobacco  
Cigars 40% 
Cigarettes, if the price is higher than Y 50 per carton 45% plus Y 150 per carton 
Cigarettes, if the price is lower than Y 50 per carton 30% plus Y 150 per carton 
Some tobacco products 30% 
Alcoholic drinks and alcohol  
Alcoholic preparations for th e manufacture of beverages 5% 
Beer made from malt, and of a value over or equal to US$370 per tonne Y 250 per tonne 
Beer made from malt, and of a value less than US$370 per tonne Y 220 per tonne 
Wine of fresh grapes 10% 
Vermouth and other similar alcoholic beverages 10% 
Yellow rice wine Y 240 per tonne 
Other fermented beverages 10% 
Ethyl alcohol 5% 
White spirit distilled from grain 20% plus Y1 per kg 
White spirit made from potatoes 20% plus Y1 per kg 
Gasoline  
Motor gasoline and aviation gasoline Y 0.2 per litre 
Light diesel oil Y 0.1 per litre 
Aviation kerosene Y 0.1 per litre (currently exempt) 
Table III.9 (cont'd) 
                                                      
144 In this report, all taxes other than individual and enterprise income taxes ar e classified as indirect 
taxes. 
145 Notice on Adjustment and Improvement of Consumption Tax Policy.  Viewed at:  http://www.gov. 
cn/banshi/2006-03/23/content_234946.htm (in Chinese) [12 February 2008]. China WT/TPR/S/199/Rev.1 
 Page 83 
 
 
Product Rate 
Naphthaa Y 0.2 per litre (Y 0.06 per litre until 31.12.07) 
Solventa Y 0.2 per litre (Y 0.06 per litre until 31.12.07) 
Lubricantsa Y 0.2 per litre (Y 0.06 per litre until 31.12.07) 
Some fuel oila Y 0.1 per litre (Y 0.03 per litre until 31.12.07) 
Some mixtures of odoriferous substances  5% 
Some cosmetics (apart from skin-care products) 30% 
Firecrackers and fireworks 15% 
Motor vehicle tyres 3% 
Tyres with radial ply construction  0% 
Floor boards 5% 
Disposable chopsticks 5% 
Precious jewellery, pearls, precious jade and stone  
Pearls, jade and precious stones 10% 
Motor vehicles  
Passenger vehicles with more than 9 seats 5% 
Vehicles with a cylinder capacity of less than 1,000 ml 3% 
Passenger vehicles with less than 9 seats  
-  with a cylinder capacity of less than 1,500 ml 3% 
-  with a cylinder capacity of more than 1,500 ml, but less than 2,000 ml 5% 
-  with a cylinder capacity of more than 2,000 ml, but less than 2,500 ml 9% 
-  with a cylinder capacity of more than 2,500 ml, but less than 3,000 ml 12% 
-  with a cylinder capacity of more than 3,000 ml, but less than 4,000 ml 15% 
-  with a cylinder capacity of 4,000 ml or more 20% 
Electric motor vehicles, and others 0% 
Motorcycles   
With a cylinder capacity less than or equal to 250 ml 3% 
With a cylinder capacity over 250 ml 10% 
Electric motor cycles, and others 0% 
Some boats  
Sail boats, with motor, longer than 8m but shorter than 90m 10% 
Motorboats 10% 
Yachts or other vessels for pleasure or sports 10% 
Some luxury watches, with an unit price higher than Y 10,000 20% 
Golf clubs, balls, and other golf equipment 10% 
a From 1 January 2008, excise tax on naphtha, solvent, and lubricants is  levied at Y 0.2 per litre;  excise tax on some 
fuel oil is levied at Y 0.1 per litre. 
Source:  MOF and SAT Notice on Certain Issues Regarding Impor t Consumption Tax.  Viewed at:  http://www.gov.cn/ 
gzdt/2006-04/01/content_242504.htm  [20/06/2007] 
Value added tax 
149. The VAT is levied at a standard rate of 17%;  some items are subject to a reduced rate of 
13%, 6%, and 4%, and others are exempted (Table III.10).146  As the main indirect tax, VAT 
accounted for 47% of total tax revenue in 2006.  Re venue from the VAT is shar ed between the central 
                                                      
146 Provisional Regulations on Value Added Tax, adopted by the State Council on 26 November 1993 
and effective 1 January 1994. WT/TPR/S/199/Rev.1 Trade Policy Review 
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and provincial governments;  75% goes to the Central Government.  For goods subject to 
consumption tax, the VAT is calculated on the domestic  price (c.i.f. price plus tariff for imports) plus 
the consumption tax. 
Table III.10  
VAT, 2007 
VAT rate Item 
Exempted Agricultural products sold directly by producers (incl uding plants, breeding, forestry, animal husbandry and aquatic 
products) 
Contraceptive medicines and devices  
Antique books Instruments and equipment imported to be used in scientific research, experiments, and education 
Imported materials and equipment gi ven by foreign governments and in ternational organizations as aid 
Equipment and machinery required to be imported under contract pro cessing, contract assembly, and compensation trade 
Articles imported directly by organizations for the disabled for the exclusive use of the disabled 
Used articles (including used articles bel onging to individuals;  sale of second-hand items, with the selling price lower than 
original value;  sale of used yachts, motorcycles and motor ve hicles with selling price lower th an original value.  Excluding 
yachts, motorcycles and motor vehicl es subject to consumption tax) 
Other item specified by the State Council 
4% For small-scale taxpayers engage d in wholesale or retail business 
6% For small-scale taxpayers engaged in the producti on of goods or the provision of taxable services 
13% Grains, edible vegetable oil 
Tap water, central heating, ai r conditioning, hot water, coal gas, liquefied  petroleum gas, natural gas, methane, and 
coal/charcoal products for household use Books, newspapers, magazines (excl uding newspapers and magazines dist ributed by the post department) 
Feeds, chemical fertilizers, agrochemicals, ag ricultural machinery, a nd agricultural sheeting 
Gods specified by the State Council (agricultura l products, mining of metals, mining of non-metals) 
Imported audio and video products  and other forms of e-publica tions (as of 15 September 2007)a 
17% All other taxable goods and services , both domestically produced and imported 
a Central Government online information.  Viewed  at:  http://www.gov.cn/zwgk/2007-09/20/content_756025.htm  
[02/10/2007] 
Source:  Provisional Regulations on Value adde d Tax, promulgated by Decree No. 13 4 of the State Council, effective 
1 January 1994;  and the Rules for the Implementati on of the Provisional Regulations on Value Added Tax 
promulgated on 25 December 1993. 
150. Unlike a consumption-based VAT, China's value- added tax is production based;  thus capital 
goods are included in the tax base.  From 1 July 200 4, a pilot project was launched in north-east China 
to transform the VAT from a production-based to  a consumption-based tax, covering certain 
industries.147 In 2007, China adjusted the pilot project in terms of its cove rage, tax credit and 
reduction mode, and tax rebate app lication procedure, to prepare for nationwide VAT reform.  From 
1 July 2007, the pilot programme was expanded to  26 cities in 6 provinces in central China.  
151. In line with the practice in most countries that  levy a VAT, exporters are entitled to VAT 
rebates;  however, in China, VAT is not necessarily  rebated fully on exports.  Rebate rates are 17%, 
13%, 11%, 9%, and 5%  (section (3)(iii))148;  they are changed frequently and have, in many cases, 
been lowered or removed since 2005.  The authoriti es state that reducing or eliminating VAT rebate 
rates is aimed at reducing exports of goods that consume large amount of energy and/or natural 
resources or are highly polluting, and goods consider ed prone to trade friction (such as textiles, 
                                                      
147 In September 2004, MOF and SAT jointly issued Circular 156 on the Provisions on Expanding the 
Qualifications of Fixed Asset Input VAT Deductions in the Northeast Region.  The pilot programme was 
extended to:  equipment, manufacturing, petrochemical, metallurgy, shipbuilding, auto manufacturing, and 
agricultural processing industries.  The authorities state th at the pilot project is aimed at removing overlapping 
tax levies;  by lowering investment costs in the area, the project encouraged enterp rises to purchase machinery 
and conduct technological upgrading and innovation, which in turn contributed to economic development.   
148 Central Government online information.  Viewed at:  http://www.gov.cn/xwfb/2007-06/19/content_ 
653538.htm (in Chinese) [8 February 2008]. China WT/TPR/S/199/Rev.1 
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furniture, plastics and lighters).  On the other hand,  in 2006, VAT rebates were increased from 13% to 
17% on, inter alia , IT and high-tech products, with a view to removing the potential impediment to 
the export of the products concerned.   
Business tax 
152. Since the previous Review of China, there have  been no changes to the business tax, which is 
levied on domestic taxable services, transfers of intangible assets, and sales of immovable property, 
all of which are excluded from the VAT.  The tax is not levied on imports.  Business tax rates range 
from 3% to 20% on business turnover; revenues from the business tax accounted for 14.7% of total 
tax revenue in 2006.  
(c) Direct taxation 
153. Direct taxes (individual income tax and enterpri se income tax) accounted for 27.3% of total 
tax revenue in 2006.  The threshold for paym ent of individual income tax was raised on 
1 January 2006 and on 1 March 2008.  The Enterprise Income Tax Law, which entered into force on 
1 January 2008, unified the enterprise income ta x for domestic and foreign-invested enterprises, 
which had been subject to different tax rates. 
Enterprise income tax 
154. Enterprise income tax accounted for 20.2% of total tax revenue in 2006.  The statutory 
income tax rate is currently 25% (since 1 January 2008);  previously, the statutory income tax rates 
were 33% for domestic enterprises and 15% or 24% for most FIEs located in SEZs and other zones.  
It was estimated that, as a result of various tax concessions, the average income tax rate of domestic 
enterprises was about 25%, and that of FIEs was about 15%.149  Revenue from enterprise income tax 
is shared 60:40 between the central and local governments. 
155. The Enterprise Income Tax Law, adopted on 16 March 2007, introduced the unified tax rate 
of 25%.150  Under the Law, incentives fo r FIEs have been largely eliminated, although there is a 
transition period of up to five years for existing ta x holidays.  FIEs established before 16 March 2007, 
and those subject to a 15% income tax rate befo re 2008, will pay 18% in 200 8, 20% in 2009, 22% in 
2010, 24% in 2011, and 25% in 2012.  FIEs that were  subject to a 24% income tax rate before 2008, 
pay 25% from 2008. FIEs that were benefiting from the "two-year exemption followed by three-year 
half deduction" or the "five-year exemption followed by a five-year half deduction" tax holidays retain the remaining tax holiday.  If an FIE w as entitled to such a tax holiday, but it had not 
commenced due to accumulated losses, it is to benefit from the tax holiday from 2008.
151  Also, from 
1 January 2008, if an FIE does not have any commerc ial establishment in China, or the income earned 
in China has no connection with such an estab lishment, a withholding tax of 10% applies to 
dividends, interest, royalties, capital gains, and othe r income earned in Chin a in accordance with the 
Implementation Rules to the Enterprise Inco me Tax law, promulgated on 6 December 2007.152 
                                                      
