WT/TPR/S/161/Rev.1 Trade Policy Review 
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III. TRADE POLICIES AND PRACTICES BY MEASURE1 
(1) INTRODUCTION  
1. China has made major changes in its trade po licies and measures since its reform process 
began in the late 1970s, and particularly in co nnection with its accession to and subsequent 
membership of the WTO.  Its trade regime has been  increasingly liberalized and structural reforms are 
ongoing to introduce greater competition in the economy.  In addition, direct intervention by the Government in the economy has declined.  Neverthel ess, indirect measures continue to be used to 
meet industrial policy goals.  These include borde r measures, such as tariffs and other border tax 
measures that affect both imports and exports, as well as internal me asures.  The latter include tax 
incentives for investment, particularly foreign dir ect investment, in certain sectors or activities, 
administrative directives and "guidance" to channel credit into or away from certain sectors, and price 
controls or "guidance" prices. 
2. China has progressively lowered its MFN tariff and reduced non-tariff barriers to trade.  
Nonetheless, the tariff remains one of China's main  trade policy instruments and a significant source 
of tax revenue (accounting for some 4.3% of total taxes collected).  In 2005, the overall average MFN 
tariff was 9.7%;  the averages for agricultural a nd non-agricultural products were 15.3% and 8.8%, 
respectively.  Slightly lower aver age tariff rates, ranging from 8.2% to 9.5%, are levied under its 
bilateral agreements, while unilateral preferences fo r some products are offered to 39 least developed 
countries.  In connection with its membership of the WTO, China has also reduced other barriers to 
imports, notably import prohibitions and restric tions, and the import licensing regime has been 
simplified. 
3. Import barriers have fallen, but the export regi me remains complex and measures are used to 
manage certain exports.  For instance, export taxes and VAT rebate rates are altered, apparently to 
meet the demands of domestic indus try and industrial development goals .  China also maintains state 
trading for imports and exports, including for some  agricultural products, coal, some metal ores, and 
crude and processed petroleum.  Exports of othe r goods are encouraged, notably through concessions 
for processing trade and special economic and other zones.  
4. China has also updated its legislation and impl ementation procedures in other areas, including 
for sanitary and phytosanitary (SPS) measures and te chnical barriers to trade (TBTs), and contingency 
measures, such as anti-dumping, countervailing, and safeguards.  There are now a large number of 
laws, regulations, and rules that cover measures and enforcement in these areas.  The SPS regime is 
complex with a large number of laws governi ng SPS measures, and examination and approval 
procedures at the border are not clear.  In the ar ea of TBTs, China has four different kinds of 
standards:  national, local, sectoral, and enterprise.   It is also committed to adopting international 
standards where relevant;  nevertheless, the percenta ge of national standards that are equivalent to 
international standards has remained  unchanged since 2000, at around 32%. 
5. China's Law on Government Procurement indi cates that procurement should facilitate the 
achievement of State goals for economic and social de velopment.  The law, wh ich came into force in 
January 2003, governs purchases by St ate organs, public institutions, and social organizations, but 
does not include purchasing by state-owned enterp rises (SOEs);  the authorities note that SOEs 
operate under market rules and therefore are not covere d by the law.  It also appears that there is a 
preference for state purchases of "domestic goods, construction and services", which are not defined 
by the law.  Goods may be purchased from forei gners under exceptional circumstances.  China has 
been an observer to the WTO Agreement on Government Procurement since 2002. 
                                                     
 
1 Parts of this Chapter are without the benefit of detailed comment/clarification from the authorities. China WT/TPR/S/161/Rev.1 
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6. While trade barriers have been reduced signi ficantly, a major challenge facing China is 
domestic structural change to increase competition, particularly reform of the public sector, including 
SOEs.  Significant steps have been taken in this di rection.  Reform of SOEs began in the late 1970s 
and has been gradual, mainly due to their perv asive influence on large sections of the economy.  
Recent efforts include closing down or restructur ing loss-making SOEs and subjecting others to 
improved governance, inter alia,  by incorporating them under the Company Law.  As a result of these 
efforts, the number of SOEs appears to have been  cut by almost half since the late 1990s.  The 
authorities estimate that around 2,500 additional SO Es and loss-making mines will be closed down 
gradually over the next four years.  Efforts are also being made to improve corporate governance in 
SOEs and other firms, including by allowing them to  list on local or foreign stock exchanges.  The 
challenge to further closures of SOEs, however, is compensation and reallocation of employees and 
alternative arrangements for the social functions, in cluding health and education, previously provided 
by large SOEs. 
7. China also appears to have ended subsidies to certain loss-making SOEs and preferences 
based on export performance and local content.  Chin a has not yet notified its subsidies to the WTO.  
However, it appears that direct budgetary transfers are provided mainly   for "capital construction" and 
agriculture as well as science and technology;  in addition, some 3.6% of GDP was spent in 2002 on 
extra-budgetary transfers.  Additional assistance is provided through the tax system;  measures include tax holidays and tax and tariff reductions for investors (both domestic and foreign) in 
particular activities and regions. 
8. The result of these reforms has been an impr ovement in competition and strong growth in 
private sector activities. China's non-public (or private) sector plays an increasingly important role in the economy and is an important source of employment, especially in manufacturing and mining and to a lesser extent in services, depending where it is  concentrated.  The private sector also appears to 
have higher productivity than SOEs.  Nevertheless, it has faced constraints, including in access to 
financing.  In addition, incorporation under th e Company Law was difficult for many small and 
medium-enterprises (SMEs) because of high minimum capital requirements although these 
requirements seem to have been reduced in the latest revision to the law.  The Government is trying to 
encourage the development of the non-public sector through assistance, including through grants and 
other measures to ease access to finance. 
9. Adoption of China's pending new Anti-monopoly Law will fill a significant existing gap in 
the legislative framework for the establishment of a market economy.  Competition in the economy is 
at present enforced through a number of related laws , and appears not to be very effective.  Sound 
implementation of the new law in a transparent and non-discriminatory manner will be vital to its 
effectiveness. 
10. As part of efforts to create an investment environment conducive for both domestic private 
and foreign direct investment, significant steps ha ve been taken to update legislation on intellectual 
property rights, and China has acceded to a number of major international IPR conventions.  While 
China's IPR legislation has been updated, problems re main with enforcement.  Efforts are being made 
to improve enforcement, including through bette r coordination between the different agencies 
involved in registration and enforcement.  However,  relatively low fines, and penalties that are not a 
sufficient deterrent to IPR violations remain among the significant problems to be addressed. WT/TPR/S/161/Rev.1 Trade Policy Review 
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(2) MEASURES DIRECTLY AFFECTING IMPORTS  
(i) Procedures 
(a) Customs procedures 
11. The Foreign Trade Law allows individuals as well as legal persons and ot her organizations to 
engage in foreign trade2;  the most recent amendment replaces the examination and approval 
requirement with a registration requirement.  In addition, under the "Rules for the Registration of Foreign Trade Operators", foreign traders engage d in the import and export of goods or technologies 
are required to register with MOFCOM, or its authorized bodies (section (vi) below).
 3  Some foreign 
traders, notably foreign-invested enterprises (FIEs), may not need to register as this may already be 
covered under the FIE registration procedures.  Cust oms will not process the procedure of declaration, 
examination, and release of goods, if the exporter (or importer) has not registered but is required to do 
so. 
12. Import declarations must be made to Customs at the port of entry within 14 days of the goods' 
arrival.  Under the Customs Law of the People's Republic of China, importers (and exporters) must 
register with Customs before making a customs decl aration.  The registration documents include:  a 
copy of the business certificate and constitution of th e enterprise;  registration form of a foreign trade 
operator;  tax registration certificate;  certificate of the bank account;  a copy of the certificate for "the 
organization code" of the enterprise and registrati on forms introducing the customs declarer and its 
management.4  In addition, foreign-invested enterpri ses are required to submit a "Certificate of 
Approval of Foreign Invested Enterprise".  A "C ertificate of Customs Declaration Registry" is 
awarded by Customs.  Once this certificate of regi stration is obtained, the consigner or consignee 
must make a customs declaration, either in person or through an enterprise authorized to do so by 
Customs. 
13. Customs duty must be paid at a designated bank within 15 days of the memorandum of duty 
payment being issued by Customs.  In case of a dela y in payment, a fine of 0.05% of the total amount 
of duty payable is charged.  If the duty is not paid within three months of the payment period, 
Customs may take certain measures under Article 60 of the Customs Law, including notification to 
the importer's bank to deduct the amount due directly from the account;  and to sell the dutiable goods and/or other goods belonging to the importer in order to raise the amount due.  The time limit for payment of duty may be extended to a maximum peri od of six months by Customs if duty cannot be 
paid due to, for example, force majeure  or adjustments to the taxation policy.  Freight, insurance, and 
other charges on imports that cannot  be determined by the importer are calculated by Customs.  
Freight charges are calculated on "the basis of  the freight rate or amount published by the 
transportation industry at the time of importation".  Insurance costs are calcul ated as 0.3% of the sum 
of cost and freight, for goods imported by land, ai r or sea, and as 1% of the price for goods imported 
by rail or road.
5 
                                                      
2 Foreign trade refers to international trade.  Foreig n traders refers to individuals, legal persons, and 
other organizations that engage in international trade. 
3 The Rules entered into force on 1 July 2004.  Ministry of Commerce online information.  Available 
at:  http://3w.mofcom.gov.cn/article/200406/2004060 0239262_1.xml (in Chinese) [3 December 2004]. 
4 The documents are required under the Regulations on Registration of Customs Declarer of the 
People's Republic of China (General Administration of Customs Decree No. 127 of 2005) and the 
Announcement on Certain Issues Concerning the Implementation of the Regulations on Registration of Customs 
Declarer (General Administration of Cu stoms Announcement No. 18 of 2005). 
5 WTO document G/VAL/N/1/CHN/1, 5 July 2002. China WT/TPR/S/161/Rev.1 
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14. Certain goods are exempt from payment of im port or export duties.  These include goods 
valued at Y 50 or less, advertising material and samples of no commercial value, goods and materials 
provided free by international organizations or fo reign governments, goods damaged prior to Customs 
release, and fuels, stores, beverages and provisions for use en route, loaded on any means of transport 
in transit across the frontier. 
15. According to information provided by the authorities, the internal maximum examination 
period is 48 hours and in practice the majority of goods are cleared during this period.  However, 
customs examination is also affected by the "capaciti es of commodity owners"  and port facilities;  in 
addition, if illegal activities are detected, the exam ination period may be longer.  No fees are charged 
for clearance and other services provided by Customs.   
16. Decisions taken by Customs, if contested, may be examined by a higher authority in Customs 
under the Law for Administrative Reconsideration.  According to data provided by the authorities, 
between 96% and 98% of requests for appeal ag ainst decisions during 2000-04 were accepted by 
Customs.  There seems to have been a sharp incr ease in the number of appeals rejected, from around 
23% of cases reviewed in 2002, to  55% in 2003 and 60% in 2004.6  Further appeals may be made to 
the People's Court. 
(b) Preshipment inspection 
17. There are no preshipment inspection requirements for imports.  
(ii) Tariffs 
(a) Overview 
18. The basic legal framework for China's tariff is provided by the Customs Law and related 
regulations.  The tariff schedules are part of th e Regulations on Import and Export Tariff of the 
People's Republic of China (promulgated  by Decree No. 392 of the State Council on 
23 November 2003 and effectiv e as of 1 January 2004).  The tariff is set by the Tariff Commission, an 
inter-ministerial body under the State Counc il, based in the Ministry of Finance.7  Its functions 
include:  making adjustments to the tariff (including  interim tariffs), tariff headings, and import and 
export duty rates;  determining pro ducts subject to interim duties and their rates;  determining tariff 
quotas rates;  and determining the imposition of an ti-dumping, countervailing, and safeguard duty, 
retaliatory duties, and other tariff measures.8  Retaliatory duty is applied when countries with or 
without a trade agreement with China impose a discriminatory tariff or measure against goods 
originating in China;  the authorities note that retalia tory duties are used mainly as a deterrent and that 
currently there are no such duties in force. 
19. Under the Regulations on Import and Export Ta riff (Chapter II Article 9), duty rates on 
imports comprise:  MFN rates, agreement tariff rates (previously conventional duty rates), special 
preferential tariff rates, general tariff rates, and ta riff quota rates;  in addition, interim tariff rates 
                                                      
6 Data provided by the authorities show that 26 .6% of appeals were rejected in 2000 and 13.3% 
in 2001. 
7 The Commission's composition is prescribed by the State Council and includes the Ministry of 
Finance, the General Administration of Customs, the Ministry of Commerce, the National Development and Reform Commission, the Commission of Science, Technology and Industry for National Defence, the Ministry 
of Land and Resources, the Ministry of Informatio n Industry, the Ministry of Agriculture, the State 
Administration of Taxation, and the Legisl ative Affairs Office of the State Council. 
8 Article 4 of the Regulations of the People's Republic of China on Import and Export Duties. WT/TPR/S/161/Rev.1 Trade Policy Review 
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(previously known as temporary duty rates), which ar e usually lower than MFN rates, are applied for 
a specific period of time, usually one year, to certain goods. 
20. China charges at most MFN duty rates to all WTO Members except El Salvador.  Agreement 
rates apply to imports from countries and custom s territories with which China has preferential 
agreements;  there are 16 at present.9  Special preference duty rates are unilateral preferences applied 
to imports of some goods from countries w ith which China has trade agreements;  on 
14 September 2005, China announced that it would increase the list of countries covered from 29 
to 39.10  General Rates are applied to countries that do  not have a reciprocal trade agreement with 
China or to products whose origin cannot be de termined.  These rates apply to WTO non-members, 
El Salvador, as well as the territories of some EU member states.11  Where countries appear on more 
than one list, the more favourable rate  applies.  In addition, there are i nterim duties that are fixed 
annually by the Tariff Commission under the Regula tions on Import and Export Tariff, and usually 
apply from 1 January to 31 December of each year.  The rates are applied on an MFN basis, and 
where a particular tariff line has an interim rate, th e lower of the two possible rates is applied at the 
border for countries that are eligible for MFN duty rates;  as MFN and interim duty rates both apply 
on an annual basis, the interim duty effectively replaces the MFN duty for the products it applies to.  
For this reason, it is not clear to the Secretariat wh y the MFN rate is not simply reduced to the interim 
duty rate.  The authorities state that not reducing the MFN rate, which is at the bound rate for the 
majority of the particular tariff lines, gives Ch ina more flexibility in future WTO negotiations.  
Interim rates do not apply to imports on which general duty rates are applied.  
21. In addition to these tariff rates, duty exemp tions and reductions ma y apply "in accordance 
with the provisions set out in the relevant regula tions by the State Council on goods imported into or 
exported out of the designated areas, the designated enterprises or for designated uses."12  According 
to the authorities, "designated" refers to unusual an d special circumstances authorized by the State 
Council.13  The current tariff is applied in the 2002 nomenclature of the Harmonized System. 
                                                      
9 Bangladesh, Brunei Darussalam, Cambodia, India, Indonesia, Korea, Lao PDR, Malaysia, Myanmar, 
Pakistan, Singapore, Thailand, Viet Nam, Sri Lanka, and the Special Administra tive Regions of Hong Kong, 
China and Macao, China. 
10 Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burundi, Cape Verde, Cambodia, Central African 
Republic, Comoros, Democratic Republic of Congo, Djib outi, East Timor, Eritrea, Ethiopia, Guinea, Guinea-
Bissau, Lao PDR, Lesotho, Liberia, Madagascar, Mald ives, Mali, Mauritania, Mozambique, Myanmar, Nepal, 
Niger, Rwanda, Samoa, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vanuatu, Yemen, and Zambia (Customs Tariff 2005;  and announcement by President Hu Jintao at the High Level Meeting on Financing for 
Development at the 60
th Session of the United Nations, 14 September 2005). 
11 China applies General Rates to:  Afghanistan, Andorra, Aruba, Bahamas, Bermuda, Bhutan, Bonaire 
Islands, Canary Islands, Cayman Islands, Ceuta, Comorin, Curacao, El Salvador, French Guyana, Gambier 
Islands, Gibraltar, Guadeloupe, Liberia, Marquesas Is lands, Marshall Islands, Ma rtinique, Melilla, Montserrat 
Island, Nauru, Norfolk Island, New Caledonia, Palau, Palestine, Réunion, Sabah, Saint Martins Island, 
Sao Tome and Principe, the Republic of San Marino, Seychelles, Society Islands, Tuamotu Islands, Tubai 
Islands, Turks and Caicos Islands, Tuvalu, Vatican  City, British Virgin Isla nds, and Western Sahara. 
12 China Customs Tariff, 2005. 
13 For instance, designated area refers to areas for which certain policies are designed and implemented, 
such as the special economic zones and open coastal cities and areas, which enjoyed tariff exemptions for 
imported goods during the early stages of China's opening up and reform.  Designated enterprises refer to 
enterprises for which certain policies are designed and implemented on the basis of the type of the enterprise, 
such as FIEs, which enjoy tariff exemptions for certain imports.  Designated use refers to imports of products for which certain policies are designed and implemented based on actual use of the product. China WT/TPR/S/161/Rev.1 
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(b) Bound tariff 
22. As a result of its accession negotiations, China bound 100% of its tariff, at ad valorem rates.  
In 2005, the average bound rate was 10%, 15.3% for agriculture (WTO definition) and 9.1% for non-
agricultural products (Table III.1).  There are consider able variations within these averages, especially 
in agriculture, with average rates for grains (34%),  tobacco (25.4%), coffee and tea, cocoa and sugar 
etc. (20.2%) and beverages and spirits (20.3%) considerably higher than the overall average 
(Chart III.1 and Table AIII.1).  The final bound rate  in 2010 is expected to  be 9.9% down from 12.4% 
in 2002 just after China's accession to the WTO.14  The average bound rate for agricultural products 
(WTO definition) is expected to fall to 15.2% when  China has completed its staged implementation of 
its bindings while the final average bound rate for non- agricultural products is expected to be 9%.  
The bound rate for textiles and clothing has alread y reached its final bound rate of 11.5% from 17.6% 
in 2002.  In general, the applied MFN tariff has tended to follow closely the bound rates (see below). 
Table III.1  
Structure of MFN tariff, 2001-05 
(Per cent)  
  
2001  2002  2003  2004  2005  Final 
bound 
ratea 
Bound tariff       
1. Bound tariff lines (% of all lines) n.a. 100.0 100.0 100.0 100.0 100.0 
2. Simple average bound rate .. 12.4 11.3 10.4 10.0 9.9 
 Agricultural products (HS01-24) .. 17.9 16.4 15.0 14.7 14.6 
 Industrial products (HS25-97) .. 11.4 10.4 9.6 9.1 9.1 
 WTO agricultural products .. 18.2 16.9 15.6 15.3 15.2 
 WTO non-agricultural products .. 11.5 10.4 9.6 9.1 9.0 
 Textiles and clothing .. 17.6 15.1 14. 9 11.5 11.5 
3. Tariff quotas (% of lines) .. 0.8 0.7 0.7 0.7 0.7 
4. Duty-free tariff lines (% of lines) .. 4.3 5.9 6.4 7.7 7.7 
5. Non- ad valorem  tariffs (% of lines) .. 0.0 0.0 0.0 0.0 0.0 
6. Non- ad valorem  tariffs with no AVEs (% of 
lines) .. 0.0 0.0 0.0 0.0 0.0 
7. Nuisance bound rates (% of lines)b .. 2.0 2.3 2.4 2.6 2.6 
Applied tariff       
8. Simple average applied rate 15.6 12.2 11.1 10.2 9.7 (9.8) .. 
 Agricultural products (HS01-24) 23.2 17.9 16.3 15.0 14.6 .. 
 Industrial products (HS25-97) 14.3 11.1 10.1 9.3 8.9 .. 
 WTO agricultural products 23.1 18.2 16.8 15.5 15.3 (15.2) .. 
 WTO non-agricultural products 14.4 11.2 10.1 9.3 8.8 (8.9) .. 
 Textiles and clothing 21.1 17.5 15.1 12.9 11.5 .. 
9. Domestic tariff "peaks" (% of all lines)c 1.7 1.8 1.9 1.9 2.6 (2.7) .. 
10. International tariff "peaks" (% of all lines)d 40.1 29.0 25.2 18.2 15.6 (15.9) .. 
11. Overall standard deviation 12.2 9.1 8.4 7.8 7.6 .. 
12. Coefficient of variation 0.8 0.8 0.8 0.8 0.8 .. 
13. Tariff quotas (% of all lines) 0.9 0.8 0.7 0.7 0.7 .. 
14. Duty free tariff lines (% of all lines) 3.0 4.9 6.7 7.2 8.6 .. 
15. Non- ad valorem  tariffs (% of all lines) 0.7 0.7 0.7 0.7 0.7 .. 
Table III.1 (cont'd) 
                                                      
14 China, like many other Members, has a transitional period in which to gradually reduce its applied 
tariffs to their corresponding bound levels. WT/TPR/S/161/Rev.1 Trade Policy Review 
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2001  2002  2003  2004  2005  Final 
bound 
ratea 
16. Non- ad valorem  tariffs with no AVEs (% of 
all lines) 0.7 0.7 0.7 0.7 0.7 (0.1) .. 
17. Nuisance applied rates (% of all lines)b 1.5 2.0 2.1 2.2 2.6 .. 
n.a. Not applicable. 
.. Not available. 
a Based on 2005 tariff schedule. 
b Nuisance rates are those greater than zero, but less than or equal to 2%. 
c Domestic tariff peaks are defined as those exceeding three ti mes the overall simple average applied rate (indicator 8). 
d International tariff peaks are defined as those exceeding 15%. 
Note: Figures in brackets include AVEs. 
 The 2001 tariff is based on HS96 nomenclature, 2002 to 2005 tariffs are based on HS02 nomenclature. 
 Calculations exclude in-quota rates and specific rates.  Calcul ations for MFN applied tariffs are based on applied duty rates 
including interim duty rates.  Averages not including interim rates are 15.9%, 12.3%, 11.2%, 10.3%, and 9.9% for 2001, 2002, 
2003, 2004, and 2005, respectively. 
Source:  WTO Secretariat calculations, based on data provided by the authorities. 
0510152025
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 1617 18 19 20 21Chart III.1
Bound tariff averages by HS section, 2002 and 2005
Per cent
Source :   WTO Secretariat calculations, based on data provided by the authorities.2002
2005
01 Live animals and prod.        
02 Vegetable products03 Fats and oils      04 Prepared food, etc.
05 Mineral products
06 Chemicals and prod.07 Plastic and rubber
08 Hides and skins09 Wood and articles10 Pulp, paper, etc.
11 Textiles and articles
12 Footwear, headgear13 Articles of stones
14 Precious stones, etc.15 Base metals and prod.16 Machinery
17 Transport equipment
18 Precision instruments19 Arms and ammunition
20 Miscellaneous manuf.21 Works of art, etc.
Note:      Calculations exclude in-quota rates.Bound average 2005
(10.0%)Bound average 2002
(12.4%)
 China WT/TPR/S/161/Rev.1 
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(c) Applied MFN tariff 
Structure 
23. China's current (2005) applied MFN tariff  is applied at the eight-digit level of the Harmonized 
System (HS).  The tariff consists of 7,550 lines, some 99.4% (7,501 lines) of which are ad valorem ;  
49 tariff lines are subject to non- ad valorem  rates (44 at specific rates and 5 lines that carry either an 
ad valorem  rate, if the price is below or equal to a certain amount, or a compound rate, if the price is 
higher).15  The tariff lines subject to specific rates are mainly in Chapters 37 (photographic and 
cinematographic goods), 2 (meat and edible offal of  poultry), and 5 (frozen gizzards).  In addition, 
55 tariff lines are subject to tariff rate quotas (Chapter  IV(2)), including in HS Chapters 10 (wheat and 
meslin, maize, rice), 11 (cereal flours other than wh eat and meslin, cereal groats), 15 (soybean oil, 
palm oil, rape, and mustard oil), 17 (cane or beet  sugar), 31 (mineral chemical fertilizers), 51 (wool, 
carded or combed), and 52 (cotton).  The tariff analysis presented here includes only out-of-quota 
rates and shows averages including ad valorem  equivalents based on data on unit values provided by 
the authorities (see Annex III.1) as well as excluding the sp ecific rates of duty.  The analysis also uses 
the interim rate for the year as this is effectivel y the applied MFN rate for the products concerned.  
China is also a Member of the WTO Agreement on Information Technology (ITA), which it joined on 
23 April 2003;  the ITA tariff lines, which ar e zero rated, are included in the analysis. 
24. China's applied MFN tariff in 2005 contains 74 separate ad valorem  tariff rates, ranging from 
zero to 65%;  in addition, there are 35 specific rates.  Almost half of the tariff (42%) lies in the range of 5% up to and including 10%, while 17.5% is in the zero up to and including 5% range, and 15.7% 
is in the 10% up to and including 15% range (Chart III.2);  8.6% of the tariff is duty free and 0.3% 
(22 lines) have rates between 60% and 65%. 
Tariff averages, dispersion, and escalation 
25. China's average applied MFN rat es, since it joined the WTO, have closely followed its bound 
rates.  However, while the tariff has been bound at ad valorem  rates, applied tariffs on 49 tariff lines 
are non- ad valorem .  To calculate the ad valorem  equivalents (AVEs) for these tariff lines, the 
Secretariat has used unit values provided by the au thorities, which are either based on international 
market prices or on import values over two to three years.  During the course of this review, the 
authorities also stated that they would be recalcul ating the AVEs on the basis of the formula agreed on 
during the current WTO trade negotiations.  Furthe r information on the calculation of these AVEs and 
how they compare with calculations based on unit  import values for a recent year, is found in 
Annex III.1 and Annex Table III.1.  The analysis of the ad valorem  equivalents based on the data 
provided by the authorities, nevertheless, seems to indicate that for several lines the AVEs are slightly 
higher than the corresponding current bound rates (Tab le III.1).  The simple average of the AVEs is 
also considerably higher than th e overall MFN average (17.6% in 2005 compared with 9.7%), which 
suggests that specific duties tend to conceal relativ ely high tariffs.  However, taking into account the 
AVEs of the 49 specific duty rates does not si gnificantly change the overall MFN average 
(Annex III.1). 
 
  
                                                     
 
15 The five lines are in Chapter 85 and relate to el ectronics items.  The authorities classify 54 lines in 
the tariff as non- ad valorem .  However, several of these lines do not have specific duties but rates of zero.  The 
Secretariat has classified th e latter (zero-rated lines) as ad valorem,  thus resulting in the lower figure of 
49 non- ad valorem  tariff lines used in the tariff analysis. WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 68 
 
 
 (5.1%) (4.9%)  (16.5%)  (13.6%)  (17.6%)  (30.6%)  (8.0%)  (3.0%) 
 (12.2%) 
(11.6%)(16.9%)(34.6%)(14.0%)(4.9%)
(2.4%)
(2.8%)
 (1.2%) (1.5%) (3.4%) (9.5%) (15.7%)(41.9%)  (17.5%) (8.6%) 
05001,0001,5002,0002,5003,0003,5004,000
Duty free >0-5 >5-10 >10-15 >15-20 >20-25 >25-30 >30
Figures in parentheses denote the share of total lines.   Totals do not add to 100% as no tariff rates are available for 
0.6% (representing specific lines) for all three years.  Ca lculations exclude in-quota rates and specific rates and 
include interim duty rates.
WTO Secretariat calculations, based on data provided by the authorities.Number of tariff linesChart III.2
Distribution of MFN tariff rates, 2001, 2002, and 2005
Tariff rates (%)
Note:
Sourc e:MFN 2001
MFN 2002
MFN 2005
 
26. The average applied MFN rate in 2005 is  9.7%, (9.8% including the AVEs based on the 
authorities' data) down from 17.6% in 1997, 15.6% in 2001 before China became a Member of the 
WTO, and 12.2% in 2002 just after it acceded to the WTO.16  The tariff is higher for agricultural 
products, 15.3% (15.2% including AVEs), according to the WTO definition of agriculture, although it 
has declined from 23.1% in 2001 and 18.2% in 2002.   The average tariff for non-agricultural products 
is 8.8% (8.9% including AVEs), declining from 14. 4% in 2001 and 11.2% in 2002 (Table III.1);  
15.6% of tariffs exceed 15% (internationa l tariff peaks), down from 40.1% in 2001. 
27. Despite the gradual decline in tariffs, their dispersion, indicated by the coefficient of 
variation17, has remained relatively unchanged (0.8) sin ce 2002.  The overall standard deviation of 
tariff rates declined gradually, from 12.2% in 2001 to  9.1% in 2002 and 7.6% in 2005.  According to 
the authorities, China has not been able to reform its tariff structure, due mainly to administrative 
costs and shortage of staff and capacity. 
28. Tariff "escalation" occurs when import tari ffs on products increase as they undergo 
processing (or add value).  Tariff escalation results in  a bias against imports of more processed goods 
and therefore gives an effective rate of tariff prot ection to the processed goods that is higher than the 
                                                      
16 Tariffs tend to be a relatively "expensive" type of tax distortion.  Hence, a tariff cut, financed by 
raising indirect taxes to compensate the Government for the lost revenue would increase welfare.  More 
specifically, for each dollar of tax revenue raised in China,  the welfare gain could be as much a US$0.29 if the 
Government switched from tariffs to output taxes as th e revenue collecting policy instrument (Erbil Can, 2004). 
17 The coefficient of variation is defined as the standard deviation divided by the overall tariff average. China WT/TPR/S/161/Rev.1 
 Page 69 
 
 
nominal rate.18  China's overall tariff is subject to ne gative escalation between unprocessed and semi-
processed products and escalation between semi-proc essed and fully processed products (Chart III.3);  
this would suggest that imports of semi-processed products would face lower tariff barriers than raw 
materials and fully processed goods.  Although the over all average tariff rate has declined since 2001, 
the pattern of escalation between the semi-proce ssed and fully processed stages of processing has 
remained low and largely unchanged.  The averag e tariff for unprocessed products has also remained 
consistently higher than for semi-processed products ;  the degree of negative escalation between the 
two stages has increased marginally during this period (14.5% and 12.4% respectively in 2001, and 
9.6% and 7.3% respectively in 2005).  In 2005, negative escalation is especially pronounced between 
semi-processed and processed products in food, beverages and tobacco, and between unprocessed and 
semi-processed products in textiles and clothing. 
(d) Bilateral and regional preferences 
29. Under its bilateral and regional trade agreemen ts, China offers preferential duty to members 
of the Bangkok Agreement, to Pakistan, the member s of ASEAN, and to the Special Administrative 
Regions (SARs) of Hong Kong and Macao.  Special preferential rates apply to some goods imported 
from Bangladesh, Cambodia, Lao People's Democratic Republic, and Myanmar.  The "early harvest" 
agreement with ASEAN also applie s lower rates for certain products.   Duty exemptions and 
reductions may also apply to goods  imported into and exported out of designated areas, designated 
enterprises or for designated uses.  In general, th e concessions offered to these trading partners do not 
result in significant tariff reductions, although H ong Kong, China and the ASEAN countries tend to 
face the lowest tariff rates. 
Bangkok Agreement 
30. Under the Bangkok Agreement, China offers preferences to Bangladesh, India, Korea, 
Lao PDR, and Sri Lanka.  In addition, Bangladesh is offered special preferential rates on some 
products (see below).  The overall average tari ff under the Bangkok Agreement in 2005 was 9.5% 
(compared with an overall MFN average of 9.7%) (Tab le III.2).  Similarly, the rates for agricultural 
products (WTO definition) and non-agricultural products are only slightly lower than the 
corresponding MFN rates (15.1% compared to 15.3% for agriculture, and 8.5% compared to 8.8% for non-agriculture). 
ASEAN 
31. Under the early harvest programme, China has signed separate preferential agreements with 
each member of ASEAN.  In addition to the agre ement tariff rates with these countries, there are 
special preferential tariff agreemen ts with Cambodia, Lao PDR, a nd Myanmar.  The overall average 
agreement tariff rates for ASEAN members range fro m 8.8% to 9.2%, lower than the overall applied 
MFN average.  However, as a result of the sp ecial preferential tariff agreement (and Bangkok 
Agreement for Lao PDR), which eliminates tariffs  for some products from the LDC members of 
ASEAN, the overall average for Cambodia, Lao PDR, and Myanmar is slightly lower (Table III.2). 
                                                     
