China WT/TPR/S/161 
 Page 29 
 
 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
(1) INTRODUCTION  
1. Since China started its economic reform process,  especially in the years leading up to its 
accession to the WTO and thereafter, it has been working to change its  institutional and legal structure 
in accord with its role as a leading Member of the multilateral trading system.  The institutional 
structure of trade policy-making has been changed se veral times;  the changes include restructuring of 
China's State Council, the executive authority respon sible for policy formulation, and of key trade 
policy-making bodies such as the Ministry of Commerce.  Coordination among different agencies has also been improved to ensure better implementati on of trade and related policy objectives and to 
introduce greater transparency in policy-making and im plementation.  In addition, China has reviewed 
legislation and revised and issued a considerable  number of new laws in connection with its 
Membership of the WTO. 
2. A key area of reform has been the structure of la ws.  The hierarchy of laws in China includes 
national laws, which are enacted by the National People's Congress or its Standing Committee, the 
Legislative Authority, followed by regulations, whic h are passed by the Stat e Council, the Executive.  
In addition to regulations, ministerial or department al rules are issued by government departments to 
implement the regulations.  People's congresses at local level and local governments also have the authority to issue local regulations and rules, although when equivalent national legislation is 
developed, these rules are automatically annulled or amended.  In addition, since the mid-1980s, for 
matters concerning tax and economic reform, the National People's Congress has delegated 
responsibility for issuing regulations to the State Council, resulting in "interim provisions" that also 
carry the force of law;  these interim provisions are replaced by laws after they are tested and when 
the authorities deem appropriate.  Policies are also, fr om time to time, implemented on a "trial" basis, 
for example, by conducting a regional trial before the policy is applied nationwide.  New regulations 
and rules are also being issued on a regular basi s to keep up with changing economic needs and 
international commitments.  The result is a comple x network of laws, regulations, rules, and interim 
provisions.  The policymaking and implementation process, in many cases, also remains complex, 
with several agencies involved at different levels, wh ich also has implications for policy coherence.  
The complexity of the institutional framework can, in part, be attributed to the nature of the reform 
process:  thus, while new policies and institutions  are being drawn up continuously, older ones are 
only partially amended, resulting in new institutions being added or appended to the old ones (as, for 
example, in the area of taxation). 
3. China has used its trade and foreign investme nt policy actively to meet its industrial and 
development goals, most notably the development of the private sector.  Under the Foreign Trade 
Law, China's trade policy objective is to accelerate its opening to the world, develop foreign trade, 
and promote sound economic development.  Economic reform has resulted in considerably reduced 
trade barriers, including tariffs, import and export prohibitions, licensing, and restrictions, such as 
designated trading, and greater transparency in the allocation of import and export licences.  A significant portion of China's trade (over 50%) is  based on processing and China permits "in-bond 
treatment" (essentially duty free unless sold domestically) for imports of certain inputs processed into exports.  In contrast, general import and especially e xport restrictions appear still to be based, at least 
in part, on domestic supply considerations.  Thus, measures such as interim export taxes
1, and VAT 
rebate rates appear to be subject to frequent ch anges, depending on China's economic development 
strategy and domestic dema nd and supply conditions. 
                                                      
1 While the statutory export tax rates have remained essentially unchanged over the period under 
review, the interim duty, which is the effective export tax rate, has been changed annually. WT/TPR/S/161 Trade Policy Review 
Page 30 
 
 
4. In addition to being a Member of the WTO, Chin a has also started to participate in bilateral 
and regional trade agreements;  most, if not all, of the partners with which China has negotiated 
bilateral trade agreements recognize China as a mark et economy;  it has Closer Economic Partnership 
Agreements with Hong Kong, China and Macao, China, a Framework Agreement with ASEAN 
countries, and a free-trade agreement with Chile, a nd is currently negotiating bilateral agreements 
with a number of other countries. 
(2) INSTITUTIONAL AND LEGAL FRAMEWORK  
5. The current Constitution, which was adopted on 4 December 1982, has been revised four 
times;  the revisions were made in order to adapt to the needs of ec onomic reform and the evolution of 
the economy.  The original text stated that state ownership (i.e. "ownership by the whole people and 
collective ownership by the working people") was the basis of the socialist economic system.  
Amendments on 12 April 1988 gave legal status to pr ivate ownership in China and stipulated a new 
land-use right system.  The private sector was allowed to co-exist with, and develop as a complement to, the socialist public economy.  Revisions  on 29 March 1993 provided a guarantee for the 
development of the market economy in China.
2  Amendments included, inter alia , replacing the 
"planned economy" with "socialist market economy", "state economy " with "state-owned economy", 
"state enterprises" with "state-o wned enterprises", and "rural people's communes" with a "rural 
household-based contract responsibility system w ith remuneration linked to output".  Additional 
amendments made on 15 March 1999 included the incorporation of the guiding role of the Deng 
Xiaoping Theory3, and further emphasis on the role of the pr ivate sector.  Another significant revision 
was the addition of a paragraph establishi ng the rule of law as a national policy. 
6. The most recent amendment on 14 March 2004 re vised several articles.  Among them, the 
protection of private property rights was specified e xplicitly as:  "citizen's lawful private property is 
inviolable".  The revision also included the protec tion of non-public sectors of the economy, such as 
the individual and private sectors4;  a new clause specified that, "the State encourages, supports and 
guides the development of the non-public sectors of  the economy".  The amendments also included 
the addition of the "Thought of Th ree Represents" to the Constitution5, indicating that private 
entrepreneurs are encouraged to join the Communi st Party, thereby increasing the influence of the 
private sector on the formulation of policy.   
(i) Institutional structure 
(a) Legislature 
7. Under the Constitution, the National People's C ongress (NPC) is the highest organ of state 
power, and its permanent body is its Standing Committee.  The NPC is composed of deputies from provinces, autonomous regions, municipalities direc tly under the Central Government, the special 
                                                     
 
2 The amended Article 15 states:  "The State has pu t into practice a socialis t market economy.  The 
State strengthens formulating economic laws, improves macro adjustment and control and forbids according to 
the law, any units or individuals from interfering with the social economic order." 
3 The essential idea of the Theory is for China to achieve economic growth through "socialist 
modernization" and to provide guidance to the Communist Party of China. 
4 The authorities indicated that provisions in the C onstitution reflect the basic principles and spirit of 
the nation;  detailed measures for protecting the non-public sectors of the economy are provided in various laws and regulations. 
5 The "Three Represents" states that the Communist Party of China (CPC) must always represent "the 
development trend of China's advanced productive forces , the orientation of China's advanced culture and the 
fundamental interests of the overwhelmi ng majority of the Chinese people." China WT/TPR/S/161 
 Page 31 
 
 
administrative regions, and from the armed forces.  The NPC, which has a term of five years, meets in 
session once a year and is convened by its Standing Committee.  The Communist Party of China (CPC), through its Central Committee, headed by the Political Bureau (Politburo), and its Standing 
Committee, exerts considerable influence on the NPC's legislative and law enforcement activities.
6  
According to the authorities, "under the leadersh ip of the CPC, the Chinese people adhere to the 
people's democratic dictatorship and the socialist ro ad, to the policy of reform and opening up to the 
outside world, develop the socialist market economy and socialist democracy and improve the 
socialist legal system".  In addition to organi zing and exercising leadership over the country's 
legislative and law-enforcement activities, and managing the work of officials7, the CPC also makes 
proposals concerning national economic and social  development plans.  For example, in 
October 2005, the CPC Central Committee's "Propo sal on the Eleventh Five-year Programme on 
National Economy and Social Development" was adopted at the Fifth Session of the 16th CPC Central 
Committee;  the proposed Programme will be reviewed at the National People's Congress in March 2006.
8  
8. The NPC and its Standing Committee exercise th e legislative power of the State.  The NPC 
enacts and amends criminal, civil, and state organization laws9, and other basic laws.  Other laws, 
such as the Foreign Trade Law, and the Customs La w, are enacted by the NPC's Standing Committee.  
Other functions of the NPC include:  amending th e Constitution and superv ising its enforcement;  
electing and removing the President and Vice Presiden t of the State;  approving the Premier of the 
State Council, upon nomination by the President , and the Vice Premiers, State Councillors, and 
Ministers, etc., upon nomination by the Premier;  examining and approving the national economic and 
social development plan, the state budget, and thei r implementation reports;  and altering or annulling 
inappropriate decisions of its Standing Committee.10 
9. The President and Vice President of China are elected by the NPC and can serve no more than 
two consecutive five-year terms.11  The functions of the President include, inter alia :  promulgating 
statutes adopted by the NPC or its Standing Committee12;  appointing and removing, inter alia , the 
Premier, Vice-Premiers, State Councillors, Ministers13;  and ratifying or abrogating bilateral, regional 
                                                      
6 The role of the Communist Party in China's development is mentioned in the Preamble to China's 
Constitution.  In addition, a recently issued White Paper on the Building of Political Democracy in China states 
that "the CPC exercises leadership in line with its basic theory, programme and line, by formulating major 
principles and policies, making suggestions on legislation, recommending cadres for important positions, 
conducting ideological education and giving full play to the role of the Party organizations and members".  The document also states that "the CPC has led the people to formulate the Constitution and laws.  It takes the lead 
in observing and safeguarding the Co nstitution and laws and combats resolutely all activities that violate the 
Constitution and laws" (State Council Informa tion Office, 2005, Parts II and VIII(1)). 
7 Ministry of Commerce online information.  Available at:  http://english.mofcom.gov.cn/aarticle/ 
topic/bizchina/politicsandsociety/200406/ 20040600233624.html [13 December 2004]. 
8 "China issues guiding proposal for 2006-2010 period", People's Daily,  19 October 2005. 
9 Such laws include, for example, the "Organic Law of the State Council", and the "Organic Law of the 
Local People's Congresses and Local People's Governments". 
10 Other functions include:  electing the President of the Supreme People's Court and the Procurator-
General of the Supreme People's Procuratorate;  electing the Chairman of the Central Military Commission and, 
upon nomination by the Chairman, approving all other members of the Central Military Commission;  approving the establishment of provinces, autonomous re gions, and municipalities di rectly under the Central 
Government;  and making decisions on the establishment of special administrative regions and their institutional 
systems (Article 62 of the Constitution). 
11 Article 79 of the Constitution.  
12 Ministry of Commerce online information.  Available at:  http://english.mofcom.gov.cn/aarticle/ 
topic/bizchina/politicsandsociety/200406/20040600233630.html [18 March 2005]. 
13 Article 80 of the Constitution. WT/TPR/S/161 Trade Policy Review 
Page 32 
 
 
or international treaties and agreements.14  The President does not have the power to veto laws that 
have been adopted by the NPC or its Standing Committee. 
(b) The Executive 
10. Executive power is vested in the State Council15, which is the Central Government.  It is 
composed of the Premier, Vice Premiers, State C ouncillors, Ministers, the Auditor-General, and the 
Secretary-General.  The Premier is approved by  the NPC upon nomination by the President and is 
appointed and removed by the President.  The Vice Premiers, State Councillors, Ministers, etc., are 
nominated by the Premier, approved by the NPC, and appointed and removed by the President.  The 
term of the State Council is five years, and the Premier, Vice Premiers, and State Councillors may 
serve no more than two consecutive terms.  The State Council's functions include:  to formulate, adopt 
and enact "administrative regulations" in  accordance with the Constitution and laws16;  to submit 
proposals to the NPC or its Standing Committee;  to exercise leadership over th e work of local organs 
of state administration, and to determine the functi onal divisions between central and local authorities;  
to draft and implement the national economic and so cial development plan and the state budget, and 
direct and administer urban and rural development work;  and to conclude treaties and agreements 
with other states.17  The State Council reports to the NPC or, when the NPC is not in session, to its 
Standing Committee.  The State Council has been  restructured several  times since the 1990s 
(Annex II.1). 
11. China is divided administratively into provinces, autonomous regions, special administrative 
regions, and municipalities directly under the Centra l Government.  In addition to the central and 
provincial levels, administrative jurisdictions are further sub-divided into prefecture-level cities 
(including autonomous prefectures), counties (i ncluding autonomous counties), and townships 
(including ethnic townships) (Table AII.1). 
12. Local people's congresses at different levels are the local organs of state power.18  Executive 
power at the local level is vested in local governments, which report to people's congresses at 
corresponding levels, or when the people's congresses are not in session, to their standing committees.  
Local governments are state administrative organs un der the State Council and are subordinate to it.  
Article 3 of the Constitution stipulates that the di vision of functions and powers between the central 
and local governments involves "giving full play to the initiative and enthusiasm of the local 
authorities under the unified leadership of the central authorities".  
(c) The Judiciary  
13. China's judicial system consists of the Suprem e People's Court, the local people's courts at 
different levels, and military and other special courts (e.g. railway and maritime) (Box II.1).  
Article 125 of the Constitution stipulates that all cas es handled by the people's courts, except for those 
involving special circumstances as specified by  law, shall be heard in public.   
14. There is also a legal supervision system, which makes decisions on the arrest and prosecution 
of persons.  This system consis ts of:  a Supreme People's Proc uratorate and the local people's 
                                                      