149 OECD (2007a). 
150 The Enterprise Income Tax Law also unified the separate legislation applying to domestic 
enterprises and FIEs i.e. the Provisio nal Regulations on Enterprises Income Tax, published by the State Council 
on 13 December 1993, and the Income Tax Law for Enterprises with Foreign Investment and Foreign Enterprises, adopted in April 1991.  According to th e authorities, the main features of the Law include:  
providing a moderate tax rate;  adjusting tax incentives ;  and reinforcing provisions to avoid tax evasion. 
151 State Council Notice (No. 39, 2007) on the Implementation of  the Transitional Preferential 
Enterprise Income Tax Policies. 
152 Until end 2007, no withholding tax was levied on business profits remitted overseas as dividends to 
foreign investors by FIEs.  Foreign enterprises were su bject to a withholding tax of 10% on remittances abroad 
of interest, royalties, and other income earned in China. WT/TPR/S/199/Rev.1 Trade Policy Review 
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156. Nonetheless, incentives for investors in less-de veloped regions, such as western China, and 
for investment in activities that the Government  wishes to encourage, such as agriculture, 
environmental protection, and renewable energy, rema in in place.  Enterprises engaging in high-tech 
and new technology activities pay a ta x rate of 15%;  if such enterp rises were established in SEZs or 
Shanghai Pudong New Area on or after 1 January 2008,  they are exempt from income tax in the first 
two years from the year during which revenue from production and business operation is first derived, 
and then subject to 12.5% (i.e. half of the standard statutory rate of 25%) in the third to the fifth years.
153  In addition, small-scale, low-profit enterprises  meeting certain requirements pay tax at 20%.  
The specific requirements are provided in the Impl ementation Rules to the Enterprise Income Tax 
Law.  The Implementation Rules, however, do not ha ve any provisions regarding the grandfathering 
period for incentives. 
157. It was estimated that, as a result of the enactme nt of the Enterprise Income Tax Law,  tax 
revenues in 2008 will be Y 93 billion less than under th e previous income tax regime;  FIEs will pay 
Y 41 billion more enterprise income tax, while  domestic enterprises will pay Y 134 billion less.154  
Some researchers argue that a unified ta x structure would lead to welfare losses.155  The authorities 
did not provide any information on the cost-benefit  analysis of the effect of the new Enterprise 
Income Tax Law. 
Individual income tax 
158. On 1 January 2006, the authorities raised the standard threshold for payment of individual 
income tax from Y 800 to Y 1,600 per month to reduce the tax burden on low- to middle-income 
individuals, and to mitigate China's growing income inequality.156  This threshold was raised again, to 
Y 2,000 per month on 1 March 2008.  Revenue from individual income tax is shared between the 
central and local governments, at 60:40.  The tax on interest income from bank deposits was reduced 
from 20% to 5% in August 2007.157  The authorities stated their in tention to use the measure to 
suppress over-investment in the real estate and stock markets.   
(d) Tax incentives  
159. China's latest notification to the WTO Committee on Subsidies and Countervailing Measures 
(April 2006) listed 78 programmes in force at the Central level between 2001 and 2004.158  A large 
part of these subsidies programmes involved inco me tax reductions and exemptions, based on the 
ownership of enterprises (particularly FIEs), their lo cation, and their activities.  Some other forms of 
tax reductions and exemptions, such as VAT and tariffs concessions, were also provided.  Despite the 
large number of programmes notified, a breakdown of  estimated annual revenue forgone as a result of 
individual tax incentives is not available; nor has Ch ina provided the Secretariat with an evaluation of 
the cost-effectiveness of these tax incentives.  In th e absence of empirical evidence to the contrary, 
there is considerable doubt as to whether such incen tives are effective.  A breakdown of estimated tax 
revenue forgone (along the lines of tax expenditure accounts) as a result of these incentives together 
                                                      
153 State Council Notice (No. 40 of 2007) on the Implementation of the Transitional Preferential Tax 
Treatment for Advanced and New Technology Enterprise Newly Established in SEZs and Shanghai Pudong 
New Area.   
154 OECD (2007a). 
155 Whalley and Wang (2007).  Using 2004 data, these researchers found that the unified tax rate will 
lead to welfare losses of 0.26% or 0.19% of GDP.  
156 Foreign expatriates are given an additional deduction of Y 3,200 per month.  See WTO (2006) for 
details of individual income tax. 
157 Income from dividends, incidental income, and rentals remains taxed at a flat rate of 20%.  
158 WTO document G/SCM/N/123/CHN, 13 April 2006. China WT/TPR/S/199/Rev.1 
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with economic evaluations of their cost-effectiveness  would greatly improve the transparency of these 
measures. 
160. With the entry into force of the Enterprise In come Tax Law in 2008, tax incentives granted to 
FIEs will be gradually phased out and after the five -year transition period, there will be no difference 
in tax incentives accorded to domes tic enterprises and FIEs (section (c) above).  Enterprise income tax 
reductions or exemptions are now accorded to, inter alia :  agriculture;  key infrastructure projects 
supported by the State;  some environmental protection, energy or water saving projects;  certain technology transfers;  enterprises located in western regions or ethnic areas;  small-scale, low-profit 
enterprises;  and enterprises engaging in high-tech act ivities.  An enterprise's expenditure on R&D can 
be fully deducted from the enterprise income tax.   
161. Since China commenced its economic reform a nd opening-up to the outside world, special 
economic and other zones have been set up to attract FDI and promote economic development 
(Table AIII.5).  Enterprises located in special economic and other zones received preferential tax 
treatment.  After the entry into force of the En terprise Income Tax Law, certain tax incentives 
accorded to industries located in special economic zones has been "grandfathered".
159   
162. Since July 2003, the State Council has deployed  relevant agencies, such as the NDRC, the 
Ministry of Land and Resources, and the Minist ry of Construction, to review and assess the 
qualifications of development zones, which many local governments had established.  Subsequently, 
the number of zones fell from 6,866 (in 2003) to 1,568 in 2006.160   
(ii) Direct transfers and non-tax subsidies 
163. China also makes use of direct transfers and non-tax subsidies.161  These are provided for 
poverty alleviation;  development of small and medium-sized enterprises (SMEs);  and certain 
agriculture related activities.  
164. Total budgetary expenditure was Y 4,042 billion in  2006, which amounted to 19.2% of GDP;  
expenditure on capital construction a nd support for agriculture remained the largest direct transfers by 
the Central Government (Table III.11).  Innovatio n funds and science and t echnology funds accounted 
for 4.3% of total budgetary expenditure162, "price subsidies" for 3.4%.163  The Government also 
continues to provide subsidies to  loss-making SOEs if the losses are due to price controls or other 
government policies (0.4% of total budgetary expenditure).   
165. Two of China's policy banks, the Agricultu ral Development Bank of China (ADBC) 
(Chapter IV(2)), and the Export-Import Bank of Ch ina (EXIM Bank (section (3)(vii)(b))), continue to 
provide subsidized loans.  The ADBC is responsible for, inter alia :  supporting the construction of a 
national reserve system for grain, cotton, and edible  oil;  providing funds for the purchase of grain and 
cotton; facilitating the processing of agricultural pr oducts; and promoting agricultural industrialization 
                                                      
159 State Council Notice No. 39 of 2007. 
160 NDRC online information.  Viewed at:  http://www.ndrc.gov.cn/xwfb/t20070419_130504.htm (in 
Chinese) [8 February 2008].  Nonetheless, the author ities still consider the zones are efficient in attracting 
investment as a new development zone - Binghai Zone in  Tianjin, was established in 2006, and some other new 
zones are to be set up.   
161 WTO document G/SCM/N/123/CHN, 13 April 2006. 
162 These funds, however, are apparently only part of total R&D expenditure, which accounted for 
1.5% of GDP in 2006 (Chapter I(1)).  
163 "Price subsidies" refer to budgetary expenditures to, inter alia , subsidize the prices of grain, cotton, 
edible oil, and meat; and to curb drastic price fluctuations.  WT/TPR/S/199/Rev.1 Trade Policy Review 
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as well as the development of agriculture and the rural economy.  The EXIM Bank provides financial 
support to promote exports of mechanical and electronic products, and high and new technology 
products, as well as to fac ilitate imports of key tec hnologies and equipment, or petroleum, natural gas, 
and other mineral products in the form of large-volume and long-term  contracts.  Preferential loans 
for infrastructure and other projects used to be provided by the China Development Bank (CDB), 
which provides long-term financial support for the country's infrastructure construction, as well as 
industries of "key importance".164  However, reform of policy banks started from early 2007 together 
with other financial reform programmes.  Refo rm of the CDB was intended to change it to a 
commercial bank, and loans are now provided followi ng market-oriented principles;  reforms of the 
ADBC and the EXIM Bank are concentrat ed mainly on internal management.165  The authorities 
indicate that the NPL ratios of all the three policy banks have fallen:  for the CDB, from 0.87% in 
2005 to 0.72% in 2006;  for the ADBC, from 10.29% in 2005 to 7.65% in 2006;  and for the EXIM Bank, from 4.91% in 2005 to 3.47% in 2006. 
Table III.11 
Selected government transfers, 2004-06 
(Y billion and per cent) 
 2004 2005 2006 
Total budgetary expenditu re 2,848.69 3, 393.03 4,042.27 
Transfers to loss-making SOEs 21.79 (0.8) 19.33 (0.6) 18.02 (0.4)  
"Price subsidies" 79.58 (2.8) 99.85 (2.9) 138.75 (3.4) 
Expenditure for capital construction 343.75 (12.1) 404.13 (11.9) 439.04 (10.9) 
Additional appropriation for circ ulating capital of enterprises  1.24 (0.04) 1.82 (0.05) 1.66 (0.04) 
Agriculturea 233.76 (8.2) 245.03 (7.2) 317.30 (7.8) 
Innovation funds and science and technolog y funds 124.39 (4.4) 149.46 (4.4) 174.46 (4.3) 
Expenditure for supporting underdeveloped areas 18.09 (0.6) 19.54 (0.6) 22.01 (0.5) 
Extra-budgetary expenditures 435.17 524.25 .. 
.. Not available. 
a Includes expenditure to support agricultural production and for capital construction, science a nd technology promotion funds,  
and rural relief funds. 
Note: Figures in parenthesis show per centage of total budgetary expenditure. 
Source:  National Bureau of Statistics, China Statistical Yearbook 2007.  
166. Direct assistance for farmers has been introduced  since 2004.  The value of assistance was 
Y 42.7 billion in 2007, a 63% increase from 20 06:  Y 15.1 billion for grain planting, and 
Y 27.6 billion for farming materials, e.g. fertili zers and pesticides.  In 2006, China notified its 
domestic support for the agriculture sect or covering the period 1999 to 2001.166  Funds are also 
provided for rural infrastructure including water s upply for irrigation, training, and environmental 
protection. 
167. In addition, with the increasing regional disparities, several regional development 
programmes have been adopted to facilitate the de velopment of western regions, and some poverty-
stricken areas.167  The Government has been implementi ng reforms to revitalize north-east China 
                                                      