 
18 The effective rate of protection (ERP) measures the protection provided by the entire structure of 
tariffs, taking into account those levied on inputs as well as those on final products.  It is defined as ERP = (V D – 
VW)/V W, where V D is the value-added in the given sector at domestic prices, which includes tariffs, and V W is 
value added at world prices.   If the nominal tariff on the final product is t, the share of each imported input i in 
the total value of the final product is ai, and the nominal tariff on each imported input is ti, then the effective rate 
of protection can be written as:  ERP = ( t - Σaiti)/(1 - Σai).  Thus, if  t = 10%, ti  = 5% for all inputs and Σai = 0.6, 
the ERP is nearly 20%. WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 70 
 
 
n.a.n.a.0510152025303540
Food,
beverages &
tobaccoTextiles &
leatherWood &
furniturePaper,
printing &
publishingChemicals Non-metallic
mineral
products Basic metal Fabricated
metal
products &
machineryOthern.a.n.a.0510152025303540
Food,
beverages &
tobaccoTextiles &
leatherWood &
furniturePaper,
printing &
publishingChemicals Non-metallic
mineral
products Basic metal Fabricated
metal
products &
machineryOthern.a.n.a.0510152025303540
Food,
beverages &
tobaccoTextiles &
leatherWood &
furniturePaper,
printing &
publishingChemicals Non-metallic
mineral
products Basic metal Fabricated
metal
products &
machineryOtherChart III.3
Tariff escalation by 2-digit ISIC industry, 2001, 2002, and 2005
Per cent
2001
20052002
Not applicable.
Calculations exclude in-quota rates and specific rates, and include interim duty rates.
WTO Secretariat calculations, based on data provided by the authorities.n.a.
Note:
Source :First stage of processing Fully processed Semi-processedAverage applied rate in manufacturing
(15.6% )
Average applied rate in manufacturing
(9.8%)Average applied rate in manufacturing
(12.3%)
 China WT/TPR/S/161/Rev.1 
 Page 71 
 
 
Table III.2 
Summary analysis of China' s preferential tariff, 2005 
(Per cent) 
 
  Number of 
preferential 
lines Overall 
average WTO 
agriculture Animals 
& prod. 
thereof Dairy 
products Fruit & 
vegetables WTO non- 
agriculture Fish & 
fishery 
products Textiles 
& 
clothing 
MFN  9.7 15.3 13.7 12.1 16.0 8.8 10.5 11.5 
Agreement Tariff Rates          
Bangkok Agreementa 749 9.5 15.1 13.7 12.0 15.6 8.5 9.2 10.6 
ASEANb          
  Brunei Darussalam 533 8.9 10.6 3.9 4.0 6.9 8.6 2.9 11.5 
  Cambodia 477 9.0 11.1 4.7 4.0 7.9 8.6 3.0 11.5 
  Indonesia 529 8.9 10.6 3.9 4.0 6.9 8.6 2.9 11.5 
  Lao PDR 358 9.2 12.6 9.5 4.0 10.5 8.6 3.0 11.5 
  Malaysia 535 8.9 10.6 3.9 4.0 6.9 8.6 2.9 11.5 
  Myanmar 515 8.9 10.7 3.9 4.0 6.9 8.6 2.9 11.5 
  Singapore 536 8.8 10.3 3.9 4.0 5.7 8.6 2.9 11.5 
  Thailand 516 8.9 10.4 3.9 4.0 5.7 8.6 2.9 11.5 
  Viet Nam 484 9.0 11.1 5.2 4.0 7.0 8.6 2.9 11.5 
Hong Kong, China 1,061 8.2 13.7 13.2 7.9 14.7 7.2 6.7 8.1 
Macao, China 502 8.8 14.7 13.7 12.1 15.9 7.8 10.2 8.3 
Pakistan 748 9.5 15.1 13.7 12.0 15.7 8.5 9.2 10.6 
Least developed preferential rates          
Special preferential tariff 
agreementc 182 9.5 15.0 13.5 12.1 15.8 8.6 9.3 11.1 
Special preferential tariff 
agreement for:          
Bangladesh 196 9.5 15.0 13.5 12.1 15.8 8.6 9.0 11.0 
Cambodia 491 9.0 12.2 6.5 12.1 12.5 8.4 5.6 10.9 
Lao PDR 406 9.1 13.1 6.7 12.1 14.5 8.4 9.0 10.7 
Myanmar 299 9.3 14.0 9.8 12.1 15.4 8.5 5.8 11.0 
Memorandum:          
Bangladeshd 893 9.2 14.8 13.5 12.0 15.5 8.3 7.9 10.2 
Lao PDRe 1,306 8.5 10.8 4.0 4.0 9.5 8.1 2.7 9.9 
Cambodiaf 789 8.5 9.5 2.6 4.0 6.7 8.3 1.9 10.9 
Myanmarf 690 8.6 10.1 3.3 4.0 6.5 8.4 2.0 11.0 
a Preferential rates under the Bangkok Agreement are applicable to the Republic of Korea, Sri Lanka, Bangladesh, India, and 
Lao PDR. 
b Including early harvest arrangement as applicable. 
c See section (ii)(a) for list of countries unde r the special preferential tariff agreement. 
d Including Bangkok Agreement and sp ecial preferential tariff rates. 
e Including Bangkok Agreement, ASEAN preferences  and special preferential tariff rates.  
f Including ASEAN preferences and special preferential tariff rates. 
Note: Calculations exclude in-quota rates, and specific rates, and include interim duty rates. 
Source:  WTO Secretariat calculations, based on information provided by the Chinese authorities. 
Other bilateral preferential arrangements 
32. China also maintains a preferential agreement with Pakistan.  The overall average tariff under 
this agreement is 9.5%, slightly lower than th e overall MFN rate.  The Special Administrative 
Regions of Macao and especially H ong Kong have somewhat lower overall average preferential rates, 
8.8% and 8.2%, respectively. WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 72 
 
 
Special preferential tariff agreement 
33. Unilateral special preferential tariffs (zero rate d) are offered for some products (182 tariff 
lines) to least developed countries19;  the number of countries receiving these preferences was 
increased to 39 in September 2005 (see section (ii)(a) for a full list).  Due to overlapping preferences 
offered to some of these countries (for example Bangl adesh has special preferential tariffs but also 
receives preferences under the Bangkok Agreement), the actual number of tariff lines receiving these 
preferences may be greater than 182 (Table III.2). 
34. Average tariffs as a result of these unilateral preferences, at 9.5%, are not much lower than 
applied MFN rates.  However, taking into account only the 182 lines, the average MFN rate 
(including interim rates) is 9.8% (compared to zer o under the special preferential tariff agreement).  
Moreover, as a result of the early harvest agreem ents with ASEAN countries, China provides better 
market access to all ASEAN countri es than to least developed c ountries included under its unilateral 
special preferential tariff agreement;  for example,  while the special preferential tariff agreement  
reduces the overall tariff to 9.5%, the overall av erage tariff for ASEAN countries ranges from 8.8% 
for Singapore to 9% for Viet Nam and Cambodia, to 9.2% for Lao PDR, although Cambodia and Lao 
PDR also receive special preferential tariff preferences.  
(e) Border trade and other preferences 
Border trade 
35. Preferential treatment, including through tariff preferences, is permitted for border trade under 
certain circumstances in accordan ce with the "Circular of the State Council on Issues Concerning 
Border Trade" issued in 1996.  According to th e authorities, China's border trade policy plays an 
important role in the development of these areas,  and the promotion of trade and exchanges with 
neighbouring countries.20  There are two provisions for preferential treatment of border trade:  
residents within a 15-20 kilometre area of the border may import products worth up to Y 3,000 per 
person per day free of duty through designated places or fairs.  Normal MFN tariffs and VAT rates are 
charged for all items in excess of this value;  and enterprises registered in approved prefectures, 
counties, and cities along the border, that are granted the right to conduct border trade, are subject to a 
50% reduction in the tariff and VAT rates on their imports, except on cigarettes, alcohol, cosmetics, 
and products under import quotas (discontinued as at  1 January 2005), tariff rate quotas and import 
licensing.  Since 2001, aluminium ingots (as of 15 July 2001), diamonds (1 February 2002), polyamide 6 (1 July 2002), 20 products including boric acid, paper pulp, and certain nonferrous 
metals (1 June 2003), a nd copper mattes and six other products (31 December 2003) have been added 
to this list.
21  Products subject to anti-dumping, counter vailing or safeguard actions are also not 
eligible for such preferences.  According to China's report to the Council on Trade in Goods under the 
                                                      
19 According to an announcement by President Hu Ji ntao at the High Level Meeting on Financing for 
Development at the United Nations on 14 September 2005, preferences are extended on 190 tariff lines.  
However, as the MFN duty on eight of these lines is zero, implying no preferences for these lines, the 
Secretariat has based its calculations on 182 lines. 
20 WTO document G/C/M/66, 4 December 2002. 
21 Other products include; electrical goods such as televisions, video cameras and recorders, VCRs, 
stereos, air conditioners, washing machines, refrigerators, cameras, Xe rox machines, micro computers and 
peripheral equipment, telephones, and wireless beeping systems, as well as furniture, lamps, dietary materials 
(including condiments, meat, birds, eggs, vegetables, aqua products, fruit, beverages, and dairy products), automobiles and spare parts,  processed oil, and steel. China WT/TPR/S/161/Rev.1 
 Page 73 
 
 
Transitional Review Mechanism, total border trade accounted for less than 1% of total imports and 
exports (0.82%) in 2004.22 
Other tariff reductions 
36. Reduced or zero rates of customs duty are available for imports by companies established in 
the special economic or other special zones.  In addition, goods impor ted under processing trade, 
where the imported goods are processed into e xports, can be imported in bond and exempt from 
payment of import duty as long as they are processed and exported;  if the goods are not exported import duties are collected by Customs. 
(f) Inward article duty 
37. An inward duty is levied on luggage and othe r personal items belonging to persons entering 
the Customs Territory of China in excess of a "r easonable amount which suffices personal use".  The 
tariffs are calculated according to the "Methods of  the General Administration of Customs (GAC) on 
the Imposition of Import Duty on Inward Personal Belongings and Personal Postal Product (the 
Methods), 1994".  According to the authorities, the GAC determines the reasonable amount required 
for personal use based on "an internationally exercise d principle", which, according to the authorities, 
"refers to the usual amount each person is allowed to bring inward for personal use".  There are 
currently three rates of duty depending on the produc t, 50%, 20% and 10% (Tab le AIII.2).  However, 
under the Regulations on Import and Export Tariff,  inward duty does not apply to imports of 
machinery.  In some cases, the Tariff Commission d esignates certain products which, regardless of 
whether they meet the criteria of "reasonable amount which suffices personal use", must be charged 
the inward article duty rate;  currently no products are designated.  It appears that some of these 
products are subject to inward duty rates that are higher than the corresponding applied MFN duty 
rates.  Certain products are prohibited or restri cted under the inward duty regime and may not be 
imported as personal belongings.
23 
(iii) Other charges affecting imports 
(a) Value-added tax 
38. Imports, like domestic products, are subject to a value-added tax.  The current VAT rates are 
17% and 13% for most goods;  exemptions are gran ted to some products (section (4)(ii)(a)).  The 
VAT rates for domestically produced goods and impor ts appears to be the same.  However, whereas 
agricultural products sold by farmers are exempt from VAT (although inputs such as fertilizer are 
not), imports of like products are subject to VAT (Chapter IV(2)).  Some imports may be subject to 
tax reductions or exemptions such as those into the special economic zones. 
(b) Excise tax 
39. In addition to customs duty and VAT, an excise (or consumption) tax is levied at the border 
on luxury items including cigarettes, alcoholic  beverages, gasoline, and motor vehicles 
(section (4)(ii)(a) below).  The excise tax rate fo r domestically produced goods and imports is the 
same except for tax reductions and exemptions on some imports into the special economic or other 
zones or for export processing. 
                                                      
22 WTO document G/L/722, 10 December 2004. 
23 According to the authorities, under the inward du ty regime there are two catalogues "the Catalogue 
of Import and Export Prohibitions by Individual Passengers" and "the Catalogue of Import and Export Restrictions by Individual Passengers". WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 74 
 
 
(iv) Customs valuation and rules of origin 
(a) Customs valuation 
40. Customs value is determined by Customs on the ba sis of transaction value, namely the c.i.f. 
price.24  Where it is not possible to determine the transaction value, the customs value is based on:  the 
transaction value of identical or similar goods imported into the Customs territory of China at or about 
the same time as the goods being valued;  the unit pr ice of the greatest aggreg ate quantity of identical 
or similar goods imported by an unrel ated importer at or about the same time;  or the computed value 
(including the cost of materials, components and parts, profit and general expenses attributed to 
identical or similar goods sold in China, and the c.i. f. price).  Failing these, value is determined "on a 
reasonable basis" as provided under Article 7 of th e Agreement on Implementation of Article VII of 
the GATT 1994.  The order of application of the transaction value and value based on the unit price 
may be reversed upon request by the importer.  
(b) Rules of origin 
41. The Regulations on Rules of Origin of Impor t and Export Commodities, which entered into 
force on 1 January 2005, replaced the Provisional Rules of Origin for Imports of the General 
Administration of Customs, in force as of 6 Dece mber 1986.  Origin under the Regulations is defined 
as "goods produced or manufactured wholly within one country or region" or, in the case of goods 
produced in two or more countries or regions, "the country or region where substantial transformation 
has been made and finalized".  Substantial transfor mation is defined either as a change in the tariff 
heading of the good according to China's tariff classifica tion, or if the value added is no less than 30% 
of the total value of the product.25 
42. China also has preferential rules of orig in under the Bangkok Agreement, which it 
implemented on 1 January 200226, and under its preferential agreement with ASEAN countries.  
Under its bilateral agreements, Ch ina maintains preferential rules of  origin with Hong Kong, China, 
and Macao, China under the Closer Economic Partners hip Agreements (CEPA), and will be issuing 
new rules of origin for products qualifying unde r the early harvest programme with Pakistan 
(Table III.3). 
Table III.3 
China's preferential rules of origin, 2005 
Agreement/Country Rules 
Bangkok Agreement Products must be wholly produced or obtaine d in the country qualifying under the Bangkok Agreement or the 
value of non-originating parts or components used in the manufacture must be less than 50% of the f.o.b. 
value of the product.  The country of origin is defi ned as the country where th e last manufacturing operation 
takes place.  In addition, goods under the Bangkok Agreement must enter China directly. 
ASEAN Products must be wholly produced or obtained in ASE AN countries;  or the content of products originating in 
any one of the ASEAN countries should be no less than  40% of total content;  or the value of the non-
originating parts or components used in the manufactur e of the products must be no more than 60% of the 
f.o.b. value of the product.  The country of origin is  defined as the country where the last manufacturing 
operation takes place.  In addition,  goods must enter China directly. 
Least developed 
countries Products must be wholly produced in the country of orig in or the value of non-originating parts used in the 
manufacture of a good may be up to 60% of the f.o.b. value of the product.  Goods under the Bangkok 
Agreement (originating in Bangladesh) must enter China through "direct transportation". 
Table III.3 (cont'd) 
                                                      
24 WTO document G/VAL/N/1/CHN/4, 7 June 2004. 
25 WTO document G/RO/53, 1 August 2002. 
26 WTO document G/RO/53, 1 August 2002. China WT/TPR/S/161/Rev.1 
 Page 75 
 
 
Agreement/Country Rules 
Hong Kong, China Products must be wholly produced in Hong Kong, China or have Hong Kong, China content of at least 30% of 
value added;  in addition, the final stage of pr ocessing must be carried out in Hong Kong, China. 
Macao, China Products must be wholly pr oduced in Macao, China or ha ve Macao, China content of  at least 30% of value 
added or have resulted in a change in the HS four digit tariff heading;  in addition, the final stage of processing 
must be carried out in Macao, China. 
Pakistan Under negotiation. 
Source:  Information provided by the authorities. 
43. Decisions regarding origin are to be taken by  Customs in accordance with the Regulations on 
Rules of Origin of Import and Export Commoditie s.  Under the "Measures of General Customs 
Administration on Implementing Administrative Review Law" (GCA Decree No. 78 of 1999), 
administrative decisions made by Customs may be a ppealed.  However, no statistics are collected in 
this regard. 
(v) Import restrictions 
(a) General import prohibitions 
44. Import prohibitions have been no tified under Article XX at the HS eight-digit level;  the latest 
notification was made in December 200427;  during the course of this Review, the authorities provided 
data on import prohibitions and other restrictions for 2005.  In 2005, the products subject to import 
prohibitions included some products of animal or igin, opium, mineral products, rubbers, chemicals, 
raw hides, skins and leather, clothing, ash of pr ecious metals, base metals , precision equipment, and 
games;  imports of used articles belonging to  HS sections 16 and 17 (machinery and transport 
equipment respectively) are also prohibited.  A ccording to the authorities, these prohibitions are 
maintained for health and environmental safety reas ons;  most of the items are used, scrap or waste 
materials. 
45. In 2005, 30 tariff lines at the HS eight-digit level were subject to import prohibitions;  in 
addition, 458 lines were partially subject to import prohibition ("ex" lines mainly referring to used or 
scrap machinery, transport and precision equipment) .  Taking all these together, around 6.5% of tariff 
lines are subject to import prohibitions (0.4% if ta king only the lines that are fully subject to import 
prohibitions).  Since 2002, the number of tariff lines  that are fully subject to import prohibitions has 
declined from 32 to 30;  however, the number of "ex" lines (part of a tariff line) subject to import 
prohibitions has increased from 405 in 2002 to 458 (Chart III.4). 
46. The Foreign Trade Law (Article 18) permits the State Council's competent Foreign Trade 
Authority (MOFCOM) to issue temporary prohibitions or restrictions on imports of certain products.  
These temporary prohibitions appear to relate mainly  to restrictions under international conventions, 
such as a prohibition announced in 2004 (MOFCO M, GAC and AQSIQ announcement No. 4 of 2004) 
on imports of logs, wood products, and diamonds or iginating in Liberia to implement UN Security 
Council Resolution 1579.28 
                                                      
27 Notified to the WTO Market Access Division. 
28 A full list of such prohibitions was not provided to  the Secretariat because the authorities state that 
they have not yet sorted out the list. WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 76 
 
 
051015202530354045
01 02 05 06 07 08 09 11 14 15 16 17 18 20Chart III.4
Import prohibitions and prohibitions und er processing trade by HS section, 2005
Per cent of HS section
Source :   WTO Secretariat calculations, based on data provided by the authorities.01 Live animals and prod.        
02 Vegetable products05 Mineral products06 Chemicals and prod.07 Plastic and rubber
08 Raw hides and skins09 Wood and articles11 Textiles and articles14 Precious metals
15 Base metals and prod.16 Machinery17 Transport equipment18 Precision instruments
20 Miscellaneous manuf.
Note:    Import prohibition
Products subject to import prohibition as well as import prohibition under processing trade
Import prohibition under processing trade
There is no import prohibition or import prohibition under processing trade for HS sections 03, 04, 10, 12, 13, 19 
and 21.    Out of a total of 286 HS lines subject to import prohibition, 256 lines (representing 89.5%) are only partially covered by the prohibition.   Of the 143 HS lines subject to import prohibition under processing trade, 57 lines (representing 39.9%) are only partially covered by the prohibition.  All 202 lines that are subject to import prohibition as well as to import prohibition under processing trade are partially covered.6570
 
(b) Import prohibitions under processing trade 
47. In addition to general import prohibitions, 143 HS eight-digit tariff lines (of which 86 are 
fully prohibited) were subject to import prohibi tions only under processing trade in 2005.  Processing 
trade refers to products that are imported for the express purpose of export after being processed in 
China.  Imports under processing trade are held in bond and are not subject to customs duty on condition that they are processed and exported within  a certain period of time, failing which they 
become subject to payment of import duty.  The products whose import is prohibited for processing 
purposes include some agricultural pr oducts (frozen and dried shark's fi n, birds nest and frozen offal 
of chicken), minerals (including anthracite, bitu minous coking coal, lignite), fertilizers (including 
urea, animal and vegetable fertilizers other than gu ano), waste and scrap metal, used toys, and other 
used articles (Chart III.4).  In addition, 34 of these 143 tariff lines also appear to be subject to China WT/TPR/S/161/Rev.1 
 Page 77 
 
 
automatic import licensing (the lines re late mainly to fertilizers (HS 31)).   According to the 
authorities, imports of these products are prohibite d under processing trade for reasons of national 
security, environmental protection, or human, animal and plant health and safety concerns.  It appears, 
however, that such import prohibitions are al so issued for industrial policy reasons.29 
(c) Restrictions and licensing 
48. While China has made several changes to its im port licensing regime since its accession to the 
WTO, it remains intricate and opaque.  The changes include:  the enactment of new legislation to 
administer import licences;  the modification and phasing out on a yearly basis of products subject to licensing, in accordance with China's Protocol of  Accession;  and the phasing out of import tendering. 
49. As at 27 September 2005
30, China had notified three import licensing regimes:  import 
licences, automatic import licences, and tariff rate quotas (TRQs) for imports;  import quotas were abolished on 10 December 2004.
31  The licensing regime as a whole is regulated, inter alia , by the 
Foreign Trade Law, the Administrative Permission Law, and the "Measures for Administration of Automatic Import Licensing for Goods";  the latter two set out the implementing details of import 
licensing procedures.  Details of commodities subj ect to import licensing (except those goods subject 
to TRQs) are published annually by the Ministry  of Commerce (MOFCOM) in the Catalogue of 
Goods Subject to Import Licence Administration and the Catalogue of Goods Subject to Automatic 
Import Licensing Administration.   TRQ quantities, their allocati on methods, and conditions of 
applying for the TRQ are published annually in th e form of a MOFCOM Ministry Announcement for 
products managed by MOFCOM
32, and on the website of the Na tional Development and Reform 
Commission (NDRC), which manages TRQs for wheat, maize, rice, and cotton (see below and 
Chapter IV(2)).  According to China's notificati on on licensing, made in December 2004, it appears 
that two lines that were due to be  removed from the list of products subject to licensing, remain on the 
list.33 
Tariff rate quotas 
50. Tariff rate quotas exist for wheat, maize, rice, soyb ean oil, palm oil, rape oil, sugar, wool, 
wool tops, cotton, and chemical fertilizers.  Accord ing to China's WTO notification, the system serves 
the purpose of restricting the quantity of imports.34  The National Development and Reform 
Commission (NDRC) and MOFCOM are jointly responsible for administering tariff rate quotas for 
                                                      
29 For example, import prohibitions for processing trade imposed on 25 May 2005 on certain steel 
products were issued on the grounds of "relevant requirements on national macro control and industry 
development policies" (Ministry of Commerce and General Administration of Customs, 2005). 
30 WTO document G/LIC/N/3/CHN/4, 30 September 2005. 
31 WTO document G/LIC/W/25, 19 September 2005. 
32 This is in accordance with th e Interim Measures on Administration of Tariff Rate Quota for 
Importation of Agricultural Products (issued by MOFCOM and the NDRC);  and the Interim Measures on the 
Administration of Tariff Rate Quota for Importation of Fertilizers (issued  by the former State Economic and 
Trade Commission and the General Administration of Customs). 
33 Under Annex 3 of China's Protocol of Accession, licensing was due to be phased out for 
HS 28371110 (sodium cy anide) upon accession, and fo r part of HS 84 435912 (platen screen press printing 
machinery) in 2002. 
34 WTO document G/LIC/N/3/ CHN/2, 9 October 2003. WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 78 
 
 
rice, maize, wheat, and cotton, and MOFCOM is sole ly responsible for fertilizers, other agricultural 
products, wool, and wool tops (Chapter IV(2)).35   
Import licences 
51. In 2005, import licences were mostly issued  for products in accordance with China's 
obligations under international conventions.  Applic ants must apply for an import permit prior to 
applying for an import licence.  Import permits ar e issued by different entities according to the 
product.  For chemicals licensed under the Chemical  Weapons Convention, the competent authority is 
the Office of Implementing the Convention on the Prohibition of the Development of Chemical 
Weapons, based in the NDRC;  for chemicals used to  produce narcotics, the competent authority is 
MOFCOM;  and for ozone-depleting substances, the competent authority is the State Environmental 
Protection Administration.   Under Article 11 of the "Measures on Administration of Import Licences 
for Goods", applicants are required to submit the business certificate of registered companies and "record registration form" of foreign trade operators.
36  Foreign invested enterprises must also submit 
their certificates of approval.  If the importers are state-owned enterprises, additional requirements include "related documents of MOFCOM or the de partments concerned".  Once the import permit is 
approved, the importer is granted a licence by MO FCOM;  after obtaining the import permit, the 
licence is granted automatically.  A "one licence one customs" licence, requires the import licence to 
be used only once during its period of validity at only one customs post;  a "non-lot licence" may be used up to 12 times within its period of validity. 
52. Under the "Measures on Administration of Import Licences for Goods", which came into 
force on 10 January 2005, if the applicant meets the requirements, the licence should be issued within 
three working days from the date of receipt of the application, or no more than ten days in special 
cases.
37  According to China's notification to the WTO,  if the justification for importation is believed 
to be "unconvincing", the application may be re fused.  It is not clear to the Secretariat how 
"unconvincing" is defined.  Importe rs may appeal the decision to MOFCOM if they are not satisfied 
with the decision.  According to the authorities, no statistics are coll ected on such appeals or their 
outcome. 
53. According to China's notifications to the WT O, the number of tariff lines fully subject to 
import licensing declined from 185 (2.53% of the ta riff) in 2002 to 90 (1.20%) in 2004;  the number 
of lines partly subject to import licensing increased fro m 29 to 32 during this period.  In total, the 
number of lines partially and fully covered by import licensing declined from 214 in 2002 to 82 in 
2005.38  The products relate mainly to chemicals and chemical products (78 lines) (Chart III.5).39 
                                                      
35 Previously all the quotas except on fertilizers were administered by the State Development Planning 
Commission (SDPC);  quotas for fertilizers were admini stered by the State Economic and Trade Commission 
(WTO document, G/LIC/N/3/CHN/1, 23 September 2002). 
36 MOFCOM Announcement No. 27 of 2004. 
37 Article 19 of the "Measures on Administration of Import Licences for Goods". 
38 Figures for 2002 include products subject to import tendering, many of which have, as of 2004, been 
moved to the automatic import licensing list;  excluding products subject to import tendering the 2002 figure is 
172 (2.35% of the tariff). 
39 The data provided for 2005 do not appear to distinguish between lines that are partially subject to 
licensing and those fully subject to licensing. China WT/TPR/S/161/Rev.1 
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05101520253035404550
01 02 04 05 06 07 09 10 11 15 16 17 18 20Chart III.5
Import licensing by HS section, 2005
Per cent of HS section
Source :   WTO Secretariat calculations, based on data provided by the authorities.Automatic import licensing
Products subject to automatic import licensing as well 
as import licensing
01 Live animals and prod.        
02 Vegetable products04 Prepared food, etc.05 Mineral products06 Chemicals and prod.
07 Plastic and rubber09 Wood and articles10 Pulp, paper, etc.11 Textiles and articles
15 Base metals and prod.16 Machinery17 Transport equipment18 Precision instruments
20 Miscellaneous manuf.Import licensing
Note:    HS sections 03, 08, 12, 13, 14, 19 and 21 are not sub ject to (automatic) import licensin g.    Four lines are sub ject to 
automatic licensing as well as to import licensing..
 