14 Article 81 of the Constitution. 
15 Article 85-94 of the Constitution. 
16 In many instances, administrativ e regulations implement laws.  
17 Article 89 of the Constitution. 
18 Article 96 of the Constitution. China WT/TPR/S/161 
 Page 33 
 
 
procuratorates at different levels;  military procurat orates;  and other special people's procuratorates.  
In accordance with the Constitution, procur atorates exercise their power independently.19   
Box II.1:  China's Court structure  
The Supreme People's Court is China' s highest judicial body.  It is co mposed of a Chief Justice, Grand 
Justices, and other judges.  Its functions include:  tryi ng cases within its original jurisdiction;  hearing 
appeals against the legal decisions of the higher courts ;  supervising the work of local courts and special 
courts;  and giving judicial interpretations of the specific utilization of laws. 
Each province, autonomous region, and municipality has a Higher People's Court (Xinjiang Uygur 
Autonomous Region has two higher courts);  prefecture-level cities have intermediate people's courts;  and 
counties have basic people's courts.  According to the Ju dges Law, presidents of local courts are appointed 
or removed by the people's congresses at the corresponding level, and the judges of local courts are 
appointed or removed by the standing committees of corresponding local people's congresses. 
The Supreme People's Court supervises the administration of local people's courts at different levels and the 
special people's courts;  people's courts at higher leve ls supervise the administration of those at lower levels. 
The role of mediation has been empha sized in China's legal system.  Mediation is formally recognized as 
part of the civil procedure, and more than half the cases brought to court are resolved through mediation.  
Source:   Online information.  Available at:  http://www.court.gov.cn.  
15. Under China's criminal, civil, and administrativ e procedure laws, appeals can be made to the 
higher courts if parties are not satisfied with cour t decisions.  The judgement and order of a people's 
court of second instance is final, and cannot be appeal ed further;  however, if the procuratorate feels 
that there is an error in a particular judgement ma de by a people's court, in accordance with judicial 
supervision procedures, the procuratorate can appeal to a people's court at the same level, which then 
conducts a retrial.20 
16. China signed the United Nations Convention on the Recognition and Enforcement of Foreign 
Arbitral Awards (the 1958 New York Convention) in 1987 (for commercial disputes only).   In 
implementing the New York Convention, both China's "Civil Procedure Law" and the relevant judicial interpretations accepted the principle that, when an international treaty concluded or acceded 
to by China contained provisions that differed from the provisions of the "Civil Procedure Law", the 
provisions of the international treaty would a pply, except for cases in which China had made 
reservations.
21  
17. Under the Constitution and the "Law on the Pro cedures of Conclusion of Treaties", the WTO 
Agreement falls within the category of "important in ternational agreements", subject to ratification by 
the Standing Committee of the NPC.  The WTO Ag reement and China's Protocol of Accession are 
implemented domestically through enabling legislation.   China has been revisi ng existing or enacting 
new laws, regulations, and administ rative measures relating to trade in goods, services, and the 
trade-related aspects of intellectual property rights with  a view to ensuring that they are in line with 
                                                      
19 Article 3 of the "Criminal Procedure Law" stipulates  that the public security organs are responsible 
for investigation, detention, execution of arrests and preliminary inquiry in criminal cases.  The people's 
procuratorates are responsible for procuratorial work, authorizing approval of arrests, conducting investigation and initiating public prosecutio n of cases directly accepted by the procur atorial organs.  The people's courts are 
responsible for adjudication.  
20 Articles 203 to 207 of the "Criminal Procedure Law". 
21 Article 238 of the "Civil Procedure Law". WT/TPR/S/161 Trade Policy Review 
Page 34 
 
 
the WTO Agreement and the Accession Protocol.22  Individuals and enterprises can bring to the 
attention of the national authorities cases of non-uniform application of the trade regime.23  I n  
addition, at the time of China's accession to the WTO, a programme was launched to review national 
legislation.24  Since September 2001, local governments have been conducting a review of local 
regulations, rules, and administrative measures in line with the principles of transparency, uniform 
application, and non-discrimination.25  
(ii) Legal structure and the legislative process 
18. Legislation in China includes the Constitutio n, laws, administrative regulations, local 
regulations (including autonomous regulations and separate regulations) and rules (including local 
government rules and departmental rules).  The C onstitution is the highest law, followed by national 
laws then administrative regulations;  national ad ministrative regulations take precedence over local 
regulations and rules (Chart II.1).  The NPC has the power to alter or annul laws formulated by its 
Standing Committee;  the Standing Committee of th e NPC has the power to annul administrative 
regulations that contradict the Constitution and la ws, or local regulations that contradict the 
Constitution, laws, and administrative regulations;  the State Council has the power to annul 
departmental rules and local government rules that  are inconsistent with the Constitution and laws.26 
19. The legislative process is specified in the Legi slation Law.  Article 8 specifies that certain 
matters shall only be governed by law, including the economic system, finance, taxation, customs, 
banking, and foreign trade.27  Under Article 9, if laws have not been enacted on these matters, the 
NPC or its Standing Committee may authorize th e State Council to formulate administrative 
regulations before the NPC enacts legislation on some of these matters.28 
                                                      
22 Efforts in this regard include:  the "Legislation Law", "Regulations on Procedures for the 
Formulation of Administrative Regulations", and "Regulations on Procedures for the Formulation of Rules", to ensure the consistency of newly-issued regulations or rules with the WTO Ag reement and the Accession 
Protocol;  the "Regulations on Submission of Regulations and Rules for the Record", to streamline the 
formulation and promulgation procedures for different types of legislation, and to deal with contradictions between regulations (see also Table AII.2 for a list of major legislation relating to trade). 
23 For example, Article 90 of the Legislation Law stipulates that individuals, enterprises, or 
organizations may submit to the Standing Committee of the NPC written suggestions, if they consider that 
regulations or rules contradict the Constitution or laws;  the Standing Committee of the NPC conducts studies of 
these suggestions.  Article 9 of the "Regulations on Submission of Regulations and Rules for the Record" 
stipulates that any individuals or organizations may submit written suggestions to the State Council for regulations or rules that they consider inconsistent with the Constitution or laws;  the State Council conducts 
examinations of these suggestions. 
24 The authorities note that, between 1999 and 2003, 17 laws were revised;  63 administrative 
regulations were issued, amended or abolished;  and 34 State Council decrees were abolished.  
25 Between September 2001 and July 2003, 196,453 pieces of local legisl ation, rules, and other policies 
were revised or abolished in the provinces, autonomous regions, municipalities and comparatively larger cities. 
26 Article 88 of the Legislation Law. 
27 Other matters listed in Article 8 of the Legislation Law are:  "affairs concerning State sovereignty;  
formation, organization, and the functions and powers of the people's congresses, the people's governments, the 
people's courts and the people's procuratorates at all levels;  the system of regional national autonomy, the 
system of special administrative regions, the system of self-government among people at the grassroots level;  criminal offences and their punishment;  mandatory meas ures and penalties involving deprivation of citizens of 
their political rights or restriction of the freedom of thei r person;  requisition of non-state-owned property;  basic 
civil system;  systems of litigation and arbitration;  and other affairs of which laws must be made by the NPC or its Standing Committee."  
28 Article 9 of the Legislation Law states that, excep tions include "affairs concer ning criminal offences 
and their punishment, mandatory measures and penalties involving deprivation of citizens of their political 
rights or restriction of the freedom of their person, and the judicial system." China WT/TPR/S/161 
 Page 35 
 
 
Chart II.1
Hierarchy of laws and regulations
Source :   Articles 78, 79, 80 and 82 of the Legislation Law, 2000.a    "Decision of the Third Session of th e Sixth National People's Congress on Authorizing the State Council to Formulate Inter im
       Provisions or Regulations Concerning the Re form of the Economic Structure and the Open Policy".Constitution
Departmental rules have the same authority amongst 
departments;  departmental rules and local rules have equal 
authority between the departments and local governments;  
their application shall be confined to the respective limits of 
their authorities.Local government rules formulated by the 
governments of the provinces or autonomous 
regions have greater authority than the rules 
formulated by governments at a lower level.Rules:  Local government rules / Departmental rulesInterim provisionsa
Local regulationsAdministrative regulationsLaws
 
 
20. Under Articles 12 to 41 of the Legislation Law, legislative bills may be submitted to the NPC 
or its Standing Committee, by any of the following:  the State Council, the Central Military 
Commission, the Supreme People's Court, the Supreme People's Procuratorate, a special committee of the NPC, a delegation or a group of thirty or more deputies, or ten or more of the Standing Committee 
members.  For a draft bill on the NPC's age nda, the Law Committee under the NPC organizes 
discussions and conducts a review, based on the opini ons of delegates and special committees.  For a 
draft bill on the agenda of the Standing Committee,  opinions from various sources are sought, through 
fora such as seminars, hearings, etc.
29  The bill is usually deliberated on at three meetings of the 
Standing Committee befo re being voted upon.30  The NPC or its Standing Committee passes the bill if 
a simple majority of all the deputies agree. 
                                                      
29 Article 34 of the "Legislation Law". 
30 For example, on 27 September 2005, the first hearing of the NPC's Standing Committee regarding 
the revision of the Income Tax Law for Individuals was conducted in Beijing.  WT/TPR/S/161 Trade Policy Review 
Page 36 
 
 
21. Administrative regulations and some laws are formulated by the State Council.31  A t  t h e  
beginning of each year, the State Council prepares  an annual legislation plan and delegates the 
drafting task to one or more ministries, or to th e State Council's Legislative Affairs Office (SCLAO).  
The draft is prepared by the ministries or commissions who may organize seminars, expert meetings, 
hearings, etc. to solicit the opini ons of other ministries or the public.  During the drafting process, 
international fora may be held and foreign-invest ed enterprises (FIEs) are occasionally invited to 
participate in consultations;  sometimes they are consulted without being shown a written draft, or 
without sufficient time to review a written draft.32  The drafts are then reviewed by the SCLAO, to 
ensure their conformity with, inter alia,  the Constitution, and laws.  The SCLAO may consult with 
relevant parties, and circulate the draft am ong relevant government ministries for additional 
comments.  Drafts of regulations considered to be of  key importance, or directly beneficial to citizens, 
legal persons, or other organizations, are, after approval by the State Council, issued for public 
comment.  Following this, the SCLAO revises and fina lizes the draft before sending it to the State 
Council for approval.  The regula tion is published upon approval by the State Council and signature 
by the Premier.  The draft laws are submitted by the State Council to the NPC or its Standing 
Committee for approval (see above). 
22. Departmental rules are issued by ministries, commissions, and other regulatory agencies 
directly under the State Council.  After approval by the head of the corresponding department, these 
rules are published in the State Council or depart mental gazette, and in national newspapers.  
Administrative regulations and departmental rules usually come into effect 30 days after their 
publication;  regulations or rules related to nati onal security, foreign exchange rates, and monetary 
policy, etc. take effect the day of their publication.   
23. China's transition from a central-planned ec onomy to a "socialist market economy" has 
required a great deal of new legislation in many  areas.  Thus, in September 1984, the Standing 
Committee of the Sixth NPC authorized the Stat e Council to formulate interim provisions on tax 
reform;  in April 1985 a Decision by the Sixth NP C authorized the State Council to formulate, 
promulgate and implement interim provisions or regulations con cerning the reform of the economy 
and the "open door" policy.33  The Decision states that "these provisions and regulations shall be made 
into law by the National People’s Congress or its St anding Committee after they are tested in practice 
and when conditions are ripe."  So far, many inte rim provisions and regulations have been replaced by 
laws or by regulations;  according to the author ities, those still in force mainly entail taxation. 
24. Provinces, autonomous regions, municipalities di rectly under the Central Government, and 
the comparatively larger cities may, in light of specific local conditions and needs, formulate local 
regulations and rules.34  These local regulations may govern the following matters:  those requiring 
                                                      