164 Total loans provided by the CDB were Y 57 6 billion in 2006, down from the Y 616.4 billion 
in 2005. 
165 Xinhua News  online information, 15 January 2007.  Viewed at:  http://news.xinhuanet.com/fortune// 
2007-01/15/content _5608015.htm (in Chinese) [12 Fe bruary 2008].  On 31 D ecember 2007, Central Huijin 
Investment Co. signed a contract to inject US$20 billion into the CDB ( Xinhua News,  1 January 2008). 
166 WTO document G/AG/N/CHN/8, 31 March 2006. 
167 WTO document G/SCM/N/123/CHN, 13 April 2006. China WT/TPR/S/199/Rev.1 
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since 2003 with a view, inter alia,  to accelerating the reform of SOEs and promoting the construction 
of infrastructure.168  To this end, the Government has, inter alia :  implemented a pilot project on VAT 
reform;  promoted reform of social security programmes;  and stripped the social functions from SOEs.  From 2006, China also introduced the strategy on the Rise of Central China.  Transfers by the 
Central Government to local gove rnments reached Y 264.7 billion in 2005 and 2006, of which, 94.6% 
to governments in central and western China.  In particular, a combined Y 31.5 billion was allocated 
in 2005 and 2006 to ethnic regions, which are mainly (99.5%) located in western China.
169      
(iii) Other industrial policies and measures 
168. Direct intervention in the economy remains the main approach of industrial policy. 
Nonetheless, there has been a shift towards the use of various other policy tools to channel resources 
into certain activities that the Government believ es are important for China’s continued growth and 
development.  In addition to tari ffs and other border tax measures, ta x incentives, and  subsidies, these 
tools include "guided" credit, various "catalogues"  identifying sectors eligible for incentives, as well 
as restricted or prohibited activities, various form s of "guidance" including section-specific "industrial 
development policies" (e.g. for steel, automobiles, and cement), and price controls. 
(a) Catalogues and "guidance"  
169. The Government set a target under the Eleventh Five-Year Plan to reduce the energy intensity 
of GDP by 20% between 2006 and 2010, and aims  to meet the target through innovation and 
technology upgrading, which can also increase the value added in the economy.  Under the plan, the 
Government proposed to accelerate the transf ormation of the economy from being "resource 
dependent" to "innovation driven"170, acknowledging that the energy efficiency of the economy has 
been low (or its energy intensity has been high).171   
170. The Government aims to achieve such objectiv es by promoting or reducing investment in 
certain sectors identified in the Catalogue of Gu idance Regarding Industrial Structural Adjustment, 
issued by the NDRC in December 2005, together w ith Major Measures to Promote the Adjustment of 
Industrial Structure.  The catalogue, which is curren tly under revision, covers more than 20 industries, 
including 539 encouraged categories, 190 restricted categories, and 300 prohibited categories (which 
are to be eliminated gradually or within a specific time frame).172  Activities that can, inter alia,  save 
energy, protect the environment, and upgrade technology are "encouraged".  The catalogue states that departments in charge of the administration of investment must not accept applications for new 
projects in the "restricted" and "prohibited" categories.   It also states that "financial institutions shall 
stop providing credit support of any form".  In add ition, for investment in the prohibited category, 
"local governments, relevant department and enterp rises concerned, shall take effective measures to 
eliminate these projects within a set period.  During  that period, competent departments in charge of 
setting prices can raise electricity tariffs for the proj ects".  The import, transfer, production, marketing 
and use of production processes, technologies, equipmen t, and products in the prohibited category, are 
                                                     
 
168 Revitalization of the Northeast and other Old Industrial Bases commenced in 2003.   
169 In addition, from 2006, students in rural areas in  western and central regi ons were exempted from 
tuition and incidental fees, and assistance with boarding fees, incurred in their compulsory education was provided.  The exemption and assistance were expanded to the rural areas in other parts of China from 2007. 
170 The Eleventh Five-Year Plan Guideline for National Economy and Social Development (2006-10) 
was approved by the fourth plenary session of the tenth NPC on 14 March 2006.  
171 For example, while China's economy grew by 11.9% in the second quarter of 2007, power 
production increased by 16% ( Financial Times , 9 August 2007, "China starts long march to modernization"). 
172 Other categories not included in the Catalogue  are considered as "permitted" (NDRC online 
information.  Viewed at:  http://w ww.ndrc.gov.cn/yjzq/t20071226_182199.ht m (in Chinese) [14 January 2008]). WT/TPR/S/199/Rev.1 Trade Policy Review 
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also strictly prohibited. 173  The catalogue applies equally to domestic enterprises and FIEs, the latter 
being also subject to the Catalogue for the Guidan ce of Foreign Investment Industries.  The catalogue 
for FDI has been revised recently, with reference to  the Catalogue of Guidance Regarding Industrial 
Structural Adjustment.  The revised catalogue for FDI was promulgated on 7 November 2007, and 
effective 1 December 2007 (Chapter II(6)(ii)). 
171. The Government has also continued to issue or update other regulations  in order to "guide" 
investment.  These include:  the Guidance for Key Fi elds of High Tech Industries Developed by the 
State with Priority (23 January 2007), and the Announcement by the State Council on Promoting the Development of the Services Sector (19 March 2007).  In addition to "i ndustrial development 
policies" applied to the automotive and steel indus tries, a Cement Industry Development Policy was 
issued on 17 October 2006 by the NDRC.
174   
(b) Price controls 
172. Price controls, including government set prices and government "guided" prices175, are 
applied to commodities and services deemed to ha ve a direct bearing on the national economy and 
people's livelihood, including scarce natural res ources and operations of natural monopolies or, 
according to the authorities, "for special purposes".   
173. Since the previous Review, there has been no si gnificant change to products subject to price 
controls, although stricter measures were taken to prevent price fixing, and temporary price 
intervention measures were adopted from January 20 08 to ease inflationary pressure.  The following 
products and services continue to be subject to price controls by the Central Government:  key reserve 
materials of the State (grain, cotton, sugar, silkwo rm cocoons, crude oil, processed oil, and chemical 
fertilizer)176, state-monopolized tobacco, edible salt, civil explosive equipment, some fertilizers, some 
key medicines, and educational materials,  natural gas, water-resource projects subordinated to the 
Central Government or constructed in more than  one province, electric power, military materials, 
important transportation (such as rail and civil aviation), and post and telecommunications services.  
The price control on edible vegetable oil was re moved in March 2004.  Some other products and 
services are subject to price controls by provincia l governments;  these include thermal power, water 
resources (apart from those subject to price controls by the Central Government), medical services, education, entrance fees for tourist sites, selling pr ices and rents of residential apartments and homes 
for the elderly, health-related servi ces, and passenger transport by road.
177  In addition, a minimum 
procurement price for rice remains, and the mi nimum procurement price for wheat was introduced 
in 2006 (Chapter IV(2)(iii)). 
174. Against the background of rising inflation, the Government has been adopting measures to 
stabilize prices.  In accord ance with an order issued jointly by six ministries in September 2007, price 
                                                      
173 NDRC online information.  Viewed at:  http://en.ndrc.gov.cn/newsrelease/t20051222_54289.htm 
[12 February 2008]. 
174 In 2006 and 2007, NDRC also issued entry criteria for:  lead and zinc; fibreglass; tungsten, tin and 
antimony; electrolytic manganese metal; and steel.  Opinions were issued in 2006 and 2007 to restructure the 
following industries:  automotive, flat glass, lead and zinc, textiles and clothing, calcium carbide, electricity, cement, coal, ferroalloy, and coke. 
175 Price controls are established under the Pricing Law and are set by the NDRC at the central level 
and by the Bureau of Commodity Pric ing in each province.  Government pr ices are fixed prices;  government 
guidance prices are usually set as a basic price, an d a range within which prices can fluctuate.   
176 Designated SOEs stockpile these commodities as required by the State.  According to the 
authorities, price controls on these items extend only to the stock held by the State as part of its reserves.   
177 Prices of freight transport by  road, and waterway transport are determined by the market. China WT/TPR/S/199/Rev.1 
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increases for goods subject to government-controlled prices (by both central and local governments) 
were not allowed before the end of  2007, unless approved by the NDRC.178  However, the NDRC 
raised prices for petrol, diesel, and aviation kero sene on 1 November 2007.  In January 2008, a series 
of measures were taken.  First, changes in govern ment-set and government-"guided" prices are strictly 
controlled:  prices of gasoline, natural gas, and el ectricity, and charges for gas, water, heating and 
public transport in cities, must not be raised in th e near future.  Second, the Government started to 
intervene temporarily in setting the price of some important commodities and services, including grain, edible vegetable oil, meat, milk, and eggs;  price changes of these commodities must be notified 
and registered with the relevant authorities.  For example, the NDRC requires retailers and 
wholesalers "above a certain scale" to register one-off price increases of more than 4%, or 
accumulated rises of more than 6% within a ten-day pe riod, or more than 10% within a 30-day period.  
If the NDRC disagrees with the price increase, it must inform the retailer or the wholesaler to stop the 
price increase or reduce the level of the increase.
179  Third, the Government started to monitor price 
changes of some basic necessities that do not have re gistration or notification requirements.  Fourth, 
stricter penalties were adopted on illegal price ac tivities.  The State Council revised the Regulations 
on Administrative Punishment for Illegal Price Activities on 9 January 2008, to prevent companies 
from colluding in manipulating prices.  The effect of these measures remains to be seen.180   
175. In 2006, around 3.4% of the Government's total budgetary expend iture was on price 
subsidies, up from 2.9% in 2005 (Table III.11).  The authorities state that, in 2006, products subject to 
price controls accounted for 4.7% of the total reta il sales of consumer goods in China, up from 4.4% 
in 2005.  The authorities indicate that the current  statistical method does not include the sales of 
services to total retail sales, hence data on the ratio of sales of services subject to price controls were 
not available. 
(iv) State-owned enterprises, privatization, and corporate governance  
176. Prior to China's "open door" policy and associat ed economic reforms beginning in 1978, state 
(public)-ownership of the means of production and of  other property had been the norm, with SOEs 
accounting for virtually all output and employment.  Moreover, in the absence of a domestic capital 
market, insofar as SOEs had not been fully self-fina ncing, they had relied on loans from state-owned 
banks or direct assistance from the Government.  SO Es' investments had been motivated more by the 
output generated than their profitability, to the de triment of productivity.  With China's opening, 
however, private enterprises were permitted to operate  alongside SOEs in certain sectors, especially 
manufacturing, so that SOEs now account for 35% of GDP.  In particular, foreign direct investment 
(FDI) involving foreign invested enterpri ses (FIEs) were encouraged (through, inter alia,  reduced tax 
rates) as a vehicle for technological progress and e xport-led growth.  FIEs te nd to have much higher 
levels of productivity than domestic  private enterprises and SOEs.   
177. Enterprises in China can thus be classified  into SOEs, collective-owned enterprises181, 
"domestic private" enterprises, individual businesses (sole proprietorships)182, and foreign-invested 
enterprises. 
                                                      