 
Automatic import licensing 
54. Products that are not subject to import restrictions but require import monitoring, are subject 
to automatic import licensing.  It also appears that products subject to "import tendering" until 2004 
have now been moved to the automatic import licensing list.40  According to the authorities, as a large 
number of non-tariff measures have been eliminated  over a relatively short period, the automatic 
import licensing system is used to monitor trade in these products and to ensure that "it does not 
fluctuate drastically";  in addition, monitoring trade in these products helps to show the effect of this 
trade on the domestic industry and market.  The number of lines fully and partially subject to 
automatic import licensing rose from 1,191 in 2002 ( 16.28% of the tariff) to 1,205 in 2005 (16% of 
                                                      
40 Import tendering was required for machinery and electronic products. WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 80 
 
 
the tariff).  Products subject to automatic import li censing are mainly base metals and articles thereof 
(HS section 15), transport equipment (section 17), machinery (section 16), plastics and rubber 
(section 7), textiles and articles thereof (sec tion 11) and precision instruments (section 18) 
(Chart III.5). 
55. Applications for automatic import licences mu st be submitted to entities authorized by 
MOFCOM.  These entities are:  the Bureau of Quota and Licence Affairs of MOFCOM, 
corresponding departments in the provincial government, and 16 local MOFCOM Special 
Commissioner's Offices for catalogue 1 products, which include photographic products, textile and 
clothing products, some alcohol products, agricu ltural products, and waste and scrap metals;  the 
MOFCOM, corresponding departments in the pr ovincial government, and 16 local Special 
Commissioner's Offices of the MO FCOM, as well as the designated Office of Import and Export of 
Machinery and Electronic products in other centr al government ministries and commissions for 
catalogue 2 products, which include machinery, engi nes and air conditioners;  and the Bureau of 
Quota and Licence Affairs of the MOFCOM, a nd MOFCOM departments in the provincial 
government for catalogue 3 products, which include petroleum and chemical and related products.  
Under the "Measures for Administration of Auto matic Import Licensing for Goods", effective 
1 January 2005, applicants are required to provide, inter alia,  evidence of their  qualification to carry 
out trade in the goods concerned, and approval certifi cates for FIEs (for first time applicants), import 
contracts, end use, if stipulated by laws and regulations, as well as other documents required by the 
Ministry of Commerce or for specific goods.41  According to China's notification to the WTO, as long 
as the content and format of the application for an  import licence are correct, the automatic licence, 
"to the extent practicable", is gran ted immediately, and no later than  ten days.  The authorities state 
that since applications for automatic import licen ces are processed electronically, the licence is 
usually granted within one day of application;  on rare occasions, the licence may take a few days, but 
is granted within the maximum ten-day period. 
56. An automatic import licence is valid for a ma ximum 180 days within a given calendar year 
and may be issued either for individual batches of  imports or may be valid for several batches of 
imports.42  The licence may be cancelled at any time by th e State if it decides to temporarily prohibit 
the import of goods subject to automatic licensing or to impose a quantitative restriction on those 
goods.  Such temporary prohibitions or restrictions may be imposed, inter alia,  under international 
conventions or due to a disease outbreak. 
57. In certain cases, importers may not be required to obtain an automatic import licence.  These 
are:  imports and exports of goods under processing trade (except crude and processed oil);  foreign-invested enterprises importing goods for inve stment or for their own use "within the sum of 
investment"
43;  samples with a value no more than Y 5,000 per batch;  goods imported temporarily 
and subject to Customs supervision;  and othe r goods excused from obtaining an automatic import 
licence in accordance with national laws and regulations .  It was not clarified to the Secretariat, which 
goods are exempted from licences or re levant laws.  Two kinds of licences are issued:  a "lot licence" 
and a "non-lot licence".  The former is used for de claring imports in one lot or batch;  if several 
batches are being imported under the same contract, the importer must apply for a "non-lot licence".  For the "non-lot licence", the same import licence may be used to declare imports of different batches 
of imports carried out within a given period of time.   The licence is valid for six months within the 
same calendar year. 
                                                     
 
41 Article 8 of the "Measures for Administration of Automatic Import Licensing for Goods". 
42 Article 18 of the "Measures for Administration of Automatic Import Licensing for Goods". 
43 According to the authorities, where investors invest in the form of goods instead of money, the value 
of products imported may not exceed the value of the investment made by the investor. China WT/TPR/S/161/Rev.1 
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58. According to the "Implementation Rules on the Administration of Automatic Import 
Licensing of Important Industrial Products", any disputes arising from decisions by the authorities on automatic import licensing are subject to conciliation or  mediation by the Ministry of Commerce.  In 
the event that the parties are dissatisfied by th e mediation, they may apply for an administrative 
review or lodge administration litigation pursuant to the law.  According to the authorities, however, 
this rule is no longer valid;  it is not clear to th e Secretariat whether the ru le has been replaced and 
whether there are any changes to this procedure.  No statistics are collected by the authorities with 
regard to such mediation. 
Import quotas 
59. At the time of China's accession to the WTO, import quotas were applied to a number of 
products, including motor vehicles, petroleum products , natural rubber products, cameras, and wrist 
watches.  These products were subject to both im port quotas and import licences, aimed at protecting 
domestic industries;  under China's protocol of Ac cession to the WTO, they were to be phased out 
gradually by 1 January 2005.  According to China's notification to the WTO Secretariat in 2004, the products subject to import quotas in 2004 included motor vehicles (35 lines in HS Chapter 87).  The 
quota was US$10.494 billion for motor vehicles, and 3,500 and 900 tonnes, respectively, for the 
two chemical products.  According to the authorities, the import quotas were removed on 1 January 2005,  and the items are no longer subject to import licensing.  In addition, it appears that 
two chemical products (HS 29031910 and HS 2903410 0), which were subject to import licences 
under the Montreal Protocol in 2002 and 2003, remain subject to import quota.
44 
60. The allocation of quotas was based on the app licant's capacity for production, sales, and 
service and past import performance, the number of new applicants, quota utilization records, and other relevant factors, including the scale or size of the enterprise, tax records, etc. 
(vi) Trading rights 
61. The right to trade was restricted to some 35, 000 qualifying Chinese enterprises at the time of 
China's accession to the WTO;  the qualification criteria included, inter alia,  a minimum registered 
capital requirement of Y 5 million at the time of accession.  Foreign-inve sted enterprises were 
permitted to export and import, but only those produ cts used in their own production and for export.
45  
Under its Protocol of Accession, China agreed to phase out these restrictions within three years;  
during the course of this Trade Policy Review, the authorities confirmed that these restrictions were 
phased out six months ahead of schedule.  Th e phase-out included a gradual reduction in the 
minimum registered capital requirement for Chinese companies over three years at the end of which 
the requirement and the examination and approval sy stem was eliminated.  China also undertook to 
progressively liberalize the scope and availability of trading rights for foreig n-invested enterprises 
over three years.46  However, the granting of trading right s to all enterprises in China did not entitle 
importers to distribute goods within China.  Any liber alization in distribution services is to be carried 
out in accordance with China's schedule of specific commitments in the GATS. 
                                                      
44 According to the authorities, since 1 January 2005, these products are subject only to import licence, 
although they still appeared as being subject to import quotas in 2005 according to data provided by the authorities. 
45 WTO document WT/ACC/CHN/49, 1 October 2001. 
46 The progressive liberalization would take place in  the following manner:  one year after accession, 
joint-venture enterprises with minority foreign shareholding would be granted full rights to trade;  beginning 
two years after accession joint ventures with a majority foreign shareholding would be granted full rights to 
trade;  and within three years of accession all enterprises would be grante d the right to trade except for in 
products reserved for import and export by state-trading enterprises. WT/TPR/S/161/Rev.1 Trade Policy Review 
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62. Under Article 9 of the Foreign Trade Law, wh ich became effective on 1 July 2004, the Rules 
for the Registration of Foreign Trade Operators we re adopted on 19 June 2004  and became effective 
on 1 July 2004.  All entities that wish to engage  in import and export of goods or technologies are 
required to register with local foreign-tr ade authorities authorized by the MOFCOM.47  In order to 
register, foreign traders must complete a regi stration form and submit additional documentation, 
including a copy of their business certificate, of the organizational code certificate issued by the 
AQSIQ, and the certificate of approval of the foreign-inv ested enterprise, if the tr ader is an enterprise 
with foreign investment.  A self-employed entrepre neur must submit a notarized property certificate, 
while a foreign enterprise (registered outside China) must submit a notarized certificate of 
creditworthiness.  Registration must be completed within  five days of receipt of the application and all 
supporting documents.  Once traders have registered, they must, within 30 days, complete all relevant 
procedures necessary for the operation of foreign trade with the local authorities from customs, 
inspection and quarantine, foreign exchange control and taxation, by presenting the Form with the 
registration seal, which signifies that registration is  complete.  Article 10 of the Foreign Trade Law 
states: "in accordance with relevant provisions of the Foreign Trade Law, where the Ministry of 
Commerce has decided to prohibit the relevant foreign trade operator from engaging in business 
activities related to the import or export of releva nt goods or technologies for the period of one to 
three years, the registration authority shall revoke its Form." 
(vii) State trading 
63. Under China's Protocol of Accession, products imported by state-trading enterprises (STEs) 
are:  grain (including wheat, maize, and rice), vegetable oil, sugar, tobacco, crude oil and processed 
oil, chemical fertilizer, and cotton.  State-tradi ng enterprises in 2003 continued to be active in the 
import of these products.48  However, under China's Accession Protocol, the non-STE share in 
imports of processed and crude oil is to be incr eased annually by 15% for the first ten years after 
accession, after which the growth rate is to be reviewed with interested Members.49 
64. Under the Foreign Trade Law (2004), the State may subject certain goods to state trading, 
including to ensure stable domestic supply, stabili ze prices, safeguard food safety, and to protect the 
environment and exhaustible resources.50  In principle, goods subject to state trading can be imported 
(and exported) only by the authorized enterpri ses, though specific quantities may be imported and 
exported by "unauthorized enterprises" which are non-state trading enterprises.  According to the 
authorities, for wheat, maize, rice, sugar, rapeseed oil, soybean oil, palm oil and cotton, the non-state 
trading portion is open to enterprises that have ac quired trading rights throu gh registration and have 
met the requirements indicated in the annual announcement publishing the quota volume and allocation methods;  for crude and processed oil, and fertilizers, details are contained in MOFTEC 
Decree No. 27 of 2002 and MOFTEC Announcement 19 of  2002.  The list of goods subject to state 
trading and of authorized enterprises is determin ed, adjusted, and made public by the Ministry of 
Commerce.  No further details were provided on how of ten the list is issued or adjusted or the criteria 
used to adjust the list of goods subject to state trading. 
                                                     
 
47 In order to qualify as registration authorities, they must satisfy certain conditions, including, 
inter alia,  size of office premises, number of full time staff, technical support and maintenance, as well as the 
relevant equipment to connect them to MOFCOM's network in order to register forei gn traders (Article 4 of the 
Rules for the Registration of Foreign Trade Operators, Decree No. 14, 2004 of the Ministry of Commerce). 
48 WTO document G/STR/N/9/CHN/Add.1, 14 July 2003. 
49 Annex 2A1.  Pending conclusion of the review talks, the volume available to non-state importers on 
that date is to be increased annually  in line with the average growth in ov erall imports of the product concerned 
over the preceding ten-year period (footnote (2), Annex 2A1 of China's Protocol of Accession). 
50 WTO document G/STR/N/9/CHN/Add.1, 14 July 2003. China WT/TPR/S/161/Rev.1 
 Page 83 
 
 
65. Data provided by the authorities on the allocation of tariff rate quotas to state trading 
enterprises show that their share of total quotas al located for wheat, sugar, fertilizers, and tobacco 
continues to be high and relatively unchanged si nce 2002, just after China acceded to the WTO.  
Allocations for rice, maize, and cotton have also remained relatively uncha nged during this period, 
with STEs accounting for 50% and 33 %, respectively, of total quotas allocated for rice and cotton, 
while their share of import quotas for maize has falle n from 68% to 60% (Table AIII.3).  For chemical 
fertilizers and tobacco, the STE share is 100%.   In 2004, China allocated an additional 
1,000,000 tonnes of cotton (to be imported at tariff quota rates) of which 30% was allocated to STEs;  
an additional quota of 1.4 million tonnes of cotton w as also allocated in 2005.  Under Annex 2A1 of 
China's Protocol of Accession to the WTO, a review of the annual growth in volume of processed oil 
imported by non-state trading enterprises was to ha ve been conducted with interested Members by 
2004.  However, according to the authorities, no such review has taken place.  No data are available 
on actual imports by STEs of these products duri ng the period under review;  according to the 
authorities, one of the reasons Customs is unable to collect such data u nder the existing customs 
clearance system is that non-STEs may import their allocated amount through STEs. 
(viii) Contingency measures 
(a) Anti-dumping and countervailing 
Anti-dumping 
66. Anti-dumping measures may be taken under the Fo reign Trade Law and the Regulations of 
the People's Republic of China on Anti-Dumping (promulgated by Decree No. 328 of the State 
Council on 26 November 2001, amended on 31 Ma rch 2004).  Following a restructuring of 
government agencies in 2003, applications to initiate anti-dumping investigations must be made to the 
MOFCOM.  Two agencies in the MOFCOM are cu rrently responsible for investigating and 
determining dumping and injury:  the Bureau of Fa ir Trade for Imports and Exports (BOFT) is in 
charge of the investigation process and determ ining whether dumping has occurred;  and the 
Investigation Bureau of Industry Injury investigat es and determines injury caused to industry.  The 
two are jointly in charge of determining the causal  link between dumping and injury.  However, when 
the anti-dumping investigation involves agricultural pr oducts, the investigation of injury to domestic 
industry is conducted jointly by the Ministries of Commerce and Agriculture.51 
67. According to the regulations, anti-dumping co mplaints may be brought to the relevant 
ministry in writing, by any domestic industry, natu ral or legal person or re levant organization, on 
behalf of the domestic industry.  The application should contain details of, inter alia,  the product, 
source of imports, identity of known exporters, pr ice, and volume and value of domestic production of 
the like product, and should have supporting eviden ce on the existence of dump ing, injury caused to 
the domestic industry, and of a causal link between  dumping and injury.  The Ministry of Commerce 
must decide whether to initiate the investigation with in 60 days of receipt of the application.  If a 
decision is made to initiate the investigation, th e exporting country or region as well as the applicant 
must be notified prior to initiation.  The results of decisions are published in a Ministerial Announcement on the Ministry of Commerce website, in the China Foreign Trade and Economic 
Cooperation Gazette  and the International Business Daily .  The investigation must be terminated if:  
there is insufficient evidence of th e existence of dumping, injury or  causal link between the two;  the 
margin of dumping is less than 2%;  the actual or potential volume of the dumped imports or the 
injury is negligible
52;  or "other circumstances that the Ministry of Commerce considers not 
                                                      
51 WTO document G/ADP/N/1/CHN/2, 11 September 2002. 
52 Injury is considered to be negligible if the volume of the dumped imports from a particular country 
(or region) is found to be less than 3% of total imports of like products, unless countries (or regions) that WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 84 
 
 
appropriate to continue the anti-dumping investigati on".  According to the authorities, this includes 
circumstances when the investigati on is considered to be against th e public and/or national interest;  
so far there have not been any su ch instances.  An investigation must be completed within 12 months 
of the decision to initiate or 18 months under special circumstances, incl uding instances where the 
cases are particularly complicated.53 
68. Provisional anti-dumping measures may not be ap plied before 60 days from the date of 
publication of the decision to initia te the investigation.  They may not exceed four months from "the 
effective date set forth in the public notice re garding the decision on provisional anti-dumping 
measures and, in special circumstances, may be ex tended to nine months".  "Special circumstances" 
refers, for example, to cases that involve several  categories of products rendering the investigation 
complex;  according to the authorities, there have  been such cases, but no details on the number of 
such extensions were provided to the Secretariat.  The decision to take provisional measures is made 
by the Tariff Commission of the State Council on the recommendation of the Ministry of Commerce in the case of anti-dumping duty, and by the Ministry  of Commerce if the provisional measure is in 
the form of a bond or cash deposit. 
69. Final measures are for five years, although they may be extended through a review.  There is 
no provision in the Regulations for a specific time limit for provisional measures.  Any review must 
be concluded within 12 months from the date of the decision to initiate the review;  reviews are 
conducted by the Ministry of Commerce. 
70. If any party is not satisfied with a MOFCOM decision, the case may be reviewed under the 
Law of Administrative Review and the Regulation on Administrative Review.  No specific appeals 
have been made to the authorities.  Alternatively,  an appeal may be made to the Court.  No such  
appeals have been made.  
71. According to China's notifications to the WTO, from 1 January 2002 to 31 December 2004, 
79 anti-dumping investigations were  initiated and final measures were taken in 52 cases;  no final 
measures were taken in 7 cases.  Most of the case s initiated have involved imports from Japan (17), 
the Republic of Korea (16), and the United States (14).  The majority (55.7%) concerned chemicals 
and products thereof, followed by plastics, rubber and articles thereof (17.7%) (Chart III.6).  
72. During this period, notifications from othe r WTO Members show that 152 anti-dumping 
investigations were initiated against imports from China;  of these, final measures were taken in 
99 cases, of which 27 concerned chemicals and allied industries, and 22 base metals and articles of 
metals. 
                                                                                                                                                                    
 
individually account for less than 3% of total imports of  like products collectively acco unt for more than 7% of 
total imports of like products (WTO document G/ADP/N/1/CHN/2/Suppl.2, 14 April 2003). 
53 Article 26 of the Regulations on Anti-dump ing (WTO document G/ADP/N/1/CHN/2/Suppl.3, 
20 October 2004). China WT/TPR/S/161/Rev.1 
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05101520253035
2002 2003 2004Initiations
Final measures 
Source :  Notifications to the WTO.Russia
6.5United States
15.1
 EU15
10.8India  2.2Chemicals & prod. 
thereof
55.7(b) Inititations b y product 
Per cent(c) Initiations b y origin 
Per centChart III.6
Anti-dumping cases, 1 January 2002 to 31 December 2004
(a) By number of initiations and final measures
Mineral products
5.1
Machinery  3.8
Textiles   1.3Chinese Taipei
 7.5Korea, Rep. of
17.2
Othera
7.5
Pulp of wood, 
paper/paperboard
10.1Plastics, rubber &
articles thereof
17.7Base metals   6.3Japan
18.3
a              Including Iran, Kazakhstan, Malaysia, Mexico, Singapore, Thailand and the Ukraine with one case each.
 WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 86 
 
 
Countervailing 
73. Countervailing measures may be ta ken under the provisions of the Foreign Trade Law and the 
Regulations on Countervailing Measures, promul gated on 26 November 2001 and amended by Decree 
No. 329 of the State Council on 31 March 2004.54  According to the regulations, a written application 
may be made to the Ministry of Commerce fo r a countervailing investigation by any domestic 
industry, natural or legal person or relevant organization on behalf  of the domestic industry.  The 
MOFCOM must decide whether to initiate an i nvestigation within 60 days of receipt of the 
application.  The Government whose product is affect ed is informed of such a decision prior to the 
initiation of the investigation.  The decision to  investigate must be published and notified, inter alia,  
to the applicant, known exporters, importers, and other interested parties.  Provisional measures may 
be taken, but not before 60 days from the date  of publication of the decision to initiate the 
investigation. 
74. The countervailing investigation must be comple ted within 12 months of publication of the 
initiation, extendable in special circumstances, incl uding when cases are particularly complicated, but 
by not more than six months.  Proposals regardi ng imposition of countervailin g duty are made by the 
MOFCOM to the Tariff Commission in the State C ouncil, which makes the decision.  In general, 
countervailing duties are imposed on products imported after publication of the final determination, 
with some exceptions.55  Countervailing duty may not be imposed for longer than five years unless, as 
a result of a review, it is determined that term ination of the duty would be likely to lead to 
continuation or recurrence of subs idization and injury.  Any review must be concluded within 
12 months of the decision to initiate the review. 
75. Under Chapter VI of the regulations, any part y that is not satisfied with the MOFCOM 
decision may apply for administrative rec onsideration under the Law on Administrative 
Reconsideration or file a lawsuit in the People's Court. 
76. According to China's notifications to the WT O, it took no countervailing actions against 
WTO Members during the period 1 January 2002 to 31 December 2004.  Thre e countervailing actions 
have been initiated against China by Canada;  fi nal measures were taken in two of the cases, while 
one was terminated without final measures. 
(b) Safeguards 
Legislation 
77. Safeguards action may be taken under the Fo reign Trade Law and the Regulations on 
Safeguards (Decree No. 330 of the State Counc il passed on 26 November 2001 and amended on 
31 March 2004).56 
                                                      
54 WTO document G/SCM/N/1/CHN/ 1/Suppl.3, 20 October 2004. 
55 The exceptions include:  in case of violation of an undertaking (Article 37);  where the final 
determination establishing the existence of material in jury and provisional countervailing measures have been 
applied prior to the final determination and where th e absence of provisional countervailing measures would 
have led to a determination of material injury (Article 44).  In addition, under Article 45, a countervailing duty 
may be levied retroactively on products imported not more  than 90 days prior to the date of application of 
provisional countervailing measures if the subsidized im ports increase massively during a short period of time, 
where such an increase has caused injury to a domestic industry that is difficult to repair and where such 
products have benefited from a subsidy (WTO document G/SCM/N/1/CHN/1/Suppl.3, 20 October 2004). 
56 WTO document G/SG/N/1/CHN/2/Suppl.3, 20 October 2004. China WT/TPR/S/161/Rev.1 
 Page 87 
 
 
78. Under the Regulations on Safeguards, any natu ral or legal person, or other organization 
related to a domestic industry, may make a written a pplication to the Ministry of Commerce to take 
safeguard action against imports.  The Ministry may also initiate an investigation on its own initiative 
if it has sufficient evidence of injury.  The MOFCOM  is responsible for investigating and determining 
any increase in imports and injury caused;  for agri cultural goods, investigati on and determination of 
injury takes place jointly with the Ministry of Agriculture.  The decision to initiate an investigation 
must be published and notified promptly to the WTO Committee on Safeguards.  
79. The Ministry must publish any findings of serious injury.  There are no time limits for a 
decision to take provisional safeguard measures, but a decision to impose such a measure is published 
by way of Ministerial Decree on the website of the MOFCOM.  The provisional measure must not 
exceed 200 days from the effective date of the pub lic notice of the decision on provisional safeguard 
measures.  If the final determination establishes that no safeguard measures are to be taken, any 
provisional duty levied will be refunded. 
80. Final safeguard measures may not remain in place for more than four years, but they may be 
extended to ten years in total, if it is determined , in accordance with established procedures that:  the 
measures continue to be necessary to prevent or reme dy serious injury;  there is evidence that the 
domestic industry concerned is adjusting;  the ob ligations of foreign-re lated notifications and 
consultations have been fulfilled;  and the extended safeguard measure is not more restrictive than the 
initial one.  When a safeguard measu re exceeds three years, the Ministry must conduct a mid-term 
review of the measure.  Final safeguard measures ma y take the form of tariff increases or quantitative 
restrictions:  a tariff increase is proposed by the Ministry and forwarded to the Tariff Commission;  a 
quantitative restriction is determined and published by  the Ministry.  In both instances the decision is 
published by way of Ministerial Decree on the MOFCOM  website.  Where a safeguard measure is re-
applied to an imported product, the interval must no t be less than the period of application of the 
previous safeguard measure, and at least two year s;  under certain conditions, safeguard measures of 
180 days or less may be re-applied within two years.57 
81. It is not clear whether appeals may be made  against safeguard decisions taken by the 
authorities. 
Measures 
82. Since its entry into the WTO, China has notifie d one initiation of safeguard investigation on 
certain steel products.58  The investigation was initiated on 20 May 2002 and a provisional measure in 
the form of tariff quotas was imposed on 24 May 2002 for 180 days.  Definitive safeguard measures 
were imposed on five of the eleven products investigated on 20 November 2002.59 Although the 
measures were expected to remain for three years60, they were terminated on 26 December 2003.61 
83. In response to a safeguard measure imposed  by the United States, China notified the 
Committee on Safeguards in May 2002, its proposed suspension of concessions and other obligations, 
                                                      
57 The conditions are:  that at least one year ha s elapsed since the introduction of the safeguard 
measure;  and that such a safeguard measure has not been  applied on the same product more than twice in the 
five-year period immediately preceding the date of introduction of the measure (Article 30 of the Regulations). 
58 The products concerned were:  non-alloy plates;  non-alloy sheets and coils;  electrical sheets;  
stainless steel plates and sheets;  other non-alloy steel strips;  non-alloy wires;  non-alloy bars and rebars;  non-alloy sections;  seemless pipes;  and welded pipes and slabs (WTO document G/SG/N/6/CHN/1, 23 May 2002). 
59 WTO document G/SG/N/10/USA/6/Suppl.1 and subsequent notifications (see G/SG/46/ for details). 
60 WTO document G/SG/N/8/CHN/1, 5 November 2002.  
61 WTO document G/SG/N/10/CHN/1/Suppl.1, 4 February 2004. WT/TPR/S/161/Rev.1 Trade Policy Review 
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in accordance with Article 12.5 of the Agreement on Safeguards.62  The proposed suspension, which 
would have taken effect from March 2005 or from the fifth day following a DSB decision that the 
measures adopted by the United States were inconsis tent with the WTO Agreem ent, would have taken 
the form of an increase in duty of 24% on selected products originating in the United States.63  China 
has not taken any action under this decision as the United States terminated the measure in 
December 2003.64 
(ix) Standards and other technical requirements 
(a) Overview 
84. Since its accession to the WTO, China has ma de a number of changes to its regulatory 
structure for technical regulations, conformity assessment procedures, standards, and sanitary and 
phytosanitary measures.  In 2001, China created th e General Administration of Quality Supervision, 
Inspection and Quarantine (AQSIQ) under the State C ouncil.  AQSIQ is a ministerial administrative 
organ in charge of national quality, metrology, en try-exit inspection, animal and plant quarantine, 
certification, accreditation, standardization, and administrative law enforcement.  A number of 
regulations on compulsory product certification ha ve also been promulgated, unifying certification 
rules for imported and domestically produced goods, including a product catalogue for compulsory 
certification, technical regulations, standards and c onformity assessment procedures, marks, and fees.  
Thus, as of August 2003, a unified China Compulsory  Certification (CCC) mark for both domestically 
produced and imported products replaced previously  applied marks (the CCIB mark for traded 
products and GREAT WALL mark  for domestic products).  
85. Members have raised a number of questions  concerning China's TBT and SPS measures in 
the relevant WTO Committees.  In the TBT Commi ttee, while commending China's efforts to bring 
its TBT measures into conformity with the Agreemen t, Members have raised concerns on a number of 
issues, including the CCC mark system, the adoption of international standards, and a number of sector-specific issues.
65  China has stated that it recognizes the importance of adopting international 
standards, which were used as a basis for deve loping its technical regulations, standards and 
conformity assessment procedures, and that domes tically produced and imported products were 
treated in the same manner.66  In the SPS Committee, Members have raised concerns, inter alia,  about 
China's apparent use of SPS measures to ban imports  of affected products from countries rather than 
just the affected regions within countries;  and an  apparent failure to notify a number of its SPS 
regulations issued since 2002.67  With regard to the latter, China believes that Members had 
misunderstood the notifications China had made immediately upon accession to the WTO.  In 
addition, China has indicated that its SPS standards were fully compliant with  international standards 
and were based on risk assessment.68 
                                                      
62 WTO document G/SG/46, 21 May 2002. 
63 The products are waste paper, soybean oil, and compressors (WTO document G/SG/46, 
21 May 2002). 
64 WTO document G/SG/N/10/USA/ 6/Suppl.8, 12 December 2003. 
65 See for example submissions by Members since 2002 in the context of China's transitional review 
mechanism in the Committee on Technical Barriers to Trade. 
66 WTO documents G/TBT/M/31, 9 December 2 003, and G/TBT/M/34, 5 January 2005.  
67 WTO documents G/SPS/GEN/204/Rev.5/Add.1, Add.2, and Add.3, 25 February 2005. 
68 WTO documents G/SPS/22, 15 November 2002, G/SPS/34, 4 November 2004, and G/SPS/38, 
1 November 2005. China WT/TPR/S/161/Rev.1 
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(b) Standards and technical requirements 
86. Standards in China are developed unde r the Standardization Law (adopted on 
29 December 1998) and the Regulations for th e Implementation of the Standardization Law 
(Promulgated by Decree No. 53 of the State Council on 6 April 1990 and effective as of that date).   
According to China's notification to the WTO unde r Article 15.2 of the TBT Agreement, a large 
number of government agencies are involved in the fo rmulation of technical regulations (including 
mandatory standards), including AQSIQ, the NDRC, the General Administration of Customs, the 
State Food and Drug Administration, and a number of Ministries.69  China's TBT and SPS enquiry 
point is in the AQSIQ, and the notification authority is in the Ministry of Commerce. 
87. The Standardization Administration of China (SAC) was established by the State Council in 
April 2001 to administer standardization work in China.  Its main responsibilities include:  to 
formulate and implement laws and re gulations, and policies and developm ent strategies for standards;  
to develop and revise standards, including their exam ination, approval, and publication;  to manage 
and guide scientific research, and provide educa tion and training on standardization;  to represent 
China in international and regional standardizati on organizations;  and to carry out other work 
assigned by the AQSIQ.70 
88. There are four kinds of standards in China:  na tional, sectoral, local, and enterprise standards.  
National standards are developed for technical requir ements that need to be adopted nationally.  
Sectoral standards are developed when there are no national standards available, but unified technical 
requirements are needed in a certain professional fiel d at a national level.  Local standards may be 
developed where neither national nor sectoral standa rds are available, but unified requirements for 
safety and hygiene of industrial pr oducts are needed within a local area;  once equivalent national 
standards are developed, they replace these local or sectoral standards.  Enterprise standards may be 
developed within an enterprise when national, sectoral  or local standards are not available.  However, 
an enterprise is encouraged to adopt national, sectoral , and local standards if they are available.  In 
each of the national, sectoral, and local standards categories, there are voluntary and mandatory 
standards.71  Around 14% of national standards are currently mandatory;  the share has not changed 
since 2000 (Table III.4).  No data are available on the share of sectoral and local standards that are mandatory.  In addition, national advisory techni cal documents may be developed in some areas 
where technologies are changing rapidly and standards need to be developed more rapidly than the 
time taken to develop natio nal standards.  The process of developi ng such national advisory technical 
documents, however, is the same as that for deve loping standards.  There are currently 62 such 
documents in China. 
                                                     
 
69 A full list is provided in WTO document G/TBT/2/Add.65, 29 January 2002. 
70 Standardization Administration of China online info rmation.  Available at:  http://www.sac.gov.cn/ 
english/cnorg/index2.asp [13 January 2005]. 
71 According to the Regulations for the Implementation of the Standardization Law, mandatory 
standards relate to:  pharmaceuticals, food hygiene and veterinary medicine;  safety and hygiene standards for products and production, storage and transportation, and utilization of products;  standards for the safety of 
labour and hygiene and safety standards for transportatio n;  quality, safety, and sanitation standards for "project 
construction" and other standards for "project construction" that must be controlled by the State;  standards for the discharge of pollutants concerning environmental protection, and standards for environmental quality;  
important technical terms, symbols, codes and drafting methods in common use;  standards for commonly-used 
methods of experimentation and examin ation;  standards for co nversion and coordination;  and quality standards 
for important products that need to be controlled by the State. WT/TPR/S/161/Rev.1 Trade Policy Review 
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Table III.4 
China's national standards, 2000-04 
 2000 2001 2002 2003 2004 
National standards 19,287 19,744 20,206 20,906 21,342 
Equivalent to ISO/IEC 
standards (%) 31.9 32.3 31.7 31.9 32.0 
Sectoral standards 22,258 24,173 25,573 27,284 29,131 
Equivalent to ISO/IEC 
standards (%) .. .. .. .. .. 
Local standards 11,464 11,660 12,204 12,877 13,166 
Equivalent to ISO/IEC 
standards (%) .. .. .. .. .. 
Enterprise standards 853,004 860,922 1,051,432 1,178,083 1,320,800 
National advisory technical 
documents 11 22 48 54 62 
.. Not available. 
Source:  Data provided by the authorities. 
89. The process of developing new standards or revi sing old ones begins with an open invitation 
for proposals.  After a proposal is examined by  the SAC, comments are solicited from interested 
parties, and the relevant technical committee drafts the standard.  This is followed by solicitation of 
comments by experts and interested parties.  The dr aft standard is then examined by the relevant 
technical committee (there are currently 272), and by  relevant experts, follo wed by approval of the 
standard by the SAC.  The sta ndard is then published by the China Standard Press .  Once the 
standard is published, the relevant technical commi ttee is responsible for initiating a periodic review 
of the standard.  The maximum period between the date  of publication of the standard and the review 
must not exceed five years. 
90. According to the SAC, the Government has b een promoting the adoption of international 
standards since 1994.  However, data provided by  the authorities show that only around 32% of 
national standards, on average, were equivalent to  ISO/IEC standards during the period under review 
(Table III.4).  By the end of 2004, there were some 29,000 sectoral standards, 13,000 local standards, 
and 1.32 million enterprise standards.  Data were not available on the percentage of these standards 
that are equivalent to international standards.  According to a statement by China to the WTO, the 
SAC and relevant sectoral and local standardizati on bodies are:  to review all standards that are 
five years and over;  to revise standards that ar e inappropriate to current conditions in a timely 
manner;  to revise standards in order to actively alig n them with or adopt international standards, if 
appropriate;  to analyse international standard s and work out a schedule for aligning Chinese 
standards with international standard s;  and to participate actively in  international standards setting.  
Furthermore, the SAC began a process of examin ing all existing 21,000 national standards in 
April 2004 to check their relevance to market re quirements and their alignment with international 
standards.  Standards failing to meet these cr iteria were to be amended or discontinued.72  According 
to the authorities, as a result of this examination,  44.2% of national standards are still applicable, 
while 44.2% are to be revised;  the remaining 11.6% ha ve been or are to be abolished.  The authorities 
also state that the total number of national standards is to be reduced by 23%. 
(c) Product certification 
91. Following its accession to the WTO, China changed its system of product certification.  As of 
3 December 2001, the Safety Licence System for Im port Commodities (administered by the former 
                                                      