31 Many administrative regulations implement laws.  When encountering problems in the 
implementation process, the State Council may report to the NPC and its Standing Committee with a view to 
amending or formulating new laws. 
32 OECD (2005b). 
33 "Decision of the Third Session of the Sixth National People's Congress on Authorizing the State 
Council to Formulate Interim Provisions or Regulations Concerning the Reform of the Economic Structure and 
the Open Policy". 
34 These local regulations are issued by people's congresses and their standing committees, provided 
they do not contradict the Constitution, laws, and admini strative regulations.  Local regulations of comparatively 
larger cities must be submitted to and obtain approval  from these standing committees of the provinces or 
autonomous regions.  Autonomous regulations and separate regulations are issued by people's congresses in 
national autonomous areas.  Local rules are formulated by local governments in provinces, autonomous regions, municipalities, and comparatively larger cities, in accord ance with relevant laws, administrative regulations or 
local regulations.  "Comparatively larg er cities" refers to a city where a provincial or autonomous regional 
people's government is located or where a special economic zone is located, or a city approved as such by the State Council (Article 63 of the Legislation Law). China WT/TPR/S/161 
 Page 37 
 
 
the formulation of specific provisions to implement laws or administrative regulations;  those of a 
local character;  and those subjects for which th e State has not yet formulated any laws or 
administrative regulations.  For the latter, once the State has enacted laws or administrative 
regulations, local regulations that contradict State laws or administrative regulations become null and 
void, unless promptly amended (section (v)). 
(iii) Law enforcement  
25. There have been a number of significant chang es to legislation, but the implementation and 
the enforcement of laws require similar changes to the law-enforcement infrastructure.  In China, law 
enforcement has traditionally been based on interm ediation rather than recourse to the courts, 
although this appears to be changing gradually.  The difficulty of law enforcement in China is 
attributed to several factors, including protection of local interests35, and government interference.36  
Such difficulties were also noted by the President of China's Supreme People's Court, who reported in March 2004 to the NPC that, despite recent achievements by the Supreme People's Court, "the difficulty of executing civil and commercial judgments has become a ‘chronic ailment’".
37  However, 
the authorities point out that, while there is room for further improvement, particularly in the 
enforcement of court decisions to which the Chinese  Government and judicial authorities attach great 
importance, this is not a serious systemic problem.   
26. Under its WTO Protocol of Accession, China committed to establishing a judicial review 
process for administrative actions related to the implementation of laws, regulations, judicial decisions, etc. in trade in goods and services, a nd for intellectual property rights.  These review 
procedures must include opportunities for appeal.  A ccording to the authorities,  China's current laws 
and regulations have met the re quirements of this commitment.
38  The Supreme People's Court 
abolished around 20 legal interpretati ons that were not consistent with the WTO Agreement.  In an 
effort to further clarify the Court's jurisdiction over international trade-related "administrative 
litigations", in 2002, the Supreme People's Court i ssued the "Rules of the Supreme People's Court on 
Certain Issues on Handling of International Trad e-related Administrative Cases", "Rules of the 
Supreme People's Court on the Legal Application of  Anti-Subsidy Administrative Cases", and "Rules 
of the Supreme People's Court on the Legal Application of Anti-Dumping Administrative Cases".   
(iv) Transparency 
27. Since 1987, the Chinese Government has drawn up ov er 280 laws and regulations in an effort 
to improve transparency (including budgetar y transparency, as discussed  in Chapter I(3)(ii)).39  A 
                                                      
35 Judges in the local courts at various levels are apparently appointed or removed by the local people's 
congress or its standing committee, thus creating a str ong incentive to protect local  interests and for greater 
political involvement in judicial deci sion-making (Thomas, 2002).  However,  the authorities main tain that this 
system does not necessarily lead to local protectionism or compromise the fairness of local judicial decisions. 
36 Ge Xingjun, head of the Judgem ent Enforcement Division of the Supreme People's Court, explained 
that, the main factor leading to the enforcement difficulties in China was local protectionism (see the China 
Courts Net and People's Net online discussion, 11 March 2004.  Available at:  http ://www2.qglt.com.cn/wsrmlt/ 
jbft/2004/03/031102.html [8 June 2005]).  Other difficulties include:  abuse of power by government officials, 
frequent policy changes, and lack of laws. 
37 OECD (2005a), p. 41;  and Xiao Y. (2004). 
38 The authorities emphasized that China also issued "Anti-dumping Regulations" and "Regulations on 
Countervailing Measures", and appeals concerning thes e regulations can be made to people's courts;  in 
addition, according to the revised "Trade Law" and "Paten t Law", judicial review s may be required.  
39 China ranks among the most opaque countries (44th among 48 countries) based on the 2004 Opacity 
Index, which measures the degree to  which countries lack clear, accurate , easily discernible, and widely 
accepted practices governing the relationships among governments, businesses,  and investors (online WT/TPR/S/161 Trade Policy Review 
Page 38 
 
 
notable example is the "Administrative Permission Law", effective 1 July 2004.40  This law defines 
strictly the legal basis, the agencies, and the procedures for granting "adm inistrative permission", 
aimed at ensuring a more uniform application of such measures and thereby improving their transparency.
41  In particular, Article 5 stipulates that provisions on administrative permission must be 
promulgated before they can be used to grant such permission;  all administrative permission 
outcomes, except for those related to state or bu siness secrets or individual privacy, must be 
published.  Articles 40 and 61 give the public the ri ght to consult administrative permission decisions 
by administrative departments, and the supervision records of the individuals who have been granted 
permission.  Article 30 stipulates that administrative departments shall make public at their premises 
all matters related to the applica tion and its permission, including the basis for granting a permission, 
the requirements, the quantity, procedure, time limit,  and the catalogue of related materials regarding 
the relevant permission, together with application forms.  At the same time, a nationwide review was 
conducted to "sort out" existing "adm inistrative permissions" in order to standardize the behaviour of 
administrative departments and further increase tran sparency.  In addition, the Legislation Law, 
effective 1 July 2000, specifies that, when drafting le gislation, apart from laws enacted or amended by 
the NPC, opinions from organizations and th e public must be solicited, through, inter alia , seminars, 
appraisal meetings, and hearings.  Draft legislation is also made public for comment when necessary, in official gazettes or newspapers.
42  In addition, ministries and local governments have begun to 
establish their own information publication systems.43   
28. Since China entered the WTO, public particip ation in the legislative process, and its 
transparency, appear to have been improved.  In ge neral, laws, regulations, and rules take effect some 
time after being promulgated, and all foreign trad e-related laws, regulations, and rules are published 
in the China Foreign Trade and Economic Cooperation Gazette .  Enquiry points and enquiry websites 
are set up under the MOFCOM and the AQSIQ, and Ch ina makes regular notifications to the WTO.  
In addition, English translations of laws are compiled and published by the Legislative Affairs 
Commission of the Standing Committee of the NPC,  while trade-related la ws and regulations are 
compiled and published by the Legislative Affairs Office of the State Council. 
                                                                                                                                                                     
information.  Available at:  http://www.opacityindex.co m/opacity_index.pdf).  This translates into a risk 
premium of roughly 6.5%.  Opacity may to some degree reflect, among other things, language factors.  Further, 
according to a 2005 Corruption Percep tions Index, which measures per ceptions of corruption among public 
officials and politicians in 159 countries, China ranked 78th, with a score of 3.2 out of 10 (online information.  
Available at:  www.transparency.org).  In 2001, it ranked 57th (out of 91 countries) with a score of 3.5 out of 10.  
The authorities disagree with this ranking.  However, they agree that there remains much to be done to further 
improve transparency, but given what China has achieved in the last two decades, they believe that this will happen rapidly.  
40 Also known as the Administrativ e Licensing Law, it was enacted in accordance with the Constitution 
to standardize the procedure for, an d the granting of, administrative permission, to ensure and supervise the 
effective exercise of administration by administrative departments.  Administrative permission means approval 
given to citizens, legal persons, and other organizati ons for engaging in special activities by administrative 
departments, on the basis of, and upon examination according to law of, their applications. 
41 In order to implement "administrative permission" in a unified manner across all sectors and across 
different administrative jurisdictions and regions, the La w stipulates that only the National People’s Congress 
and its Standing Committee, the State Council, the pr ovincial people's congresses and their standing 
committees, and provincial level governments, have the right to grant "administrative permission".  The Law 
also attempts to clarify the procedure of granting administrative permission, including by specifying time limits within which all government departments must make decisions concerning "administrative permission". 
42 Other regulations in this regard include the "Regulations on Procedures for the Formulation of 
Administrative Regulations" and "Regulations on Procedures for the Formulation of Rules". 
43 A set of rules on publicizing government information has been issued;  these apparently include the 
State Council's notice in December 2000 on "Promoting Township Governments to publicize Government 
Information", the March 2004 "Guidelines on Promoting the Administrative Rule by Law" and the March 2005 "Opinions on Further Promotion of Government Information Publication". China WT/TPR/S/161 
 Page 39 
 
 
29. Efforts to increase transparency  and counter corruption also include measures taken by the 
procuratorates and the National Audit Office.  For example, in 2004, investigations carried out by the procuratorates found more than 2,900 officials across the country, at or above county level, guilty of corruption.
44  Recently, audits by the National Audit Office have become part of the information used 
by procuratorates to carry out their investigations;  recent audits prepared for the NPC are available 
online.45  In December 2003, the Government signed the UN Convention Against Corruption. 
30. The Government has also been promoting the use of the Internet to enhance transparency.  By 
the end of 2004, more than 16,000 official webs ites had been launched of ministries, commissions, 
and other departments under the State Council as we ll as of local governments.  According to the 
authorities, central and local government legislati on and administrative measures are all available on 
the Internet.  Public comment on draft legislati on is also often solicited through the Internet. 
(v) Centre–subnational relations and local barriers to internal trade 
31. China's gradual move away from a centrally pl anned economy has led to a "decentralization" 
of certain powers towards local governments.  One major example of such decentralization is the 
reform of the tax and revenue-sharing system.  Before 1980, most of China's fiscal revenue was 
collected by local governments, re mitted to the Central Government , and then partially transferred 
back to local governments.  Since 1980, revenue sh aring between the Centre and provinces has been 
implemented gradually as a result of tax reform and d ecentralization (Chapter III(4)(ii)).  In addition, 
since the early 1990s, efforts have been made to improve coordination between the Centre and 
provinces.  For example, before 1994, most taxes were collected by local governments.  In some 
cases, this may have resulted in the use of taxes to  regulate internal trade.  After 1994, the Central 
Government set up national tax services (NTSs) in a ll provinces to collect central and shared taxes, 
with the State Administration of Taxation as supervisor.46  In general, "coordination between central 
and local governments is improving, but remains weak";  for instance, sometimes the Central 
Government designs policies that have implicati ons at the local level without consulting local 
governments.47 
32. The Central Government has been taking steps to  reduce barriers to internal trade that may 
have resulted from provincial protectionism such as, inter alia :  specific fees levied on non-local 
products and services entering the local market;  and technical measures, and inspection and 
certification requirements that obstruct non-local pr oducts' entry into the local market (Box II.2).  
Measures adopted include, for example, Article 7 of  the "Law Countering Unfair Competition", which 
prohibits abuse of power by local governments by restricting entry into local markets of goods from 
other regions, or local goods flowing to other regions' markets.  The authorities also point out that reforms to the tax and tax-sharing systems and transfers from the Center to provinces with slower economic growth have greatly reduced the need for local protectionism.  Other measures include:  the 
                                                     
 
44 China News Service online information.  Available at:  http://www.chinanews.com.cn/news/ 
2005/2005-02-28/26/544643.shtml [8 June 2005]. 
45 The 2003 Annual Audit Report , released on 23 June 2004, identified budget management problems 
related to the previous State Planning Commission, the State Forestry Administration, the General 
Administration of Sport, and others (Xinhua News  Agency online informat ion.  Available at:  
http://news.xinhuanet.com/zhengfu/2004-06/24/content_1543949.htm [8 June 2005]).  The 2004 Annual Audit 
Report , which is also available online, identified problems related to budget management in major ministries, 
for example, the Central Bank, and the NDRC. 
46 The tax assignment system, which re-designated the sources of revenue for the central and local 
governments, as well as those to be shared, increased the Central Government's share of total tax revenue from 
22% in 1993 to 56% in 1994 (Ma and Norregaard, 1998).  
47 OECD (2005c). WT/TPR/S/161 Trade Policy Review 
Page 40 
 
 
"Provisions on Prohibiting the Imposition of Regi onal Blockage on Market  Economic Activities", 
issued by the State Council on 21 April 2001;  and a "Notice on Cleaning up Local Protectionism in Market Economy Activities", issued by the Ministries of Commerce, Supervision, Finance, Communications, the SCLAO, the State Administration of Taxation, and the General Administration 
of Quality Supervision, Inspection and Quarantin e (AQSIQ), on 18 June 20 04.  The Notice required 
local governments above county level to review  all documents related to local protectionism in 
economic activities by the end of January 2005.  Un der Article 15 of the "Administrative Permission 
Law", "administrative permission" must not restrict  individuals or enterpri ses of other regions from 
engaging in production and business operations or providing services in local areas, nor restrict the 
commodities of other regions from entering the local ma rkets.  As a result of these efforts, it appears 
that barriers to inter-provincial trade have dec lined, although they remain significant for some 
products (Box II.2). 
(3) F
ORMULATION , ADMINISTRATION , AND IMPLEMENTATION OF TRADE POLICY  
(i) Main trade laws 
33. As a consequence of accession to the WTO in  December 2001, China has enacted new trade-
related laws and regulations or amended existing ones, to enable it to meet its WTO commitments 
(Table AII.2).  The main law covering internationa l trade is the Foreign Trade Law, most recently 
revised in 2004.48  The Customs Law, which governs custom s and related matters, was amended in 
July 2000.  Other trade-related legislation includ es:  the Regulations on Import and Export Tariff, 
which contain the tariff schedules, as well as laws and regulations relating to standards, SPS, anti-
dumping, countervailing and safeguard measures, and intellectual property rights (Table AII.2).  In 
addition, the "Administrative Permission Law" ente red into force on 1 July 2004, with a view to 
improving transparency (section (2)(iv) above).  The Law also provides an overall legal and 
administrative framework to implem ent China's WTO accession commitments. 
(ii) Agencies involved in trade policy implementation  
34. Restructuring of ministries has taken place seve ral times in China (Annex II.1).  The Ministry 
of Commerce (MOFCOM) has main responsibility for policy coordination and implementation in 
respect of all trade-related issues.49  It is responsible for, inter alia :  formulating laws , regulations, and 
policies related to domestic and international tr ade and foreign investment;  harmonizing domestic 
legislation on trade and economic affairs and br inging China's economic and trade laws into 
conformity with multilateral and bilateral agreements;  counterin g monopoly activities and ensuring 
orderly market development;  developing and admi nistering import and export regulations, including 
the allocation of import and export quotas and licences;  and other WTO related affairs.50  MOFCOM 
                                                      