178 The order was issued jointly by the NDRC, Mini stries of Finance, Agriculture, Commerce, SAIC, 
and AQSIQ, on 2 September 2007. 
179 NDRC online information.  Viewed at:  http://www.ndrc.gov.cn/xwzx/xwtt/t20080116_185353.htm 
(in Chinese) [12 February 2008]. 
180 To ease inflation pressure on grain products, export measures were also taken, such as levying 
interim export duties, removing VAT rebates on exports, and applying export quotas.   
181 Collective-owned enterprises typically take the fo rm of township-village enterprises (TVEs).  TVEs 
were formed from People's Communes and Production Teams based in villages.  Some TVEs have been 
transformed into private enterprises and belong to the "non-public" sector;  those that continue to be owned by town or village governments belong to the "public" sector.  WT/TPR/S/199/Rev.1 Trade Policy Review 
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(a) State-owned enterprises and privatization 
178. In China SOEs consist of those wholly owned by the State (SOEs), and those in which the 
State has controlling shares (state-controlled enterprises) .  The latter refers to enterprises in which the 
State, or another SOE, holds more than 50% of the equity;  or, if the share of the equity is less than 
50%, the State or another SOE has controlling infl uence on its management and operation.  Also, 
SOEs can be grouped into central-level SOEs, and local-level SOEs.  The State-owned Asset 
Supervision and Administration Commission (SASAC ) is responsible for managing government 
assets and reform of central-level non-financial SO Es.  According to the SASAC, SOEs under its 
management accounted for 40% of total SOE assets in  2006, and earned 60% of total profits.  Local-
level SASACs manage the government assets and reforms of local-level (non-financial) SOEs.   
179. Since the previous Review of China, the reform  of SOEs has continued;  this includes the 
reorganization of SOEs (through mergers and ac quisitions, as well as closing down), and their 
corporatization and privatization.  As a result, the number of SOEs fell from 929,152 (12.08% of all 
enterprises in China) in 2004, to 730,121 (8.46%) in  2006.  SOEs held total assets of Y 29 trillion, and 
provided employment to 39  million people in 2006 (Y 18 trillion an d 42.3 million people in 2003).   
180. Following the policy adopted in 1997 to improve  the performance of SOEs, selling of small 
and medium-sized SOEs and restructuring of large SOEs continued.  Mainly because of mergers and acquisitions, the number of SOEs  managed by the SASAC fell from 196 in 2005, to 157 in 2006.
183  
The SASAC aims to reduce the number of SOEs s ubject to its management to 80-100 by 2010.  
Further restructuring of SOEs is being undertaken  in accordance with the Opinion on Guidelines for 
Promoting the Restructuring of State-Owned Asse ts and SOEs, issued by the State Council in 
December 2006.  According to the Opinion, the Government intends to retain state ownership in 
"industries involving national security, major infrastructure and important mineral resources, industries supplying important public goods and services, and important backbone enterprises in 
'pillar' industries and high and ne w technology industries".  In particular, seven "strategically 
important" sectors, including power generation and distribution, oil and petrochemicals, 
telecommunications, coal, aviation, and shipping, would remain under state control.
184      
181. SOEs are registered either under the Law on Industrial Enterprises Owned by the Whole 
People (effective 1 August 1988), or the Company Law (revised and effective 1 January 2006).  The 
key difference between enterprises registered under the two laws is that those SOEs wholly-owned by 
the people of China (registered under the Law on I ndustrial Enterprises Owned by the Whole People) 
do not have a corporate management structure.  That is, unlike those registered under the Company 
Law, these SOEs do not have a board  of directors;  rather, they are managed by general managers 
appointed by the Government.185  At the same time, party committees play an important role in the 
management of these SOEs.   
                                                                                                                                                                     
182 Those that employ less than  eight workers are classified  as individual businesses. 
183 By end-September 2007, the number of SOEs was further reduced to 155. 
184 China Daily news,  "Control Over Key Industries 'Crucial' ", 19 December 2006. 
185 Although these SOEs can make their own managerial, operational, and production decisions, the 
State retains some control over the companies, including  through the appointment of factory managers, as well 
as by punishing, rewarding, or removing factory managers or deputy-managers.. China WT/TPR/S/199/Rev.1 
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182. Since the previous Review of China, the num ber of SOEs registered  under the Company Law 
has been increasing, and the authorities state that th ere is a trend (in accordance with the authorities' 
"guidance") to register all SOEs under the Company Law before 2010.186     
183. Corporate governance of SOEs registered unde r the Company Law has improved, as external 
directors have been introduced to boards of directors since 2004187, and open procedures to recruit 
general managers commenced in 2006.  By end-July  2007, 66 external directors had been introduced 
to 17 SOEs.  General managers of some SOEs ma naged by the SASAC have been recruited through 
open procedures.188 
184. Corporate governance of SOEs has also been improved through their corporatization 
(transformation into joint-stock companies), and thei r listing on stock exchanges.  By the end of 2006, 
1,434 domestic firms had been listed on China’s stoc k exchanges (up from 1,381 at the end of 2005);  
more than 1,000 are state-controlled enterprises.  Between 2005 and 2006, 33 SOEs were newly listed 
on the Shanghai, Shenzhen, or Hong Kong Stock Exchanges.   
185. As part of the corporate restructuring of SOEs , the Government has been "stripping off" non-
core businesses from SOEs, such as provision of school s and clinics to employees and their families.  
Typically, before being listed in stock exchanges, SO Es are split into two parts:  the parent company, 
which assumes responsibility for the firm's debt s, its non-productive assets (such as schools and 
clinics) and any excess staff;  and the subsidiary, which retains the productive assets and restructures 
as a joint-stock company.189  At end 2006, 1,254 SOEs had separated their social functions from core 
businesses. 
186. There are three different types of shares for listed SOEs:  state shares ( guojia gu ), legal person 
(LP) shares ( faren gu ), and public shares ( geren gu ).  Only public shares are traded on stock 
exchanges, while the othe r types are non-tradeable.190  At end 2004, non-tradeable shares of listed 
companies accounted for 64% of total capital stoc k in domestic stock markets;  the State owned 
73.6% of these non-tradeable shares. 
187. The China Securities Regulatory Commission (CSRC) issued Circular on the Pilot 
Programme of Non-Tradeable Shares Reform of Listed Companies on 29 April 2005, with a view to 
converting non-tradeable shares into tradeable ones (Table III.12).  Certain shares of SOEs, depending 
on the sectors they engage in, must be reserved for the State:  for example, 60% of shares in SOEs in the national defence industry, 51% in resource-based and high-tech industries, and 35% in agriculture 
                                                     
 
186 Data provided by the authorities suggest that, the 196 SOEs (which are holding companies) 
managed by SASAC (in 2003) owned 15,546 SOEs at the central level;  of these, 64.2% were registered under 
the Company Law in 2006 (up from 30.4% in 2002). 
187 "External directors" are those nominated by shareholders of the SOE, but are not the employees of 
the SOE, or its holding enterprise.  In some cases, external directors are appointed by the SASAC (Chinaneast 
online news.  Viewed at:  http://c hinaneast.xinhuanet.com /2005-02/27/content_3783141 .htm (in Chinese) 
[12 February 2008]). 
188 From the establishment of the SASAC in 2003 to  end July 2007, 103 senior management positions 
in 100 central-level SOEs were opened to public recruitment.  At end 2006, 27.4% of all managers for central-level SOEs had been selected through the "open" procedures. 
189 In some other cases, the entire company may be listed. 
190 State shares ( guojia gu ) are owned by the state asset-management company or other institutions that 
holds the States' assets in the comp a ny .   L e ga l  pe r s o n (L P ) s ha re s  ( faren gu ) are non-tradeable on the stock 
exchanges, but can be sold to other LPs.  Public shares ( geren gu ), or A-shares, are tradeable and account for no 
less than 25% (15% if the total share capital exceeds Y 400 million) of the joint-stock company’s total shares 
issued to domestic individuals and institutions. WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 94 
 
 
and manufacturing.191  CSRC, as well as other related agencies such as the SASAC and MOFCOM, 
has issued various rules to regulate the conversion.  For example, the conversion plan of a listed SOE 
must be approved not only by two thirds of shar eholders of non-tradeable shares (including the 
SASAC) attending the shareholders' meeting, but also by two thirds of public sh areholders (holders of 
tradeable shares) attending the meeting.  In additio n, there is a "lock-up" period (on average three 
years) for conversion, during which the non-tradeable shares are not traded.  From January 2006, foreign investors can purchase A-shares of companies in  stock markets (section (b) below);  they need 
approval from the SASAC to purchase shares in SOEs.
192  Apart from the shares reserved or regulated 
by the State, conversion of non-tradeable shares ha d been achieved in 96.6% of all listed enterprises 
by the end of June 2007.193  Partly as a result of the transfor mation of non-tradeable shares into 
tradeable ones, China's stock markets have been developing rapidly  (Chapter IV(5)(iii)(d)).   
Table III.12 
Tradeable and non-tradeable shares of companies listed in China, 2004-06 
(Billion shares and per cent) 
 2004 2005 2006 
Number of tradeable shares 257.7 291.5 563.8 
A-Sharesa 199.3 228.1 330.1 
B-Sharesb 19.7 21.8 22.9 
H-Sharesc 38.8 41.6 210.8 
Number of non-tradeable shares  457.2 471.5 928.9 
State-owned shares 334.4 343.3 458.8 
State-owned shares as a percentage of non-tradeable shares (%) 73.1 72.8 49.4 
Total (billion) 714.9 763.0 1,492.6 
State-owned shares as a percentage of total shares (%) 46.8 45.0 30.7 
Tradeable shares as a percentage of total shares (%) 36.0 38.2 37.8 
a A-shares are shares issued by joint-stoc k companies registered in China and listed on the domestic stock exchanges, with face  
value denominated in RMB, and traded in RMB by domestic companies, institutions, organizations or individuals (excluding 
investors from Hong Kong, China;  M acao, China;  and Chinese Taipei). 
b B-shares are shares issued by  joint-stock companies registered in China and listed on the domestic stock exchanges, with face  
value denominated in RMB, but traded in U.S. dollars on the Sh anghai Stock Exchange and in HK dollars on the Shenzhen Stock 
Exchange. 
c H-shares are shares issued by joint-stock companies registered in China but listed on stock exchanges abroad (Hong Kong, 
China;  London;  New York;  Singapore);  face value is  dominated in RMB, traded in local currencies. 
Source:  CSRC (2007), China Securities and Fu tures Statistical Yearbook . 
188. In addition, by end 2006, "policy-led" ba nkruptcies involved 4,251 SOEs (3,377 by 2004), 
which had been "suffering losses for a long time an d were gradually exiting the market".  Through 
"policy-led" bankruptcies, which started in 1994,  the Government obliged SOEs "with long-term 
losses and no possibility of recovery or with debts larger than assets"  to declare bankruptcy within a 
certain time frame.  In contrast to common practice, under "policy-led" bankruptcies, remaining assets 
of these enterprises are used to assi st the reallocation of employees, instead of paying off debts.  
8.37 million employees have been reallocated since 1994.  It appears that "policy-led" bankruptcies 
                                                      