72 WTO document G/TBT/W/246, 29 October 2004. China WT/TPR/S/161/Rev.1 
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State Administration for Entry-Exit Inspection a nd Quarantine) and the Compulsory Supervision 
System for Product Safety Certification (administere d by the former China State Bureau of Quality 
and Technical Supervision) were replaced by the Compulsory Product Certification System.73  Under 
the Law on Import and Export Commodity Inspecti on and the Regulation of Certification and 
Accreditation, the State is responsible for institu ting a compulsory product certification system for 
both domestic products and imports.  The Compulsory Product Certification System is administered 
by the Certification and Accreditation Admi nistration (CNCA) under AQSIQ.  Under the 
Administrative Measures for Compulsory Product Ce rtification (Decree No. 5 of AQSIQ), effective 
on 1 May 2002, products listed in the Compulsory  Product Certification Catalogue shall not be 
marketed or imported without China Compulsory  Certificates (CCCs) and CCC marks.  Products 
requiring the CCC are listed in the First Catalogue of  Products Subject to Compulsory Certification 
(Table AIII.4) and include, inter alia,  electrical wires, circuit switches, low voltage electrical 
apparatus, electric tools, and household electrical appliances. 
92. Imported or domestically produced products used for R&D and testing purposes, and goods 
imported for processing and re-export, as determined by  the CNCA in accordance with Decree No. 3, 
are exempt from CCC certification.   Decree No. 3 was not available to the Secretariat in English.   
Components listed in the Catalogue are exempt fro m separate CCC certificati on if incorporated in 
manufactured products;  however, if spare parts and components listed in the Catalogue are sold 
separately, they will be subject to mandatory  CCC certification, in which case the component 
manufacturer must apply for the CCC mark.74  For such exempted products a "Special Exempt 
Approval" is required.  An appli cation for exemption must be submitted to the relevant agencies under 
AQSIQ, such as local CIQ branches, along with type-t esting reports, and other documents that satisfy 
the CNCA's exemption requirements.  The Decr ee of Inspection Exemption for Imported and 
Exported Products was issued by AQSIQ on 24 Ju ly 2002.  However, products exempted from CCC 
certification are not necessarily exempt from import inspection. 
93. All applications for the CCC mark must be  made to one of 11 authorized accredited 
certification bodies (ACB), each of which has been authorized with "designated certification scope" 
covering one or more of the currently 139 (origi nally 132) products requiring a CCC mark.  If the 
product conforms to the basic requirements of the re levant standard, the applicant must send samples 
to an accredited testing laboratory (ATL), authorized  by the CNCA for type testing.  To date, the 
CNCA has authorized 124 ATLs in China, each of which is authorized to conduct testing for specific 
products.  The results of the test s are sent to the relevant ACB, which will issue a CCC to the 
manufacturer if the results meet the requirement s.  The manufacturer may then purchase the CCC 
mark labels from the CCC Mark Service Centre.  In order to ensure that standards are being met, it 
appears that the ACBs conduct follow-up inspec tions of CCC qualified manufacturing facilities every 
12 months. 
94. The China Quality Certification Centre (CQC ) and its 12 sub-centres are responsible for 
voluntary CQC marks certification in China.  Over 183 testing laboratories are recognized by the CQC.  Currently, CQC marks cover around 500 products. 
95. Decisions taken by the ACB may be appealed by  applicants either to the ACB or to the 
CNCA, under the provisions of the Regulations of Ce rtification and Accreditation.  The applicant may 
                                                     
 
73 A 12-month transition period beginning on 1 May 2002 and ending on 30 April 2003 was granted for 
producers and importers to change from the CCIB (Saf ety Mark) and CCEE (certific ation mark for electrical 
commodities) to the CCC (China Compulsory Certificat e) mark (CCC online information.  Available at:  
http://www.ccc-mark.co m/china-compulsory-certificatio n.html [7 December 2004]). 
74 WTO document G/TBT/W/237, 13 November 2003. WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 92 
 
 
also appeal to a court in accordance with relevant  laws.  No data were available, however, on any 
appeals, or their outcomes. 
(d) Sanitary and phytosanitary measures 
96. China's WTO notification authority for SPS measures is the Ministry of Commerce.  The 
Enquiry Point under paragraph 3 of Annex B of the SPS Agreement is located in the AQSIQ.  China's 
current legislation relating to its SPS regime incl udes:  the Law on the Entry and Exit Animal and 
Plant Quarantine, the Food Hygiene Law, Law on An imal Disease Prevention, Regulations on Plant 
Quarantine, the Law on Import and Export Commodity Inspection, and the Law on Frontier Health and Quarantine, as well as accompanying implementing regulations and rules. 
97. Under the Law on the Entry and Exit Animal  and Plant Quarantine and its implementing 
regulations, any animal or plant or their by-product s entering or leaving the frontier of or in transit 
through the territory of the People's Republic of China must undergo quarantine inspection (45 days 
for imported large and medium-sized animals fo r breeding and 30 days for all other imported 
animals).  The specific items are:  animals and an imal products, plants and plant products, any train, 
ship or aircraft used for transporting animals and/or plants and their products, as well as any 
containers or packing materials and feeding materials.
75  There are no geographic restrictions on the 
source of these imports as long as they meet th e health and safety requirements under the law.   China 
also maintains bilateral agreements with several  countries on their meat export inspection systems, 
permitting imports of meat from approved suppliers from these countries .  The authorities stated 
during the course of this review that SPS measure s in China were developed in accordance with 
international risk-assessment practices. 
98. Under AQSIQ's Decree No. 25 ("Administrativ e Measures on Examination and Approval of 
Entry Animal and Plant Quarantine") and its Pub lic Notice No. 73, import permits for animals and 
plants, valid for a period of six months, must be obtained from the AQSIQ prior to import.  The application, along with supporting documents, must be submitted to the local CIQ authorities;  the 
supporting documents include information on the id entity of the applicant, as well as specific 
information in case of imports of live animals, of  meat, raw wool and feathers, silkworm cocoons, 
aquatic products, animals in transit, a nd any other documents required by the CIQ.
76  Animals, plants, 
and their products also require sanitary health certifi cates issued by the appropriate authority in the 
country of origin.   Applicants must have a valid permit each time they wish to import products subject 
to SPS requirements.  Under the Administrative Perm ission Law of 2004, AQSIQ is required to issue 
the permit or notice of refusal within 20 working days of receipt of the application once it is accepted 
by the local CIQ;  it is not clear to the Secretaria t how long it takes the local CIQ office to clear the 
application.77  The permit, if issued, is valid for six months under the Administrative Permission Law;  
under the Administrative Measures on Examinati on and Approval of Entry Animal and Plant 
Quarantine, the permit is valid only for the calendar y ear it was issued in.  In addition, the applicant 
must reapply for the permit if the quantity shipped exceeds the quantity indicated in the permit by 5%, 
                                                      
75 Chapter I (Article 2) of the Law on the Entry an d Exit Animal and Plant Quarantine, promulgated by 
the NPC on 30 October 1991. 
76 Evidence of temporary isolation facilities is requ ired for live animal imports;  imports of meat, 
viscera, casings, raw wool, hides, bones, horns, hooves, silkworm cocoons, and aquatic products, etc. that need 
storage by AQSIQ, require evidence of a contract with an approved facility;  for applications involving transit of 
live animals, the transport route must be clearly stated and animal health certificates issued by the exporting and importing countries are required. 
77 The Administrative Measures on Examination and Approval of Entry Animal and Plant Quarantine 
states that the permit be approved within 30 working days  of receipt of the application from the local CIQ.  
However, the Administrative Permission Law takes precedence. China WT/TPR/S/161/Rev.1 
 Page 93 
 
 
if the species indicated on the permit is altered or if  there is an alteration of the exporting country or 
region, entry port, designated port, or transport ro utes.  Permits may not be transferred or sold. 
99. According to the authorities, under the relevant laws and regulations, there are three methods 
of inspection carried out at the border for goods subject to SPS measures.  In the first case, the 
authorities at the border may release the goods after inspection of the relevant documents, following 
which SPS inspection is carried out by the relevant SPS authorities at the final destination within the 
country;  in this case, the goods would clear cust oms the following day.  Under the second method, 
inspection at the border is carried out "using sense organs"78, following which SPS inspection is 
carried out, as under the first method, at the destination;  under this method, clearance at the border 
takes between 3-5 days.  Under the third method, SPS inspection is carried out at the border before 
customs clearance is given;  th e time taken for clearance varies depending on the type of products 
being imported and the risks involved.  Details were not provided on the kinds of products covered by 
the three methods;  the authorities state that the method of examination chosen is based on:  The 
Implementing Rules for the Frontier Health and Qu arantine Law, the Implementing Rules for the Law 
on Import and Export Commodity Inspection and the Implementing Rules for the Law on the Entry 
and Exit Animal and Plant Quarantine.  It was also not clear what percentage of imports subject to 
SPS requirements were cleared under the three methods. 
100. No quarantine permits are required for exports  of animals and plants and their products. 
101. The State Food and Drug Administration (SFDA) was established in 2003 under the State 
Council.  Its role is to supervise safety of food , health foods, cosmetics, and pharmaceuticals.  Its 
responsibilities include, inter alia:   drafting laws and regulations on food, health food, cosmetics, and 
pharmaceutical products (including Chinese medicine);   supervising the safety management of these 
products; organizing investigations  of violations of the regula tions and imposing appropriate 
penalties;  coordination of testing and evaluation of these products before their release into the 
market;  and drafting, updating, and supporti ng good practices for drug research, manufacturing, 
distribution, and use.79  In addition, specific supervision of food products and processed food products 
is provided by the Ministries of Agriculture and He alth, AQSIQ, and the Genera l Bureau of Industrial 
and Commercial Administration. 
(e) Labelling 
102. Labelling requirements are maintained under th e Standardization Law, the Food Hygiene Law 
adopted on 30 October 1995, and the Law on Prod uct Quality, adopted on 22 February 1993 and 
amended on 8 July 2000.  Under th ese laws, all products sold in China must have Chinese language 
labels.  The label should state, inter alia , name and trade mark of the product, type of food, the 
manufacturer's name and address, country of origin , ingredients in descending order by weight or 
volume, net weight and solid content, date of manufacture, best before or expiry date, usage 
instructions, batch number, and the relevant standard code.  Inform ation may also be provided in a 
foreign language, although the details must co rrespond to the information provided in Chinese. 
103. The Secretariat was unable to obtain clarif ication from the authorities on any specific 
labelling requirements for pharmaceuticals, Chinese medicine, cosmetics, genetically modified organisms, or for environmentally friendly products. 
                                                     
 
78 The authorities state that this inspection is carried out by Customs officers using their sensory 
organs. 
79 SFDA online information.  Available at:  http://www.sfda.gov.cn/cmsweb/webportal/W45255826/ 
index.html [19 January 2005]. WT/TPR/S/161/Rev.1 Trade Policy Review 
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(x) Government procurement 
(a) Introduction 
104. Under China's pre-reform regime, the needs of  public entities were largely met through the 
allocation of resources by central planning and admi nistrative direction.  Tendering requirements were 
initially introduced in regard to the procurement of construction works in addition to electrical and 
mechanical equipment in the 1980s.80  Far-reaching reforms began in  the 1990s to establish more 
transparent and competitive procedures for the proc urement of goods and services by public entities.  
However, relevant legislation fa vours domestic suppliers in proc urement markets in various ways81;  it 
requires government procurement to be carried out in a manner that facilitates the achievement of 
State goals for economic and social development. 
105. Data provided shows that government pr ocurement accounted for approximately 
Y 165.94 billion or around 1.4% of GDP in 2003.  This figure excludes procurement by state-owned enterprises (SOEs), public utilities, and defence-relate d organs of government.  It may also not reflect 
procurement by sub-central government entities.  In most countries, procurement represents, on 
average, 15-20% of GDP.
82  
106. Sub-central or local government entities play a major role in government procurement in 
China (Table III.5).  Local government entities account for several times the magnitude of procurement at the central government level for goods, construction and engineering services, and 
other services.  The sheer number of local govern ment entities, in addition to historical and 
institutional differences in approach across re gions, highlight the challenges China faces in 
implementing a consistent and transparent approach  to procurement across all levels of government.
83  
107. Spending on procurement by central gove rnment entities has increased since 1999.84  
Information is not available on the current value or proportion of government procurement accounted 
for by purchases from foreign suppliers.   
Table III.5 
Government procurement by project, 2002-04 
(Y billion) 
 2002 2003 2004 
TOTAL 101.0 165.9 213.6 
Goods 62.6 89.7 104.9 
Central government entities 13.5 10.3 14.9 
Local government entities 49.1 79.4 89.9 
Construction and engineering services 30.6 65.8 94.8 
Central government entities 7.9 15.0 12.7 
Local government entities 22.8 50.8 82.2 
Other services 7.7 10.4 13.9 
Central government entities 0.8 1.0 1.7 
Local government entities 7.0 9.4 12.1 
Source:  Data provided by the authorities. 
                                                      
80 Wang, Ping (2004). 
81 Article 10 of the Law on Government Procurement. 
82 OECD (2001). 
83 Wang, Ping (2004). 
84 Li (2002). China WT/TPR/S/161/Rev.1 
 Page 95 
 
 
108. China's new Government Procurement Law came into force on 1 January 2003.   The Law  
prescribes the principles and methods to be follo wed by government entities in procuring goods and 
services in China and sets out procedures for cont ract awards, transparency, complaints, and the 
supervision of government procurement processes.  It  grew out of a process of procurement reform 
which started in 1996.  The objectives of the Law are to regulate government procurement behaviour, 
to improve efficiency in the use of procurement f unds, to safeguard the interests of the State and the 
public, to protect the legitimate rights and interests of the parties to government procurements, and to 
promote honest and clean government.85 
109. The law covers procurement by state organs, public  institutions, and social organizations at all 
levels, but not by SOEs, even when they may be performing non-commercial or quasi-governmental 
functions.  It applies to procurement of goods, incl uding raw materials, fuels,  equipment and products, 
construction projects and services.86  The law specifies that procurement is to be carried out in 
accordance with the principles of openness, transparency, fair competition, impartiality, and good 
faith.87  It complements the Law on Bid Invitation a nd Bidding or Tendering, which was adopted in 
1999 and deals with bidding procedures in both the public and private sectors.  Recently, China has 
also developed a set of measures on government proc urement of software (for trial) with related 
implementing rules (see below). 
110. China agreed in its WTO Accession Protocol, to initiate negotiations to join the WTO 
Agreement on Government Procurem ent (GPA) "as soon as possible".  This would help to ensure 
transparency in its procurement. 
(b) Procurement modalities and related legislation88 
111. The Law on Government Procurement indicates the following methods for use by 
government entities in procuring goods and servi ces, depending on the circumstances:  public 
invitation or tendering, invited bidding, compe titive negotiation, request for quotations, and 
single-source procurement.  Procurement by pub lic invitation is the preferred approach by a 
substantial margin (Table III.6). 
Table III.6 
Government procurement by  procurement method, 2003-04 
(Y billion) 
Procurement method  
Year  Total  Public 
tendering  Invitation for 
tendering  Competition 
negotiation  Request for 
quotations  Single-source 
procurement  
2003 165.9 95.0 22.3 15.4 23.9 9.4 
2004 213.6 127.2 23.4 22.6 28.1 12.3 
Source:  Data provided by the authorities. 
112. Public invitation (a form of open tendering) is required for procurement of items exceeding 
the prescribed procurement threshol ds.  In 2004, the threshold for central government procurement 
through public invitation was Y 1.2 million for goods  and services, and Y 2 million for construction 
projects.  Approval by the Ministry of Finance (which has the lead responsibility for procurement 
                                                      
85 Law on Government Procurement, Article 1. 
86 Perkins Coie (undated). 
87 Law on Government Procurement, Article 3.  
 88 In addition to official responses to questions and relevant provisions of the Law on Government 
Procurement which are cited in the text, this section draw s on insights in Mueller (2003), in Wang, Ping (2004), 
and in other sources cited. WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 96 
 
 
policy) is required for procurements exceeding these thresholds by a method other than public 
invitation.  In cases of procurement below the pres cribed thresholds, the method of procurement is 
decided by the procuring entity in accordance with the law. 
113. Procurement may be through "centralized" or  "decentralized" purchasing.  Centralized 
procurement agencies carry out procurement activ ities on behalf of multiple public entities in 
prefectures and cities.  Decentralized purchasing is ca rried out by the procuring agency itself.  The 
overwhelming preponderance of procurement is undertaken by centralized purchasing entities 
(Table III.7).  These are believed to provide advantages in terms of  economies of scale in purchasing 
and adherence to systematic and transparent procurement procedures. 
Table III.7 
Government procurement by procurement entities, 2002-04 
(Y billion) 
Year Total Centralized procurement Decentralized procurement 
2002 101.0 73.7 27.3 
2003 165.9 130.8 35.1 
2004 213.6 172.8 40.8 
Source:  Data provided by the authorities. 
114. Invited tenders may be used if the goods or services involved have special characteristics 
necessitating that they be procured from a limited number of suppliers or if the cost of purchasing 
through public tenders is too high as a proportion of the total value of the procurement.  In this case, 
the procurement agency must identify at least three qualified suppliers and invite  them to submit bids.  
Competitive negotiations may be authorized when:  a public tender has failed to result in the award of 
a contract;  the goods or services are technologically complex or have other special characteristics;  
the procurement is to be conducted urgently;  or it is not possible to calculate the total price in 
advance.  Single source procurement is used:  when  t h e r e  i s  o n l y  o n e  s u p p l i e r ;   i n  c a s e  o f  a n  
emergency;  and for purposes of maintaining uniformity or complementarity of services procured previously, provided that the total amount of the additional procurement does not exceed 10% of the value of the original contract.  A request for quot ation can be made when:  the specifications and 
standards of the goods are uniform;  there is an abunda nt stock of existing goods;  and fluctuations in 
prices are small.
89 
115. Government procurement procedures under th e Law on Government Procurement cover 
goods, projects or services that meet certain require ments;  they must either be included in a 
"Centralized Procurement Catalogue" issued by th e Ministry of Finance or provincial bureaus of 
finance, or the value of the procurement in qu estion must exceed an officially set threshold.90  The 
requirements to qualify include, inter alia,  the ability to assume civil responsibility, a good 
professional reputation and proper accounting system , the equipment and expertise to fulfil the 
contract, a good record of paying taxes and social security premiums, no record of serious illegal business practices within the previous three years, a nd "other requirements stipulated by laws and 
administrative regulations". 
116. According to Article 9 of the Law on Government  Procurement, procurement in China is to 
be conducted in such a manner as to facilitate the ach ievement of State goals for economic and social 
development.  Furthermore, Article 10 provid es that the government shall procure domestic goods, 
construction, and services.  Goods may be pu rchased from foreign suppliers under exceptional 
                                                     
 
89 Cheung (2003). 
90 Perkins Coie (undated). China WT/TPR/S/161/Rev.1 
 Page 97 
 
 
circumstances, namely: when the goods, works a nd services required are unavailable, or unavailable 
on reasonable commercial terms, in China;  th e goods, works and services are procured for use 
outside China;  and where other laws and ad ministrative regulations stipulate otherwise.91  In practice, 
officials believe that procurement from foreign supp liers occurs routinely for products such as cars, 
copying machines, and computers (successful forei gn suppliers are typically represented by Chinese 
agents).  However, systematic data on procur ement from foreign suppliers are unavailable. 
(c) Transparency-related measures 
117. For procurement by public invitation, the procuring entity must issue the bidding 
announcement publicly inviting participation by all suppliers that meet the qualifications.  More 
generally, procuring entities must announce govern ment procurement information and bidding 
information in media designated by the supervising de partment in a timely and standard manner;  the 
procurement-related information must be available at  no cost.  Much information of use to potential 
suppliers is available online;  notices of intended pr ocurement and other relevant information typically 
are circulated only in Chinese.92 
(d) Complaints procedures 
118. Procedures for reviewing complaints by suppliers  who believe that they have been or are 
being unfairly excluded from procurement process es or treated in a discriminatory fashion are 
provided under Chapter 6 of the Law.  Complaints  must first be brought to the attention of the 
procuring agency, following which the supplier can appeal to the Government Procurement Division 
of the Ministry of Finance.  More than ten such cases have been heard since the law entered into force 
in 2003 (as at September 2005).  If the response from the supervisory authority is unsatisfactory, the 
supplier may file an administrative review or administrative lawsuit under the relevant law. 
(e) Software procurement 
119. The Ministries of Finance, Information Indus tries, and Science a nd Technology, and the 
NDRC are considering a set of possible measures on government procurement of software, to be 
promulgated at an appropriate time.  According to these measures (as they were initially proposed), 
procuring entities at all levels of government wo uld be required to proc ure domestic software.  
Exceptions could be made where the domestic soft ware does not meet the needs of the procuring 
entity or the items to be procured are deemed to be overpriced.  The measures would not apply to the 
purchase of software by enterprises (including st ate-owned and non-state-owned enterprises) and 
individuals, and the government expects that they  will have only a limited impact on the entry of 
foreign software into China’s market.  Nonetheless,  China's trading partners have expressed concerns 
about the potential impact of this policy in excl uding foreign suppliers fro m software procurement.93  
Recently, China has indicated that it will delay issuing these measures pending further consideration 
of public comments and possible changes in light of WTO rules.94  
                                                      
91 Cheung (2003). 
92 The official government procurement website is www.ccgp.gov.cn.  Other media related to 
government procurement, such as the Government Procurement Weekly , which are attached to the China 
Financial and Economic News , and Government Procurement Magazine , are not yet available online. 
93 See, e.g. testimony of Mr. Benjamin Wu, U. S. Assistant Secretary for Technology Policy, 
Department of Commerce, before the U.S. House of Representatives' Committee on Government Reform, 
13 May 2005. 
94 USTR (2005). WT/TPR/S/161/Rev.1 Trade Policy Review 
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(f) China's accession to the WTO Agreem ent on Government Procurement (GPA) 
120. China undertook to become an observer to the GPA upon its accession to the WTO 
Agreement.  It also stated that it would initiate ne gotiations for membership in the GPA by tabling an 
"Appendix 1 offer"  as soon as possible.95  China became an observer to the GPA in early 2002;  it has 
not thus far submitted its Appendix I offer.  It has, however, initiated a series of studies on relevant 
matters, including the political, economic, and soci al significance for China of becoming a party to 
the GPA and the consistency of existing national le gislation with the GPA.  At a meeting of the 
US-China Joint Commission on Commerce and Trade in Beijing in July 2005, China indicated that it 
would intensify its efforts to join the GPA and th at, toward this end, it would initiate technical 
consultations with other WTO Members.96  China also requested t echnical assistance from the WTO 
Secretariat in the form of a national seminar on government procurement, which was presented in 
September 2005, in Beijing. 
121. Accession to the GPA would constitute a furthe r major step in the evolution of China's 
procurement system, and help to ensure the transp arency of the procurement system internally and 
externally.  It would enhance the openness of Chin a's procurement markets to foreign competition, 
contributing to the achievement of greater va lue for money than is possible through domestic 
competition.  Given the size and complexity of China's procurement markets, preparing an Appendix I offer may involve significant technical challenges.  Joining the GPA would also bring China enhanced 
access to other GPA parties' procurement markets. 
(xi) Other measures 
122. No information was provided to the Secretariat on whether China permits countertrade.
97  The 
authorities point out that since 1998 there has seldom been countertrade or compensation trade so there are no data collected by Customs. 
(3) M
EASURES DIRECTLY AFFECTING EXPORTS  
(i) Procedures 
(a) Registration and documentation 
123. Export declaration procedures are similar to those for imports (section (2)(i)(a));  export 
declarations must be made to Customs after the goods arrive at the Customs surveillance zone and 
24 hours before loading, unless otherwise approved by the Customs.   Licences are required for 
restricted exports.98 
                                                      
95 An Appendix I offer sets out the proposed commitments of prospective parties to the GPA with 
respect to coverage of its various procuring entities under the Agreement and related matters.  It provides a basis 
for negotiations with existing partie s on accession to the Agreement. 
96 USTR (2005). 
97 It appears that the "Regulations on the Genera lized System of Preferen ce Certificates for Export 
Products of Businesses, which undertak e Processing and Assembly for Foreigners and of Compensation Trade, 
Sino-Foreign Equity and Contractual Joint Ventures and Wholly Foreign Owned Enterprises (for Trial Implementation)" issued on 18 October 1984, still continue to exist. 
98 Article 24 of the Customs Law stipulates that, wh en importers and exporters make declarations to 
Customs, they must submit their import or export licence and relevant papers to the Customs for inspection.  Without an import or export licence, goods whose import or export is restricted by the State cannot be released.   China WT/TPR/S/161/Rev.1 
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(b) Export inspection 
124. The Catalogue of Import and Export Commodities Subject to Statutory Inspection is issued 
annually by AQSIQ;  the 2005 Catalogue specifies produc ts under statutory export inspection.  As of 
1 January 2000, exports of household electrical app liances found in the Catalogue must be type-tested 
by the relevant designated laboratories.99  The products concerned in clude kettles, fans, irons, 
blenders, ovens, and hair dryers. 
125. China does not require preshipment inspection ( PSI) for exports;  its PSI agencies engage in 
preshipment export inspection for its trading partners that require PSI. 
(ii) Export taxes 
126. Export tax rates are set by the Tariff Commission under the "Regulations on Import and 
Export Tariff", and are levied on an f.o.b. basis.   Since 2003, export taxes have been applied to 
37 tariff lines, including metals, benzene, and eel.100  Interim duty rates, which are lower than the 
statutory export tax rates, apply on some of these 37 tariff lines.101  China revises the interim MFN 
export duty rates and the list of exports subject to interim export duty annually.  Some of the interim 
duty rates are zero;  according to the authoriti es, low or zero interim export duty rates are 
implemented largely to maintain a balance of supply and demand in the domestic market and to 
promote the development of the industries concerned.  By reducing the domestic price of the product concerned, export taxes may implicitly subsidize dom estic downstream processing.  In 2005, 26 tariff 
lines were subject to interim export duty;  apart fro m urea, which was subject to specific duty, all the 
rest carried ad valorem  rates. 
127. On 1 January 2005, China placed export ta xes on 148 textiles and clothing products 
(HS eight-digit level tariff lines).  The rates were  Y 0.2 or Y 0.3 per piece, or Y 0.5 per kg.  
According to the MOFCOM, the specific duty may encourage exports of higher-value-added textile 
products.
102  On 20 May 2005, China announced that, from 1 June 2005, export taxes would be 
increased for 74 of these products, and reduced for thr ee;  in addition, two products were removed and 
one more was added to the list.  On 30 May 2005, 79 products were removed from the export tax list 
followed by an additional 17 products on 1 Augus t 2005.  Thus, as of 1 August 2005, export taxes 
applied to 51 textiles and clothing products, and were levied at rates of Y 0.2 to Y 4.0 per piece;  all export taxes on textiles and clothing pr oducts were removed on 1 January 2006. 
                                                     
 
99 These are:  the Shanghai Electric Safety Labo ratory;  Guangzhou Electric Safety Laboratory;  
Shunde Electric Safety Laboratory;  Zhongshan Electric Safe ty Laboratory;  Zhuhai Electric Safety Laboratory;  
Fujian Electric Safety Laboratory;  Beijing Electric Safe ty Laboratory;  Zhejiang Elec tric Safety Laboratory;  
Jiangsu Electric Safety Laboratory;  Sh enzhen Electric Safety Laboratory;  Xi amen Electric Safety Laboratory;  
and Shenyang Electric Safety Laboratory.  
100 Under Annex 6 of China's Protocol of Accession, export taxes apply to 84 tariff lines at the 
HS eight-digit level.  The Customs Tariff of Import and Export, which is published annually by the Office of 
Customs Tariff Commission of the State Council, lists 36 tariff lines at the HS eight-digit level for 2001 and 
2002 that are subject to export taxes, and 37 tariff lines for 2003 onwards.  As the HS six-digit level product classification offers a common standa rd structure, and WTO Members can  disaggregate tariff lines below 
HS six-digit in different ways, the difference in the nu mbers of tariff lines at HS eight-digit level reflects the 
difference in the disaggregation, not a reduction. 
101 However, urea is subject to interim export duty, but is not included in the list of products subject to 
export taxes. 
102 Ministry of Commerce online information.  Av ailable at:  http://english.mofcom.gov.cn/aarticle/ 
newsrelease/significantnews/200501/20050100013479.html [4 April 2005]. WT/TPR/S/161/Rev.1 Trade Policy Review 
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(iii) Other tax measures affecting exports 
(a) Tax rebates on exports 
128. According to the "Measures on Administration of Tax Rebate (Exemption) for Exports (on 
Trial)" issued in March 2005 by the State Admi nistration of Taxation (SAT), and effective on 
1 May 2005, VAT and excise tax on exports qualify for a rebate.  The measures streamlined the 
administration of export tax rebates and exemptions and categorized those eligible for the rebates and 
exemptions into:  foreign trade operators;  manuf acturers without exporting rights, but who export 
through agents;  and enterprises or individuals en joying tax rebates or exemptions under relevant 
regulations. 
129. Under China's Accession Protocol, tariff exem ptions are available for imports of raw 
materials, spare parts, and assembly and packi ng materials, imported for processing and assembly for 
overseas clients or for export.  If tariffs have been  collected for these imports, refunds would be based 
on the quantity of the final products exported.103   
VAT rebates on exports 
130. While exporters are entitled to VAT rebates, th ese rebates have severa l unusual features.  
First, the rebate rates are, by and large, lower th an the VAT rates actually paid, mainly for budgetary 
reasons.  In general, for goods subj ect to a 17% VAT rate, the rebate  rates are 17% or 13%;  for goods 
subject to a 13% VAT rate the rebate rates are 11%, 8%, or 5%.104  The difference between the rate of 
VAT actually charged and the rate rebated constitutes a levy on exports, which is in turn an implicit 
subsidy to downstream processing of the products affected.105  Second, the VAT rebate rates have 
been used from time to time to meet industrial development goa ls, by discouraging some exports in 
certain instances:  for example, VAT rebates were withdrawn for exports of billet and other primary 
iron and steel products on 1 April 2005, and lo wered for some steel products on 1 May 2005, to 
discourage exports;  on the other hand, reba tes were increased for some IT products on 
1 November 2004 so that a full tax rebate now appli es to these exports.  Third, rebate rates have 
sometimes been cut to reduce accumulated arrears.  The 1994 tax reform set two VAT rebate rates for 
exports:  17% and 13%.  As a result of insufficient fiscal resources to pay for these rebates and thus 
accumulated arrears, the rates were lowere d in 1995 and 1996, to 9%, 6%, and 3%.106  However, in 
July 1999, in the aftermath of the Asian financial crisis, with a view to promoting economic growth 
via export promotion, VAT rebate rates were increas ed to 17%, 15%, 13%, and 5%.  In 2004, to solve 
the problem of accumulated VAT rebate arrears, the VAT rebate rates were lowered on average by 
3 percentage points.  The current VAT rebate ra tes are:  17%, 13%, 11%, 8%, and 5% (Box III.1). 
                                                      