48 The amendments, which came into force on 1 July 2004, include:  extending the scope of foreign 
trade dealers to cover individuals lawfully engaged in foreign trade activities;  replacing the examination and 
approval procedures by a registration requirement for the right to trade in goods and technology;  adding provisions allowing the state to exer cise state trading administration over the import and export of some goods;  
adding provisions on automatic import and export licensing administration on the basis of the need for state 
monitoring;  specifying regulations on the protection of trade-related aspects of IPRs;  revising provisions 
related to legal liabilities, to increase punishment for illegal behaviour, including IPR infringement, in 
international trade (see MOFCOM online news 13 Apr il 2004:  http://english.mofcom.gov.cn/article/200404/ 
20040400208300_1.xml [9 March 2005]). 
49 In 2003, the State Development and Planning Commission (SDPC) was reorganized into the 
National Development and Reform Commission (NDRC);  the State Economic and Trade Commission (SETC) and the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) were abolished, and the Ministry of 
Commerce (MOFCOM) was established.  
50 Ministry of Commerce online info rmation.  Available at: http://e nglish.mofcom.gov.cn/mission.html, 
[4 January 2006]. China WT/TPR/S/161 
 Page 41 
 
 
is also in charge of trade promotion and fac ilitation, through its Trade Development Bureau, the 
Investment Promotion Agency, the International Ce ntre for Economic and Technical Exchanges, and 
the China Foreign Trade Centre.   
Box II.2:  Local barriers to inter-provincial trade 
For a number of reasons, local protectionism and barriers to internal trade have been a key feature of the Chinese 
economy.  Some of the historical reasons given for inter-provincial trade barriers are the process of industrialization in pre-reform China and the rent from these industries (under the centrally planned economy, all profits were remitted to the government), the duplicati on of industries across provinces, and the collection of 
taxes and other charges imposed by local governments.  The practice of keeping the prices of inputs low through 
government-set prices also ensured rapid industrialization and a duplication of industries within provinces regardless of comparative advantage.  
When economic reform began in the late 1970s, the Central Government sought to place budgetary constraints 
on the provinces and the SOEs, which had become a major drain on public finances.  This was accompanied by attempts to increase fiscal decentralization.  However, recent research suggests that these efforts resulted in further distortions in the economy, including a possible increase in inter-provincial protectionism.  Fiscal 
decentralization gave local governments considerable powers to raise revenue through certain taxes and charges.  
Provinces also gained considerable power to decide on how to spend the revenue and on fiscal arrangements with sub-provincial governments.  While budgetary restrictions and decentralization pushed provincial governments to improve efficiency, it also provided them with an incentive to protect their main source of income, namely local industries and especially local SOEs.  Another tool used by provincial governments is administrative measures, such as licensing, local taxes and charges, loca l standards, investment approval, interest rates charged 
by local banks, etc.  For example, in a heavily regulat ed industry, such as tobacco, there appear to be 
considerable barriers to trade, including by the provi nces of Henan and Anhui, which prohibit imports of 
cigarettes from Guizhou, while others limit imports of cigarettes from Guizhou to 75% of total imports from outside the province.  These measures also provide considerable discretion for local authorities to favour local 
companies or known investors.  
Central Government policies during the reform period may also have contributed to such inter-provincial trade 
restrictions.  For example, the development of the SEZs, and special regimes for investment in these and other zones, led to efforts by other provinces to prevent the lo ss of export earnings as investment moved into the SEZs 
and free-trade zones.  Thus, local and provincial governmen ts find their financial and political interests closely 
linked to a particular industrial structure.  For example,  in areas producing raw material, export barriers are used 
to ensure resources for local processors, while import re strictions are used in areas where local industries 
compete directly with imports from more efficient provinces.  
While there is anecdotal evidence on such barriers to in ter-provincial trade, data constraints have prevented a 
more comprehensive analysis.  Recent research has used several methods to determine whether the barriers are growing or declining as a result of China's gradual economic reforms.  Young (2000), by using data on interregional dispersion of output and prices, suggests that during the reform period, there appears to have been a rise in inter-regional trade barriers and therefore that  while the Chinese economy has gradually opened up 
internationally, internal markets may have become more fragmented ("China has moved from having one central plan to having many, mutually competitive, central plan s").  Bai et al (2003) find evidence of lower regional 
specialization (based on comparative advantage or other f actors such as economies of scale) for industries with 
higher profit-plus tax margins and for industries with larger  shares of state ownership, providing an incentive for 
local protection of these industries.  However, the overall trend over time of regional specialization of industrial 
production has increased.  Gong et al. (2003), through a surv ey of enterprises across a number of industries and 
12 provinces, which they believe are fairly representative of the Chinese economy, find significant differences in the degree of regional protectionism across provinces, with  the poorer provinces experiencing the highest degree 
of protectionism.  However, they also find that the degree of protectionism does appear to be declining gradually.  
They find that the degree of protection is highest for tobacco and beverages (including alcohol), which are also 
two of the most protected industries in the country as a whole.  
Source: Young, Alwyn (2000), "The Razor's Edge:  Distortions and Incremental Reform in the People's Republic 
of China", Quarterly Journal of Economics , 115(4), 1091-1135;  Bai, Chong-En, Yingjuan Du, Zhigang 
Tao and Sarah Y. Tong (2003), "Local Protectionism and Regional Specialization:  Evidence from China's Industries", Journal of International Economics,  63, 397-417;  and Gong, Binglin, Lixin Colin 
Xu and Kong-Yam Tan (2003), "Regional Protectionism in China:  Direct Micro Evidence", mimeo, World Bank.  WT/TPR/S/161 Trade Policy Review 
Page 42 
 
 
35. Other key agencies that have an influence on trade policy include the National Development 
and Reform Commission (NDRC), which is in ch arge of overall national economic and social 
development policy, the Ministry of Finance, and th e General Administration of Customs (Table II.1).   
Table II.1 
Main department/agency involved in trade policy implementation 
Department/Agency Main responsibility 
Ministry of Commerce Policy coordination and im plementation for all trade-related issues   
Policy Research Department Proposing trade policy 
Department of Treaty and Law Fo rmulating laws and regulations re lated to trade, international 
economic cooperation and foreign inve stment;  facilitating bilateral 
and regional trade negotiations and IPR related issues; and dispute 
settlement negotiations 
Department of Foreign Investment Ad ministration Guiding foreign investme nt, formulating relevant laws and 
regulations, and administeri ng foreign-invested projects 
Department of Market Operation Regulation 
Department of Market System Development 
Department of Commercial Reform and Development Countering monopoly activities and handling provincial 
protectionism 
Bureau of Fair Trade for Import and Export 
Bureau of Industry Injury Investigation  Formulating anti-dumping, c ountervailing, and safeguard 
regulations, and taking relevant measures 
Bureau of Quota and Licence Affairs Ad ministering import and export quotas 
Investment Promotion Agency Promoting foreign investment 
Trade Development Bureau Pr omoting international trade 
Executive Bureau of International Economic Cooperation Organizing and administeri ng foreign-aid programmes 
National Development and Reform Co mmission Guiding overall economic refo rms;  formulating policies for 
economic and social development,  such as industry policy and 
energy policy;  and restructuring the investment regime 
Ministry of Finance Fiscal policy, tari ff, government procurement, tax policy  
People's Bank of China (the Central Bank) Overall moneta ry and exchange rate polic ies;  regulating inter-bank 
lending market and inter-bank bond market;  managing the State 
treasury;  and maintaining financ ial market and banking system 
stability 
State Administration of Foreign Exchange (SAFE) Subordi nate execution body of the Central Bank on exchange rate 
policies 
Ministry of Agriculture Agriculture 
Ministry of Information Industries Telecommunications and IT products 
Ministry of Communications Highw ay and waterway transportation 
Ministry of Land and Resources Natural resources   
State-owned Assets Supervision and Administration Commission SOE reform 
General Administration of Customs Enforcing customs legislation, levying and collecting customs duties 
and other taxes, and preparing a nd submitting customs statistical 
data 
State Administration of Taxation Taxation policies   
National Bureau of Statistics Macr oeconomic development statistics  
State Administration for Industry and Commerce Facilitating fa ir trade, protecting consum er benefits, registering 
enterprises, including foreign-invested enterprises, supervising trade 
marks, and market regulation, etc. 
General Administration of Quality  Supervision, Inspection and 
Quarantine (AQSIQ) 
China Standardization Administration (SAC) 
China National Certification a nd Accreditation Administration  Standardization, quality certifica tion, testing, surveillance, and 
metrology 
State Intellectual Property Office (SOIPP)a Proposing guidance, plans, and policy recommendations on IPR 
protection work;  supervising the disposal of major IPR 
infringement cases;  communicati ng and coordinating with foreign 
investment enterprises;  en forcing IPR laws, and conducting 
international exchanges and cooperation 
Table II.1 (cont'd) 
 China WT/TPR/S/161 
 Page 43 
 
 
Department/Agency Main responsibility 
General Administration of Civil Aviation Civil air transportation 
State Food and Drug Administration Supervising the safety management of food, health food, and 
cosmetics;  and regulating drugs 
National Tourism Administration Tourism 
Legislation Affairs Office of the Stat e Council Drafting laws and regulations 
China's Banking Regulatory Commissi on Regulating the banking sector 
China's Insurance Regulatory Commission Regulating the insurance sector  
China's Securities Regulatory Commissi on Regulating the securities market  
State Electricity Regulation Commission Regulating electricity market 
a China also established a National Working Group on Intellectua l Property Rights Protection, le d by Vice Premier Wu Yi and 
composed of 13 members who are in charge of 12 IPR-related agen cies.  In addition to the SOIPP, other agencies involved in the 
Working Group are the Ministry of Public Security, the Ministry of Information Industry, the Ministry of Commerce, the General 
Administration of Customs, the State Administration for I ndustry and Commerce, the General Administration of Quality 
Supervision, Inspection and Quarantine, the National Copyright Administration, the State Admini stration of Food and Drug, the 
Legislative Affairs Office of State Council,  the Supreme People's Court and the Supreme People's Procuratorate.  It's executive  
body is the SOIPP. 
Source:  WTO Secretariat, based on Chines e Government online information.  
36. Several industry associations have also been set  up to collect and share information, identify 
and deal with industry problems, discuss trade polic y issues that affect their industries, and represent 
their sectors in relation to Government.51 
(4) TRADE POLICY OBJECTIVES  
37. According to the Foreign Trade Law, China's ma in trade policy objectives are to accelerate its 
opening to the outside world, develop foreign trade, and promote sound economic development.52  
China hopes that WTO membership will foster its economic growth  and enhance its economic and 
trade relations with other Members.53 The Government intends to reduce tariffs to the level agreed to 
when China joined the WTO, eliminate most non-ta riff measures, and further open the services sector 
to foreign competition.  To meet these objectives, th e Government intends to:  increase manufacturing 
value added and ensure continued growth in export s and, in this regard, "effectually" import energy, 
key raw materials, technologies, and equipment, an d reform customs and port clearance procedures;  
utilize foreign capital to improve industrial structure and technological capabilities, including by 
encouraging FDI in new and high-technology industri es, modern services, agriculture, and the central 
and western regions;  and to enc ourage qualified domestic companies to invest abroad including by 
giving them more credit, insurance, and foreign exchange support and to strengthen "guidance and 
coordination for enterprises investing abroad".54 
38. Between 1979 and 2001, China gradually refo rmed its economic system, and opened its 
borders, with the objective of establishing and impr oving the "socialist market economy".  During that 
                                                      