191 State-owned Assets Supervision and Administration Commission of Shanghai Municipal 
Government online information.  Viewed at: http://www.shgzw.gov.cn/gb/gzw/gzjg/gzyw/userobject1ai35 174.html (in Chinese) [12 February 2008]. 
192 Other requirements include:  the first purchase must be no less than 10% of the total shares issued 
by the company;  shares purchased cannot be transferred or sold within  three years of purchase;  other 
ownership restrictions on foreign investment apply.  (Measures for strategic investment by foreign investor in 
listed companies, issued  on 31 December 2005.) 
193 CCTV news online information.  Viewed at:  http://news.cctv.com/china/20070805/102278.shtml 
(in Chinese) [11 February 2008]. China WT/TPR/S/199/Rev.1 
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are to be completed by the end of 2008;  as of 1 January 2009, all SOE bankruptcy cases are to be 
conducted according to the Law on Enterp rise Bankruptcy (section (e) below).194 
189. SOE profits increased from Y 750 billion in 2004 to Y 7.5 trillion in 2006, although 
profitability varies by region and by the size of th e SOEs.  The State Council issued the Opinions on 
the Pilot Programme of Budget Management of St ate-owned Assets in September 2007, under which, 
as of 2008, unspecified SOEs are to start paying dividends to the Government.  In 2007, the Ministry of Finance, together with the SASAC issued re gulations that determine the specific methods of 
dividend payment.  SOEs at the central level are classified into three categories:  resource-oriented 
SOEs (including those engaging in tobacco, coal, o il, power generation, and information industries) 
pay 10% of their net profits;  general industrial enterprises (inc luding those engaging in steel, 
automobile, and electronics) pay 5% of net profits ;  military enterprises and SOEs transformed from 
research institutions, as their profits are usually low, are exempt from paying dividends for three years.   The obligation to pay dividends will undoubtedly  reduce the amount of retained earnings 
available to SOEs for financing their investments,  thereby forcing them to rely more on external 
financing, involving new shares or debt, which shou ld help the development of the capital market.  
Moreover, given their important signalling function in stock markets, dividend payments together 
with greater tradeability of SOEs' shares could he lp improve the governance of SOEs, especially as 
far as investment is concerned.  It follows that greater tradeability of SOEs' shares and their obligation 
to pay dividends could contribute to a more efficient allocation of capital in China. 
190. Despite the reform, concerns remain over a continued misallocation of resources:  although 
SOEs accounted for some 35% of GDP, their borrowing from domestic banks accounted for more 
than half of total lending by these banks.  Privat e and foreign firms operating in China are able to 
achieve the same output as SOEs, by using less capital;  FIEs, in particular, tend to be much more 
productive than domestic firms, especially SOEs.
195   
(b) "Domestic private" enterprises 
191. The development of the private (non-public) sector (i.e. "domestic private" enterprises, 
individual businesses (sole proprieto rships), and foreign-invested enterprises) has continued during 
the review period.  Corporatizati on and privatization of SOEs, as we ll as the State Council's Guideline 
to allow the private (non-public) sector to invest in  certain areas of the economy (which had been 
closed to them), have contributed to the sector's  development.  Recent research has found that the 
private (non-public) sector now accounts for more than half of industrial output in China, compared 
with around a quarter in 1998.196  Private (non-public) sector firms are in general much more efficient 
than SOEs, as their rates of return on capital were nearly 30% higher than SOEs wholly owned by the 
people of China, and 10% higher than state-controlled companies.197  Redirecting capital from the less 
efficient state sector to the private sector could further improve China's already fast economic growth.
198   
192. The authorities' definition of the private sect or in China includes only domestic private 
enterprises, and excludes both individual businesses (sole proprietorships) and foreign-invested 
enterprises. Domestic private ente rprises refer to firms whose assets belong to individuals and that 
employ more than eight workers;  they include  private limited liability companies, partnership 
                                                      
194 Caijing online information.  Viewed at:  http://www.caijing.com.cn/home/todayspec/2007-12-
21/42581.shtml (in Chinese) [11 January 2008]. 
195 Whalley and Xian (2006). 
196 Dougherty et al. (2007). 
197 Wei and Dollar (2007). 
198 Liu and Siu (2006). WT/TPR/S/199/Rev.1 Trade Policy Review 
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companies, and individually-owned companies.199  While the number of SOEs has been declining, the 
number of domestic private companies has continued to grow (Table III.13).  Domestic private enterprises plus individual businesses employed 120 million people in 2006 (c ompared to 100 million 
in 2004, and 110 million in 2005). 
Table III.13 
Number of enterprises, 2004-06 
 2004 2005 2006 
State-owned enterprises (SOEs) 929,152 807,905 730,121 
FIEs:  equity joint ventures 92,940 93,495 93,367 
FIEs:  contractual joint ventures 18,438 17,486 16,119 
FIEs:  wholly foreign owned enterprises 130,489 148,572 164,895 
Domestic private enterprise 3,650,670 4,300,916 4,980,774 
Source:  Data provided by the authorities. 
193. The Guidelines on Encouraging and Supporting th e Development of the Non-Public Sector, 
including Individual and Private Enterprises (issued by the State Council on 25 February 2005) 
removed barriers for, inter alia , domestic private firms to enter in to certain sectors, such as some 
public utilities, some financial services, and social services.  However, domestic private firms still 
have much less presence in sectors characterized by state monopoly.  
194. Data provided by the authorities show that 2%  of domestic private enterprises engage in 
primary industry (farming, forestry, animal hus bandry, and fishing), 33.3% in secondary industry 
(construction, mining, manufacturing, production and supply of electricity, gas and water), and 64.7% 
in tertiary industry (services).  It would appear that the coastal provinces have more domestic private 
firms than inland regions.   
195. The Chinese financial system, dominated largely by banks owned by the State, has 
traditionally favoured SOEs over domes tic private firms.  Banks' preference for SOEs is partly 
because SOEs are generally much larger than domestic private enterprises.  Although financing 
channels for domestic private firms, which are typi cally small and medium sized, have been improved 
(section (d) below), it appears that financial constr aints continue to impair their development.  
However, according to the authorities, there is no discrimination against domestic private enterprises 
in terms of bank loans, as loans are granted based on  an enterprise's ability to pay back the loans, not 
on its scale or ownership.  Also, the Governme nt has been encouraging and supporting the 
development of domestic private enterprises, by facilitating their access to capital, owing to the 
important role played by these ente rprises in China's economic growth and in providing employment.   
196. Domestic companies used to face disadvantages compared with (more productive) 
foreign-invested enterprises, which benefited from pr eferential tax treatment, notably lower enterprise 
income tax rates.  With the entry into effect of  the Enterprise Income Tax Law, the different tax 
treatment is to be abolished after the transition period. 
                                                      
199 Domestic private enterprises are regulated und er the Company Law, the Law on Partnership 
Enterprises (revised version came into effect on 1 June  2007), the Law on Individually-Owned Enterprises, and 
the Interim Regulations on Private Enterprises of 1988, which applies to domestic private enterprises registered between 1988 and 1994. China WT/TPR/S/199/Rev.1 
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(c) Foreign-invested enterprises 
197. Foreign invested enterprises (FIEs) include ma inly wholly foreign-owned enterprises, as well 
as equity and contractual joint ventures.200  Some FIEs may also be SOEs;  for example, for equity 
joint ventures, the proportion of foreign investment mu st be no less than 25% of the registered capital, 
the State may have controlling shares of these enterprises and they become State-controlled 
enterprises.  It seems that there are some new form s of FIEs, such as foreign-invested venture capital 
companies201, and foreign-invested investment companies.202   
198. The Catalogue on Encouraging, Restricting, and Prohibiting FIEs was revised, with a view to 
encouraging foreigners to invest in SOEs and some key industries that are crucial to regional 
development, particularly in western and central  China, as well as north-east China.  The revised 
catalogue entered into force on 1 December 2007. 
(d) Small and medium-sized enterprises (SMEs) 
199. SMEs include both private and public companies.203  At end September 2007, there were 
42 million SMEs (31.5 million in 2003), accounting for mo re than 99% of all registered enterprises in 
China, contributing about 60% of GDP, half of tota l tax revenues, and providing more than 75% of 
urban jobs.204  SMEs have also employed more than 80% of workers laid off by SOEs. 
200. The Government has been supporting the deve lopment of SMEs.  Programmes include the 
Fund for Supporting Technological Innovation for Technological SMEs, the Development Fund for SMEs, the Fund for International Market Exploration by SMEs, and the Funds for entities providing services for SMEs.
205  Tax incentives are also provided to SMEs.  In 2008, under the Enterprise 
Income Tax Law, small-scale, low-profit enterprises  meeting certain requirements pay a reduced rate 
of 20% (instead of the statutory 25% for other en terprises). According to the Implementation Rules of 
the Enterprise Income Tax Law, small-scale, low-pr ofit enterprises are:  industrial enterprises whose 
total assets are less than Y 30 million, annual taxable income lower than Y 0.3 million, and with less 
than 100 employees;  or other enterprises whose as sets are less than Y 10 million, annual taxable 
income lower than Y 0.3 million, and with less than 80 employees. 
201. To improve the financing channels for SMEs, a SME Board was established in the Shenzhen 
Stock Exchange in 2004.  At end December 2007, 202 SMEs were listed on th e Exchange, with total 
market value of Y 1,052.6 billion,  and tradeable market value of Y 381.6 billion.  Nonetheless, it 
seems that SMEs still face financing difficulties.206  
                                                      