103 The authorities stated that, tariffs collected for these imports would be fully refunded after the 
processed products are exported.  Howe ver, the usual practice is that impo rts for processing are exempted from 
import duties under the Customs supervision.  The Government adopts a Guarantee Deposit Account System to 
ensure all the imported goods that are bonded are exporte d after processing;  no tariff exemption will be applied 
if the final products are not exported. 
104 Under the Interim Regulations on Value-added Tax, a standard 17% VAT rate is levied on goods 
sold or imported, while 13% VAT rate applies to some items and exemptions apply to others. 
105 The authorities do not believe that the difference between the VAT rates and rebates constitutes a 
levy on exports. 
106 The Accession Protocol specified that the VAT reba te rate was 3% for agricultural products subject 
to a VAT rate of 10%;  6% for industrial products th at used agricultural products  as raw materials and were 
subject to a VAT rate of 17%;  and 9% for other products subject to the VAT rate of 17% (WTO document WT/L/432, 23 November 2001, p. 80). China WT/TPR/S/161/Rev.1 
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Box III.1:  Changes in VAT rebates 
On 13 October 2003, the State Council issued the "Decision to Reform the Existing Regime of Tax Rebate 
for Exports", effective on 1 January 2004.  The changes to the VAT export rebate rates are as follows.  The 
rebate rate was: 
increased from 5% to  13% for exports of, inter alia,  wheat flour, corn flour, duck cuts, rabbit cuts; 
abolished for exports of crude oil, timber, paper pulp, goat cashmere, eel fry, thulium ore, natural graphite, 
among others; 
unchanged for some exports, including agricultural products subject to rebate rates of 5% and 13%;  
industrial products using agricultural inputs as raw mate rial and subject to a rebate rate of 13%;  exports 
subject to a rebate rate of 17% including vessels, automobiles and their key spare parts and components, aerospace vehicles, digital controlled machine equipments, railway locomotives, among others; 
lowered to 11% for exports of gasoline and non-rolled zinc;  to 8% for exports of non-rolled aluminium, 
phosphorus, non-rolled nickel, ferrous alloy, molybdenum ore, etc.;  and to 5% for exports of coke, semi-coke, coking coal, light and dead burned magnesium, fluorspar, talc, steatite, etc.;  and 
for all the remaining exports subject to rebate rates of 17% and 15%, the rates were lowered to 13%, and 
for those subject to 13%, it was lowered to 11%.  Textiles and apparel exports were among the industries 
most affected.  
Since January 2004, further changes have been made to VAT rebates.  For example, the rebate was 
temporarily withdrawn for some chemical fertilizers an d for billet and other primary iron and steel products 
on 1 April 2005;  and lowered to 11% for exports of some steel products on 1 May 2005.  VAT rebates 
were also withdrawn for certain steel products used for processing trade in bonded areas or export zones (from 1 January 1998 until 1 January 2005, when they were cancelled, China encouraged the use of 
domestically produced steel products for processed exports through a 17%  VAT rebate for selected steel 
manufacturers, if they sold their products for processing trade in bo nded areas or export zones).  In 
December 2004, MOF and SAT raised VAT rebate rate s for some information technology (IT) exports 
from 13% to 17% retroactive as from 1 November 2004.  These exports include some ICs, mobile 
communication equipment, and terminal stations;  computers and some hardware;  and digital controlled machinery.  Between 1 September an d 31 December 2005, VAT and excise rebates on exports of gasoline 
and naphtha were suspended. 
Source:   State Administration of Taxation. 
131. China's VAT rebates on exports amounted to Y 106.4 billion in 2001, Y 125.3 billion in 2002, 
Y 202.8 billion in 2003107, and Y 420 billion in 2004.108  Due to its increasing exports, the country 
accumulated large VAT arrears, prompting a reform of the VAT rebate system in 2003.   
132. The "Decision to Reform the Existing Regime of Tax Rebate for Exports", entered into effect 
on 1 January 2004.  It:  (i) on average reduced the VAT rebate rates, 12%;  (ii) gave priority to payment of VAT arrears by committing the Central G overnment to pay back all the arrears that had 
accumulated by the end of 2003 and using any in creased revenue from collected consumption tax 
(excise tax) and VAT on imports after 2003 to pay for VAT rebates;  and (iii) introduced shared 
payment of VAT rebates.  Since 2004, using the ac tual VAT rebate paid to exporters in 2003 as a 
benchmark, any VAT rebates in excess of the benc hmark are to be shared by central and local 
governments at a ratio of 75:25, while the amount up to the benchmark continues to be paid by the 
                                                     
 
107 WTO documents WT/GC/68, 25 November 2002;  WT/GC/75, 5 December 2003;  and WT/GC/84, 
9 December 2004. 
108 Data on VAT rebates (2001-04) are from the State Administration of Taxation (SAT). WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 102 
 
 
Central Government.  The ratio changed to 92.5:7.5 as of 1 January 2005.109  According to the 
authorities, all VAT rebate arrears up to the end of 2003 were cleared by the end of 2004;  currently, 
there are no payment arrears on VAT rebates on exports. 
133. As of 1 October 2004, for small amounts of e xports in border trade in Yunnan province and 
adjoining areas, the VAT and excise tax rebate rate in creased from 70% to 100% of the tax paid if the 
payment is by bank transfer;  it remained at 40% for payment in cash. 
134. As of 1 January 2004, enterprises purch asing products from a small-scale taxpayer110 and 
exporting them, are entitled to VAT rebate of 5% or 6%.111 
(b) Exemptions and concessions 
135. Under paragraphs 7 and 8 of Ar ticle 75 of the "Implementing Rules of the Income Tax Law 
for Enterprises with Foreign Investment and Fore ign Enterprises", a reduction of 50% of the normal 
income tax rate of 33% can be obtained by FIEs  that export over 70% of their production volume for 
the year;  the reduction applies after the income tax holiday period expires.112  In addition, FIEs 
established in the special economic zones or economic and technology development zones, or any other FIEs otherwise enjoying an income tax rate of 15%, pay income tax at 10% if the same export 
requirement is met. 
(iv) Export prohibitions, restrictions, and licensing  
136. China maintains export restrictions on a number  of items, in order to avoid shortages in 
domestic supply, conserve exhaus tible natural resources, or in accordance with international 
obligations.
113  It appears that recent export restrictions ar e also applied to meet industry development 
requirements (see section (a) below).  In so far as they reduce the domestic prices of the products 
concerned and these products are processed downstrea m, export restrictions may constitute implicit 
subsidies to such processing. 
(a) Export prohibitions 
137. Under Article XX of the GATT 1994, in 2004, Ch ina maintained general export prohibitions 
on 25 items at the HS eight-digit level, within wh ich, partial prohibitions apply to ten items ("ex" 
                                                      
109 However, new problems emerged during the reform process as some provinces had to shoulder a 
heavier burden to pay back VAT rebates than other provinces.  Thus, as of 1 January 2005, the Central 
Government readjusted the ratio for all provinces.  
110 A small-scale taxpayer is one whose accounting system is not sufficiently developed to calculate 
accurately the output and input VAT and thus VAT payable.  They include taxpayers with total sales of less than 
Y 1 million engaged in the production of goods or taxable services, and those engaged in the production of 
goods or taxable services, which is the major part of their business operation, as well as in wholesaling or 
retailing;  or those with total sales of less than Y 1.8 million engaged in wholesaling or retailing.  Individuals, 
non-corporate businesses, and enterprise s with infrequent taxable activities are also considered to be small-scale 
taxpayers.  While the normal VAT rate is 17% (13% for some goods), the tax rate fo r businesses categorized as 
small-scale taxpayers is 6% (for production of goods) or 4% (for wholesale or retail business). 
111 The 5% rate applies on all exports subject to a VAT rebate rate of 5%;  the 6% rate applies on all 
exports subject to a VAT rebate rates between 5% and 17% ("Circular on Adjusting the Export Rebate Rates"). 
112 "Implementing Rules of the Income Tax Law for Enterprises with Foreign Investment and Foreign 
Enterprises". 
113 WTO document G/C/W/505, 25 November 2004. China WT/TPR/S/161/Rev.1 
 Page 103 
 
 
lines).  Items prohibited from export include mainly materials relating to State secrets, precious and 
rare animals and plants, such as horn-cores, bezoars, musk, and wood charcoal.114   
138. In addition to general e xport prohibitions, in 2004, 305 items  at the HS eight-digit level were 
subject to export prohibitions under processing trade,  among which, 258 are partially prohibited ("ex" 
lines).115  These products are also prohibited for import for processing (section (2)(v) above).116  In 
addition, 30 items at the HS ten-digit level appear  to have been added to the "Forbidden Commodity 
Catalogue of Processing Trade", issued by th e MOFCOM and GAC on 29 April 2005;  the 
prohibitions relate mainly to steel production (section (2)(v)(b)).  Effective on 22 August 2005, 
exports of alumina and ferro-alloy ore are prohibite d under processing trade.  The authorities state that 
the prohibition indicates that the Government does not encourage export of these products under the 
export processing regime, which allo ws "in-bond" import of inputs. 
(b) Export restrictions and licensing 
Overview 
139. China's export licensing regime appears to be  more complicated than the import licensing 
regime.  It seems to include various regulati ons including the "Administration Measures on Goods 
Export Licence", the "Measures for the Administ ration of Export Commodities Quota", and the 
"Measures on Invitations to Tender for Export Commodity Quota".  Based on the Foreign Trade Law and the "Regulation on the Administration of Impo rt and Export of Goods", MOFCOM issued the 
"Administration Measures on Goods Export Licence" (Licence Measures), whic h entered into force 
on 1 January 2005.
117  Under the Licence Measures, there are two export licensing regimes:  export 
quotas, and export licences.  Export quotas apply to exports under quantitative restrictions, which may 
be allocated either by the NDRC or MOFCOM and their corresponding departments in provincial 
governments, or through a bidding process.  In both cases, after the exporter obtains a quota, a licence is issued.  China justifies the use of export quotas under Articles XI, XVII, and XX of GATT 1994, 
and Annex 2A2 of the Accession Protocol.  Export  licences include both automatic and non-automatic 
licences.  They are implemented under Articles XX and XXI of GATT 1994;  the Montreal Protocol 
on Substances that Deplete the Ozone Layer;  C onventions on the Prohibition of the Development, 
Production, Stockpiling and Use of Chemical Weapon s and on their Destruction;  and the Convention 
against Illicit Traffic in Narcotic Drugs and Psychotropic Substances. 
140. Since China acceded to the WTO, there have been several changes to the list of items subject 
to export licensing.  In 2005, 47 types of commod ities (316 HS eight-digit tariff lines) are subject to 
                                                     
 
114 WTO document WT/ACC/CHN/49, 1 October 2001. 
115 Wood charcoal (HS-44020000) is listed as partially prohibited from export in general trade, but as 
totally prohibited under processing trade.  In addition, products subject to export prohibition under processing 
trade include fake guns, seeds, seedlings, chemical fertiliz ers, feeds, additives, and antibiotics for production of 
agricultural products, as they are not listed in HS code.  
116 They include some waste and scrap metal, used articles, some agricultural products (frozen and 
dried shark, birds nest, and frozen offal of chicken),  minerals (such as anthracite, bituminous coking coal, and lignite), fertilizers (including urea, and animal  and vegetable fertilizers other than guano). 
117  At the same time, the "Administration Rules of  Export Licence" (MOFTEC Decree No. 9, 2001) 
was abolished.  The new Licence Measures apply to exports in general, exports under processing trade, and exports of foreign-invested enterprises' own products. WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 104 
 
 
export licensing118, reduced from 50 (319 lines) in 2004, 52 (338 lines) in 2003, and 54 (332 lines) in 
2002;  until 2005, the list excluded quotas under th e Agreement on Textiles and Clothing (ATC).119   
141. On 1 January 2002, China abolished export quotas and licences for, inter alia , Chinese  
chestnuts, reed mats, red beans, colophony, tung wood and board (to Japan), and Vitamin C.120  On 
1 January 2003, China eliminated export quotas on garlic (to Korea) and sugar.121  On 1 January 2004, 
China abolished the export quota on non-alloy steel  and the export licence on garlic, and added 
two types of ozone-depleting substances to the list of products subject to export licensing.122  Before 
2005, motorcycles, electric fans, and bicycles were subject to export quotas;  since 1 January 2005, they have been subjected to export licences.  In  2005, export quotas were eliminated on artificial 
corundum;  export quotas and licensing decreased for woven fabrics of silk and some silk products 
(from 17 lines at HS eight-digit to 10 lines). 
142. In 2004, the value of exports subject to licensi ng accounted for 4.1% of total exports (2.5% 
excluding textiles and clothing), down from 9.5%  in 1999 and 48.3% in 1992 (Table III.8).
123 
Export quotas124 
143. China maintains both global export quotas (i.e. applied regardless of destination) and 
destination-specific quotas.  Global export quotas for five products (rice, maize, cotton, coal, and 
wheat) are allocated by the NDRC, in consultation with MOFCOM;  all other quotas are allocated by 
the MOFCOM.  For rice, maize, cotton and coal, all of which are also subject to state trading, NDRC 
allocates quotas to state-trading enterprises.  With the allocated quota, the state-trading enterprises 
obtain export licences for rice from the 16 local sp ecial commissioner’s offices of MOFCOM, and for 
maize, cotton, and coal from the Bureau of Q uota and Licence Affairs of MOFCOM.  For wheat, 
NDRC allocates quotas first to the provincial gove rnment development and reform commissions 
(DRCs), which further allocate quotas to enterprises.  The authorities state that there have been no 
wheat exports in recent years. 
144. The total quota volume to be allocated by MOFCOM  for the following year is determined and 
announced by MOFCOM before 31 October each y ear.  For example, MOFCOM announced the 2006 
volume on 30 October 2005.125  When determining the quota, matters considered include:  national 
security, availability of domestic resources for downstream processing, development planning for 
                                                      
118 Ministry of Commerce online information (D epartment of Scientif ic and Technological 
Development and Trade in Technology).  Availa ble at:  http://kjs.mofco m.gov.cn/aarticle/b/200412/ 
20041200319910.html [4 April 2005] 
119 Before the ATC terminated on 1 January 2005, China's exports of textiles and clothing products 
were subject to quotas under the ATC.   
120 WTO document G/C/W/438, 20 November 2002. 
121 WTO document G/C/W/474, 24 November 2003. 
122 Ministry of Commerce online information.  Available at:  http://wms.mofcom.gov.cn/ 
article/200312/20031200158358_1.xml (in Chinese) [6 December 2004]. 
123 WTO document WT/ACC/CHN/49, 1 October 2001. 
124 The "Measures for the Administration of Export Co mmodities Quota" (Quota Measures), issued by 
the MOFTEC, entered into effect on 1 January 2002.  The Quota Measures do not apply to:  quotas allocated through free bidding by exporters;  quotas under multilateral or bilateral agreements (i.e. textile and clothing 
exports);  and those listed in the appendix, including husked rice, maize, wheat, cotton, sugar, crude oil, 
processed oil, coal, coke, and rare ea rth.  For coal, "Measures for the Admi nistration of Quotas for Coal Export" 
were issued by MOFCOM, NDRC, and GAC, and came into force on 1 July 2004.  According to the authorities, 
the Quota Measures are still in force, and are appli cable to processed oil, crude oil, and rare earth. 
125 Ministry of Commerce online information (Dep artment of Foreign Trade).  Available at:  
http://wms.mofcom.gov.cn/aarticle/b/e/200510/ 20051000692632  [1 November 2005].   China WT/TPR/S/161/Rev.1 
 Page 105 
 
 
certain domestic industries, and international and domestic market  demand.  Export quotas are valid 
up to 31 December each year.  Unused quotas must  be returned to MOFCOM before 31 October of 
the year for which they are issued, and cannot be traded.   
Table III.8 
Products subject to export licensing, 2005 
Measures Products 
Export quotas  Live cattle, live swine and fo wls (for Hong Kong, China and Macao, China) , maize, rice wheat, cotton, tea, sawn 
timber, silk products, coal, coke, crude oil, processed oil, rare earth, antimony ore, antimony and antimony 
products, antimony oxide, wolfram ore, ammonium parat ungstate and secondary ammo nium tungsten, ammonium 
metatungstate , tungsten trioxide and blue tungsten oxide, t ungstenic acid and its salts, tungsten powder and its 
products, zinc ore, zinc and zinc  base alloy, tin ore, tin a nd tin base alloy, and silver. 
-   Quota Bidding  Rushes and rushes pr oducts, silicon carbide, fluorspar  lump (powder), talc lump (powder), light (dead) burne d 
magnesium, bauxite, liquorice and its products.  
Export licences Live cattle, live swine and fowls (for markets ot her than Hong Kong, China or M acao, China), beef , pork, chicke n 
meat, substances depleting ozone, ch emicals under supervision and contro l, chemicals used for narcotics 
production, paraffin wax, platinum (through processing trade only), computers, electric fans, bicycles, 
motorcycles, and motorcycle engines. 
Note: In 2005, export quota and licensing was eliminated for ar tificial corundum, and woven fabrics of silk and some silk 
 products. 
Source:  Ministry of Commerce (Department of Scientific and Technological Deve lopment and Trade in Technology) 
online information.  Availa ble at:  http://k js.mofcom.gov.cn/aar ticle/b/200412/20041200319910.html 
[4 April 2005].  
145. For exports other than those subject to st ate trading, MOFCOM allocates quotas either 
directly to enterprises or to its corresponding depart ments in the provincial governments, which then 
allocate quotas to enterprises.  However, it is not clear how the quotas are allocated by the provincial 
governments.  With the allocated quotas, enterp rises obtain export licences from MOFCOM or its 
authorized agencies.  MOFCOM also issues export quotas to FIEs;  in 2005, these related to, 
inter alia , crude oil, processed oil, rare earth, zinc and zinc base alloy, tin and tin base alloy, tungsten 
powder, antimony oxide, and silver products s ubject to state trading (section (vii) below).126 
146. Destination-specific quotas apply to live cattle, live swine, and fowl to be exported to Hong 
Kong, China and Macao, China;  according to the aut horities, these quotas are not to restrict trade, but 
"simply reflect their market size".127   
147. Documents and material required for export quota applications include:  the application form;  
a copy of the enterprise's trading right registration certificate;  copy of the enterprise's business 
certificate;  certificate of tax registration;  and do cuments certifying state-trading qualification in case 
of products subject to state trading.  The applica tion must be made between 1 and 15 November  each 
year.  The criteria used to allocate quotas include:  previous export performance;  historical utilization 
of quotas;  operation capabilities;  produ ction scale;  and conditions of resources.128   
148. In addition to quotas allocated by the ND RC or MOFCOM, quotas on some exports are 
allocated through bidding.  Exporters that win the quotas are granted export licences.  Export quota 
                                                      
126 According to the authorities, quotas are allocated to FIEs to guarantee that "FIEs have quotas that 
they need for normal operation of their business". 
127 According to the authorities, the markets for live animals and fowl in Hong Kong, China and 
Macao, China are relatively small comp ared with China's capac ity to supply these products.  "Therefore 
annually there will be quotas announced on these thr ee live products to indicate the market size there". 
128 For exports using exhaustible resources as raw materials, MOFCOM will take into consideration 
whether the enterprises are located in the primary producing area of the product when allocating quotas. WT/TPR/S/161/Rev.1 Trade Policy Review 
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bidding is regulated mainly under "Measures on Invi tations to Tender for Export Commodity Quota" 
(Quota Bidding Measures), issued by MOFTEC (now  MOFCOM), effective on 1 January 2002.  
149. In principle, exports subject to quota bidding are:  those involving large amounts of 
exhaustible natural resources;  those having a domin ant share in the international market, and their 
overall export amounts are "unlikely to be affected  by price fluctuations";  those whose supply 
exceeds demand and thus tend to be sold at a low price, which may result in anti-dumping actions in 
other countries;  and those subject to trade restri ctions under multilateral or bilateral agreements.   
150. The amount of quota under the bidding system is also allocated by MOFCOM before 
31 October each year.  The 2005 allocation, whic h was announced by MOFCOM on 30 October 2004, 
included rushes and their products, silicon carbide , fluorspar, talc, and light (dead) burnt 
magnesium.129  MOFCOM's Committee on Export Quota Tendering establishes tendering offices at 
the relevant import/export chambers of commerce;  these offices are in charge of the tendering process.  After enterprises register with the re levant tendering offices, their qualifications are 
examined first by MOFCOM's corresponding depart ments in the provinces, then by the tendering 
offices
130;  subsequently, the tendering offices submit their review results and relevant material to the 
Committee on Export Quota Tendering for approval.131 
151. Enterprises determine their bidding price inde pendently;  under the "Measures on Invitations 
to Tender for Export Commodity Quota", the Co mmittee on Export Quota Te ndering may determine 
and announce a minimum bidding price, taking into c onsideration the "average profits for the specific 
commodity", international market conditions, the price of successful bids in previous years, etc.  The 
Committee on Export Quota Tendering also fi xes a maximum and minimum quota amount for 
enterprises.132  However, according to the authorities, in practice, there is no minimum bidding price, 
and no maximum or minimum quota amount fixed by the Committee on Export Quota Tendering.133  
Tenders are submitted electronically before the sp ecified deadline.  Unused quotas under the bidding 
system can be returned to MOFCOM, or transf erred between enterprises after examination and 
approval by the tendering offices. 
Export licensing 
152. Details of commodities subject to export licen sing are published on an annual basis in the 
"Catalogue of Goods Subject to Export Licence Administration", issued by MOFCOM and the General Administration of Customs (GAC).  Applications for export licences may be made online and 
must include the application form, and related documents (such as an export quota, or an export 
                                                     
 
129 Ministry of Commerce online information (Dep artment of Foreign Trade).  Available at:  
http://wms.mofcom.gov.cn/aarticle /zcfb/d/o/200411/200 41100298830.html [3 December 2004].   
130 Requirements for an enterprise to be qualified to engage in quota bidding include:  trading right 
registration certificate;  business certificate;  member ship of a relevant import/export chamber of commerce 
(FIEs must be a member of the China Foreign Investment Enterprises Association);  and historical export 
performance. 
131 If an enterprise does not obtain approval from  the Tendering Committee, it may appeal through 
either an administrative, or a judicial review process. 
132 See Articles 16 and 17 of the "Measures on Inv itations to Tender for Export Commodity Quota". 
133 According to the authorities, the export quota bidd ing system is designed to avoid situations in 
which there are too few or too many bid-winning enterprises.  They note, however, that in the few years before 
2005, as international prices of natural resources and na tural resource based products were relatively high, there 
have been a sufficient number of enterprises taking part in the bidding process and the minimum bidding price 
was therefore not applied.  In addition, due to the good coordination activities of the chambers of commerce 
between bidding enterprises, there has never been a case where one enterprise won all the bids and maximum and minimum quota amounts have not been implemented in practice. China WT/TPR/S/161/Rev.1 
 Page 107 
 
 
permit allocated by the relevant authorities);  a co py of the enterprise's trading right registration 
certificate;  or a copy of the approval certificate for FIEs.  MOFCOM’s Bureau of Quota and Licence Affairs is the implementing body and issues licences  according to the annual "Catalogue of Licence-
Issuing at Different Jurisdictional Levels", which assigns different types of licences issued by the 
Bureau of Quota and Licence Affairs, the MOFCOM  local special commissioner's offices and its 
corresponding provincial departments.  Decisions on whether to issue export licences are made within 
three working days from receipt of the application.   
153. Licences issued may be:  "one licence one customs", requiring the export licence to be 
declared once during its period of validity at only one customs post;  "one lot licence", requiring a 
separate licence for each batch of goods exported;  or "non-lot licence", which may be declared at 
customs up to 12 times within its period of validity.  The latter applies to:  exports by FIEs that are 
subject to export licence;  goods subject to export licences under compensation trade;  and other goods specified under the "Catalogue of Goods Subject to Export Licence Administration". 
154. Unless otherwise specified, an export licence is valid for six months up to (and including) 
31 December of the current year;  its validity ma y be extended up to the end of February of the 
following year.  MOFCOM may revise the validity of licences for some goods and the application 
period under certain circumstances.  A licence for the following year may be issued as from 
16 December.  Licences may not be bought, sold, transferred or altered. 
Non-automatic export licensing 155. Although there are no quantitative restrictions for exports subject to  non-automatic export 
licensing, permission must be obtained prior to ex port.  Export permits are granted by different 
authorities, depending on the product:  the Offi ce of Implementing the Convention on the Prohibition 
of the Development of Chemical Weapons, based in the NDRC for chemicals under supervision and 
control;  MOFCOM for chemicals th at may be used for narcotics pr oduction, and computers;  and the 
State Environmental Protection Administration for ozone depleting substances.  After obtaining the 
permit, exporters are granted an export licence by MOFCOM or its authorized agencies. 
Automatic export licensing 156. A number of exports are subject to automatic licensing, for statistical purposes.
134  Exporters 
of these products can obtain an export licence from MO FCOM or its authorized agencies if they are in 
possession of the relevant export contracts. 
Export control on arms, sensitive items, and technologies 
157. The "Administration Measures on Goods Export Lice nce" do not apply to exports listed in the 
"Catalogue of Sensitive Items and Technologies", issued by MOFCOM and GAC in 2003.  Items 
listed in the Catalogue include:  dual-use nuclear  equipment and technology;  guided missiles and 
technology;  dual-purpose biological matter;  and chemicals and related equipment and technology.  
The "Provisional Administrative Measures on Expor t Licence for Sensitive Items and Technology", 
issued by MOFCOM and GAC, effective 1 January 2004 , and other relevant regul ations, stipulate that 
exporters of these items must first apply for export permission.  The Provision also requires that if an exporter knows, or should know, that  exported items and technology will be used by an importing 
party to produce weapons of mass destruction, the exporter must apply for permission, regardless of 
                                                     
 
134 In 2004, 40 lines at the HS eight-digit level were fully subject to automatic export licensing, while 
one was partially subject to automatic export licensing.  These exports included mainly bovine, swine meat, chicken, platinum, liquorice roots, clay, aluminium ores and concentrates, artificial corundum, and glycosides.  WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 108 
 
 
whether the items or technology to be exported are li sted in the Catalogue.  Export restrictions apply 
to arms.  
158. China has an administration system for the import and export of technologies.135  Permission 
is required from the competent authorities before obtaining an export licence for technologies subject 
to export restriction.  For technologies that may be freely exported, registration of the export contract 
is required. 
(v) Other measures affecting exports 
159. The "Measures on the Administration of Passive Quotas for Textile Products"136, define 
quantitative restrictions in place before 2005 on th e export of textiles and clothing (under the WTO 
Agreement on Textiles and Clothing (ATC)), as "passive quotas".  
160. On 10 June 2005, China and the European Communities signed a Memorandum of 
Understanding (MOU), placing export restraints on te n categories of Chinese textiles and clothing 
exports to the EC until 31 December 2007.137  The growth rates of these exports would be limited to 
between 8% and 12.5% per year.  As a quid pro q uo, the EC agreed to end its ongoing safeguard 
investigation on these products and to refrain fro m adopting measures as permitted under Article 242 
of China's WTO Working Party Report, in categories not covered by the MOU.138   
161. On 19 June 2005, to implement the MOU, MOFC OM issued the "Interim Measures for the 
Administration of Textile Exports (Trial Im plementation)", which entered into force on 
20 July 2005.139  This was later revised and became effective on 22 September 2005.140  Under the 
Interim Measures, MOFCOM compiles a "Catalogue of Textiles Products Subject to Interim Export 
Administration", including exports of textiles and clot hing subject to restricti ons imposed by countries 
or regions unilaterally, and textile  exports subject to temporary qua ntitative control under bilateral 
agreements.141  For each product listed in the Catalogue, th e quota is partly assigned through a bidding 
                                                      