51 These include:  the Chin a Coal Industry Association;  China Iron and Steel Association;  China 
National Textiles and Clothing Association;  China Machine Industry Federation;  China Petroleum and 
Chemical Industry Association;  China Light Industry Federation;  China Building Material Industry 
Association;  China Nonferrous Metals Society. 
52 Article 1 of the Foreign Trade Law states:  "(t)his Law is formulated with a view to expanding the 
opening to the outside world, developing foreign trade, maintaining foreign trade order, protecting the legitimate 
rights and interests of foreign trade dealers and promoting the sound development of the socialist market economy". 
53 WTO document WT/MIN(01)/3, 11 November 2001. 
54 Extract from the Government report to the National People's Congress, presented by Premier Wen 
Jiaobao in March 2005 (information provided by the authorities). WT/TPR/S/161 Trade Policy Review 
Page 44 
 
 
period, China adopted a combined import-substitution and export-orientation strategy with a view to 
encouraging exports by those labour-intensive industr ies in which it had a comparative advantage, and 
promoting the development of those capital- and t echnology-intensive industries in which it did not.55  
39. As a consequence of accession talks, and sin ce joining the WTO in 2001, China has made 
efforts to improve market access, inter alia , by reducing barriers to trade in goods and services.  With 
regard to its trade policy objectives, China is curr ently aiming to increase its exports of value added 
products.  To this end , China continues to use trade and othe r measures, to promote local production 
in certain sectors, either for export, or as inputs fo r producers in China.  The measures include:  export 
taxes, reduced VAT rebate rates, and export licensing to deter exports of some products56;  and other 
measures such as export credits and export credit insu rance, to promote exports of certain processed 
products.  It also continues to encourage the use of local inputs, including by foreign investors.57   
40. While participation in the multilateral trad ing system (including in the ongoing DDA 
negotiations) forms a major part of China's trade polic y, it has also stepped up efforts to participate in 
bilateral and regional trade nego tiations (section (5)(ii) below). 
(5) TRADE AGREEMENTS AND ARRANGEMENTS  
(i) WTO 
41. China acceded to the WTO on 11 December 2001.58  During the period leading up to 
accession and as a consequence of joining the WTO, China has sought to incorporate WTO rules into 
its legal, administrative, and regulatory systems.  Under China's Protocol of Accession, the WTO 
Agreement and the Protocol apply to the entire cu stoms territory of China, including border trade 
regions, minority autonomous areas, Special Ec onomic Zones, open coastal cities, economic and 
technical development zones, and other areas wh ere preferential regimes for tariffs, taxes, and 
regulations are established.  China provides at least MFN treatment for all WTO Members that grant it MFN treatment on a reciprocal basis
59;  in addition, it does not grant MFN treatment to the overseas 
territories of some EU member states (Chapter III(2)(ii)).  
42. China is not a signatory to the plurilateral Agr eement on Government Proc urement.  It is an 
observer to the Agreement on Trade in Civil Aircraft.  
                                                      
55 Long (2004).  According to this article join ing the WTO has meant that "China will not only 
thoroughly eliminate the infl uence exerted by the planned economy towards its economic system but also give 
up "import substitution" and "export orientation" strategi es, which do not conform to the regulations of the 
WTO". 
56 The authorities point out that export taxes and export restrictions are aimed at conservation of 
exhaustible resources. 
57 See for example, statement by Minister Bo Xilai "Exports mix to be adjusted".  Available at:  
http://boxilai2.mof com.gov.cn/column/printshtml?/speech/2005 03/200503000206 54 [13 October 2005]. 
58 China was one of the 23 original signatories of the GATT in 1948.  After China's revolution in 1949, 
the Government in Taiwan announced that China would leave the GATT system.  In 1986, China notified the 
GATT of its wish to resume its status as a GATT contr acting party.  WTO online information.  Available at:  
http://www.wto.org/english/news_e/pres01_e/pr243_e.htm [14 June 2005]. 
59 Article 6 of the Foreign Trade Law stipulates, China shall, "in accordance with the international 
treaties and agreements to which it is a contracting part y or a participating party grant the other contracting 
parties or participating parties, or in the principle of reciprocity grant the other party most-favoured-nation 
treatment or national treatment in the field of foreign tr ade".  China consequently gr ants MFN treatment to all 
WTO Members except El Salvador, which does not grant China MFN treatment and to some territories of EU member states (WTO document WT/L/249, 7 November 2001).  China WT/TPR/S/161 
 Page 45 
 
 
43. Article 18 of China's WTO Accession Protocol sets up a Transitional Review Mechanism 
(TRM) for reviewing China's compliance with its WTO commitments.60  The TRM takes place 
annually for eight years following accession, with a final review in year ten or at an earlier date decided by the General Council.  The TRM is ther efore quite distinct from the Trade Policy Review 
(TPR) Mechanism, which is aimed at "achieving gr eater transparency in, and understanding of, the 
trade policies and practices of Members".   
44. Like all Members of the WTO, in the interest of transparency, China is required to make 
regular notifications.  The  status of China's key notifications to the WTO is shown in Table AII.3. 
45. China participates actively in international trade negotiations, including those regarding 
dispute settlement.
61  In the WTO, China has been involve d in one case as a respondent and one case 
as a complainant (Table AII.4);  it has been a third party in 47 cases (as at 7 October 2005). 
(ii) Regional agreements 
46. China believes that economic globalization and regional economic integration are inevitable 
trends, and hopes to strengthen its economic ties wi th other countries and economies in this process 
"proactively".  According to the authorities, a re gional economic integration process consistent with 
WTO rules will not only promote regional but also wo rldwide liberalization by achieving further tariff 
reduction and broader market access for services and investment.  China considers the regional trade 
integration process as complementar y to the multilateral trading system.  It would appear that most of 
the partners with which China has negotiated or is negotiating bilateral and regional agreements 
recognize it as a market economy. 
(a) Asia-Pacific Econom ic Cooperation (APEC) 
47. The Asia-Pacific region is the most importa nt region for China regarding economic and 
trading activities.  In 2004, 67.8% of China's merchandise imports were from, and 70.2% of its merchandise exports were destined for APEC members
62;  69.8% of China's FDI came from other 
APEC members.63  China became a member of the APEC  forum in November 1991 and supports its 
policy of "open regionalism".  In October 2001, Chin a hosted an APEC Economic Leaders' meeting in 
Shanghai.  Like other members, China submits an annual Individual Action Plan (IAP) that provides a 
roadmap of its intended actions in various policy areas  with a view to realizing APEC's liberalization 
goals.  
                                                      
60 WTO document WT/L/432, 23 November 2003. 
61 China signed the New York Convention on the Recognition and Enforcement of Foreign Arbitral 
Awards, in 1987.  It is also a member of the Interna tional Centre for the Settlement of Investment Disputes 
(ICSID).  The China International Economic and Trade Arbitration Commission (CIETAC) was established in 
1956 under the China Council for the Promotion of International Trade (CCPIT).  The Arbitration Commission 
is responsible for settling disputes related to, inter alia,  international trade;  disputes between foreign invested 
enterprises (FIEs) in China, and between FIEs and domestic enterprises.  The Commission's rules have been 
revised several times, most recently in 2000.  The Ch ina Maritime Arbitration Co mmission (CMAC) also deals 
with trade disputes.  In addition, a conciliation procedure is available for trade-disputes under the CCPIT 
Conciliation Centre, set up in Beijing in 1987, and expanded to form a national network of over 30 conciliation 
centres.  The CCPIT Conciliation Centre has signed coopera tion agreements with similar centres abroad, such as 
in Hamburg and New York.  It joined the Internati onal Federation of Commercial Arbitration Institutions 
(IFCAI) in 1995 and the London Court of International Arbitration in 1997.  
62 UNSD, Comtrade database (SITC Rev.3). 
63 National Bureau of Statistics (2005b). WT/TPR/S/161 Trade Policy Review 
Page 46 
 
 
48. Under APEC's peer review process, China was reviewed most recently in May 2004.  The 
review recognized that China's commitment to economic reform was based on WTO and voluntary APEC rules and regulations, but it also stated that  "it will take time to implement, administer and 
reinforce the administrative, judi cial and institutional changes."
64  In 2001, China joined the APEC 
Business Travel Card (ABTC) Scheme, and starte d to issue the ABTC card from November 2003.   
(b) ASEM 
49. The first Asia-Europe Meeting (ASEM ) was held in Bangkok in March 199665, with China, 
Japan, Korea, and seven ASEAN countries (Brunei, Indonesia, Malaysia, the Philippines, Singapore, 
Thailand, and Viet Nam), 15 EC member states, an d the European Commission.  The objective is to 
create a new Asia and Europe partnership and stre ngthen dialogue in political, economic, cultural, and 
other issues on an equal basis and in a spirit of c ooperation between the two continents.  ASEM also 
established a Trade Facilitation Action Plan (TFAP) with a view to reducing non-tariff barriers, 
increasing transparency, and promoting trade opportunities between Asia and Europe.  China participated actively in the process.
66  
(c) China–ASEAN  
ASEAN+3 
50. China, along with Japan and the Republic of Korea, holds regular meetings with the 
Association of South-East Asian Nations (ASEAN) under the ASEAN+3 framework for cooperation.   
ASEAN–China free-trade agreement (ACFTA) 
51. A Framework Agreement on Comprehensive Economic Cooperation between China and 
ASEAN was signed on 4 November 2002, and entered into force on 1 July 2003.67  The objectives of 
the agreement include:  strengthening and enhanci ng economic, trade, and investment cooperation;   
progressively liberalizing and promoting trade in goods  and services;  creating a transparent, liberal, 
and "facilitative" investment regime;  exploring new areas and developing appropriate measures for 
closer economic cooperation;  a nd facilitating more effective econom ic integration of the newer 
ASEAN member states and bridging the development gap among the parties to the agreement.  
52. Under the agreement, both parties agreed to negotiate the establishmen t of an ASEAN–China 
Free Trade Area (ACFTA) within ten years, including by:  progressively eliminating tariff and non-tariff barriers to substantially all trade in goods;  progressively liberalizing trade in services;  
establishing an open and competitive investment regi me to facilitate and promote investment among 
partners to the ACFTA;  simplifying customs procedures and developing mutual recognition 
arrangements.  With a view to accelerating the establishment of the ACFTA, an "early harvest 
programme" specified that tariffs on all products in HS Chapters 1- 8 and a limited number of products 
                                                     
 
64 APEC (2004b). 
65 The second ASEM Summit was held in London in April 1998, the third in Seoul in October 2000, 
the fourth in Copenhagen in September 2002, and the fifth in Hanoi in October 2004. 
66 Beijing hosted the third Foreign Ministers' Meeting in May 2001;  Dalian hosted the fifth Economic 
Ministers' meeting in July 2003.  In addition, Beijing hosted:  the first Environment Ministers' Meeting in 
January 2002;  a Ministerial Confer ence on Science and Technology in Oc tober 1999;  and the first Culture 
Ministers Meeting in December 2003.  China, togeth er with Germany and Spain, initiated a Ministerial 
Conference on Cooperation for the Management of Migratory Flows between Europe and Asia (Europa online 
information.  Available at:  http://europa.eu.int/comm/external_relations/asem/min_other_meeting/index_min. 
htm [10 May 2005]). 
67 WTO documents WT/COMTD/N/20, 21 December 2004, and WT/COMTD/51, 21 December 2004. China WT/TPR/S/161 
 Page 47 
 
 
outside these chapters would be eliminated over a period of three years beginning 1 January 2004;  a 
longer time-frame (i.e. no later than January 2010)  was accorded to Cambodia, Laos, Myanmar and 
Viet Nam.  The ACFTA involving the original ASEAN 6 (Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand) is to be estab lished by 2010;  flexibility up to 2015 has been 
provided for Cambodia, Laos, Myanmar, and Viet Nam.
68 
53. ASEAN and China agreed to strengthen ec onomic cooperation by building upon existing 
activities and developing new programmes in five pr iority sectors:  agriculture;  human resources 
development;  information and communication t echnology;  investment;  and Mekong River basin 
development.  
54. On 1 January 2005, an Agreement on Trade in Goods and an Agreement on the Dispute 
Settlement Mechanism of the Framework Agre ement on Comprehensiv e Economic Cooperation 
between ASEAN and China entered into force.69  The Agreement on Trade in Goods stipulates that 
tariff reductions and eliminations shall apply to all tariff lines not covered by the Early Harvest 
Programme under Article 6 of the Framework Agreement;  these tariff lines are grouped under 
two categories, the normal track and the sensitive track.  The agreement explicitly adopts GATT 1994 
provisions on national treatment in respect of intern al taxation and regulation, transparency, balance 
of payment safeguard measures;  and commits parties to abide by th e provisions of WTO disciplines 
on, inter alia , non-tariff measures, technical barriers to trade, sanitary and phytosanitary measures, 
subsidies and countervailing measur es, anti-dumping measures, and inte llectual property rights.  Each 
of the ten ASEAN member states recognizes China as a market economy. 
(d) Bangkok Agreement  
55. The Bangkok Agreement entered into force in  1976 as a preferential trading arrangement 
between developing countries in the Asia-Pacif ic region.  China acceded to the agreement on 
12 April 2001, and started implementing concessions on 1 January 2002.70  Under the agreement, in 
2005, 749 tariff lines carry rates that are lower than the MFN rates71;  tariffs are reduced on some 
products in HS Sections 1- 2, 4-9, 11-18, and 20, with the largest  reductions involvi ng textile products, 
hides and skins, live animals and products, and precious  stones.  As a result, the overall average tariff 
applied to parties to the Bangkok Agreement is 9.5% compared with an MFN rate of 9.7%. 
(iii) Bilateral agreements 
56. China is also undertaking negotiations on b ilateral free-trade agreements.  Its current 
agreements are very diverse, ranging from the Cl oser Economic Partnershi p Arrangements (CEPAs), 
which are concrete, to the agreements with Australia  and New Zealand that are mainly statements of 
intent and are usually short.72   
                                                      