200 FIEs are regulated under the Law on Foreign Capital Enterprises, the Law on Chinese-Foreign 
Equity Joint Ventures, and the Law on Chinese-Foreign Contractual Joint Ventures. 
201 The Regulation on Foreign Invested Venture Capital Companies was issued in 2003.  The 
Regulation is being amended although it is not certain when it will be completed.   
202 The Rules on the Establishment of Foreign Invested Investment Companies were issued in 
November 2004, effec tive December 2004. 
203 Under the Provisional Rules on the Standards of Medium and Small Enterprises, issued on 
19 February 2003, the definition of SMEs varies according to the sector they engage in and ranges from 
employing less than 2,000 persons and total assets of less than Y 400 million in the industrial sector, to employing less than 200 persons and total sales of less th an Y 300 million in the wholesale sector.  For details of 
the definition of SMEs, see WTO (2006), Table AIII.10. 
204 China Daily,  17 September 2007, "Official pledges more policy, legal support for small firms". 
205 WTO document G/SCM/N/123/CHN, 13 April 2006. 
206 China Daily, 17 September 2007, "Official pledges more policy, legal support for small firms":  
SMEs "are still facing hurdles in terms of market access, financing, human resources, and management techniques". WT/TPR/S/199/Rev.1 Trade Policy Review 
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(e) Corporate governance 
202. An efficient capital market capable of mobiliz ing domestic savings and channelling them into 
the most productive investments is essential fo r improving China's competitiveness and long-term 
development.  Good corporate governance is essen tial for the establishment of such a market.  
Although there are various laws regulating ente rprises with different ownership structures207, China's 
corporate governance regime is, in general, based  on the Company Law, the Securities Law, and the 
Law on Enterprise Bankruptcy.  
203. The Company Law was most recently amended on 27 October 2005, and the amended version 
entered into effect on 1 January 2006.  Under the law, a company means a limited liability company, 
or a joint-stock limited company.  For both, the hi ghest authority of the company is the shareholders' 
meeting, and the board of directors is the d ecision-making body.  The revised law reduced the 
minimum registered capital requirements for establis hing a company, and allowed companies to pay 
the registered capital in instalments208;  it also permitted an individual or a legal person to establish a 
single-person limited-liability company with minimum registered capital of Y 100,000.209  T h e  
limitation that a company might only invest up to 50% of its net assets in other companies was 
removed.   
204. Listed companies are defined as joint-stock limited companies that issue shares listed and 
traded on the stock exchanges;  corporate governance of listed companies is regulated not only by the 
Company Law, but also the Securities Law (most recently revised in October 2005), and a series of 
rules including the Code of Corporate Governance fo r Listed Companies (the Code), and Guidelines 
for the Internal Control System of Listed Comp anies (issued by the Shanghai Stock Exchange on 
5 June 2006).210  The Code was issued by the China S ecurities Regulation Commission (CSRC) and 
the State Economic and Trade Commission (SETC) on 7 January 2002.  It is mandatory, and sets out 
the basic principles for corporate governance, protec tion of investor interests, and the behaviour of 
directors, supervisors, managers, and other senior management in listed companies.  State-owned or 
state-holding companies account for 79% of the listed companies. 
205. A significant change to China's corporate govern ance system is the promulgation of the Law 
on Enterprise Bankruptcy, which entered into force on 1 June 2007.  The previous Enterprise Bankruptcy Law (Trial ) had been formulated in 1 986, and had applied only to SOEs.  The new Law, 
however, applies to all enterprises in China.
211  It sets out three procedur es for insolvent enterprises:  
reorganization, reconciliation, and liquidation;  reorganization was not  included in the 1986 trial law.  
In addition, the new law authorizes the people's cour ts to recognize foreign bankruptcy proceedings 
under certain conditions.212  According to a World Bank study, although China's laws sometimes 
                                                      
207 WTO (2006). 
208 The minimum registered capital requirements fell from between Y 100,000 and Y 500,000 
(depending on the business area) to Y 30,000 for a limited liability company, and from Y 10 million to 
Y 5 million for a joint-stock company. 
209 Previously only FIEs and SOEs could be owned by a single shareholder.   
210 The CSRC issued the Guidelines for Establishing Independent Directors of Listed Companies on 
16 August 2001;  these required at least one third of the board to comprise independent directors by 
30 June 2003.  The Code for Responsibility of Independent Directors of Listed Companies is also in the formulation process. 
211 The new Law does not apply to "policy-led" bankruptcies of SOEs until 2009. 
212 Specifically, the people's courts sh all not recognize foreign bankruptcy proceedings:  if there are no 
treaty or reciprocal relationships between China and the relevant jurisdiction regarding the recognition of 
bankruptcy proceedings;  if the foreign bankruptcy pro ceedings violate basic princi ples of Chinese law, or 
threaten China's state sovereignty, secur ity or public interest;  or if the foreign bankruptcy proceedings affect the 
legitimate interests of creditors in China. China WT/TPR/S/199/Rev.1 
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leave more discretion to the people's courts, the principles of the Law on Enterprise Bankruptcy are 
broadly comparable to other modern bankruptcy laws.213 
206. The Accounting Standards for Business Enterprises were issued by the Ministry of Finance on 
15 February 2006, and came into force on 1 January 2007.  The standards, which apply to all 
enterprises in China, are largely in  line with international standards, with a few differences from the 
International Financial Reporting Standa rds (IFRS) (Chapter (IV)(5)(ix)).   
207. The CSRC, together with the Ministry of Fi nance, is responsible for supervising the 
implementation of accounting standards by listed co mpanies, and the operation of accounting firms 
and asset appraisal firms engaged in securities business.  Currently, China has around 70 accounting 
firms and 100 asset appraisal firms engaging in securities and futures business, with about 
80,000 practicing certified public accountants  and 20,000 certified public appraisers.214  The China 
Accounting Standards Committee has been in close cooperation, through regula r meetings, with the 
International Accounting Standards Board (IASB), with  a view to further bringing China's accounting 
system into line with international standards. 
(v) Competition and consumer protection policy 
(a) Competition policy 
208. Partly as a response to the apparent fragmente d framework of competition policy, China had 
been trying to formulate a comprehensive antitrust la w to consolidate the antitrust provisions.  China's 
current competition regime (until the entry into e ffect of the Anti-Monopoly Law) comprises several 
pieces of legislation, including the Law Counteri ng Unfair Competition, the Price Law, the Law on 
Bid Invitation and Bidding or Tendering, the Fore ign Trade Law, and the Rules on Acquisitions of 
Domestic Enterprises by Foreign Investors (Table AIII.6).215  The Law Countering Unfair 
Competition has been considered as the "basic law to maintain the order of competition in the 
market".216  The law specified five actions restricting competition: abuse of monopoly positions by 
public utility companies, abuse of administrative po wer by administrative agencies, below-cost sales, 
coercive sales, and collusive tendering.217  This law is currently being amended. 
209. In addition, regulations for certain sectors, such as aviation, electricity, postal and 
telecommunications services, include provisions to  introduce and encourage market competition.  
Furthermore, 27 provinces, autonomous regions, and municipalities issued local regulations against 
unfair competition.  Between December 1993 and end 2006, a total of 325,649 anti-competition cases 
were investigated, involving Y 24.6 billion.218  These cases included abuse of monopoly positions, 
collusive tendering, price fixing, tied selling, and administrative monopoly.   
210. Currently, competition-related policies are enforc ed mainly by:  the State Administration of 
Industry and Commerce (SAIC), which is responsib le for enforcing the Law Countering Unfair 
Competition;  MOFCOM and SAIC, which c onduct anti-monopoly reviews of mergers and 
acquisitions of domestic enterprises by foreign investors; and NDRC, which supervises the 
                                                      
213 World Bank (2006c). 
214 Applicants must pass exams to obtain certified pub lic appraisers certificat es;  the certification is 
issued jointly by the Ministries  of Personnel and Finance.  
215 See WTO (2006) for details of these laws. 
216 WTO document WT/ACC/CHN/49, 1 October 2001.   
217 This law focuses on preventing:  counterfeiting,  misleading deceptive advertising, bribery, 
know-how infringement, and unfair lottery-attached sales and imputation.   
218 The value was calculated on the basis of the goods concerned. WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 100 
 
 
enforcement of the Price Law and the Provisional Rules on Prevention of Monopoly Pricing.  This 
administrative structure may pose a coordination problem in regard to the enforcement of 
competition-related laws and regulations.  Di fficulties in enforcement may also arise from 
"administrative monopolies", which include local gov ernments’ adopting measures to restrict market 
entry of enterprises from other regions.  It woul d appear that MOFCOM, SAIC, and other related 
agencies have jointly conducted a survey of ad ministrative monopolies at the provincial level in 
China;  products affected include mainly alc oholic, tobacco, and meat products, pharmaceuticals, 
chemical products, automobiles,  and construction materials.219  Details of the survey results have not 
been provided to the Secretariat. 
Anti-Monopoly Law  
211. Formulation of the Anti-Monopoly Law was fi rst put on the legislative agenda of the 
Standing Committee of the National People's Cong ress in 1994.  The Law was promulgated on 
30 August 2007, and is to be effective 1 A ugust 2008.  Under the law an Anti-Monopoly Law 
Enforcement Authority is to be set up under the Stat e Council.  It remains to be seen how the new 
Authority will coordinate with SAIC, MOFCOM, and the NDRC on the enforcement of the 
Anti-Monopoly Law. 
212. The law also specifies that its principal purpo se is to "prohibit monopolistic conduct", and to 
"ensure the healthy development of the socialist market economy".220  "Monopolistic conduct" is 
defined as:  conclusion of monopoly agreemen ts, abuse of dominant market positions, and 
concentration of enterprises that have (or are likely to have) the effects of eliminating or restricting 
competition.  In particular, the law prohibits cartels and other anti-competitive agreements to, inter 
alia:  fix, maintain, or change prices of produc ts;  limit the production volume of products;  and 
jointly boycott transactions.221  Exemptions apply if it can be demonstrated that an agreement is aimed 
at improving technology and R&D or  ensuring legitimate interests in foreign trade and economic 
cooperation.222  Also, enterprises with a dominant market position223 are prohibited from inter alia :  
selling products at unreasonably high price or purchasing products at unreasonably low price;  and 
without valid reasons, selling pro ducts at a price below cost.224   
                                                      