135 Legislation in this regard includes "Regulations on the Administration of Technology Import and 
Export", "Measures for Administration of Technologies Subject to Import Restriction and Prohibition", 
"Catalogue of Technologies Su bject to Import Restric tion and Prohibition", "Measur es for Administration of 
Technologies Subject to Export Restriction and Prohibitio n", and "Catalogue of Technologies Subject to Export 
Restriction and Prohibition". 
136 China International Electronic Commerce Ne twork online information.  Available at:  
http://en.ec.com.cn/pubnews/2003_02_16/200604/1000889.jsp [4 April 2005] 
137 The categories are:  pullovers, men’s trousers, blouses, t-shirts, dresses, bras, flax yarn, cotton 
fabrics, bed linen, and table and kitchen linen (European Commission online information.  Available at:  
http://europa.eu.int/comm/trade/issu es/sectoral/industry/textile/mou_tex_c hina_en.htm [22 June 2005]). 
138 Article 242 of China's Working Party Report perm its WTO Members to request consultations with 
China if the Member believes that imports of textiles and apparel products of Chinese origin covered by the 
ATC are causing market disruption;  during the consultation, China will hold exports of the products in question at a level no greater than 7.5% (6% for wool) above the amount entered during the first 12 months or the most 
recent 14 months preceding the month in which consultations  were requested.  The restraints established as a 
result of these consultations will be effective for a year  from the date on which consultations were requested 
unless otherwise agreed.  Members can not use simultaneously measures under this provision, and the 
transitional product-specific safeguard m easures under Article 16 of China's Protocol of Accession.  Article 242 
covers a period up to 2008 (Chapter IV(4)(iii)). 
139 Ministry of Commerce online information.  Ava ilable at:  http://www.mofcom.gov.cn/aarticle/b/c/ 
200506/20050600123519.html [21 June 2005] 
140 Ministry of Commerce online information (Dep artment of Foreign Trade).  Available at:  
http://wms.mofcom.gov.cn/aarticle/ztxx/ac/al/200509/20050900441013.html  [26 September 2005] 
141 The authorities state that "restrictions imposed ag ainst China by countries or regions unilaterally" 
refers to quantitative or other forms of unilateral restrictions imposed by other countries or regions;  "temporary China WT/TPR/S/161/Rev.1 
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system, and partly allocated based on the exporter's sh are in China's total export value for the previous 
year in the respective categories.  For the latte r, the quantity allocated depends on the exporters 
performance, and other factors.142  The licence is valid for six months during each calendar year and is 
transferable.143 
162. A similar agreement was signed with the United States on 8 November 2005.  The restraints 
on certain categories of textiles and clothing exports  from China are effective from 1 January 2006 to 
31 December 2008144;  exports of these products are expected to increase by 8% to 10% in 2006, by 
13% in 2007, and 17% in 2008.145 
(vi) Measures maintained by importing countries 
163. A "Foreign Trade Barrier Investigation Rule" took effect on 1 March 2005.  Under the Rule, 
the Fair Trade Bureau of Imports and Exports under MOFCOM is responsible for investigating 
foreign trade barriers.  A domestic company can brin g complaints regarding foreign trade barriers to 
the MOFCOM, which decides whether to launch a form al investigation within 60 days of receipt of 
the petition;  the investigation is to be conclude d no later than six months after initiation, or, in 
"special circumstances", after an extension of th ree months.  The rule also allows MOFCOM to 
initiate an investigation without a petition from th e industry.  If the investigation confirms the 
existence of unfair foreign trade barriers restri cting China's exports, MOFCOM may hold bilateral 
consultations or start dispute settlement pro ceedings in the WTO, or take other measures.146 
                                                                                                                                                                     
quantitative control under bilateral agreements" refers to quantitative restrictions imposed by other countries or 
regions after negotiations with China, and usually based on a plan, such as the MOU with the European 
Communities. 
142  These are:  total export quotas for the product, as determined by MOFCOM;  the enterprise's export 
value and the value of total exports to countries or regions imposing quotas on Chinese textile exports after 
1 January 2005;  the enterprise's export value and the value of total exports to countries or regions that do not impose any quantitative restrictions on Chinese textile exports after 1 January 2005;  and the enterprise's export 
value and the value of total export to the world before 1 January 2005.  Other factors taken into consideration 
for the 2006 quotas include the firm's exports between June 2004 and May 2005, and the amount of quotas between June and December 2005.  For exporters located in  the western part of China, the export performance 
taken into consideration equals their real exports multiplied by 1.5;  for exporters located in the middle and 
northeast parts of China, their export value will be multiplied by 1.3. 
143 After the termination of the ATC on 1 January 2005, China started an automatic export licensing 
system for textile  products as of 1 March 2005;  that is, the MOFCOM compiled a "First Batch of Products 
under Automatic Export Licensing Catalogue";  exporters could obtain an export licence from MOFCOM or its authorized agencies once they had the export contracts.  However, af ter the "Interim Measures for the 
Administration of Textile Exports" cam e into force, for those textile ex ports in the First Batch Catalogue, 
Customs will not release exports based only on the automatic export licensing.  MOFCOM announcements No. 3, No. 7, and No. 44, 2005. 
144 The United States agreed not to request consultations with China pursuant to Paragraph 242 of 
China's WTO Working Party Report, with respect to the categories covered by the MOU and to those textiles or 
apparel products integrated in GATT 1994 before 1 January 2002.  The United States also agreed to refrain from 
applying measures as permitted under Paragraph 242 in categories not covered by the MOU (USTR online information. Available at:  http://www.ustr.gov/as sets/World_Regions/North_Asia/China/asset_upload_ 
file91_8344.pdf [11 November 2005]). 
145 Ministry of Commerce online information.  Available at: http://english.mofcom.gov.cn/ 
aarticle/newsrelease/significantnews/200511/20051100730327.html [7 November 2005]. 
146 The authorities state that, depending on each case and within the scope of multilateral or bilateral 
rules, the Chinese Government may impose trade sanctions on the countries maintaining unfair trade barriers or 
require the countries to provide compensation.  WT/TPR/S/161/Rev.1 Trade Policy Review 
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164. In 2003, MOFCOM began publishing an annual Foreign Market Access Report.  According 
to the report, trade barriers faced by China include147:  tariff peaks and tariff quotas;  import bans or 
licensing;  obstacles to customs clearance;  "di scriminatory" charges on imported goods;  TBT;  SPS;  
trade remedy measures;  government procurement pr ocedures;  export restrictions;  subsidies;  
restrictions on access to foreign services;  and " unjustifiable" measures for intellectual property 
protection.  During 2002-04, WTO Members initia ted 756 anti-dumping cases, among which 152 or 
about one fifth involve Chinese exports.  In add ition, Chinese Taipei maintains prohibitions on the 
movement of goods across the straits from China;  these prohibitions apply to some 2,000 of Chinese 
Taipei's tariff lines (at the HS-ten digit level).148 
165. Under China's Accession Protocol, some WTO Members maintain restrictions on Chinese 
exports, which are to be reduced or eliminated in stages.149  Argentina's restrictions on China's exports 
of textiles and clothing, footwear not used for sporting activities, and toys were to be eliminated by 
31 July 2002, and specific duti es are to be reduced to an ad valorem  equivalent rate of 35% by 
January 2007.  The European Communities and Turkey  were to remove quotas on footwear, tableware 
and kitchenware of porcelain or china, and ceramic  tableware or kitchenwar e by 2005.  Hungary is to 
remove quotas on footwear and overwear, and the Sl ovak Republic on footwear by 2005.  Poland 
agreed to bring its anti-dumping measures agains t Chinese exports into conformity with the WTO 
Agreement by the end of 2002, and to remove all safeguard measures against Chinese exports by the 
end of 2004.150  Mexico may maintain anti-dumping measure s against Chinese exports for up to six 
years after China's accession. 
(vii) State trading and designated trading 
(a) State trading 
166. China's rationale for maintaining state tradi ng for some imports and exports includes:  
ensuring stable domestic supply;  avoiding drastic price fluctuations in international markets;  
safeguarding food safety;  and pr otecting exhaustible and non-recycl able natural resources and the 
environment.  State trading is not used to fulfil the Government's contractual obligations, except in 
certain circumstances, such as food aid to foreign countries.151 
167. According to the authorities, export prices charged by the state-trading enterprises are 
determined by the enterprises themselves, based on, inter alia , domestic prices plus transportation and 
storage costs, interest rates, inspection fees, a nd international market prices.  Export quotas are 
determined by the NDRC or MOFCOM (see section (iv)(b)).   
168. In 2005, exports subject to state trading were  rice, maize, cotton, coal, crude and processed 
oil, tungsten ore and products, antimony ore and products, silver, and tobacco (Table AIII.5).152  For 
                                                      
147 Trade barriers are defined as measures imposed or supported by a foreign government and that fall 
into one of the following categories:  violating or failing to implement the obligations specified in any bilateral 
economic and trade treaty or agreement;  imposing or threatening to impose restrictions on Chinese exports, or 
reducing or threatening to reduce competitiveness of Chines e exports on the market of the trading partner or the 
market of any other trading partner;  and imposing or threatening to impose restrictions on the products of the 
trading partner or any other trading partner exporting to China (Ministry of Commerce online information 
(Bureau of Fair Trade for Imports and Exports).  Available at:  http://gpj.mofcom.gov.cn/table/2005en.pdf 
[5 May 2005]). 
148 WTO (2006), forthcoming. 
149 WTO document WT/L/432, 23 November 2001. 
150 Poland removed all trade remedies against China when it joined the European Communities on 
1 May 2004. 
151 WTO document G/STR/N/9/CHN/Add.1, 14 July 2003. 
152 Trade in silk has been liberalized progressively since 2002:  the number of enterprises engaged in 
silk exports increased from 43 in 2001, to 99 in 2002 and 145 in 2003, and the state trading of silk was China WT/TPR/S/161/Rev.1 
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some products, such as tungsten ore and its products , antimony ore and its products, and silver, the 
qualification of state-trading enterprises is review ed annually;  MOFCOM publishes announcements 
setting out the criteria, which could be different fo r different products.  Enterprises that meet these 
criteria would be granted STE qualifications.  The authorities note that the number of enterprises 
qualifying as STEs could be rather la rge and non-SOEs (including FIEs ) can apply to qualify for state 
trading if they meet certain criteria specified in the annual review.153  
(b) Designated trading 
169. Designated trading, which was abolished in 2005, restricted trade to designated enterprises.  
China's Accession Protocol states that the criteria fo r granting an enterprise designated trading rights 
include:  minimum registered capital;  import a nd export volume;  the import volume of products 
subject to designated trading in the previous year;  bank credit rating;  and profits and losses.154  In 
2003, exports of some tea products and non-alloy st eel plate (to the United States) were subject to 
designated trading.155  Designated trading was abolished on exports of non-alloy steel plate (to the 
United States) in January 2004 and on exports of tea on 1 May 2004. 
(viii) Export promotion and marketing assistance  
170. Under Chapter 9 of the Foreign Trade Law, China promotes exports through measures such 
as:  export credits, and export credit insurance;  pub lic information services;  assistance for exporters 
to explore international markets;  setting up institu tions to promote trade by developing foreign trade 
relations, sponsoring exhibitions, providing info rmation and advisory services;  and facilitating 
exports by small and medium-sized enterprises.   
(a) Export finance, insurance, and guarantees 
Export-Import Bank of China 
171. Established on 26 April 1994, the Export-Impor t Bank of China (EXIM Bank) is a policy 
bank under the State Council and is in charge of providing export credit.  Wholly owned by the 
Central Government, the non-profit-making bank has five branches and eight representative offices in China, and two representative offices abroad.
156  Its functions cover, inter alia , financial support to 
promote exports of mechanical and electronic products, and high and new technology products, 
including through export credit, and export buyer's credit157;  overseas construction contracts and 
investment loans;  loans to foreign governments;  international guarantees;  and re-lending of loans 
received from foreign government s and financial institutions.158   
                                                                                                                                                                     
discontinued as of 1 January 2005.  State trading for soybean exports was discontinued as of 1 November 2001.  
(WTO document G/STR/N/7/CHN, 13 December 2002 and G/STR/N/8/CH N, 13 December 2002). 
153 According to the authorities, 100% of the export quota for state trading is allocated to enterprises 
qualifying for state trading.  In 2005 , MOFCOM allocated export quotas to some FIEs;  products subject to state 
trading, such as crude and processed oil, tungsten  powder, antimony oxide and silver are included. 
154 WTO document WT/ACC/CHN/49, 1 October 2001, paragraph 85. 
155 Ministry of Commerce online information.  Available at: http://wms.mofcom.gov.cn/article/200209/ 
20020900039653_1.xml (in Chinese) [3 December 2004]. 
156 The two representative offices abro ad are located in Abidjan, Côte d'Ivoire for Central and Western 
Africa, and in Johannesburg for southern and eastern Africa. 
157 Export buyer's credit refers to medium- or long-t erm loans offered to foreign borrowers to support 
the export of Chinese capital goods, servi ces, and overseas construction projects.   
158 EXIM Bank online information.  Availabl e at:  http://english.eximbank.gov.cn/profile/ 
introduction.jsp [7 April 2005] WT/TPR/S/161/Rev.1 Trade Policy Review 
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172. In 2003, the EXIM Bank granted US$59 billion in export credits, an increase of 37.8% over 
the previous year.  Of this, 65.9% was for mech anical and electronic exports, 38.8% for high and 
new-tech exports, and 18.3% for ships and other vessels.159  In the same year, it provided 
US$270 million of export buyer's credit, mainly for, inter alia , equipment, ships, telecommunications 
equipment, equipment for power stations a nd railways, and overseas construction projects. 
173. The EXIM Bank is the sole bank appointed by the Government to provide loans to foreign 
governments.  These loans are usually long-term, at be low market interest rates, and are offered for 
infrastructure projects and for the purchase of m echanical and electronic products from China.  
Priority is given to joint resource exploration and high-tech industries.  The EXIM Bank is also 
responsible for re-lending loans received from fore ign governments to domestic enterprises, for the 
development of domestic industry;  the loans then co ntribute to the promotion of imports and exports.  
In addition, the EXIM Bank engages actively in  providing international guarantees for Chinese 
enterprises;  guarantees increased by 13 2% in 2003 from the previous year. 
174. The value of EXIM Bank loans between 1994 a nd 2003 was Y 270.2 billion, growing at an 
average rate of 46.3% annually;  during the same period, exports of mechanical, electronic, and high 
and new tech products increased annually by 24.5% .  The EXIM Bank uses a "one-stop" financing 
approach to support exports of ships and other vessels;   in 2003, more than 90% of exports of ships 
and other vessels were supported by the EXIM Bank.  Since 2001 China has become the world's third 
largest exporter of ships and vessels. 
175. The EXIM Bank raises its funds mainly by issuin g financial bonds;  in 2003, it issued bonds 
worth Y 32 billion.  It states that NPLs cons tituted 3.7% of its outstanding loans in 2003.160 
Export & Credit Insurance Corporation 
176. The China Export & Credit Insurance Corporation (SINOSURE) was set up on 
18 December 2001 to promote exports, in particular  high value-added and high-tech capital goods.  It 
is the only official export and credit insurance company, and is not profit driven.  The  wholly state-owned company implements government policy on export credit insurance, and has a registered 
capital of Y 4 billion, drawn from the Ministry of Finance’s Export Credit Insurance Risk Fund.
161 
177. SINOSURE’s export credit insurance includes shor t-, medium-, and long-term insurance.  
Charges for short-term insurance policies are fixe d by SINOSURE, while the Ministry of Finance 
establishes minimum charges for medium- and l ong-term policies.  SINOSURE also provides 
investment insurance and export-related guarantees.  In 2000, the share of total exports with credit 
insurance was 1%.  Since the establishment of SINOSU RE, the rate has increased steadily, to 2% in 
2002 and 3% in 2003.162 
                                                      
159 There are overlaps in these export cat egories so that the sum is over 100%. 
160 In the same year, Moody's Investors Service gave the EXIM Bank an A2 rating, while Standard and 
Poor rated it at BBB+. 
161 SINOSURE online information.  Available at:  http://www.sinosure.com.cn/English/ 
Company%20Profile.html [7 April 2005 ].  SINOSURE was established by merging the export credit insurance 
departments of the People's Insurance Company of China (PICC) and the Export-Import Bank of China (EXIM 
Bank). 
162 According to China Daily  Online, the global average penetration rate was 10%.  Available at:  
http://www.chinadaily.com.cn/en/doc/2003-12/26/content_293442.htm [7 April 2005]. China WT/TPR/S/161/Rev.1 
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(b) Direct export subsidies 
178. China officially abolished subsidies in the fo rm of direct budgetary outlays for exports of 
industrial goods on 1 January 1991.  It also no tified the WTO that since 2002, no export subsidies 
have been maintained for agricultural products.163 
(c) Other export assistance 
179. MOFCOM publishes information online to help enterprises export;  much of the information 
is designed to help small and medium-sized enterprises (SMEs).164 
180. To promote exports by SMEs, an Internationa l Market Exploration Fund for SMEs provides 
support for, inter alia , their participation in overseas exhibiti ons, promotion in international markets, 
and exploration in new markets.  The criteria for selecting SMEs include:  they are registered as 
foreign trade operators, and their exports in the pr evious year were less than US$15 million;  they 
have had no illegal operations in the past two years;   and they have a clear plan and arrangements to 
explore the international market.  The MOFCOM, MOF, and their corresponding local departments, 
administer the grants to SMEs.  Amounts range to Y 300,000 for one SME and up to Y 3 million for a 
group of SMEs. 
181. MOFCOM issues a list of key export brands to enhance the compe titiveness of Chinese 
enterprises in the international market.165  MOFCOM states that, in 2005 and 2006, exporters on the 
list will enjoy assistance such as export credit insurance through SINOSURE.  The "Guideline 
Opinions on Expanding Exports of Agricultural Prod ucts", issued on 18 October 2004, are aimed at 
increasing China's agricultural exports from US$21.2 b illion in 2003, to at least US$30 billion in four 
or five years, and to US$40 billion by 2013, by improving their quality and safety, enhancing R&D in 
agricultural enterprises, and simplif ying customs clearance procedures. 
182. The China Council for the Promotion of Interna tional Trade (CCPIT) promotes international 
trade by, inter alia, establishing contacts with foreign governme nts, organizing fora or seminars, 
holding export fairs in China and abroad, collecting and publishing trade-related information, offering 
consultation service to enterprises, offering legal services, and maritime arbitration services, and 
helping enterprises to apply for patents and register  trade marks.  As a non-profit agency, the CCPIT 
obtains some financial support from government. 
(4) MEASURES AFFECTING PRODUCTION AND TRADE  
(i) Industrial policy 
183. Direct intervention in the economy has been reduced gradually and the role of the state-
owned sector, originally set up to implement devel opment objectives, has diminished.  By contrast, 
                                                      
163 WTO document G/AG/N/CHN/6, 5 April 2005. 
164 The online information includes an export promotion website for private enterprises, set up under 
MOFCOM, to encourage the development of, and exports by, non-state-owned enterprises (http://pep.mofcom.gov.cn/gywm.shtml);  a China Commodity Net for SMEs (http://ccn.mofcom.gov.cn);  and 
website of the China Council for the Promotion of International Trade (CCPIT), the China Chamber of 
International Commerce, and the Trad e Development Bureau of MOFCOM. 
165 The export brands include products in the mech anical and electrical industry;  textiles;  light 
industry, arts and craf ts;  food and food processing;  metals, minera ls and chemicals;  pharmaceuticals.  Ministry 
of Commerce online information (Trade Development Bureau).  Available at:  http://wmfzj.mofcom.gov.cn/ article/200503/20050300363558_1.xml [7 April 2005]). WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 114 
 
 
the private sector has grown rapidly in recent years.  However, there has been  a shift towards the use 
of various indirect policy tools to channel res ources into certain activities that the Government 
believes are important for China's continued growth and development.  These tools include not just 
measures (directly) affecting trade, such as tariffs and other border tax measures, but also 
administrative directives to cease certain activities, subsidies, price controls, as well as indirect 
measures, such as "guided" credit and tax incentives or disincentives. 
184. According to the authorities, since 2000, China's industrial policy has focused on the 
"strategic adjustment of the industrial structure".  This includes:  structural adjustment of rural 
industry and rural areas to consolidate the position of agriculture in the economy;  encouraging the 
development of industries that can upgrade and increase economic growth, such as information 
technology, new materials and biotechnology;  upgr ading traditional industries through the use of new 
and high technologies and eliminating low-value-a dded production (producti on that is "lagging 
behind");  and in the case of industries such as steel, increasing economies of scale ("preventing low-
level repetitive construction") throug h economic, legal, and administrativ e means.  In this context, a 
number of new regulations have been issued to put this policy into place by "g uiding" investment into 
or out of the targeted industries and activities.166  Such guidance includes, fo r example, instructions to 
financial institutions not to provide credit for inv estment in certain sectors as well as to the authorities 
in charge of approving such investments to no longer accept proposals for such investment.  Other 
measures that apparently can be taken include land and tax policies,  pricing policies as well as trade 
restrictions.167 
185. Although credit policies have been relaxed over th e years, credit is still "guided" into certain 
sectors, including (but not only) through the three policy banks.  For example, in 2004 the Government determined that investment was growi ng too rapidly and needed to be curbed, especially 
with respect to certain sectors. A number of measur es were taken, including:  raising the bank deposit 
rate by 0.5 percentage points and the one-year benchmark borrowing and lend ing rate for financial 
institutions by 0.27 percentage points on 29 October;   widening the range of lending rates for loans in 
yuan and removing the floor on yuan deposit rates;  "strengthening open mark et operations to reduce 
the credit expansion capacity of commercial banks";   and strengthening "window guidance" for banks 
to stop lending to "high risk" industries, such as steel, cement and electrolytic aluminium industries 
and industries which used ou tdated processes and technologies.
168 
                                                      
166 These include: the "Directory for Industries, Pro ducts and Technologies the State Encourages to 
Focus on";  "Guidance for Key Fields of High Tech industries developed by the State with priority";  
"Automotive Industry Development Policy";  "Steel Indu stry Development Policy";  "The Entry Criteria for 
Furnace Ferroalloy, Calcium Ca rbide and Coke Industries";  "Directory of the second and third batches of 
eliminated production capacity, process and outmoded products";  and "Directory of the projects in industry and 
commercial fields prohibited to be cons tructed repetitively (first batch)".  The last Directory mentioned, includes 
17 product categories covering 201 activities;  the s ectors include steel, non-ferrous metals, coal, gold, 
petrochemicals, chemicals, pharmaceu ticals, construction, machinery,  and light industry (NDRC online 
information.  Available at:  http://www.setc.g ov.cn/gjjmwl/200208120012.htm [23 June 2005]). 
167 The NDRC's "Major Measures to Promote the Adjustment of Industrial Structure", issued on 
22 December 2005, lists measures to be taken to reduce investment in identified sect ors.  The document states 
that for new projects falling into the restricted and prohibited categories, "Departments in charge of the 
administration of investment must not take these projects into the examination, approval, authorization or filing 
procedures" and "financial institutions shall stop providi ng credit support of any form".  In addition, for 
investment in the prohibited category, "local governments, relevant department and enterprises concerned, shall 
take effective measures to elimin ate these projects within a set peri od.  During that period, competent 
departments in charge of price can ra ise electricity tariffs for the projects" .  The import, transfer, production, 
marketing and use of production processes, technologies, equipment and products that are in the prohibited 
category, are also strictly prohib ited (NDRC online information.  Available at:  http://en.ndrc.gov.cn/ 
newsrelease/t20051222_54289.htm [1 February 2006]). 
168 People's Bank of China (2004). China WT/TPR/S/161/Rev.1 
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186. Import restrictions and prohibitions, widely used in  the past to restrict imports, have declined 
significantly, in part due to China joining the WTO.   China continues to u se measures such as export 
licensing and restrictions, variable VAT rebates,  and export taxes to manage exports of some 
products, especially those it seems ar e needed for domestic industrial consumption.  The use of locally 
produced inputs in exports is also encouraged. 
(ii) Taxation, and tax and other incentives 
(a) Taxation 
Overview 
187. Tax revenue in 2004 accounted for around 92 % of the Government's total revenue 
(Table III.9).  It was around 17.7% of GDP, up from 15.7% in 2001.  Although there is a large 
number of taxes, most tax revenue (58% in 2004) is  raised through indirect taxes (VAT, business tax, 
and consumption (excise) tax).  Enterprise income tax (including FIEs) accounted for 16.4% of total 
tax revenue.169 
Table III.9 
Tax revenue, 1998-04 
(Y billion) 
  1998 1999 2000 2001 2002 2003 2004 
Total government revenue 987.6 1,144.4 1,339.5 1,638.6 1,890.4 2,171.5 2,639.6 
Tax revenue 926.3 1,068.3 1,258.2 1,530.1 1,763.6 2,001.7 2,416.6 
Value-added tax 362.9 388.2 455.3 535.7 617.8 723.7 901.8 
Business tax 157.5 166.9 186.9 206.4 245.0 284.5 358.2 
Consumption (excise) tax 81.5 82.1 85.8 93.0 104.6 118.2 150.2 
Tariffs 31.3 56.2 75.0 84.1 70.4 92.3 104.4 
Agriculture and related taxa 39.9 42.4 46.5 48.2 71.8 87.2 90.2 
Company income tax 92.6 81.1 100.0 263.1 308.3 292.0 395.7 
a Including taxes on animal husbandry, use of cultivated land, special agricultural products, and on contracts. 
Source:  National Bureau of Statistics of China (2005), China Statistical Yearbook 2005;   and data provided by the 
 authorities. 
188. China's tax system is implemented both by the central and local governments, with the 
revenues from some taxes being shared.  Legislativ e powers concerning taxes are concentrated at the 
central level, with laws and regulations being formulated by the National People's Congress, its 
Standing Committee, and the State Council, and impl emented by the Ministry of Finance and the 
State Administration of Taxation (SAT) under the State Council.  While the Ministry of Finance is 
responsible for tax policy and structural changes in  the tax system, the SAT is responsible for tax 
collection through its regional and local offices and in conjunction with other tax collecting agencies, 
such as the local tax service (LTS), at th e local government level, and Customs. 
189. The tax system underwent major reform in 1994.   Key features of the reform included a 
restatement of legislative authority and tax collec tion powers.  The SAT was elevated to Ministerial 
level under the State Council and its authority was st rengthened to make it the highest tax collection 
                                                      
169 A number of SOEs that were initially required to  turn over their profits to the Government have 
gradually been corporatized under the Company Law and therefore currently pay corporate income tax.  The 
contribution of SOEs that have not been corporatized forms part of non-budgetary revenue, and was Y 7.2 billion in 2002 (National Bureau of Statistics, 2004). WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 116 
 
 
and administrative authority in the country.  A national tax-sharing system was introduced that clearly 
defined central, shared, and local taxes.170  Local taxes are collected by the LTS while central taxes 
are collected by the national tax service (NTS) under the SAT, and shared tax es are collected by the 
LTS and the NTS. 
190. Of the taxes, 16 apply to enterprises with fo reign investment, foreign enterprises and/or 
foreign nationals, of which the most important ar e the VAT, excise and business tax, customs duties, 
and income tax.171 
Value added tax 
191. The main indirect tax is the VAT, which acc ounted for around 37% of total tax revenue in 
2004.  Revenue from the VAT is shared between the central and provincial governments, with 75% of 
VAT revenue going to the centre.  Under the "Pr ovisional Regulations on Value Added Tax", adopted 
by the State Council on 26 November 1993 and effec tive 1 January 1994, the VAT is levied at a 
standard rate of 17%, with a reduced rate of 13%  on some items, and exemptions for others.  The 
liabilities of small-scale VAT payers are assessed on the basis of their turnover at a rate of 6% for 
those engaged in the production of goods or the provision of taxable services, or 4% for those 
engaged in wholesale or retail business.  According to the authorities, farmers selling their produce 
directly are exempt from VAT provided their operations are small-scale, seemingly to ease tax compliance and administration (Chapter IV(2)).
172  For goods subject to consumption (excise) tax, the 
VAT is calculated on the domestic price (c.i.f. price for imports), plus the consumption tax.173 
192. Items subject to VAT at 13% are:  grain, edible  vegetable oil;  tap water, central heating, air 
conditioning, hot water, coal gas, liquefied petrol eum gas, natural gas, methane, and coal/charcoal 
products for household use;  books , newspapers, magazines (excl uding newspapers and magazines 
distributed by the post department;  feeds, chemical  fertilizers, agro chemical s, agricultural machinery 
and agricultural film;  and other goods specified by  the State Council (agricultural products, mining of 
metals, mining of non-metals).  The following ite ms are exempt from payment of VAT:  agricultural 
produce sold directly by producers (includes plants , breeding, forestry, animal husbandry and aquatic 
products);  contraceptive medicines and devices;  an tique books;  instruments and equipment imported 
                                                      
170 Taxes collected by the Centre are:  excise ta xes (including on imports), customs duties, VAT, 
vehicle purchase tax, business tax as well as city maintenance and construction tax paid by the Railway 
Department, and the headquarters of various banks and insurance companies, and the enterprise income tax paid 
by railway transportation, national pos t, various bank headquarters, and o ceanic petroleum enterprises.  Tax 
revenue going to local governments include:  business tax excluding those that go to the Centre, city and 
township land use tax, fixed assets investment orientation tax, city maintenance and construction tax excluding 
those that go to the Centre, property tax, car and ship us e tax, stamp tax, slaughter ta x, special agricultural tax, 
farmland occupation tax, contract tax, inheritance and gift tax, and land value added tax.  Shared taxes are:  
domestic VAT (75% for Centre and 25% for local governments), enterprise income tax (excluding those that go 
to the Centre), individual income tax (60% for the Cent re and 40% for local governments), resources tax (except 
for oceanic petroleum resources tax, which goes to the Centre) and stamp tax on securities exchanges (97% for 
the Centre and 3% for local governments). 
171 The 16 are:  value added tax;  consumption or excise tax;  business tax;  income tax on enterprises 
with foreign investment and foreign enterprises;  individual income tax;  resource tax;  land appreciation tax;  
urban real estate tax; vehicle and vessel usage licence plate tax;  vehicle purchase tax;  vessel tonnage tax;  stamp tax;  deed tax;  slaughter tax;  agriculture tax;  and customs duties.  
172 The authorities maintain that products produced by  small-scale farmers are not entirely exempt from 
VAT because their exempt status means that they cannot  claim associated credits for the VAT they pay on 
inputs.  Nevertheless, the VAT levied on agricultural products supplied by small-scale farmers would tend to be 
less than that levied on the same products that are imported or supplied by other domestic farmers. 
173 Excise tax is charged on, inter alia , tobacco, alcohol products, cosmetics, petroleum products, and 
motor vehicles. China WT/TPR/S/161/Rev.1 
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for use in scientific research, experiments and education;  used articles174;  and articles imported 
directly by organizations for the disable d for the exclusive use of the disabled.175 
193. Exporters are entitled to VAT refunds at 17% , 13%, 11%, 8% and 5%, depending on the type 
of product exported.  However, as discussed above, th e rates of refund are often only partial, and they 
have been changed frequently dependi ng on the type of product and the cost of the refund.  There is 
also evidence that VAT rebates ar e used to discourage exports by certain industries (section (3)(ii) 
above). 
Consumption (excise) tax 
194. Under the "Provisional Regulations on Consum ption Tax" adopted by the State Council on 
26 November 1993, and effective 1 January 1994, c onsumption (or excise) tax is payable for some 
domestic and imported goods by a ll units and individuals that produce, process on commission or 
import taxable consumer goods.176  Excisable products include "luxury items", such as cigarettes, 
alcoholic beverages, cosmetics, petrol and diesel, and motor vehicles (Table III.10), as well as items with consumption restraints imposed by the State;  details of the latter cate gory of products were not 
available to the Secretariat.  Exports are exempt from payment of excise tax "unless restricted by the 
State rules".   According to the Ministry of Finance and SAT "Circular on Export Goods Trial Tax 
Rebate of Border Petty Trade Balanced by RMB", excises and VAT are rebated at different rates for 
exports involved in border trade in Hunan Province.
177  In addition, as a result of tax reform initiated 
in 2000, rebates of up to 30% of excise tax were  possible for the purchase of domestically produced 
cars, cross-country vehicles and/or vans, all of which meet low pollution standards.  However, 
according to the authorities, since petrol quality in  China is low, these motor vehicles are unable to 
meet the pollution standards and the rebate was not applied in practice;  the measure was discontinued 
in July 2004. 
Table III.10 
Excise (or consumption) tax 
Product Rate 
Tobaccoa  
Grade A cigarettes 50% 
Grade B cigarettes 40% 
Grade C cigarettes 25% 
Cigars 25% 
Cut tobacco 30% 
Alcoholic drinks and alcohol  
White spirit made distilled from grain 25%  
White spirit made from potatoes 15%  
Yellow rice or millet wine  Y 240 per tonne 
Table III.10 (cont'd) 
                                                      
174 Including used articles belonging to individuals;  sale of self-owned fixed assets by units or 
individual businesses, with the selling price lower than or iginal value;  taxpayers sale of used yachts, motor 
cycles and motor vehicles with selling price lower than initial value.  Excluding yachts, motor cycles and motor vehicles subject to consumption tax. 
175 "Provisional Regulations on Value added Tax", promulgated by Decree No. 134 of the State 
Council, and effective as of 1 January 1994;  and the "Rules for the Implementation of the Provisional Regulations on Value Added Tax" promulgated on 25 December 1993. 
176 Article 1 of The Provisional Regulations of the People's Republic of China on Consumption Tax. 
177 Ministry of Commerce online information.  Available at:  http://english.mofcom.gov.cn/column/ 
policyrelease/domesticpolicy/200411/20041100307534.html [8 June 2005]. WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 118 
 