68 WTO document WT/COMTD/N/20, 21 December 2004, p. 2.   
69  ASEAN Secretariat online information.  Av ailable at:  http://www.aseansec.org/16635.htm 
[20 October 2005]. 
70 The other members are Bangladesh, India, the La o People's Democratic Republic, the Republic of 
Korea, and Sri Lanka (WTO document WT/COMTD/N19, 29 July 2004). 
71 These MFN rates include interim duties.  However,  according to the authoritie s, in 2005, China has 
preferential rates on 917 tariff items originating in Bang ladesh, India, the Lao People's Democratic Republic, the 
Republic of Korea, and Sri Lanka.  These 917 lines include only MFN rates and Bangkok Agreement rates that 
are equal to MFN rates;  the use of interim, rather than only MFN rates and Bangkok  Agreement rates that are 
lower than MFN rates reduces the total number of lines receiving better than MFN treatment to 749. 
72 Antkiewicz and Whalley (2004). WT/TPR/S/161 Trade Policy Review 
Page 48 
 
 
(a) CEPAs:  China–Hong Kong, Ch ina;  China–Macao, China 
57. China signed Closer Economic Partnership A rrangements (CEPAs) with Hong Kong, China 
on 29 June 200373 and with Macao, China on 17 October 2003.74  Under both agreements, from 
1 January 2004, China began to implement a staged elimination of tariffs on imports originating in 
Hong Kong, China and Macao, China;  China will fu lly eliminate tariffs on imports originating in 
Hong Kong, China and Macao, China no later than 1 January 2006. 
58. Both CEPAs specify that:  neither party shall apply non-tariff measures that are inconsistent 
with WTO rules to goods imported from, and origina ting in, the partner's territory;  China will not 
apply tariff rate quotas on goods originating in Hong K ong, China or Macao, China;  neither party can 
apply anti-dumping measures or countervailing measur es on goods imported from,  and originating in, 
the partner's territory;  safeguard measures may be adopted, after giving written notice, to temporarily 
suspend concessions on imports of the concerned pro duct from the other party's territory.  Regarding 
trade in services, both partners must progressively reduce or eliminate existing restrictive measures on 
the partners' services and service suppliers.  Both parties agreed to promote trade and investment facilitation through greater transparency, standards conformity, and enhanced information exchange.  
Joint Steering Committees were established betw een China and Hong Kong, China, and between 
China and Macao, China, to supervise the implementa tion of the CEPAs, to resolve disputes that may 
arise, to interpret the provisions of and to dr aft additions or amendments to the CEPAs.  The 
Committees meet at least once a year, and may c onvene special meetings within 30 days, upon 
request by either party. 
59. Under both CEPAs, China opened 18 service sect ors to services providers from Hong Kong, 
China and Macao, China from 1 January 2004.
75  Market access restrictions were relaxed for 
additional services on 1 January 2005.76 
60. Service suppliers residing in Hong Kong, Ch ina or Macao, China may benefit from lower 
market access barriers, if they are either natural persons who are permanent residents in Hong Kong, 
China or Macao, China, or if they are juridical  persons (which are legal entities constituted or 
organized under relevant laws) and satisfy certain conditions.  The c onditions are that (i) the nature 
and scope of their business encompasses the nature and scope of business they intend to provide in 
China;  (ii) they have been incorporated or est ablished in Hong Kong, China or Macao, China, and 
                                                      
73 WTO document WT/REG/162/1, 20 January 2004.  A Supplementary Agreement to the CEPA 
between China and Hong Kong, China was signed on 27 October 2004, under which, the Mainland agreed to 
eliminate tariffs on additional products imported from Hong Kong, China from 1 January 2005.  From the same 
date, market access requirements fo r Hong Kong, China service suppliers would be further relaxed (see WTO 
document WT/REG/162/1/Add.1, 21 January 2005). 
74 WTO document WT/REG/163/1, 4 February 2004.  A Supplementary Agreement to the CEPA 
between China and Macao, China was signed on 29 October 2004, under which, the Mainland agreed to eliminate tariffs on additional products imported from Macao, China from 1 January 2005.  From the same date, 
market access requirements for Macao,  China service suppliers would be  further relaxed (see WTO document 
WT/REG/163/1/Add.1, 31 January 2005). 
75 Management consulting;  convention and exhibition;  advertising;  accounting;  real estate and 
construction;  medical and dental services;  audiovisual;  logistics;  freight forwarding agencies;  storage and warehousing;  transport;  tourism;  distribution;   legal;  banking;  securities;  insurance;  and 
telecommunications. 
76 Patent agencies;  trade mark agencies;  airpor t services;  cultural entertainment;  information 
technology;  job referral agencies;  job intermedia ry;  and professional and technician qualification 
examinations.  Information regarding further liberaliza tion under both CEPAs from 1 January 2005 is available 
online at:  http://www.tid.gov.hk/english/cepa/note. html, and http://www.economia.gov.mo/page/english/ 
cepa_e.htm [09 June 2005]. China WT/TPR/S/161 
 Page 49 
 
 
have engaged in substan tive business operations for some years (depending on the industry);  (iii) they 
are liable for a profit tax in Hong Kong, Chin a or a complementary tax in Macao, China77;  (iv) they 
own or rent premises in Hong Kong, China or Macao, China to engage in substantive operations;  and 
(v) at least half of their employees must be residents of Hong Kong, China or Macao, China.78 
(b) China–Chile FTA 
61. China and Chile signed an FTA on 18 November 2005, and Chile has recognized China as a 
market economy since November 2004.79  The FTA includes chapters on, inter alia , national 
treatment and market access for goods, rules of orig in, trade remedies, SPS, TBT, transparency, and 
dispute settlement.  After both countries complete  the required domestic legal procedures, tariff 
reductions will start to be implemen ted as of the second half of 2006.  Once the FTA enters into force, 
74% of Chile's tariffs are to be eliminated imme diately, while 63% of China's tariffs are to be 
eliminated within two years.  Most other tariffs are to be eliminated within five or ten years with 97% 
of both countries' tariffs to be eliminated by 1 January 2015.80 
62. In addition to tariff concessions on trade in goods, the FTA intends to  strengthen cooperation 
in:  economic matters, research, science and technol ogy, education, labour, social security and 
environment, small and medium-sized enterprises, culture, intellectual property rights, investment, 
mining, and industry.  Negotiations on trade in services and investment are to start in 2006. 
(c) China–Pakistan PTA 
63. In November 2003, China signed a preferential trade agreement with Pakistan, its first PTA 
with a foreign country.  It would appear that tari ff reductions apply to most of the same products as 
those listed in the Bangkok Agreement81;  China's overall average tariff on imports from Pakistan is 
9.5% in 2005, compared with the overall MFN average of 9.7%.   
64. On 5 April 2005, China and Pakistan signed an FTA Early Harvest Agreement under which 
bilateral tariffs on certain products are to be eliminated gradually between 1 January 2006 and 
1 January 2008.82  These products are in three categories:  products with applied MFN tariff rates 
above 15% (Category 1);  products  with applied MFN tariff rates between 5% and 15% (inclusive) 
(Category 2);  and products with applied MF N tariff rates below 5% (Category 3).  For 
Category 1 products, tariffs will be reduced to 10% by 1 January 2006, 5% by 1 January 2007 and 
eliminated by 1 January 2008;  for Category 2 products, tariffs will be reduced to 5% by 
                                                      
77 China and Macao, China CEPA, Annex 5:  "D efinition of "Service Supplier" and Related 
Requirements".  
78 Full texts of the CEPA agreemen ts are available online at:  http://www.tid.gov.hk/english/cepa/ 
fulltext.html, and http://www.economia.gov.mo/page/english/cepa_e.htm [9 June 2005]. 
79 The full text of the China–Chile FTA (in English) is available online at:  http://www.direcon.cl/pdf/ 
Texto%Final&20ing.pdf [6 Decembe r 2005] and http://gjs.mofcom.gov.c n/table/China_Chile_FTA_EN.doc 
[6 December 2005]. 
80 MOFCOM online information.  Available at:  http://www.mofcom.gov.cn/aarticle/a/200511/ 
20051100849709.html [6 December 2005].  It seems that the products for which China will not eliminate tariffs 
include all the products subject to tariff rate quotas (m ainly agricultural products, see Chapter III(2)(v)), together 
with iodine;  wood and articles of wood;  paper, paperboard and articles thereof;  and printed books, 
newspapers, and other items of printing industry.  
81 For Pakistan, as it is negotiating to join the Bangkok Agreement, the provisions of the Bangkok 
Agreement apply to the agreement with China.  Online information.  Available at:  http://gjs.mofcom.gov.cn/ 
aarticle/aw/200311/20031100143577.html [14 March 2005]). 
82 For further details see http://gjs.mofcom.gov.cn/aarticle/ztxx/200504/20050400062673.html 
[9 June 2005]. WT/TPR/S/161 Trade Policy Review 
Page 50 
 
 
1 January 2006, and eliminated by 1 January 2007;  for Category 3 products, ta riffs will be eliminated 
by 1 January 2006.  According to  the authorities, a few more tariff lines have been added to the 
agreement following the third round of bilateral negotiations.  The China–Pakistan PTA will be 
abolished when the Early Harvest Agreement takes effect on 1 January 2006.  Pakistan recognizes 
China as a market economy. 
(d) China–Australia  
65. China and Australia signed a Trade and Economic Framew ork Agreement on 
24 October 2003.83  It specifies that both countries will work  to promote strategic cooperation in:  
energy and mining;  textiles, clothing and footwear;  agriculture;  mechanical and electronic products;  
tourism;  education;  inspection and quarantine;  customs cooperation;  environmental protection;  
investment;  information and communications t echnology;  biotechnology;  public health;  food 
safety;  and intellectual property rights.  The agreem ent also states that Australia will participate in 
China's central and western development initiatives.   
66. China and Australia jointly undertook a feasib ility study into a possible bilateral free-trade 
agreement (FTA).  This study, which was comple ted in March 2005, concluded that the FTA would 
bring mutual benefits to both countries.  T hus, on 18 April 2005, the two countries agreed to 
commence negotiations on such an agreement.  Since April 2005, Au stralia has recognized China as a 
market economy.  A third round of ta lks was concluded in November 2005. 
(e) China–New Zealand 
67. China and New Zealand signed a similar Tr ade and Economic Coope ration Framework on 
28 May 2004.84  Under this framework, both countries agr eed to promote cooperation in:  agriculture;  
animal husbandry;  forestry;  wool;  services, including education, tourism, air services, and labour and professional services;  science and technology;  environmental protection;  information and 
communication technology;  and investment.  Areas of  cooperation also include:  human, plant, and 
animal health and food safety;  technical regulations  and standards;  conformity assessment;  customs 
administration;  intellectual property;  and the f acilitation of business travel and of links between 
industry and business groups.  The tw o countries intend to work togeth er to explore opportunities for 
New Zealand businesses to participate in China's west ern development strategy and the revitalization 
of its north-eastern industrial areas.  In April 2004, New Zealand was the first country to recognize 
China as a market economy.  
68. China and New Zealand undertook a joint f easibility study on nego tiating a bilateral 
free-trade agreement (FTA);  the study reached the conclusion that both China and New Zealand 
would benefit from a FTA.  FTA negotiations between  the two countries started in December 2004;  
four rounds of talks have thus far been held.   
(f) Other potential bilateral agreements 
69. In June 2004, China and the Sout hern African Customs Union (SACU)  issued a joint 
declaration, in which SACU granted China market economy status.  At the same time, FTA 
negotiations were launched. 
                                                     
 
83 Further information is available online a t:  http://www.dfat.gov.au/geo/china/framework/ 
economic_framework.html [3 March 2005].   
84 Further information is available online at:  h ttp://www.mfat.govt.nz/foreign/regions/northasia/ 
nzchinafta/tecfmay04.ht ml [3 March 2005]. China WT/TPR/S/161 
 Page 51 
 