219 People's Daily online news (11 January 2006).  Viewed at:  http://www .people.com.cn/GB/54816/ 
54822/4016799.html (in Chinese) [12 February 2008]. 
220 The law is to apply to  the "monopolistic conduct " in economic activities within the territory of 
China;  it also applies to monopolistic conduct outside the territory of China that has "eliminative or restrictive 
effects" on competition in China's domestic market.  However, how the law is to be applied on monopolistic 
conduct outside Chin a is not specified. 
221 Other forms of monopoly agreements defined in the law are those that:  segment the sales market or 
the raw materials purchasing markets;  limit the purch ase of new technology, new facilities, or limit the 
development of new products and new technology;  or fix resale prices. 
222 Other forms of exemptions are:  upgrading product quality, reducing cost, enhancing efficiency, and 
unifying the specifications and standards of a product;  improving operation efficiency and enhancing 
competition capacity of SMEs;  realizing social and public interests such as saving energy, protecting the 
environment;  and alleviating serious decreases in sales or production surpluses during economic depression. 
223 Dominant market position is defined as:  one enterprise accounting for more than half of the total 
market share in the relevant market;  the joint market  share of two enterprises accounting for more than two 
thirds;  the joint market share of three ente rprises accounting for more than three fourth. 
224 These enterprises are also prohib ited from:  without valid reasons,  refusing to trade with certain 
trading partners;  forcing trading partners to trade only with them, or only with enterprises designated by them;  
tying products or imposing unreasonable trading conditions;  without valid reasons, applying differentiated 
treatment with regard to transaction conditions, such as trading prices to equivalent trading partners;  and other abuse of dominant market positions determined by the Anti-Monopoly Law Authority (to be established).  China WT/TPR/S/199/Rev.1 
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213. Mergers and acquisitions (M&As), as well as "administrative monopoly", are all covered.  
M&As above a certain scale need to be notified to  the Anti-Monopoly Law Enforcement Authority to 
be set up under the State Council, and obtain approval.  However, the scale is not specified in the law.  
The law incorporates a specific chap ter that clearly forbids the following types of "administrative 
monopolies":  designating commodities providers;  obst ructing the free flow of goods among different 
regions;  excluding or restricting non-local operato rs from participating in local bidding activities;  
excluding or restricting non-local operators from i nvesting or setting up branches;  and setting out 
regulations related to the elimination and restricti on of competition.  Despite the need to deal with 
anti-competitive practices resulting from administrative monopoly, it was argued that inclusion of the 
issue in the Anti-Monopoly Law would in crease difficulties in enforcing the Law.225  Whether the 
Government is able to overcome these difficulties remains to be seen;  it would depend not only on 
the efficiency of the to-be-established Anti-Mo nopoly Law Enforcement Authority, but also on 
enforcement at the local level. 
214. All sectors of the economy, apart from certain activities related to agriculture, are covered by 
this law.  However, certain SOEs that have a dominant position in the economy and affect national 
security, or that operate with exclusive rights gran ted by the Government, are "protected" under the 
law, and the Government is responsible for supe rvising and regulating the operations of these SOEs, 
including the prices they charge.226  On the other hand, foreign acquisitions of Chinese companies, if 
relating to national security, need to go through "national security reviews".  However, "national 
security" is not defined in the law.  Also, the la w does not specify which government agency is to 
conduct "national security reviews".   Further, given that the Rules on Acquisitions of Domestic 
Enterprises by Foreign Investors entered into force on 8 September 2006227, the changes in the 
requirement for foreign acquisitions of domestic enterprises need to be clarified in the implementing regulations of the Anti-Monopoly Law, which are yet to be formulated.  
International cooperation on competition policy  
215. China has participated in competition-po licy-related activities of APEC, the OECD, 
UNCTAD, and the WTO.  In addition, China enga ges in exchanges and cooperation with competition 
authorities of European Communities, Japan, Republic  of Korea, and the United States.  SAIC signed 
the Agreement for the Cooperation and Communication in the Field of Anti Unfair Competition and 
Anti-Monopoly with Russia in 1996 and Kazakhstan in 1999.
228  I n  2 0 0 4 ,  M O F C O M  s i g n e d  t h e  
Competition Bilateral Dialogue Agreemen t with the European Communities. 
(b) Consumer protection 
216. The major legislation on consumer-protection is  the Law on the Protection of Consumer 
Rights and Interests, effective 1 January 1994.  The la w's objective is to protect the rights and interests 
                                                      
225 People's Daily online news (11 January 2006).  Viewed at:  http://www .people.com.cn/GB/54816/ 
54822/4016799.html  (in Chinese) [12 February 2008]. 
226 Article 7 of the law specifies:  "The State shall pr otect the lawful operations  of the undertakings in 
industries vital to the national economy and national security and controlled by the state-owned economy, as 
well as in industries subject to exclusive operations and sales according to the law, a nd shall supervise, adjust 
and control the operations of such undertakings and the prices of their products or services, in order to protect 
the interests of consumers an d promote technical progress.   These undertakings shall operate in accordance with 
the law, in good faith and in strict self-discipline, shall subject themselves to the supervision of the public, and shall not use their controlling position or exclusive position to the detriment of consumer welfare." 
227 The rules were issued jointly by CSRC, MOFCOM, SAFE, SAIC, SASAC, and SAT. 
228 In June 2007, SAIC signed a MOU on cooperation in consumer’s rights protection with the United 
States, and a MOU on information communication in consumer’s rights protection with Iceland. WT/TPR/S/199/Rev.1 Trade Policy Review 
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of consumers by regulating transactions under the pr inciples of voluntary participation, equality, 
fairness, honesty, and trustworthiness.  The law al so stipulates that enterprises offering goods and 
services to consumers must abide by the Product Qua lity Law, which aims to protect the interests of 
end-users and consumers by strengthening the supervis ion and control of the quality of products.  In 
addition, the Law Countering Unfair Competition defines unfair competition as:  deceptive selling 
(such as by counterfeiting a registered trade mark), br ibery, deceptive advertising, and coercive sales.  
Other laws and regulations concer ning consumer protection include the Agricultural Products Quality 
Safety Law, which stipulates the requirements fo r agricultural products;  the Advertisement Law, 
which prohibits the publication of false advertisement;  and the Trad e Mark Law, which prohibits the 
fraudulent use of trade marks. 
217. Enforcement of the consumer protection legisla tion is mainly the responsibility of the State 
Administration of Industry and Commerce (SAIC) , with Customs facilitating enforcement at the 
border.  In addition, AQSIQ is in charge of  recalls of automobiles, and childrens' toys. 
(vi) Intellectual property rights 
(a) Overview 
218. With the Government becoming increasingly awar e of the importance of IPR protection in  
facilitating innovation in the economy, IPR protection h as been strengthened.  China is a member of 
the World Intellectual Property Organization (W IPO), and a party to various multilateral IPR 
agreements (Table AIII.7).  It joined the WIPO  Copyright Treaty, and the WIPO Performances and 
Phonograms Treaty in March 2007.229  China participates in IPR-related activities in APEC, WIPO, 
and the WTO.  IPR working groups have been se t up between China and several countries;  under 
these working groups, meetings are held regularly to strengthen IPR enforcement in China.  China has 
also set up IPR information excha nge mechanisms with many countri es and regions, with a view to 
enhancing IPR protection.230 
219. Administration of IPRs is on two levels:  administrative bodies under the State Council, and 
local administrative authorities.  The administra tive bodies under the State Council are responsible for 
examining and granting or registering intellectual property rights, while the local authorities 
administer and enforce them at the local level. 
(b) Patents 
220. Patent rights in China are protected under the Patent Law, its Implementing Regulations, and 
rules promulgated by the State Intellectual Property O ffice (SIPO) to implement the Patent Law.  The 
Patent Law is currently being revised.  The author ities state that the purpose of the revision is to 
further enhance patent protection by:  improving "pat ent agent" system and the management of patent 
rights;  clarifying the criteria for granting patents;  and preventing the abuse of patents.  Currently, 
patent rights for inventions are granted for 20 year s from the date of filing (ten years from filing for 
utility models and designs). 
221. SIPO is in charge of the administration of patents nationwide, handling and coordinating IPR-
related international affairs, as well as representing Ch ina in international fora  on intellectual property 
                                                      
229 The decision to join the Copyright Treaty, and the Performances and Phonograms Treaty specified 
that the "internet terms" would not  be applied to Hong Kong and Macao  SARs.  In addition, China made 
reservation on paragraph  1 of Article 14 of the WIPO Performances and Phonograms Treaty. 
230 These include ASEAN, Australia, Au stria, Germany, Hong Kong, China, Republic of Korea, Japan, 
New Zealand, Russia, Spain, Swit zerland, and the United Kingdom. China WT/TPR/S/199/Rev.1 
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rights.  The State Patent Office under the SIPO is in charge of receiving patent applications and 
granting patents, while local IPR administrative o ffices are responsible for patent disputes.   
222. Procedures regarding patent applications and gr anting of patents have not been changed since 
China’s previous Review.231  Patent applications have been increasing:  in 2006, there were 
210,490 applications for inve ntions, an increase of 21.4% over the previous year.  Of these, domestic 
applications increased by 30.8%, and foreign appli cations by 10.4%.  In the same year, 57,786 patents 
(invention) were approved;  of which more than  half were foreign applicants (Table AIII.8). 
223. If a patent applicant is not satisfied with SIPO 's decision, requests for re-examination can be 
made to the Patent Re-examination Board.  If the Board finds that the decision taken by SIPO does 
not comply with the provisions of the Patent La w and its accompanying rules and regulations, it can 
revoke the decision and ask SIPO to continue the patent examination.232  In 2006, the Board accepted 
2,894 requests for re-examination, and completed 2,667 cases.  If the patent applicant is still not 
satisfied with the Board's decision, he/she can appeal to a people’s court. 
224. Compulsory licences may be granted under the Patent Law.  In particular, Article 49 of the 
Law provides that the Government can grant a compulsory licence in the event of a national 
emergency, or if "any extraordinary state of affairs occurs", or in the "public interest".   Article 55 
provides that the patent holder may appeal to a people's court if dissatisfied with the SIPO's 
judgement.  According to the authorities, no com pulsory licences have thus far been granted under 
these provisions.  
225. The authorities are considering including parallel impor ts in the revision of the Patent Law.  It 
is not clear whether they would be allowed.  Th e authorities state that parallel imports regarding 
patents have never occurred in practice. 
(c) Trade marks 
226. As in the previous Review, trade marks are protected under the Trademark Law, the 
Regulations for the Implementation of the Trademar k Law, and various rules issued by SAIC.  The 
Trademark Law is also being revised, with the in tention of shortening the examination period and 
enhancing trade mark protection.  Currently, trade ma rks are valid for ten years, and renewable for ten 
years, indefinitely. 
227. The State Trademark Office, under the State Administration of Industry and Commerce 
(SAIC), is responsible for the registration and administration of trade marks and geographical 
indications.  Local enforcement authorities are in  charge of administration of trade marks and 
geographical indications at the local level.  All appl icants are required to register their trade marks 
with the State Trademark Office.  Foreigners and fo reign enterprises are required to file an application 
in accordance with any agreement concluded between  their country of origin and China, or any 
international treaty to which both are parties, or on the basis of reciprocity.233   
                                                      
231 For details of the procedures on patent applications and the granting of patents see WTO (2006). 
232 SIPO online information.  Viewed at:  http ://www.sipo.gov.cn/sipo/zlsc/sczn/pdf/4.2.pdf (in 
Chinese) [12 February 2008]. 
233 Foreigners and foreign enterprises not domiciled in China or without industrial or commercial 
establishments in China may register their trade marks in China through an agency qualified to act as their agent.   WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 104 
 