 
Product Rate 
Beer Y 220 per tonne 
Other alcoholic drinks 10% 
Ethyl alcohol 5% 
Cosmetics 30% 
Skin care and hair care products 8% 
Perfumed soap 5% 
Precious jewellery, pearls, previous jade and stone  
Gold and silver jewellery 5%  
Other jewellery, pearls, pr ecious jade and stones 10%  
Firecrackers and fireworks 15% 
Gasoline  
Unleaded Y 0.2 per litre 
Leaded Y 0.28 per litre  
Diesel Y 0.1 per litre 
Motor vehicle tyres 10% 
Motor cycles 10% 
Motor vehicles  
With a cylinder capacity of 2,200 ml or more 8% 
With a cylinder capacity of 1,100 ml or more but less than 2,200 ml 5% 
With a cylinder capacity of less than 1,000 ml 3% 
All terrain vehicles (four-wheel drive)  
With a cylinder capacity of 2,400 ml or more 5% 
With a cylinder capacity of less than 2,400 ml 3% 
Mini buses with less than 22 seats  
With a cylinder capacity of 2,000 ml or more 5% 
With a cylinder capacity of less than 2,000 ml 3% 
a Tax rates for cigarettes changed to:  Y 0. 6 per carton;  and 45% if price per carton is higher than Y 50;  30% if price per c arton is 
lower than Y 50. 
Source:  Beijing Local Taxation Bureau online information.  Ava ilable at:  http://english.ta x861.gov.cn/zgsky/zgsky.htm 
[29 November 2004]. 
Business tax 
195. Business tax is a local tax covering domestic taxable services, transfer of intangible assets, 
and sales of immovable property, excluded from the VAT (Table III.11);  it is not levied on imports.  The tax is assessed on business turnover.  Deducti ons are permitted for agency and transportation 
services.  The rates range from 3% to 20% depending on the services provided.  Recent adjustments to 
the business tax appear to include raising the taxable threshold from earnings of Y 1,000 to 
Y 5,000 per month or above Y 100 per day or transaction. 
Income tax 
196. Income tax comprises:  enterprise income tax (for Chinese corporations including SOEs 
incorporated under the Company Law);  income ta x for foreign-invested enterprises (FIEs) and 
wholly foreign-owned enterprises;   and individual income tax.
178  The current statutory enterprise 
                                                      
178 According to the Income Tax Law for Enterprises with Foreign Investment and Foreign Enterprises 
adopted by the NPC on 9 April 1991, "enterprises with foreign investment" means Chinese-foreign equity joint 
ventures, Chinese foreign contractual joint ventures, and foreign-owned enterprises established in China.  China WT/TPR/S/161/Rev.1 
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income tax rate for domestic companies is 33%.  Mo st FIEs operating in SEZs and other zones are 
subject to lower rates, of 15% or 24%;  according to the authorities, FIEs are, in some cases, exempt 
from a 3% local income tax.  The tax is levied on total income minus expenses and losses carried 
forward from previous years.  A lower tax rate, of 27%, applies for domestic companies with annual 
taxable income of between Y 30,000 and Y 100,000, and the rate for companies with annual taxable 
income of less than Y 30,000 is 18%.   No withholding tax is levied on business profits remitted 
overseas as dividends to foreign investors by FIEs, but foreign enterprises are subject to a withholding 
tax of 10% on gross income from interest, royalties, and other income earned in China.  Revenue from 
enterprise income tax is shared 60:40 between the ce ntral and provincial governments.  There appear 
to be plans to eventually reform  the two systems of enterprise inco me tax for foreign-invested and 
domestic companies, to place them on an equal tax footing. 
Table III.11 
Business tax rates 
Taxable item Rate (%) 
Communications and transportation 3 
Construction 3 
Financial and insurance business 5 
Post and telecommunications services 3 
Culture and sports 3 
Entertainment 5-20 
Services (including agencies, hotels, food a nd beverages, tourism, warehousing, leasing, 
advertising)  5 
Transfer of intangible assets 5 
Sale of immovable property 5 
Note: Business tax exemptions may be available for:  nursing se rvices provided by nurseries, ki ndergartens, old people's homes,  
welfare institutions for the handicapped;  ma tchmaking and funeral services;  services  provided individually by the disabled to  
the public;  medical services provided by hospitals, clinics a nd other medical institutions;  e ducational services provided by 
schools and other educational institutions and services provided by students in part time work;  agricultural mechanical 
ploughing, irrigation and drainage, prevention and treatment of pl ant diseases and insect pests, plant protection, insurance fo r 
farming and animal husbandry, a nd related technical services;  breeding and prev ention and treatment of diseases of poultry, 
livestock, and aquatic animals;  admission fees for cultural activities conducted by me morial halls, museums, cultural centres,  art 
galleries, exhibition halls, academies of painting and calligraphy , library and cultural protectiv e units, and for cultural and  
religious activities on religious premises. 
Source:  Beijing Local Taxation Bureau online information.  Ava ilable at:  http://english.ta x861.gov.cn/zgsky/zgsky.htm 
[29 November 2004];  and information provided by the authorities.  
197. Under the Law on Individual Income Tax, a dopted by the NPC on 10 September 1980 and 
last amended on 30 August 1999,   individual income tax is payable on worldwide income for Chinese 
residents, and on income earned in China by non-re sidents.  The rates for salaries and wages range 
from 5% to 45%, with a standard deduction of Y 1,600 per month (Y 800 per month until 
1 January 2006).179  Foreign expatriates are given an additional deduction of Y 3,200 per month.180  
For individual industrial and commercial house holds, private wholly-owned enterprises and 
partnership enterprises, income from their production or business operations as well as from 
contracting or leasing enterprises and institutions, is taxed at rates ranging from 5% to 35%, with 
                                                      
179 Individual incomes include incomes from wages and salaries;  incomes of private industrial and 
commercial households from their production and business operations;  incomes from contracting or leasing 
enterprises and institutions;  incomes from remuneration for labour services;  incomes from authors' 
remuneration;  incomes from royalties;  incomes from interest, stock dividends, and bonuses;  incomes from lease of property;  incomes from tran sfer of property;  occas ional incomes;  and other incomes specified as 
taxable by the Department of the State Council for Finance (Article 2 of the Law on Individual Income Tax, 
adopted by the NPC on 10 September 1980 and last amended on 30 August 1999). 
180 OECD (2005b). WT/TPR/S/161/Rev.1 Trade Policy Review 
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deductions for relevant costs, fees, and "tax-adjus ted residuals".  Other income, including royalties, 
interest, dividends, incidental income, and rentals is  taxed at a flat rate of 20%.  A 30% tax reduction 
is given for incomes from authors' remuneration.  Tax is withheld at source.181  Special deductions 
also appear to be given to income involving comp ensation for personal services, royalties or income 
from the lease of property. 
Tax incentives 
198. One of the significant features of the tax syst em is the special treatment given to FIEs 
established in the special economic zones, and st ate economic and technology development and hi-
tech development zones, as well as coastal open c ities and areas, and the western areas.  The zones 
have been used to attract fore ign investment, including through lower tax rates to promote export 
processing (Box III.2).  Under the Income Tax Law for Enterprises with Foreign Investment and 
Foreign Enterprises, the state shall "guide the orie ntation of foreign invest ment and encourage the 
establishment of enterprises with foreign investment which adopt a dvanced technology and equipment 
and export all or the greater part of their products".182  Under the Law, reduced tax rates of 15% and 
24% are offered, inter alia,  for foreign invested enterprises engaged in manufacturing, and established 
in the special economic zones, coastal economic open zones, and the technological development 
zones (Table III.12) (Chapter II(6)(iv)).  Foreign enterprises and foreign-invested enterprises engaged 
in manufacturing activities that are scheduled to opera te for ten years or more are tax exempt for two 
years from the date of profitability;  a 50% reducti on in income tax payments is permitted for these 
enterprises for the following three years (years three to five).  If the period of ten years is not 
completed, the enterprise is expected to pay th e outstanding tax to the Government.  Domestic 
companies are eligible for these tax concessions and holidays only if they are established in the high 
tech development zones or in the western regions. 
199. China also appears to give special preferenc es to priority sectors, including agriculture, 
forestry, livestock and fisheries industries, transportation, energy, high technology industries, industries that protect the environment, and "industr ies that use resources in an integrated manner". 
200. Estimates of the annual revenue forgone as a resu lt of tax incentives were not available.  Nor 
was any information available on the cost-effectiven ess of these (as well as other non-tax) measures in 
attaining their stated objectives.  The finance and taxation authorities maintain that since 2000 they 
have been engaged actively in establishing a tax expe nditure system to improve the cost-effectiveness 
of fiscal revenue, and to "optimize and perfect" th e adjustment and reform of China's tax incentive 
policies.  The authorities add that even though  the statistics on annual revenue forgone from tax 
incentives are not complete, studies on the cost-effec tiveness of the incentives are being carried out;  
however, no details were available to the Secretariat.  Experience elsewhere suggests that tax incentives, particularly tax holidays, are seldom cost-effective.
183  They run the risk of subsidizing 
good investments, which might have been undertaken in any event, or turning bad investments into 
profitable ones.  In so far as tax incentives have stim ulated investment in the latter, they may well 
have unduly distorted the allocation of resources to  the detriment of total factor productivity.  
Publication of estimates of tax revenues forgone in the form of tax expenditure accounts along the 
lines of practices in many OECD countries together with studies evaluating th eir cost-effectiveness, 
would greatly enhance transparency and contribute to more effective tax policy in China.  Elimination 
                                                      
181 It appears that a service fee of 2% of the amount of tax withheld must be paid to the withholding 
agent. 
182 Article 6 of the Income Tax Law for Enterprises with Foreign Investment and Foreign Enterprises, 
promulgated by Order No. 45 of the President on 9 April 1991. 
183 Most econometric studies show th at forgone tax revenues exceed the increase in investment.  Tax 
holidays are regarded as a particularly ineffective type of tax incentive compared with tax credits. China WT/TPR/S/161/Rev.1 
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of incentives found to be ineffective would permit a broadening of the tax ba se, thus allowing lower 
tax rates across the board, and lower tariffs184, without necessarily involving any loss in total tax 
revenues;  the outcome would be a more market-o riented tax system aimed at taxing income from 
investment in a more neutral fashion. 
Box III.2:  SEZs and other developmental zones 
As part of its gradual liberalization, one of the first major steps taken by China was to set up the special 
economic zones.  The zones were established principally to attract foreign investment to certain sectors that 
China believed were important for its development, and to process and export products from the zones.  The 
SEZs have been expanded gradually into other kinds of zones, including those specialized in high 
technologies, free-trade zones and bonded areas to encourage processi ng and transhipment, and border 
economic cooperative areas to develop certain parts of the country.  The number of these zones is currently 
difficult to determine due to their widespread use by provincial governments to attract investment. 
Special economic zones  (SEZs) were established in Shenzhen, Sh antou, Hainan, Zhuhai, and Xiamen.  They 
include over 100 national economic and technological development zones, 15 national bonded areas, and 
14 border and cooperation regions. 
Economic and technological development zones  (ETDZs) were initially set up in 1984.  By the end of 1998, 
14 EDTZs had been approved by the St ate Council.  There are currently 49 ETDZs, 27 in the eastern coastal 
region, and 22 in the mid-west region of China.  They are established mainly in the coastal cities and other 
"open cities", and are aimed at "developing the high-tech industry, focusing on industrial projects, absorbing 
foreign funds and building up an export oriented economy". 
Free-trade zones  (FTZs):  there are currently 15 FTZs covering an area of almost 43 square kilometres.  By 
the end of 2001, the total number of approved enterpri ses operating in the FTZs was 27,978, of which 13,180 
were foreign funded.  More recent data were not provided.  According to the China Association of 
Development Zones, by the end of 2001, FTZs accounted for 4.2% of national trade.  
High tech industrial development zones  (HIDZs) emphasize the development of high technology industries.  
There are currently 53 Stat e Council approved HIDZs. 
Border economic cooperative areas  (BECAs) were first set up in 1992 to  exploit resources in border regions 
and for regional development purposes.  There were 14 BECAs in 2001, covering 32 square kilometres;  they 
included over 3,000 companies, 400 of which were foreign or foreign-funded enterprises. 
Coastal open cities and coastal open area s:  there are currently 14 coasta l open cities and 260 coastal open 
areas. 
In addition, there are six open cities along the Yangtze river, 18 capital cities of interior provinces, 
11 national tourism areas, Shanghai Pudong New Area, an d Suzhou Industrial Park, a ll of which are eligible 
for preferential tax treatment and other incentives.  Foreig n-invested enterprises that invest in west China are 
eligible for a 50% income tax reduction for an additional three years following the expiry of the normal tax 
holiday period (see Table III.12). 
Source:  China Development Zones online information.  Available at:  http://www.cadz.org.cn/en/zgkfq/ 
    default.asp [8 February 2005];  and OECD (2002), "The Current Tax System and Priorities for 
    Reform", in China in the World Economy:  Domestic Policy Challenges. 
 
 
 
  
                                                      
184 Tariffs tend to be a relatively expensive t ype of tax distortion (section (2)(ii)(c) above). WT/TPR/S/161/Rev.1 Trade Policy Review 
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Table III.12 
Income tax concessions and preferences for foreign-invested enterprises 
Preferential tax rate of 15% 
FIEs in the Shenzhen, Zhuhai, Sh antou, Xiamen and Hainan SEZs; 
FIEs engaged in production and establishe d in economic and technological developm ent zones approved by the State Council; 
FIEs established in the Pudong New Area in Shanghai; Technology-based FIEs in old urban distri cts of SEZs, economic and technological deve lopment zones, and coastal economic open 
areas approved by the State Council with long investment recovery periods and fo reign investment exceeding US$30 million; 
FIEs engaged in energy, transpor t, and port construction projects; 
FIEs engaged in export pr ocessing in bonded zones; 
High technology FIEs in new and high tec hnology industrial development zones at st ate level approved by the State Council. 
Preferential tax rate of 24% 
Production FIEs based in the old urban districts of coastal economic open areas, special economic zones, and economic and 
technological development zones where the 15% preferential tax rate is not applicable; 
open coastal cities, open cities along the Yangtze River and in in land and border regions, as well as other areas designated by  the State 
FIEs in Council; FIEs in State tourist resorts. 
Tax exemptions or reductions 
Production FIEs with an operating period of over ten years (excluding oil, natural gas,  and rare and precious  metal exploration ):  
eligible for tax exemption for the first tw o profit-making years and 50% reduction in the following three years;  with SAT appr oval 
FIEs engaged in agriculture, forestry, and animal husbandry or es tablished in economically backward and remote border areas may  pay 
a reduced rate between 15% a nd 30% for another ten years; 
Foreign joint ventures engaged in port and wharf construction and with an operating pe riod of over 15 years:  eligible for a co rporate 
tax exemption for the first five-profit making years, followed by a 50% reduction in the corporate tax rate for the next five y ears;   
Infrastructure projects in airports, ports, wharfs, railways, highw ays, power stations, coal mines and water conservation, as w ell as 
agricultural development in the Hainan SEZ with an operating period of over 15 years:  eligible for a corporate tax exemption d uring 
the first five years, followed by a 50% reduction for the next five years; 
FIEs providing services in the SEZs with foreign investment over US$5 million and with an opera ting period of over ten years;  and 
foreign invested banks, Sino-foreign joint venture banks and other financial instituti ons in SEZs and other areas designated by  the State 
Council with foreign capital investment exceeding US$10 million and w ith an operating period of over ten years:  eligible for c orporate 
tax exemption in the first profit-making year followed by a 50%  reduction in the second and third years upon approval from the local 
tax authorities; 
Recognized high tech Sino-foreign joint venture enterprises in state level high technology develo pment zones with an operating period 
of over ten years:  exempt from corporate income tax during th e first two profit-making years with the approval of the tax auth orities;  
foreign-invested export-oriented enterprise s with export values of over 10% of their total output value, and foreign-invested h igh tech 
enterprises whose status remains unchanged:  entitled to a lower co rporate tax rate of 15% or 10%  following the expiry of the c orporate 
income tax exemption period. 
Tax rebate 
Reinvestment by an FIE of profits obtained from an enterprise in an en terprise with an operating period of at least five years:   eligible 
for a 40% refund of the corporate income tax paid on the reinvest ed sum with approval from the competent tax authorities;  100%  
refund if profits are reinvested in establishing or expanding an export-oriented enterprise in China. 
Other tax exemptions and reductions 
Profits of foreign investors derived from FIEs:  exempt from income tax; 
Royalties paid to foreign enterprises for the provision of technol ogy for scientific research, exploitation of energy resources , 
development of transportation, agriculture, forestry, and anim al husbandry production and development of technologies:  eligibl e for a 
reduced tax rate of 10% with SAT approval;  companies provi ded advanced technologies inco me tax will be exempted; 
FIES engaged in production or business operati ons in China;  can offset 40% of purchas es of domestically produced equipment aga inst 
the incremental corporate income tax of the prior year. 
FIEs that have increased expenditure on technology development by more than 10% over the previous year:  may offset their taxab le 
income in the current year by 50% of the expenses on technol ogy development;  with the approval of the tax authorities; 
Interest income of international financial institutions from loans to the Chinese Gove rnment or state banks, and interest incom e of 
foreign banks derived from loans to Chinese state banks  at preferential rates:  exempt from income tax; 
Local income tax exemptions or reductions may also apply for t hose sectors or regions where foreign investment is encouraged. 
Tax concessions for central and western regions 
FIEs under the "encouraged" category in the western region of Chin a that are eligible for a two-year income tax exemption follo wed by 
a three year tax reduction by half:  eligible for a reduced cor porate tax rate of 15% for three more years;  FIEs recognized as  high tech 
or export oriented, exporting over 70% of th eir annual output:  eligible for a 50% reduc tion in corporate income tax during the se three 
years although the tax cannot fall below 10%.  It is not clear whet her this means that the tax rate can be between 10% and 50%.  
Source:  Hong Kong TDC Research Department (undated), Guide to Doing Business in China (2004/05) .  Available at:  
http://www.tdctrade.com/chi naguide/eng/04/4-2.pdf.  China WT/TPR/S/161/Rev.1 
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(b) Direct transfers and subsidies 
201. There are no precise figures on the magnitude of subsidies provided by the government, many 
of which are in the form of indirect incentiv es.  In 2000, China notified its subsidies (under 
Article XXV of the Agreement on Subsidies and Countervailing Measures) to the Working Party, 
while negotiating accession to the WTO.185  The subsidies include:  direct transfers from the central 
and local government budgets to certain loss-making SOEs;  subsidized loans based on a company's export performance in the automobile sector;  tariff preferences for locally produced cars;  subsidies 
for poverty alleviation and regional development;  and certain tax a nd tariff preferences extended to 
special economic and other development zones and fo r foreign-invested enterprises (Table AIII.6).  
Since acceding to the WTO, China has made no notifications under Article 25.1 of the WTO 
Agreement on Subsidies.  According to the most  recent statement by China to the Committee on 
Subsidies and Countervailing Measures in Novemb er 2005, China "will make all efforts to submit 
before the end of the year".
186  In the context of this review, the authorities added that the notification 
was being finalized and would be submitted before the end of January 2006.  In the interim, the 
authorities suggest that the most current informati on on China's subsidies is in China's Protocol of 
Accession to the WTO. 
202. According to China's last notification, in 2000,  income tax rebates to enterprises under certain 
programmes amounted to some Y 2.3 billion in 1995,  Y 2.6 billion in 1996, and Y 2.7 billion in 
1997.187  Of these notified subsidies, those contained in  Annex 5B of the protocol were due to be 
phased out upon China's accession to the WTO.188  According to the author ities, subsidies for certain 
loss-making SOEs (specified in the Protocol of Accession) have been phased out;  the phase-out 
appears to have begun in 2000 and been completed in 2001.  The authorities clarified that subsidies 
for "operational losses" had been phased out by 2001,  but "losses" due to price controls and other 
government policies are compensated by the Governme nt.   As a result, overall budgetary support for 
loss-making SOEs was Y 21.8 billion in 2004, compar ed to Y 30 billion in 2001 when China joined 
the WTO (Table III.13).  The authorities were unable to provide any data on the cost of the other 
assistance mentioned in Annex 5B of the Protocol of Accession.  However, from the annual budget, it 
appears that expenditure for "capital construction" (around 2.5% of GDP in 2004)189, and agricultural 
assistance (around 1.7% of GDP in 2004) are among the largest direct transfers made by the Central 
Government on an annual basis.  China also provides budgetary support of around 1% of GDP for 
innovation and science and technology.  In add ition, the Central Government spent some 
Y 416 billion in 2003 (around 3.5% of GDP) on extr a-budgetary expenditures (Table III.13).  The 
extra-budgetary expenditures appear mainly to be for "operating and administration expenses" and for 
"capital construction".  Preferential loans provided for infrastructure and other projects by the policy 
                                                      
185 WTO document WT/ACC/CHN/18, 6 June 2000 (Annex 5a).  Unless otherwise indicated, 
information in this section is based on this document. 
186 See for example, WTO documents G/SCM/M/48, 30 March 2004, and G/SCM/M/52, 
25 February 2005. 
187 The programmes are:  preferential taxes for high tech  enterprises, for enterprises utilizing waste, for 
enterprises in poverty stricken areas, for enterprises tr ansferring technology, for disaster-stricken enterprises, 
and for enterprises that provide job opportunities for the unemployed. 
188 Subsidies for certain loss-making SOEs, priority in obtaining loans and foreign currency based on 
export performance, and pref erential tariffs for local content in automobile production (WTO document 
WT/L/432, Annex 5B, 23 November 2001). 
189 Figures are based on original GDP estimates for 2004, not the revised figures released recently.  
Expenditure for capital construction according to the Statistical Yearbook , refers to "the non-gratuitous use and 
appropriation of funds for capital construction in the ra nge of capital construction, outlay of capital as well as 
the loans on capital construction approved by the government for special purpose or policy purpose and the 
expenditure with discount paid in an overall way within the amount of the funds appropriated to the departments for capital construction";  the meaning of  this is unclear to the Secretariat. WT/TPR/S/161/Rev.1 Trade Policy Review 
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banks, as notified in the Accession Protocol, presuma bly continue to be provided;  information on 
such loans, however, was not available. 
Table III.13 
Selected central government transfers and subsidies, 2001-04 
(Y billion) 
 2001 2002 2003 2004 
Total budgetary expenditure 1,890.26 2,205.32 2,464.00 2,848.69 
Transfers to loss-making SOEs 30.04 
(1.6) 25.96 
(1.2) 22.64 
(0.9) 21.79 
(0.8) 
Price subsidies 74.15 
(3.9) 64.51 
(2.9) 61.73 
(2.5) 79.58 
(2.8) 
Expenditure for capital construction 251.06 
(13.3) 314.29 
(14.3) 342.93 
(13.9) 343.75 
(12.1) 
Additional appropriation for circ ulating capital of enterprisesa 2.27 
(0.12) 1.90 
(0.09) 1.20 
(0.05) 1.24 
(0.04) 
Agricultureb 145.67 
(7.7) 158.08 
(7.2) 175.45 
(7.1) 235.79 
(8.3) 
Innovation funds and science and technology funds 99.16 
(5.2) 96.84 
(4.4) 109.30 
(4.4) 124.39 
(4.4) 
Expenditure for supporting underdeveloped areas 13.3 
(0.7) 14.9 
(0.7) 16.44 
(0.7) 18.09 
(0.6) 
Extra-budgetary expenditures 385.00 383.10 415.64 .. 
.. Not available. 
a It is not clear what these transfers are used for. 
b Includes expenditure for supporting agri cultural production and for capital construc tion, science and technology promotion 
funds, rural relief funds, and others. 
Note: Figures in parenthesis show percentage of total expenditure. 
Source:  Based on National Bureau of Statistics, China Statistical Yearbook,  various years (Table on Government 
Expenditure by Accounting Item and Fi nal Statement of Government Expenditu re by Region);  and data provided 
by the authorities. 
203. In addition to indirect assistance through, fo r example, price stabilization measures, China 
appears to have introduced direct assistan ce for farmers in 2004 of around Y 11.6 billion 
(Chapter IV(2)).  Funds are also provided for rural infrastructure, including water supply for irrigation, rural roads, research, and construction of agricultural high technology parks to encourage 
research.  China's rural credit cooperatives (RCCs)  also provide small loans throughout the rural 
community, as does the Agricultural Development Bank of China (ADBC).  According to the 
authorities, the ADBC’s stock of loans at e nd 2004 was Y 718.9 billion.  Information on the 
conditions attached to such  loans was not available. 
204. No data were available on any direct assistance with regard to services and utilities.  Indirect 
measures are used, such as price controls (elect ricity, oil, telecommunication services) as well as a 
recent injection of US$45 billion to partially bail out two state-owned banks to prepare them for 
restructuring and eventual listing on the stock exchange. 
205. China's rapid economic growth has given rise to regional disparities which the Government 
has been addressing through its regional programmes, especially those to deve lop the poorer western 
and central, and more recently, th e north-eastern regions (Box III.3). 
 China WT/TPR/S/161/Rev.1 
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Box III.3:  Regional development programmes 
Although China's rate of economic growth has been extremely high over the last 20 years, there are major 
income differences between provinces.  It has been es timated that provinces in western and central China 
have income below that seen in low-income developing countries, while income in the city of Shenzhen is 
just slightly lower than that of Hong Kong, China.  The rate of unemployment in the western/central and 
northern provinces also tends to be higher than the national average.  
In an effort to redress this imbalance, the Central Government launched the Western Development Initiative 
in order to improve infrastructure and education in 12 western provinces.  It is estimated that, to date, some 
Y 600 billion has been spent on infrastructure projects as part of the Western Development Initiative.   
More recently, a plan for "Revitalization of the Northe ast and Other Old Industrial Bases" was launched at 
the end of 2003.  The north-eastern region of China, which produces a significant portion of the country's 
minerals, timber, and grain, is dominated by state-owned enterprises that have undergone significant 
restructuring in recent years, resulting in severe un employment.  The revitalization programme has focused 
on upgrading traditional industries, including minerals and heavy industries, developing food-processing 
industries and the services sector, and diversifying the industrial structure of resource-based cities.  
However, whereas the focus on the Western Development Initiative was to improve infrastructure, the north-east revitalization programme seems to be targeted mainly at tackling unemployment and pensions.  
Thus, the main incentives include:  direct transfers of  Y 61 billion for infrastructure development (compared 
with Y 600 billion in the west) and Y 10.8 billion to cover the pensions of workers previously employed by 
the SOEs;  VAT exemptions for capital goods purcha ses (valued at Y 1.3 billion per year) for equipment 
manufacturing, petrochemicals, metallurgy, shipbuilding, auto manufacturing, agricultural products processing, military products and new and high tech industries;  and tax reductions in the energy sector and 
exemptions in agriculture. 
In 2004, the government proposed differentiated regional development strategies, to:  accelerate 
development in the east;  accelerate catch-up in the west through the Western Development Initiative;  
continue revitalization for the north- east;  and target policies to encourag e "take off" by the centre.  The 
Central Government has also provided funds for supporting "old revolutionary",  minority, border, and poor 
areas in recent years. 
Source:   China Economic Quarterly  (2005) Second Quarter. 
(c) Price controls 
206. Price controls are used to regulate the cost of  certain goods and services.  They are established 
under the Pricing Law and are set by the price management bodies of the Government, namely the National Development and Reform Commission (NDRC)  at the central level and by the Bureau of 
Commodity Pricing in each province.  At the time of China's accession to the WTO, three types of 
price mechanisms were in use:  government pri ces, which were fixed prices;  government guidance 
prices, which usually set either a basic price, or a range within which prices could fluctuate (generally 
5% to 15%);  and market prices.
190  According to China's Working Party Report, the criteria used 
when calculating government prices or government  guidance prices were:  normal production costs, 
the supply and demand situation, re levant government policies, and prices of related products.  In 
addition, when fixing prices, cons ideration was given to the limita tions on consumers' purchasing 
power.  As the cost and price of some of these variables, such as normal production costs and 
purchasing power, may vary from province to province, there may be a variation in the price set by 
different provinces;  this is especially the case for "social goods" such as water, gas, and electricity.  
The methodology for setting prices, however, remains th e same across provinces.  Similarly, the price 
                                                      
190 According to the authorities multiple pricing was eliminated on 1 February 2002 under the 
Regulation on Government Pricing. WT/TPR/S/161/Rev.1 Trade Policy Review 
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of imported goods may be different from like products produced domestically because of variations in 
input costs or profit margins, although the pricing formula remains the same for both. 
207. At the time of China's accession to the WTO,  tobacco, edible salt, natural gas, and 
pharmaceuticals were subject to government pricing, a nd grain, vegetable oil, processed oil, fertilizer, 
silkworm cocoons, and cotton were subject to gove rnment guidance pricing;  in addition, certain 
utilities, inter alia,  gas for civilian use, water, and electricity, and certain services were subject to 
government pricing (Tables AIII.7, and AIII.8).  In it s Protocol of Accession, China agreed that price 
controls would not be extended to  additional goods and services and th at efforts would be made to 
reduce and eliminate these controls.  China also agreed to publish the list of goods and services 
subject to "state pricing" (inc luding government pricing and gov ernment guidance pricing) and any 
changes to these in the Official Journal .191  According to China's latest  notification to the Committee 
on Subsidies and Countervailing Measures, the li st of products and services subject to price 
administration, the related price-setting mechanis m and pricing policies are now published in the 
China Economic Herald  and on the official website of the NDRC.192 
208. According to information provided by the author ities during the course of this review, several 
products are subject to government pricing or guidance pricing as part of the overall policy of 
maintaining natural reserves of these items.  The it ems listed as subject to price controls under the 
"Pricing Catalogue of the National Planning Comm ittee and State Council" include:  key reserve 
materials of the State, state-monopolized tobacco, edible salt, civil explosive equipment, some 
fertilizers, some key medicines, educational ma terials, natural gas, water resource projects 
subordinated to the Central Govern ment or constructed in more th an one province, electric power, 
military materials, important transportation, and post and telecommunications services.  Items 
included in the key reserve material list as at 1 Augu st 2001, were grain, edible vegetable oil, cotton, 
sugar, silkworm cocoons, crude oil, processed oil, and chemical fertilizer.  The authorities note that 
price controls on these items extend only to the stock of these items held by the State as part of its 
reserves.  According to a statement by China at  the meeting of the Committee on Subsidies and 
Countervailing Measures in March 2004, vegetable oil was no longer included in the list of products 
subject to government pricing.193   In addition to these measures, a minimum procurement price, 
below which the Government guarantees purchase, is applied to rice.194 
209. In addition to the products subject to governme nt pricing by the Central Government, the 
following commodities are subject to price controls by provincial governments:  thermal power, water 
resources, medical services, gardening, education a nd old people's homes.  It appears that the other 
items, such as entrance fees for tourist sites, se lling price and renting fee for low income housing, and 
health-related services listed in China's Protocol of Accession remain subject to government pricing or 
guidance pricing by local governments.  
210. According to the authorities, around 4% of all commodities by volume of  sales are currently 
subject to price controls. The Government spent around 3% of its budgetary expenditure in 2004 on 
price measures, down from around 4% in 2001.195 
                                                      