 
70. In July 2004, China and the Gulf Cooperation Council (UAE, Bahrain, Kuwait, Oman, Qatar, 
and Saudi Arabia) announced that they had si gned a Framework Agreem ent on Economic, Trade, 
Investment and Technology Cooperation.  They also  established a joint committee for cooperation to 
implement the agreement and to create a cons ultation mechanism, and agreed to launch FTA 
negotiations.  Two rounds of negotiati ons had been held by June 2005. 
71. China and India agreed to form a Joint Study Group in June 2003, to explore the potential for 
expanded bilateral trade and cooperation;  the Gr oup met in March 2004.  China and India also 
concluded bilateral tariff-reduction negotiations in February 2003, a nd signed the Bilateral Agreement 
on Adopting the Bangkok Agreement.  A feasibility study on a China–India FTA was started in 
April 2005. 
72. On 17 May 2005, China and Iceland agreed to und ertake research into the feasibility of an 
FTA.  In May 2005, Iceland recognized China as a market economy.   
(iv) Unilateral preferences 
73. Unilateral special preferential tariffs are offe red to least developed countries for some 
products;  the number of countries receiving such unilateral preferences was increased in 
September 2005 to 39 (Chapter III(2)(ii)). 
(6) FOREIGN INVESTMENT REGIME  
(i) Recent developments in FDI policy 
74. In 2004, China was the largest developing country recipient of FDI, and the third largest 
recipient of FDI in the world, after the United States and the United Kingdom.85  This reflects China's 
"significant progress" in providing a business envi ronment conducive to FDI since 1978, and FDI has 
consequently played an important role in the country's economic development for a quarter of a 
century.86  Foreign investment has been encouraged mainly in manufacturing with a particular 
emphasis on high value-added production.  In this re gard, one of the key features of the FDI regime is 
that China provides better than national treatment  in its taxation policies for foreign-invested 
enterprises (FIEs).  More specifically, while the ente rprise income tax rate is 33%, FIEs may enjoy 
rates of 15% or 24% depending on where they invest.  In addition, FIEs may enjoy tax holidays for 
varying lengths of time depending on their activities.   
75. China has also recently started to encourage outward FDI, larg ely to upgrade technical skills 
and to secure supplies of key raw materials, such as  petroleum and iron ore.  The Central Government 
and some provincial governments, such as Guangdong and Shanghai, have been encouraging firms to 
invest abroad by relaxing approval procedures and providing financial support.87  For example, the 
                                                      
85 In 2004, inflows of FDI into China were US$60.6 billion, those into the United States and the 
United Kingdom were US$95.9 billion and US$78.4 billion,  respectively (UNCTAD, 2 005).  Preliminary data 
released by UNCTAD shows that in 2005 FDI inflows to China were unchanged at some US$60.3 billion 
(UNCTAD document:  UNCTAD/PRESS/PR/2006/002, 23 January 2006). 
86 OECD (2005b).  The authorities stated that China's success in attracting FDI may be explained by 
both internal and external factors.  The internal factors include:  the Chinese Government's emphasis on opening up the economy and attracting foreign investment;  the stable social and economic situation;  the enlarging 
domestic market;  and the improved legal framework and investment environment.   
87 The MOFCOM issued the "Provision on the Examination and Approval of Investment to Run 
Enterprises Abroad", effective as of 1 October 2004.  Article 2 of the Provision stipulated that the State shall 
"help and encourage relatively competitive enterprises with various forms of ownership to invest to run 
enterprises abroad".  Online information.  Available at:  http://www.fdi.gov.cn/ltlaw/lawinfodisp.jsp?id =ABC00000000000010375&appId=1 [6 May 2005]. WT/TPR/S/161 Trade Policy Review 
Page 52 
 
 
NDRC and the Export-Import Bank of China issued a "Notice on Loan Support Policy for Key State-
Encouraged Overseas Investment Projects" on 27 October 2004, which specifies that preferential 
interest rates may be applied to overseas investment loans.88  China is investing in the petroleum 
sector abroad, for example, in Indonesia, Kazakhs tan, Myanmar, Sudan and Yemen, as well as in 
aluminium, iron ore, and coke industries in Brazil.89  Some Chinese enterprises have also started to 
purchase shares in foreign enterprises.90 
(ii) Legislative framework and procedures 
76. Laws and regulations specifically related to  FDI include mainly:  the "Law on Chinese-
Foreign Equity Joint-Ventures";  "Law on Chinese- Foreign Contractual Joint Ventures";  "Law on 
Foreign-Capital Enterprises";  and their implementing regulations (Table AII.2).91  Under the 
three laws, foreign-invested enterprises (FIEs) in clude equity joint ventures (with the proportion of 
foreign investment no less than 25% of registered  capital), contractual joint ventures, and wholly 
foreign-owned enterprises (WFOEs).  Since China's accession to the WTO, restrictions on FIEs have 
been relaxed;  the 2000 and 2001 revisions of the three laws reduced market access limitations and 
export balancing requirements;  technology tr ansfer requirements were also relaxed. 
77. On 25 February 2005, the State Council issued "Guidelines on Encouraging and Supporting 
the Development of the Non-Public Sector incl uding Individual and Private Enterprises".  The 
purpose of the guidelines is to improve market access  by private companies to many industries that 
were previously restricted, including those domin ated by state monopolies and heavily regulated 
sectors, such as public utilities, financial services, social services, and supplies of national defence 
equipment.92  According to the authorities, foreign in vestors will have the same access as domestic 
investors and when relevant laws and regulations are enacted or revised, private investment will be 
allowed in any sector where it is not explicitly forbidden by law.   
78. Revised "Provisions on Guiding Foreign I nvestment Direction" were promulgated on 
11 February 2002 and entered into force on 1 April 2002.93  They classify foreign investment projects 
into four categories:  encouraged;  permitted;  r estricted;  and prohibited.  The Catalogue for the 
Guidance of Foreign Investment Industries, pr omulgated on 11 March 2002, was replaced by an 
                                                      
88 The overseas investment loans that qualify relate to:  resource development projects;  production and 
infrastructure projects that tend to promote exports;  R& D centres that will facilitate the adoption of advanced 
technology and management expertise;  and mergers and acquisitions that will enhance enterprise 
competitiveness. 
89 UNCTAD (2004). 
90 Financial Times , 28 October 2004.  Some state-owned enterprises invest abroad in oil, natural gas, 
and coal exploration and electricity industry;  and a number of private manufacturing enterprises producing 
daily use consumption goods have also started to invest abroad. 
91 Other laws and regulations related to FDI include:  Law on the Protection of Taiwan Compatriots' 
Investment;  Income Tax Law for Enterprises with Foreign Investment and Foreign Enterprises and its 
implementation regulation;  Interim Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors;  Provisions on Foreign Invested Investment Companies;  and Interim Provisions on Foreign Invested 
Joint Stock Limited Companies.  Other laws and regulations that have a bearing on FDI include:  Company 
Law;  Contract Law;  Insurance Law;   Arbitration Law;  Labour Law;  Provisional Regulations on Value-Added 
Tax;  Provisional Regulations on Consumption Tax;  and Provisional Regulations on Business Tax. 
 92 From 1985, as part of the economic reform process, China's army started to engage in business 
operation and foreign trade.  Many companies were set up by the army to deal with business other than national 
defence equipment;  however, this practice was discontinued in 1998. 
93 The "Provisions on Guiding Foreign Investment Direction" are available online at:  
http://www.cadz.org.cn/en/tzzg/zdml_i ndex.asp.  The "Interim Provisions on Guiding Foreign Investment 
Direction" promulgated on 20 June 1995 were  abrogated simultaneously [14 December 2004]. China WT/TPR/S/161 
 Page 53 
 
 
amended Catalogue, whic h entered into force on 1 January 2005.94  The NDRC and the MOFCOM 
also amended the Catalogue of Advantaged Industr ies for Foreign Investment in Central-Western 
China, which entered into force on 1 September 2004.95 
79. The most recently amended Catalogue for the Gu idance of Foreign Investment Industries lists 
industries that are "encouraged", "restricted", and "prohibited";  projects that do not fall into these 
three groups are "permitted".  The amendment incl udes:  extending the list of industries in the 
encouraged category in accordance wi th the State's industrial policies96;  relaxing restrictions on 
market access in service industries97;  removing so-called "over-invested industries" from the 
encouraged category (certain steel processing, fo r example, was moved from the encouraged to 
permitted category).  The authorities noted that a di stinctive feature of the Catalogue was that "it 
expanded the degree of opening up and took encourag ing foreign investment as a general policy".98 
80. In general, it appears that projects in the "e ncouraged" category are those that use improved 
technology and are less polluting99, while "restricted"100, and "prohibited"101 projects are those that use 
outdated technologies, over-exploit scarce natural resources, and tend to harm the environment.  
Foreign equity limits tend to vary by industry and are not necessarily related to the category.  Thus, 
for example, "encouraged" industries may have fo reign equity restrictions, while "restricted" 
industries may be wholly foreign owned.102   
81. Foreign investors in the "encouraged" category are permitted to import capital equipment duty 
free.  In addition, they may enlarge their scope of business, with approval, if they are engaged in the 
construction and operation of infrastructure faciliti es related to energy, transportation, and urban 
utility sectors (coal, oil, natural gas, power, railw ays, ports, airports, highways and urban roads, 
                                                      
94 MOFCOM (2004a). 
95 Available at:  http://www.ndrc.gov.cn/b/b200407 292.htm (in Chinese) [13 April 2005].  The 
Catalogue of Advantaged Industries for Foreign Investment in Central-Western China, promulgated in 
June 2000, was annulled simultaneously. 
96 The most recently amended Catalogue entered into force on 1 January 2005;  the Catalogue for the 
Guidance of Foreign Investment Industries promulgated in March 2002 was annulled at the same time.  The 
amendment increased the number of "encouraged industries" from 186 to 262, and reduced the number of 
"restricted industries" from 112 to 75 (WTO document WT/G/L/708, 8 November 2004). 
97 WTO document WT/G/L/708, 8 November 2004:  "Some previous prohibitions for foreign 
investment in areas like telecom, supply of gas and water had been lifted". 
98 WTO document WT/G/L/708, 8 November 2004. 
99 Encouraged industries include:  projects to deve lop new agriculture technologies and agriculture, or 
to develop energy, transportation or important raw material industries;  those for high and new technologies, or 
advanced application of technologies to improve produ ct quality, increase technology efficiency, or produce 
new equipment or new materials that cannot be produced domestically;  those helping to meet domestic and 
export market demand;  those adopting new technology or equipment for saving energy and raw materials;  and 
those making full use of human and natural resources in central and western parts of China.   
100 Restricted industries include:  those that use outdated technology, or do not favour resource-
conservation and the environment;  those using resources protected by law or regulations;  and "industries that 
shall be opened gradually".   
101 Prohibited industries include:  those that endanger  the safety of the State or damage social and 
public interests;  those that pollute the environment, destroy natural resources or impair human health;  those 
that occupy large amounts of arable land, or are unfavourable to protection and development of land resources;  
those that endanger the safety of military facilities a nd their performance;  and those that use Chinese 
craftsmanship or technology to make products. 
102 For example, manufacturing of automobiles is listed in the "encouraged" category;  however, the 
proportion of foreign investment in th is industry should not exceed 50%.  On the ot her hand, non-life insurance 
companies are listed in the "restricte d" category, but wholly foreign-owned enterprises engaged in non-life 
insurance are allowed to be estab lished as of 11 December 2003.  WT/TPR/S/161 Trade Policy Review 
Page 54 
 
 
sewage treatment, and garbage disposal, etc.), whic h need a large amount of investment and a long 
payoff period.103  Furthermore, the threshold of projects in the "encouraged" category that may be 
approved by local governments has been raised (see below).   
82. In addition, investors in the "permitted" categor ies that export all their products directly enjoy 
the same preferential treatment accorded to "e ncouraged" projects, as do projects listed in the 
Catalogue of Advantaged Industries for Foreign I nvestment in Central-Western China.  Foreign 
investment in the "restricted" category may be regarded as "permitted", if export sales amount to over 70% of the total sales of the product. 
(iii) Examination and approval procedure 
83. In July 2004, the State Council issued a "D ecision on Reforming the Investment System", 
replacing the approval system with a verification or re gistration system;  only "important or restricted" 
projects now require verification.  In September 2004, the NDRC issued the "Catalogue of Investment 
Projects Requiring Government Verification", whic h includes non-government funded, important or 
restricted fixed asset investment projects, in several industries.
104  All other investment projects, 
irrespective of the amount of investment involved, are required only to register with the relevant 
authorities, such as the local development and reform commissions (DRCs).  In addition, the 
"Decision" simplifies the verification processes and incr eased verification powers of local authorities.   
84. Based on the "Decision" and on the "Administrative Permission Law", the NDRC issued 
"Interim Measures for the Administration of Examin ing and Verifying Foreign Investment Projects", 
effective on 9 October 2004.105  These measures apply to Chinese-foreign contractual joint ventures, 
Chinese-foreign equity joint ventures, wholly  foreign-owned enterprises, mergers between 
enterprises, acquisitions of domestic enterprises by foreign investors, and increases in capital of 
foreign-owned enterprises.106  To establish a foreign-invested enterprise (FIE), applications must be 
submitted for examination and verification to the NDRC,  or to other government agencies such as the 
local DRCs.  Projects valued at more than US$100 million for "permitted" and "encouraged" industries (US$50 million for restricted industries) must be verified by the NDRC at the national 
level;  applications for "permitted" and "enc ouraged" industries valued at over US$500 million 
(US$100 million for restricted industries), after being examined by the NDRC, are submitted for verification to the State Council.  The NDRC must complete its examination and verification within 
20 working days after accepting the application;  this period may be extended by the NDRC by 
ten working days, if it is difficult to reach a decision,  with the project applicant being informed of the 
delay.  In addition, all FIEs (excluding FIEs in th e financial sector) seeking to establish in China must 
submit their applications simultaneously to MOFCOM , which grants an FIE Approval Certificate to 
approved projects;  the FIE is then permitted to comp lete all other procedures such as registration of 
the enterprise, taxation, foreign exchange, and ot her formalities required before companies commence 
operations.   
85. The Government is making efforts to incr ease decentralization and simplify verification 
procedures for foreign investment.  Previously, local governments were, for example, limited to 
approving "encouraged" and "permitted" foreign i nvestment with total investment of less than 
                                                     