 
228. Currently trade mark registration takes appr oximately 24 months, from submission of the 
application to the first action by the trade mark administration.234  The authorities state that as the 
number of trade mark applications in China has continued to increase,  the difficulty and complexity of 
trade mark examinations has al so increased (Table AIII.8).235   
229. Currently, China uses a "first-to-f ile" approach:  if two or more  applications were made for 
registration of the same or similar trade mark on the same or similar product, the Trademark Office 
makes a preliminary examination before approving and publicizing the first-applied trade mark.  
However, any person may oppose a trade mark that  has been given preliminary examination and 
approval, provided the opposition is filed within th ree months of the day the first-applied trade mark 
was publicized.  In particular, for trade marks that ha ve already been used in other countries, but have 
not registered in China, if they are "well-known tr ade marks", a copy, imitation or translation of that 
well-known trade mark cannot be registered and must  be prohibited from use.  A trade mark can be 
revoked even after being granted. 
230. In the event that the Trademark Office decides to refuse registration, appeals may be made to 
the Trademark Review and Adjudication Bo ard, or further to a people's court.236  In 2006, 
14,960 review applications were received by the Board and 4,219 were re viewed (10,144 and 6,305 
in 2004). 
231. Parallel imports are not addressed in the legislation on trade marks. 
(d) Copyright and related rights 
232. Copyright protection is granted under the Copyright Law, and its accompanying 
regulations.237   
233. The National Copyright Administration of China under the State Council administers 
copyrights on a national scale.  However, local copyright administration offices (under the local 
governments of provinces, autonomous regions, a nd municipalities directly under the Central 
Government) are in charge of local copyright registration and administration.  Protection for 
cinematographic and photographic works is granted for fifty years, and typographical designs for ten years.
238  Protection for computer software is gran ted from the date on which its development was 
completed, for the lifetime of the author plus 50 years.239   
                                                      
234 WTO document WT/TPR/M/161/Add.1, 15 June 2006. 
235 Nonetheless, the authorities intended to shorten the time of the registration procedure to 18 months, 
by reinforcing management and promoting the accuracy and speed of trade mark examination through computer 
examination system. 
236 WTO (2006). 
237 These include, inter alia , the Implementing Rules of the Copyright Law, the Regulations for the 
Protection of Computer Software, and the Regulation on the Collective Administration of Copyright.  In addition, the State Council promulga ted the Regulations on Protection of  the Right of Communication through 
Information Network, which came into force on 1 July 2006. 
238 Article 21 of the Copyright Law specifies that , for a work created by a process analogous to 
cinematography, or a photographic work, the term of pr otection is 50 years, expi ring on 31 December of the 
50th year after the first publication of such work;  however, such work is not protected under this Law if it is not 
published within 50 years of the completion of its creation.  
239 Software copyright exists from the date on which its development has been completed.  For a 
natural person, protection is for the lifetime of the person plus 50 years.  For software developed jointly by two or more persons, protection expires at the end of the 50
th year after the deat h of the last surviving developer.  
Copyright belonging to a legal entity or other body is protected for 50 years from first publicatio n;  however, if 
it has not been published within fifty years of its development, it is not protected under the Regulations for the Protection of Computer Software. China WT/TPR/S/199/Rev.1 
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234. Parallel imports are not covered in the copy right legislation, and are not prohibited. 
(e) Other IPRs 
235. There have been no significant changes to the legislation protecting other IPRs during the 
review period, including layout-designs of integr ated circuits, and geographical indications.240  
236. Layout-designs of integrated circuits are protect ed for ten years from the date of filing or the 
date of first commercial exploitation anywhere in the world, whichever expires earlier;  in either case, 
the maximum duration of protection is 15 years fro m the date of creation.  Layout designs are 
registered with and granted by SIPO. 
237. A "non-voluntary" licence can be issued to exploit a layout design to remedy unfair 
competition practices or in special circumstances.  The circumstances include:  national emergencies;  
any extraordinary state of affairs;  for the purposes of  public interest;  or if it is determined by the 
competition authority that there is a need to re dress anti-competitive behaviour resulting from the 
protection.  So far, no "non-vol untary" licences have been issued. 
238. Geographical indications (GIs) are registered as collective marks or certification marks with 
the State Trademark Office under the same procedur es as for trade marks.  Data provided by the 
authorities show that, by end 2006, 219 geographical  indications had been registered by the State 
Trademark Office.241 
239. GIs are also regulated by the AQSIQ, which issued the Regulations on Protection of Products 
of Geographical Indications in J une 2005.  Apparently, this r esulted in some confusion among 
producers and consumers.242  Currently, more than 750 geographi cal indications have been approved 
by the AQSIQ, and have been protected.  The author ities state that a law on geographical indication is 
to be issued before 2010. 
240. There has been no significant change to legisla tion on protection of plant varieties, which is 
granted for 20 years from the date of authorization for vines, forest trees, fruit trees, and ornamental 
trees, and 15 years for other plants.  No changes ha ve been made regarding undisclosed information 
or trade secrets. 
(f) Enforcement 
241. Despite a detailed legal framework on IPR protec tion, some of China's trading partners, as 
well as some domestic businesses, consider that its IPR enforcement remains weak.243  The authorities 
state, however, that China has established a relativ ely complete legal framework on IPR protection, 
and has made great achievements and progress on IPR enforcement.  Realizing the importance of IPR 
protection in facilitating innovation in the economy, China has shifted the focus from formulating 
legislation to enhancing law enforcement.244 
                                                      
240 See WTO (2006) for details of the protection for these IPRs. 
241 There were 31 (14% of the total) foreign GIs. 
242 Xinhua News  online information, 23 July 2007.  Viewed at:  http://news.xinhuanet.com/politics/ 
2007-07/23/content_6414874.htm (in Chinese) [11 February 2008].   
243 Central Government online information.  View ed at: http://www.gov.cn/zwhd/2006-05/15/content_ 
80339.htm  (in Chinese) [12 February 2008]. 
244 See WTO (2006) for details of the enforcement framework. WT/TPR/S/199/Rev.1 Trade Policy Review 
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242. Intellectual property rights in China are enforced  by two means:  administrative actions, and 
judicial measures.  Administrative actions consist of mediation by the authorities, involving a large 
number of agencies.245  Judicial actions are taken through the public security authorities, procuratorial 
organs, and the courts.  The number of cases se ttled through administrative actions remains high 
(Table III.14).  Cases dealt with by courts has also  increased:  14,219 first instance civil IPR cases 
were accepted by courts and 14,056 were concl uded in 2006 (up 5.92% and 4.95%, respectively, 
from 2005) (Table AIII.9).  In 2006, four regulations were issued to facilitate the transfer of cases to 
be settled from administrative actions to judicial measures.246  Despite these measures, administrative 
and judicial decisions are difficult to enforce owi ng to the lack of appropriate infrastructure and 
sufficient manpower.247  Further, IPR-related cases must meet minimum value thresholds to be 
considered for criminal prosecution.248  These thresholds may take the form of, inter alia , value of the 
goods, illegal gain or amount of illegal copies.  A lthough these thresholds are lowered in some cases, 
the authorities state that they have no intention of removing them.249  In addition, there is some doubt 
as to whether fines and other penalties ar e sufficient to deter IPR violations.  
Table III.14 
Enforcement of intellectual property rights, 2004-06 
 2004 2005 2006 
Patents    
Number of disputes 1,455 1,597 1,270 
Number concluded 1,215 .. 973 
Copyright     
Number of disputes 9,691 9,644 10,559 
Number concluded  .. 9,380 10,344 
of which:     
imposition of fines  7,986 7,840 8,524 
cases transferred to judicial agencies  .. 366 235 
Trade marks     
Number of disputes  51,851 49,412 50,534 
of which:     
trade mark infringements  40,171 39,107 .. 
other  11,680 10,305 .. 
cases transferred to judicial agencies  96 236 252 
value of fine (Y million)  268 342 398 
IPR cases handled by Customs at the border 1,051 1,210 2,475 
Value (US$ million) 11.2 13.3 27.2 
.. Not available.  
Source: Data provided by the authorities.  
                                                      
245 WTO (2006). 
246 The four regulations were jointly promulgated by, inter alia , the Supreme People’s Procuratorate, 
the Ministry of Public Security, the National Copyright Administration, the SAIC, and the Customs.  These regulations are the Provisional Regulation on Better Connection in the Fight Against Crimes Involving 
Infringement on the Exclusive Use of Trademarks (promu lgated on 13 January 2006);  the Opinion on Speedy 
Referral of Suspected Criminal Cases by Administrativ e Law Enforcement Authorities (26 January 2006);  the 
Provisional Regulation on Better Coordination in IPR Law Enforcement (24 March 2006);  and the Provisional 
Regulation on Better Connection in the Fight Against Crimes Involving Infringement on Copyrights 
(26 March 2006). 
247 OECD (2007b). 
248 Criteria on minimum thresholds are specified under the Judicial Interpretation of the SPC on Issues 
Concerning Application of Law in Dealing with Criminal IPR Cases, issued by the Supreme People’s Court 
(SPC) and the Supreme People’s Procuratorate (SPP).   
249 For example, the Supreme People's Court and the Supreme People's Procurator ate jointly issued an 
interpretation in April 2007, which lowered the threshol d for criminal charges agai nst piracy set in 2004;  
organizations and individuals selling 500 pirated discs, in stead of 1,000 in the 2004 rule, can receive a three-
year sentence (ChinaCourt online information.  Viewed  at:   http://www.chinacour t.org/flwk/show.php?file_ 
id=117517 (in Chinese) [12 February 2008]).  China WT/TPR/S/199/Rev.1 
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243. Customs is in charge of enforcing intellectua l property rights at the border.  Since the 
previous Review of China, customs authorities have been increasingly involved in seizures and 
investigations ( ex officio ) of infringing goods.  The number of cases of suspected IPR infringing 
imports and exports handled by Customs doubled fr om 2005 to 2006 (Table III.14).  Further, Customs 
strengthened efforts in IPR protection at the border through a five-month campaign from 
October 2007, aimed at IPR-infringing exports to the EC, Hong Kong, China, the United Arab Emirates, and the United States. 
244. China has also tried to increase public awaren ess of IPR protection, and various authorities 
launched a series of campaigns.  On 30 March 2006, several government agencies including the 
National Copyright Administration and MOFCOM jointly issued a notice that required computers 
sold domestically to be loaded with a copyright op erating system.  Further, in June 2006, the National 
Copyright Administration launched a three-month camp aign to stop the illegal preloading of software 
onto computers, so that all computers used by the Government and SOEs are loaded with legal software.  SIPO has been publishing annual Action Plans on IPR Protection since 2006, to provide guidance on IPR enforcement.  By end-August 2006,  50 IPR service centres had been set up all over 
the country with the hotline "12312".  A Chinese- English bilingual IPR protection government web 
portal was launched by SIPO in 2006.