 
103 Article 9 of the "Provisions on Guiding Foreign Investment Direction". 
104 These include:  agriculture and forestry;  energy;  transportation;  information technology;  raw 
materials;  manufacturing;  light industry and tobacco;  high and new technology;  urban infrastructure;  social projects (including tourism), and financial services. 
105 Ministry of Commerce online information.  Available at:  http://www.fdi.gov.cn/ltlaw/ 
lawinfodisp.jsp?id=ABC00000000000010631&appId=1 [6 May 2005]. 
106 Article 2 of the Interim Measures.   China WT/TPR/S/161 
 Page 55 
 
 
US$30 million;  they did not have the authority to approve foreign investment in the restricted 
category.  From July 2004, however, when the State Council's "Decision on Reforming the Investment System" entered into effect, local DRCs can verify foreign investment with a total value 
below US$100 million in the "encouraged" or "perm itted" categories, as well as projects in the 
restricted category with investment below US$50 million.
107  For an investment project of more than 
US$30 million involving foreign investment, lo cal governments must submit a copy of the 
examination and verification document to the ND RC within 20 working days of the date of 
examination and verification.108 
86. The application must be accompanied by, inter alia :  detailed information on the project109;  
the total amount to be invested;  the registered cap ital and the amount to be contributed by each party;  
the mode of contribution and the financing schemes;  and the quantity and pri ce of the equipment that 
needs to be imported.  Other documents required include:  the business certificate of the Chinese and 
foreign parties, the certificate of commercial registration and the latest financial statements of the enterprise (including the balance sheet, the profit a nd loss statement and the cash flow statement), and 
the certificate of capital credit issued by the relevant bank. 
87. A set of new investment regulations has been promulgated to relax restrictions on market 
access in the services sectors.
110  The regulations include those re garding:  setting up liaison offices 
for foreign legal firms;  foreign investment in fi nancial institutions, insurance, telecommunications, 
fund management, and stock companies; and foreign i nvestment in travel agency, transportation, and 
distribution.  The authorities stat e that there are no restrictions on lending by domestic banks to 
foreign-invested enterprises.111 
(iv) FDI incentives 
(a) Tax incentives 
88. China has a low-tax policy toward foreign-invest ed enterprises.  At the same time, it grants 
preferential tax treatment for investment in industr ies and regions where investment is encouraged.112  
One of the most distinctive features of the tax system is the differential treatment of domestic enterprises and FIEs with regard to the enterprise income tax.
113  The standard enterprise income tax 
                                                      
107 Under the Interim Measures, the power to verify restricted industries cannot be delegated to a 
department at a lower level than a provincial development and reform commission. 
108 See Article 20 of the Interim Measures, whose pur pose is to ensure the NDRC obtains relevant 
information concerning the project. 
109 Such information includes:  the name of the project;  the time limit of operation and the basic 
information on an investor;  the construction scale, main construction projects, and products of the project, the main technologies and techniques adopted, the target markets for the products, and the planned number of 
workers;  the construction site of the project, the reso urces demands such as land, water, and energy, and the 
amount of consumption of main raw materials;  the evaluation of impact on the environment;  and the prices of 
the public products or services involved
.   
110 APEC (2004a). 
111 The authorities stated that, banking loans are granted as long as the projects and the enterprises are 
profitable and are able to pay back the loans.  There is no restriction based on ownership of the enterprise nor 
any other loan restriction on any category of enterprises.  FIEs are usually welcomed by banks. 
112 At present taxes applicable to FIEs and foreign individuals include:  enterprise income tax, 
individual income tax, turnover taxes (including value-added, consumption and business tax), tariffs, land 
appreciation tax, resource tax, urban real estate tax, agricu lture tax, stamp tax, deed tax, vehicle and vessel usage 
licence plate tax, vehicle purchase tax, and vessel tonnage tax (Chapter III(4)(ii)(b)). 
113 Other differences in the tax treatment between dome stic enterprises and FIEs include:  FIEs do not 
need to pay farmland occupation tax, city maintenance and construction tax;  instead, FIEs pay urban real estate 
tax, vehicle, and vessel usage licence plate tax, while domestic enterprises pay house property tax, urban and township land use tax, and vehicle and vessel usage tax. WT/TPR/S/161 Trade Policy Review 
Page 56 
 
 
rate is 33%.  However, an enterprise income tax ra te of 15% applies to FIEs located in the special 
economic zones (SEZs), or to FIEs involved in  manufacturing in the economic and technological 
development zones (ETDZs);  a rate of 24% appli es to FIEs involved in manufacturing and located in 
the coastal economic open zones, or the old urban districts of cities wher e the SEZs or ETDZs are 
located.  Where an FIE has subsidiaries in diff erent locations, they may be taxed differently 
(Chapter III(4)(ii)(b)).  In general, it appears that such preferential tax treatment is not available to 
domestic enterprises, except for those established in  the State high-tech development zones and in the 
western areas. 
89. FIEs involved in manufacturing with an operatin g period of longer than ten years may enjoy 
an income tax exemption during the first two y ears after becoming profitable, followed by a 50% 
reduction for the next three years.114  Hi-tech FIEs located in hi-tech  industrial zones also enjoy the 
two-year income tax exemption;  those involved in manufacturing also enjoy the 50% income tax 
reduction in the following three years.  Export-orient ed FIEs enjoy the same two-year exemption and 
the 50% reduction as long as the volume of annual expor ts accounts for more than 70% of the general 
sales of the enterprise.  If an FIE purchases domestically made equipment, which, if imported, would be entitled to tariff exemption, it is granted a VAT  refund on such equipment (Chapter III(4)(ii)(b)).   
In addition, it would appear that FIEs togeth er with domestic enterprises operating in designated 
manufacturing industries in the western and central regions of China enjoy a complete tax holiday 
during the first two years after making profits a nd a 50% income tax reduction during the following 
six years. 
90. If an FIE directly reinvests after-tax profits, in creases the registered capital or uses profits to 
establish another FIE with an operati onal duration of not less than five years, with the approval of the 
taxation department, 40% of the enterprise income  tax paid on the sum reinvested is refunded.
115  In 
addition, dividends obtained by foreign investors from foreign-funded enterprises are exempt from 
income tax.  The actual losses of an FIE may be offset  by the income earned in the next payment year;  
if the losses cannot be fully offset in the next y ear, they may be carried forward for a maximum of 
five years.   
(b) Promotion and facilitation 
91. MOFCOM promotes foreign investment in Ch ina through its Investment Promotion Agency, 
and the International Investment Promotion Cent re of China.  Many provinces provide one-stop 
services to foreign investors, and each province h as set up an investment promotion centre.  China 
also promotes investment through, inter alia , the International Fair for Investment and Trade, Hi-Tech 
Fair, and Export Commodities Fair.   
92. MOFCOM provides online information regarding FDI in English116, and publishes a China 
Foreign Investment Report annually, in both Chinese and English.  "Invest in China" provides online 
information on research and seminars related to FD I, news, laws and regulations, and information on 
economic and technological development zones.117 
                                                      
114 Exceptions include those engaged in the exploitati on of resources such as petroleum, natural gas, 
rare metals, and precious metals;  exemptions from or reductions of income tax to these enterprises are regulated 
separately by the State Council.  ("Income Tax Law for Enterprises with Foreign Investment and Foreign 
Enterprises", Article 8). 
115 China Council for the Promotion of Internationa l Trade online information.  Available at:  
http://www.ccpit.org/vhosts/english/ IV.htm [17 February 2005]. 
116 MOFCOM online information.  Available at:  http://english.mofcom.gov.cn/.  Contains information 
regarding:  statistics and the development of FDI;  FDI policies, laws and regulations;  the encouraged 
industries;  preferential treatment;  examination and verification procedures, and verification authorities. 
117 FDI online information.  Available at:  http://www.fdi.gov.cn. China WT/TPR/S/161 
 Page 57 
 
 
(v) International investment agreements 
93. China had signed 115 bilateral investment pr otection agreements and 86 agreements on 
avoidance of double taxation by the end July 2005.118  In addition, China's CEPAs signed with Hong 
Kong, China, and Macao, China provide certain  privileges to investors from these special 
administrative regions (section (iii) above).119 
 
                                                      
118 The bilateral investment protection agreements provide protection against expropriation without 
adequate compensation and include provisions on dispute settlement.  
119 Other international agreements signed by China include:  the United Nations Convention on 
Contracts for the International Sale of Goods (Vienna Convention), in 1991;  and the Hague Convention on the Service of Documents Abroad, in 1991. WT/TPR/S/161 Trade Policy Review 
Page 58 
 
 
Annex II.1:  Restructuring of the State Council1 
1. To meet the changing requirements of its ec onomy, China has made sev eral changes to its 
system of administration;  the State Council was most recently restructured in 1998 and 2003.  
2. The 1998 reforms reduced the number of ministries, commissions, and other administrative 
bodies of the State Council (in addition to the General Office of the State Council) from 40 to 29.  In 
the process, 15 ministries and commissions were abolished2, three were renamed3, and four additional 
ministries and commissions were established.4 
3. In 2003, the State Economic and Trade Commi ssion (SETC) and the Ministry of Foreign 
Trade and Economic Cooperation (MOFTEC) were a bolished.  At the same time, the State 
Development Planning Commission was reorganized into the National Development and Reform 
Commission (NDRC), and the Ministry of Commerce was established.  As a result, in addition to the 
General Office of the State Council, there are currently 28 ministries, commissions and other 
administrative bodies in the State Council.5  There are also a number of agencies and administrative 
offices directly under the State Council.  Afte r the restructuring in 1998, these agencies and 
administrative offices included:  the General Admi nistration of Customs;  State Administration of 
Taxation;  State Administration for Industry a nd Commerce;  General Administration of Civil 
Aviation;  National Bureau of Statistics;  State Bureau of Quality and Technical Supervision;  State Intellectual Property Office;  National Tourism Administration;  China Securities Regulatory Commission (CSRC);  and the Legislative Affairs Office of the State Council (SCLAO).  The China 
Insurance Regulatory Commission (CIRC) was es tablished directly under the State Council in 
November 1998, followed by the State-owned A ssets Supervision and Administration Commission 
(SASAC) and the China Banking Regulatory Commission (CBRC) in 2003. 
4. There are also some agencies and administrative offices at the national level, but subordinate 
to a State Council department, agency or administ rative office.  These in 19 98 included:  the State 
Administration of Foreign Exchange (subordinate  to the People's Bank of China);  State 
Administration for Entry-Exit Inspection and Quaran tine (subordinate to the General Administration 
of Customs);  and the State Post Bureau (subordinate to the Ministry of Information Industries).  In 
April 2001, the State Bureau of Quality and Technical Supervision and the State Administration for 
                                                     
 
1 Based on information provided by the authorities. 
2 These were the Ministries of El ectric Industry;  Coal Industry;  Metallurgical Industry;  Machine-
Building Industry;  Electronics Industry;  Chemical Indu stry;  Domestic Trade;  Po st and Telecommunications;  
Labour;  Radio, Film and Television;  Geology and Mineral Resources;  and Forestry;  the State Physical 
Culture and Sports Commission;  Commission of Science, Technology and Industry for National Defence;  and State Commission for Economic Restructuring. 
3 The State Planning Commission became the St ate Development Planning Commission;  the State 
Science and Technology Commission was renamed the Ministry of Science and Technology;  and the State Education Commission was renamed the  Ministry of Education. 
4 These were the Commission of Science, Technology and Industry for National Defence;  Ministry of 
Information Industries;  Ministry of Labour and Social Security;  and Ministry of Land and Resources. 
5 The 28 are Ministry of Foreign Affairs;  Ministry of National Defence;  National Development and 
Reform Commission;  Ministry of Education;  Ministry of Science and Technology;  Commission of Science, Technology and Industry for National Defence;  State Ethnic Affairs Commission;  Ministry of Public Security;  
Ministry of State Security;  Ministry of Supervision;  Ministry of Civil Affairs;  Ministry of Justice;  Ministry of 
Finance;  Ministry of Personnel;  Ministry of Labour and Social Security;  and Ministry of Land and Resources;  Ministry of Construction;  Ministry of Railways;  Ministry of Communications;  Ministry of Information 
Industries;  Ministry of Water Resources;  Ministry of  Agriculture;  Ministry of Commerce;  Ministry of 
Culture;  Ministry of Health;  National Population and Family Planning Commission;  the People’s Bank of China;  and the State Auditing Office. China WT/TPR/S/161 
 Page 59 
 
 
Entry-Exit Inspection and Quarantine, then subordina te to the General Administration of Customs, 
were merged into the State Administration of Quality Supervision, Inspection and Quarantine 
(AQSIQ), which is now an agency directly under the State Council.