191 WTO document WT/L/432, 23 November 2001. 
192 WTO document G/SCM/N/120, 2 November 2004. 
193 WTO document G/SCM/M/48, 30 March 2004. 
194 Provision was made in 2004 to extend the procurement price to wheat, but apparently this has not 
been used (Chapter IV(2)). 
195 National Bureau of Statistics (2001) and (2004) . China WT/TPR/S/161/Rev.1 
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(iii) Legal framework for business 
(a) Overview 
211. The legal framework for establishing a business in China remains complex.  Companies may 
be established, under different laws depending on the kind of company.196  The basic law under which 
companies may establish is the Company Law, a dopted by the Standing Committee of the National 
People's Congress on 29 December 1993, revised most recently on 27 October 2005, effective 
1 January 2006 .  Although the latest amendment is not ava ilable in English, the Secretariat has 
incorporated changes introduced by the amendment as provided by the authorities.  Under this Law, a 
company is defined as a limited liability company or  a joint-stock limited company incorporated in 
China, neither of which can be owned by a single person197;  it appears that the latest revision to the 
Law (the 2006 amendment) allows the establishment of limited liability companies by a single person 
(either a natural or legal person) with a minimum registered capital of Y 100,000. 
212. There are several additional types of industrial structures, including state-owned enterprises 
that are not incorporated under the Company Law, collectives, and cooperatives;  sole proprietorships 
were not covered by the Company Law until 2006. 
(b) Limited liability companies 
213. Limited liability companies must have between two and 50 shareholders (between one and 50 
according to the latest revision of the law), and have registered capital ranging from Y 100,000 to 
Y 500,000 depending on the activity of the company (Table AIII.9);  according to the authorities, 
under the latest revision, registered capital must be  no less than Y 30,000 (no less than Y 100,000 for 
single-person companies) unless otherwise provided in  relevant laws and regulations.  The capital 
contributions of the shareholders must be veri fied by a statutory capital verification institution ;  the 
application for registering the company is made  to the State Administration for Industry and 
Commerce (SAIC).  Once the application has been ex amined and approved, the company is registered 
and a business certificate issued by  the SAIC.  Once the company is registered, its shareholders may 
not withdraw their capital. 
214. The Company Law also stipulates the term of th e board of directors, which must not exceed 
three years, although directors may serve consecutive terms, if re-elected;  in addition, according to 
Article 52, a limited liability company "with relativ ely large scale business" must have a supervisory 
board composed of at least three members (who are not on the board of directors), representing shareholders, and an appropriate proportion of the st aff and workers of the company, as stipulated in 
its articles of association.  Members of the supervis ory board also serve for a maximum of three years, 
although they may serve consecutive terms if re-elected.   According to the changes to take effect on 
1 January 2006, a company with a small number of shar eholders or that is small in size may choose to 
have an executive director instead of a board of directors.  In addition, a small company may choose to have one or two supervisors instead of a superv isory board.  The revision appears to no longer refer 
to a company "with relatively large scale business". 
                                                     
 
196 OECD (2005a). 
197 Under Article 3 of the Law in the case of a limite d liability company, shareholders assume liability 
to the extent of their respective capital contributions and the company is liable for its debts to the extent of its 
assets.  In the case of a joint-stock company, its total cap ital is divided into equal shares, shareholders are liable 
to the extent of their respective shareholdings and the company liable for its debts to the extent of all its assets. WT/TPR/S/161/Rev.1 Trade Policy Review 
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(c) Joint stock limited companies 
215. Joint stock limited companies must have five or more sponsors (between two and 200 in the 
latest revision) of which over half must be domic iled in China; SOEs r estructured as joint stock 
limited companies may have less than five sponsors, but in this case must be incorporated by means 
of a share offer, although, according to the authoriti es, this provision has been deleted in the latest 
amendment.  The minimum registered capital require ment is Y 10 million (reduced to Y 5 million in 
the amendment).  Where the company is incorporated through a share offer, at least 35% of the shares 
must remain with the company;  the remaining shares may be offered to the general public.  The share 
offer to the general public must be approved by th e Department of Securities Administration under the 
State Council198 (although this approval procedure seems to  have been replaced by a verification 
procedure in the new Company Law), and must sa tisfy a number of conditions:  the company must 
have total share capital of at least Y 50 million;  it  must have been in operation for three years or 
more, with profits for the past three consecutive year s;  and the number of shareholders holding shares 
with a face value of Y 1,000 or more must not be less than 1,000 and the shares issued to the general 
public must be 25% or more of the total share issue (or 15% or more of the total share offer, if the 
company has registered capital of more than Y 400 million).199  Permission is also required from the 
Department of Securities Administration if a share o ffer is to be made outside China.  According to 
the authorities, these conditions and permission require ment have been lifted in the latest amendment 
to the Company Law.  Once the share offer has been  made and an inaugural meeting held, the board 
of directors must, within 30 days, apply to the SAIC for registration of the company.200  The SAIC 
must decide whether to register the company within 30 days of receipt of the application;  this 
requirement appears to have been removed under the latest amendment. 
216. The Board of Directors of a joint stock limited company must have between five and 
19 members whose term must not exceed three year s, although a director may serve consecutive terms 
if re-elected.  In addition, the directors must a ppoint a company manager.  A supervisory board must 
be elected and should comprise at least three memb ers, including shareholders' representatives and an 
appropriate proportion of representatives of the sta ff and workers of the company (no less than one-
third of the members of the supervisory board in the latest amendment to the Company Law).  The 
term of supervisors may not exceed three years, although they may serve consecutive terms if re-
elected. 
(d) State-owned enterprises (SOEs) 
217. State-owned enterprises, which used to be regi stered under the "Law on Industrial Enterprises 
Owned by the Whole People", promulgated on 13 Ap ril 1988, and effective 1 August 1988, are being 
corporatized and registered under the Company Law,  usually as limited liability companies.  By 2002, 
according to the authorities, some 50% of SOEs ha d been registered under the Company Law.  The 
                                                      
198 Article 84.  Details required by the Department of Securities Administration include:  documents 
approving the incorporation of the compan y;  articles of association;  a bu siness forecast;  the names and titles of 
the sponsors, the number of shares accounted for by them, the forms of capital contributions, and the capital 
verification certificate;  the prospec tive share offer;  the name and addr ess of the bank accepting subscription 
money on behalf of the company;  and the name of the selling agencies and related agreements. 
199 Other conditions are given in Article 152. 
200 According to Article 94, the following documents must be submitted:  the approval documents 
issued by the relevant department in charge;  minutes of the inaugural meeting;  articles of association of the company;  financial audit report on the preparation of the incorporation of the company;  capital verification 
certificate;  names and domiciles of the members of the board of directors and the supervisory board;  and the 
name and domicile of the legal representative.  It appears that these requirements may have changed under the latest amendment. China WT/TPR/S/161/Rev.1 
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directors and supervisory board are appointed by the assets supervision and administration agencies 
(for example, the SASAC in the case of SOEs under its management).  The agency may authorize the 
directors to make decisions on "important matters of the company"  but any decisions regarding the 
increase and reduction of capital, the issuance of co mpany bonds and mergers, divisions or dissolution 
must be decided by the State.  The board of directors comprises between three and nine members 
(three and 13 in the latest amendment) and include representatives of the staff and workers of the company.  The chairman and vice-chairman of the board are appointed by the State from among the board members.  In addition to the board of direct ors and supervisory board, state-owned enterprises 
must have a manager appointed by the board of directors. 
218. SOEs established under the "Law on Industrial  Enterprises Owned by the Whole People", are 
given the power to make their own managerial a nd operational decisions (Art icle 2) and their own 
production decisions, albeit "under the guidance of state plans" (Article 22).  However, under the 
Law, the State still retains some control over the comp anies established in this way, including through 
the appointment of the factory director (Article 44), as well as by punishing, rewarding, or removing factory directors or vice-directors (Chapter VI). 
(e) Foreign investors 
219. Foreign investors may establish in China as:  joint ventures (equity or contractual);  or wholly 
foreign-owned companies.
201  Equity joint ventures are the most common form of presence (some 
49% of all companies at the end of 2004) and are formed under the Law on Chinese-Foreign Equity 
Joint Ventures.  They are registered as limited liability companies under the Company Law.  In an 
equity joint venture, the duration of the project is normally between 30 and 50 years.  A minimum of 
25% of the capital must be provided by the foreign partner(s).  Profit and risk sharing are proportionate to the investment made by the partne rs, and shareholdings are usually non-negotiable 
and non-transferable without approval from the Ch inese Government.  The partners are prohibited 
from withdrawing all or a portion of the registered capital for the duration of the project.  There are also specific requirements for the management structure under Chapter 5 of the "Regulations for the 
Implementation of the Law on Chinese-Foreign Equity  Joint-Ventures";  in addition, for foreign-
invested enterprises, there are requirements for mini mum registered capital and the ratio of registered 
capital to total investment.  The requirements ma y differ according to indus try and/or region (see 
Table AIII.9). 
220. Contractual joint ventures are formed under the Law on Chinese-Foreign Contractual Joint 
Ventures.  The main features distinguishing a contr actual joint venture from an equity joint venture 
are that:  the former does not have to be a legal entity;  the parties may bear liabilities independently 
rather than as a single entity;  the parties are permitted to share profit on an agreed basis not 
necessarily in proportion to their capital contribution;  and there is no minimum foreign contribution required to initiate the contractual venture.  The foreign investor may also withdraw its capital from 
the venture during the duration of the contract, a lthough it was not clarified under what circumstances 
this may be done.
202  Both equity and contractual joint ventures are permitted to manufacture and 
retail their products through their own sales networks.  
221. Wholly foreign-owned enterprises may be re gistered under the Law on Foreign Capital 
Enterprises, adopted in 1986 and most  recently amended on 31 October 2000.   Under the 1986 law, 
they could be registered when at least half of th eir annual output was exported or if they used high 
                                                      
201 According to the authorities, foreign investors ma y also establish investment companies and foreign 
invested shareholding limited companies;  they may also prospect for and exploit offshore and onshore 
petroleum resources in a cooperative way. 
202 Deloitte (undated). WT/TPR/S/161/Rev.1 Trade Policy Review 
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technology deemed by the authorities to be beneficial for China.203  The amendment in 2000 appears 
to have changed this requirement to "encouragement" by the State,  which in turn, according to the 
authorities, has been deleted in the latest amendm ent.  Foreign-owned ente rprises usually take the 
form of limited liability companies;  however, unde r the "Provisions on Guiding Foreign Investment 
Direction", they are still excluded from certain sectors (Chapter II(6)).204 
222. Foreign companies may set up a representative office to carry out liaison activities between 
their head offices and industry and trade organiza tions in China.  The representative office is 
prohibited from engaging in certain activities a nd may not receive fees for services rendered nor 
directly generate income or sign contracts that gene rate income.  It first became possible to establish a 
branch office in China under the Company Law,  eff ective 1 July 1994.  Under Article 9 of the Law, a 
foreign branch office could be established with manufacturing and selling capabilities, but would not 
be considered a Chinese legal person. 
(iv) State-owned enterprises  
(a) Overview 
223. The reform of SOEs has formed an important pa rt of industrial reform in China and it is 
estimated that the number of SOEs has fallen fro m 238,000 (23,000 at the central level) in 1998 to 
around 138,000 (15,500 at the central level) in 2004 (Table III.14).  In  2003, the value of total assets 
held by the SOEs and state holding enterprises wa s some Y 18 trillion and provided employment to 
42.3 million people (compared to 78 million people in 1998).  The contribution by SOEs to GDP has 
also declined from around 90% of output in 1980 to around one third of total output in 2003.205  Data 
provided by the authorities show that of the 174, 000 SOEs at end 2001, under 1,000 were considered 
large, while the rest are considered small or medium-sized.206  Small SOEs are commonly found in 
agriculture, machinery, "social services", commer ce and trade (trade, catering), and warehousing.  
(b) Reforms 
224. Reforms of SOEs began in the late 1970s a nd have been gradual.   SOEs were first 
transformed from administrative units of government  agencies to semi-independently managed units.  
This was followed by a period in the mid 1980s to  the early 1990s when "contract systems" were 
developed to increase the autonomy of SOEs (Box III.4).  However, despite these reforms, SOEs 
continued to make large losses.207  In the early 1990s, loss-making SOEs were increasingly closed 
down under the "Law of Enterprise Bankruptcy" (which came into effect on 1 November 1988);  in 1994 a "Capital Structure Optimization Programme" (C SOP) was introduced to facilitate adjustment 
                                                     
 
203 Paglee (undated). 
204 See for example, foreign equity limits specified in the "Catalogue for the Guidance of Foreign 
Investment Industries" (Chapter II (6)(ii)). 
205 National Bureau of Statistics (2004). 
206 Enterprises are defined as large, medium or small, depending on the number of persons they 
employ, their annual sales, and/or total assets.  Standa rds vary across industries.  For example, in the case of 
industrial enterprises (engaged in manufacturing, mining and quarrying, and production and supply of 
electricity, gas, and water), a company that employs no less than 2,000 persons, has annual sales revenue of no 
less than Y 300 million and total assets of no less than Y 400 million is considered to be "large";  and a company that employs no more than 300 persons, has annual sales of no more than Y 30 million, and total assets 
of no more than Y 40 million, is defined as "small" (SASAC online information.  Available at:  
http://www.sasac. gov.cn/gzjg/tjpj/cwjs/20040806 0083.htm [8 December 2005]). 
207 Wen, Mei (2004). China WT/TPR/S/161/Rev.1 
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to company closures.208  Consequently, by the end of the 1990s, the number of SOE bankruptcies rose 
to some 1,100 cases involving 680,000 employees, and an estimated debt write off of Y 10 billion.209 
Table III.14 
Performance of SOEs, 2001-04 
 2001 2002 2003 2004 
Number of SOEs  173,504 158,712 149,988 137,753 
Employment (million)a 48.2 44.6 42.3 39.8 
 (Y billion) 
Profits realized  281.1 378.6 495.1 752.5 
Value of assetsb 
(% of total assets) 8,790.2 
(64.9%) 8,909.5 
(60.9%) 9,452.0 
(56%) .. 
Value added 
(% of total value-added) 1,465.2 
(51.7%) 1,593.5 
(48.3%) 1.883.8 
(44.9%) .. 
.. Not available. 
a Employment for state-owned and state holding enterprises. 
b Data only for state-owned and st ate holding industrial enterprises. 
Note: Data are only for SOEs above "designated size", where designated si ze is sales of over Y 5 million. 
Source:  Data provided by the authorities. 
225. As a result of a policy adopted in 1997 to turn around troubled state en terprises within three 
years210, over half of the 180,000 small and medium-sized  SOEs were sold, contracted out or closed 
down, while 4,799 "large-middle scale" SOEs were restructured.211  Profitability of the SOEs has 
increased, from some Y 120 billion in 1995 to Y 750 billio n in 2004.  However, data provided by the 
authorities suggest that the percentage of SOEs th at are profitable fell from 52.4% in 1997 to 48.9% in 
2001.212  Moreover, as noted by the World Bank, SOE profitability appears to vary by region and by 
size.213  SOE privatizations, mergers, and bankruptcies during the period may have made an important 
contribution to overall improved profitability.  Th e performance of some of China's large SOEs, 
especially those with shares listed in stock market s such as Hong Kong, China, has improved in recent 
years, suggesting that the discipline of a public o ffering, including corporate governance, international 
accounting standards, and independence of management, has pr oved positive for these companies.  
                                                      
208 For example, the CSOP appears to have required creditor banks to write off substantial portions of 
the debt of selected companies by assigning a debt  write-off "quota" (Y 7 billion in 1994/95) to SOE 
bankruptcies and mergers. 
209 Mako and Zhang (2001);  and World Bank (2000). 
210 The policy appears to have included the use of debt for equity swaps, and low interest loans from 
banks (financed through the issue of Treasury bonds) for technology upgrading as well as continued efforts to 
encourage the sales of SOEs or their closure through bankruptcy. 
211 The authorities estimate that the recovery rate as a result of this programme was 72.7% by the end 
of 2000. 
212 In 1997, 133,000 out of 254,000 SOEs were profitable, while in 2001, 85,000 out of 174,000 were 
profitable.  This is in contrast to data reported by the World Bank, which suggests that of a total of 
262,000 SOEs in 1997, around 89,000 were profitable and 173,000 were loss-making.  In 2001 of a total 
174,000 around 85,000 were profitable and 89,000 were loss making.  Net profits appear to have increased from Y 79,120 in 1997 to Y 281,120 in 2001 (Data from Financial Yearbook of China, 2002 , quoted in Mako and 
Zhang, 2003). 
213 The study by the World Bank notes that SOEs in building materials, chemicals, forestry, food 
processing, textiles, machinery, urban utilities, construc tion, transportation/storage and commerce were the most 
distressed.  During the period 1997-2001, locally administered SOEs remained more highly indebted (liabilities 
as a share of equity at ar ound 220% compared to 125% for Centrally administered SOEs) (Mako and Zhang, 
2003). WT/TPR/S/161/Rev.1 Trade Policy Review 
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Box III.4:  SOE reform 
Reform of state-owned enterprises in China has been gradual and long.  It began in the late 1970s and has 
proceeded in three broad stages: 
1978-1992 :  In 1983, SOEs were first required to pay corporate tax (initially at a standard rate of 55%) 
instead of transferring all their profits to the Government.  At the same time, "collective enterprises", such 
as "township and village enterprises (TVEs)", and the private sector were encouraged to provide 
competition for SOEs.  Since 1979, bank loans have increasingly replaced budgetary grants for financing 
SOEs.  In addition, four specialized state-owned banks were created for financing state-owned enterprises.  
The "Contract responsibility system" was introduced in 1987.  Some autonomy was granted to SOEs in planning their annual production and in retaining profits for reinvestment.  Limited incentives to improve 
productivity were also given, including allowing SOEs to retain profits that exceeded annual revenue based 
on the production quotas set by the Government and linking workers' remuneration to productivity.  The "Regulations on Transforming the Management Mechanism of State Owned Industrial Enterprises" granted 
SOEs further rights in setting prices and wages an d their employment and investment policies.  The 
contract had to be renegotiated every three years.  At the same time, efforts were made to reduce price controls through a "dual track price system", whic h allowed SOEs to sell the amount exceeding the annual 
production quota initially at prices up to 20% above planned prices and then at market prices as of the 
mid 1980s. 
1993-2000 :  Based on a "Decision on Issues Concerning th e Establishment of a Socialist Market Economic 
Structure", adopted by the NPC in November 1993, SOEs were to be transformed into "modern 
enterprises" with "clarified property rights, clearly defined responsibility and authority and separation of 
enterprises from the government".  This was facilita ted by the Company Law, promulgated in November 
1993.  It also allowed for the privatization of small and medium-sized SOEs.  In 1994, a "capital structure 
optimization programme" was introduced on a trial basi s in a few cities.  This permitted SOEs to declare 
bankruptcy and in 1996 resulted in some 1,100 bankruptcies and over Y 10 billion being written off.  The 
overall number of bankruptcies in China rose from 277 during the period 1989-93 to 2,100 in 1994/95 and 
5,640 in 1996/97, of which over half were SOEs. 
2000-present :  The current policy appears to be concentrating on separating ownership and regulation of 
companies, and streamlining administration of state ownership.  Changes were initially introduced in 1987 
to the management of state assets, both at the national and provincial levels.  For example, in 1992, 
Shenzhen set up the State Asset Management Commission for the supervision of state assets.  At the Central level, efforts were made to transfer superv ision to the National State Asset Administration Bureau 
and the Ministry of Finance, altho ugh with limited success du e to opposition from other Ministries.  Most 
recently, in March 2003, the Government estab lished the State-owned Asset Supervision and 
Administration Commission (SASAC).  The SASAC is responsible for managing government assets in and 
reforming the SOEs under its charge.  Initially the SA SAC was charged with managing 196 "large" SOEs.  
These have since been consolidated into 168.  In addition to improved management, the Government is creating a number of large enterprise  groups by encouraging mergers in core industries.  SOEs that perform 
well are also being encouraged to list on the stock ex change to diversify ownership and raise funds for 
restructuring activities, while small SOEs are being enc ouraged either to restructure e.g. through mergers 
and acquisitions and alliances, or to declare bankruptcy. 
Source: OECD (2005), Governance in China ;  and Tenev, S. and Chunlin Zhang (with Loup Brefort) (2002), 
Corporate Governance and Enterprise Reform in China:   Building the Institutions of Modern Markets , World 
Bank and IFC. China WT/TPR/S/161/Rev.1 
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226. The most recent phase of reform appears to  concentrate on improving corporate governance 
through the transformation of SOEs into joint st ock companies with greater independence, including 
through the creation of an independent board of dir ectors and a supervisory board.  According to the 
Chairman of the SASAC (see below), at the end of 2002, more than 50% of the 159,000 SOEs had 
improved their corporate governance;  between  1998 and 2002, 442 SOEs and state holding 
enterprises had been listed on the stock market.  A number of larger SOEs have also been listed 
overseas, which has probably had a positive impact in terms of, inter alia,  accountancy and corporate 
governance standards.214  In addition, according to the SASA C, around 80% of small SOEs at county 
level and 60% at municipal (prefecture) level have  been sold off by the State.  The authorities 
estimate that there are still some 2,500 large and me dium-sized SOEs and depleted mines, employing 
around 5.1 million workers and representing Y 240 billi on in liabilities, that need to be closed 
down215;  this is likely to take another four years. 
227. The State-owned Asset Supervision and Administration Commission (SASAC) was formed in 
March 2003.  It was established "on the principl e of separating government administration from 
enterprise management and separating ownership from management power".  According to the 
"Interim Regulations on Supervis ion and Management of State-ow ned Assets of Enterprises", the 
SASAC "shall not interfere in [SOE] production an d operation activities, apart from performing the 
responsibilities of investor"216, which apparently gives the SASAC the right, as a majority 
shareholder, to take major policy decisions  and choose the managers of these companies.217  F o r  
example, the regulations require the SASAC to be directly involved in the appointment and removal 
of management218;  SOEs are also required to make regular  reports to the SASAC on their finances, 
production, and the "preservation or increase in state-owned assets".219  The SASAC's current policy 
appears to be to:  encourage more SO Es to list in the domestic stock market220;  encourage 
consolidation of SOEs through mergers and acquis itions;  allow companies "with long-term loss and 
no hope to recover or with larger debts than assets"  to declare bankruptcy;  encourage SOEs to invest 
abroad;  and permit foreign companies to acquire China's SOEs.221  The SASAC was originally 
charged with the management of 196 central-govern ment-owned non-financial SOEs.  It appears that, 
as a result of consolidation, as of August 2005 it ma nages 168;  these are involved mainly in defence, 
petroleum, electricity, telecommunications, metallu rgy, coal, aviation, shipping, machinery, and 
civilian construction.  According to the authorities,  the Government will maintain a controlling stake 
in companies having a bearing on national security, while gradually reducing state ownership of other 
SOEs;  the authorities maintain that at present, around 50 of the 168 holding companies have a 
                                                      
214 These include PetroChina, Sinopec, CNOOC, China Mobile, China Unicom, China Telecom, 
BaoSteel and CHALCO (Li, 2003). 
215 Li (2003). 
216 Article 10. 
217 Responsibilities of the investor includes the right to enjoy capital gains, take major policy decisions, 
and choose managers in proportion to the share of investment held in the company. 
218 Article 17. 
219 Article 37. 
220 Until 2000, it appears that SOEs wishing to go public had to seek permission from the local 
government and/or its affiliated central government mini stry, which in turn was granted an IPO quota from the 
China Securities Regulatory Commission (CSRC).  Since March 2000, a new merit-based IPO review procedure 
has been implemented by the CSRC, which includes the following steps:  the qualified sponsor/securities 
company recommends that the applican t apply for the IPO;  the Public Offering Review Committee under the 
CSRC reviews the application documents;  and the CSRC takes a decision on the IPO application.  
221 In early 2005, the SASAC and the Ministry of Commerce announced that "except for those 
industries in which the government clearly prohibits or restricts foreign shareholdings, the percentage of foreign 
shareholding can be negotiated by enterprises themselves with foreign investors, to develop the positive role of 
foreign investment in the shareholding restructuring of SOEs". WT/TPR/S/161/Rev.1 Trade Policy Review 
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bearing on national security.222  The SASAC has enacted 11 departmental rules and a series of legal 
documents on performance evaluati on, property management, and re gulatory reform based on the 
"Interim Regulations on Supervisi on and Management of State-owned Assets of Enterprises".  Some 
260 other regulations and legal docum ents that have implications for the work of the SASAC have 
also been revised to enable the SASA C to perform its work effectively. 
228. Other activities of the SASAC include:  to enc ourage, support and organize SOEs to recruit 
more management internationally;  establishing co mpetitive systems of remu neration for the SOEs;  
establishing trial equity exchanges, currently in Be ijing, Shanghai, and Tianjing to encourage equity 
trading for SOEs;  increasing the involvement of  international auditing firms in assessing the 
performance of SOEs;  continuing the restructur ing of SOEs, especially small and medium-sized 
SOEs;  and continuing to advocate the divestment of social functions such as schooling or medical 
and health facilities provided by the SOEs. 
229. Further SOE reform may be difficult due to concerns about rising unemployment;  while 
some 3,377 companies had been closed down by 2004, compensating some 6.2 million staff223, 
around 3,000 loss-making SOEs and resource-deplet ed mines, with some 5.1 million employees, 
remain to be closed.  The authoriti es note that asset sales of SOEs ha ve been, and will continue to be, 
used to fund the company's debts and to compensate these companies' formal employees.  SOEs also 
traditionally provided social services, such as hospita lization, schooling, etc.  The Government plans 
to continue to separate the social functions from th e business functions of SOEs;  the Government will 
take back the social functions.  There will also c ontinue to be efforts to separate the "major" and 
"minor" business functions of the SOEs, with the assets of minor or auxiliary business being 
converted into independent legal entities that wi ll be "market-oriented , practicing independent 
accounting and responsible for their own benefits and losses".  The authorities also state that although 
the private sector has developed very rapidly and currently accounts for a growing share of GDP, there are some large projects that it is not capab le of funding and investing in.  The authorities 
maintain, therefore, that SOEs should continue to un dertake such projects.  In addition, there are no 
plans to disinvest in large and profitable SOEs that have an international presence.  
230. Despite the progress made, there remains c oncern about a continued misallocation of 
resources:  it is estimated that although SOEs contri bute less than 30% to the total value of industrial 
output, they mobilize considerably more of the economy's financial resources
224;  they also account 
for a disproportionate share of NPLs (Chapter IV(5 )(iii)).  The authorities state that the SOEs' access 
to finance has been redressed in r ecent years.  It appears that the Government has also implemented a 
rule requiring the companies to provide at least 50%  of all investment in a project themselves, thus 
restricting borrowing to the remaining 50%;  accordi ng to the authorities, this "self-financing ratio" of 
the Central SOEs is currently around 50%.  It is  not clear, however, whether the remaining 50%, 
which is borrowed, is obtained at preferential ra tes of interest.  According to the authorities, 
favourable lending terms depend on the nature of the loan and the project rather than whether the 
borrower is an SOE. 
231. The Government believes that public offerings will help companies reinforce their corporate 
governance, improve the supervision structure of the corporate legal person, and lead to the adoption 
                                                      
222 Thus far, 49 company groups have been identified in energy, defence, metals, motor vehicles, 
transport, and telecommunications.  While the maintenance of  state holdings in some sectors, such as energy and 
defence, may be justified on "national monopoly " or nationa l security grounds, it is less clear for other sectors. 
223 SOEs have formal employees and contract wo rkers;  the number of formal employees is 
increasingly being replaced by contr act workers.  While th e former are compensate d through the sales of 
company assets, the latter are entitled to benefits under the social security network established in the mid 1990s. 
224 According to Wen, Mei (2003), SOEs mobilize around 70% of the economy's financial resources. China WT/TPR/S/161/Rev.1 
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of international accounting standa rds and independent management.225  Where an SOE performs 
social functions, the typical process for listing begins with the splitting of the SOE into two parts:  the 
parent company assumes responsibility for the firm's  debts, its non-productive assets (such as schools 
and clinics) and any excess staff, and the subsidia ry retains the productive assets and restructures as a 
joint-stock company.  In other cases, the entire company may be listed.  Based on the nature of 
investors/shareholders, the joint-stock company issu es three different types of shares:  state shares 
(guojia gu ), which are owned by the state asset-managem ent company or other institution that holds 
the States' assets in the joint-stock company;  legal person (LP) shares ( faren gu ), which make up 
around a third of total shares and are not tradeable (according to the authorities, not tradeable on the 
stock exchange, but can be sold to other LPs), are issued to the company (o r other entities with legal 
person status) in return for the assets it invests in the joint-stock company seeking listing;  and public 
shares ( geren gu ) or A shares, which are tradeable and account for no less than 25% (15% if the total 
share capital exceeds Y 400 million) of the joint st ock company’s total shares issued to domestic 
individuals and institu tions.  If these tradeable shares are to be  sold to foreigners they are sold as 
B shares, which are quoted in U.S. dollars on the Sh anghai Stock Exchange or in Hong Kong dollars 
listed in the Shenzhen Stock Exchange, or as H sh ares, which are shares of Chinese companies listed 
in overseas stock markets.  The ratio of different shares depends on the respective situations of the 
issuing companies.  Thus, at present only around 25%  of an SOE's productive subsidiary may be sold 
to the private sector through the stock market.  The authorities point out, however, that with the 
ongoing reform, the ratios of tradeable and non-tr adeable shares will be adjusted accordingly. 
232. Currently, around half of 2,903 state-owned or state-controlled large enterprises have been 
transformed into shareholding companies.  However, partly as a result of the restrictions on tradeable 
shares, China's stock markets remain relatively sma ll and have yet to play a significant role in the 
country's economy.  There are also few private comp anies that have listed on the stock exchanges.  
Data provided by the authorities show that by the end of February 2005, there were 1,378 domestic 
firms listed on China’s stock exchanges;  987 of th ese were state controlled, accounting for 71.63% of 
the total number of domestic firms listed.  In add ition, there are 35 state-owned or state-controlled 
firms listed on the Hong Kong, China Stock Exchange (section (viii) below). 
233. Data provided by the authorities show that  the income from core businesses of listed 
companies (most of which are SOEs) was Y 3,434 billion in 2004, the equivalent of 25% of GDP and an increase of almost 30% over the previous year.  Net profits of these companies were Y 174 billion 
in 2004, an increase of some 31% over the previous year.  Nevertheless, it is suggested that measures 
of performance have tended not to improve and even decline after firms have listed.
226  One suggested 
reason is that as only a minority of the shares of a company may be listed, ownership still seems to be concentrated in the hands of the State, allowi ng the previous management problems to continue.
227  
The China Securities Regulatory Commission (CSRC)  is trying to improve the performance of 
companies listed on China's Stock Exchanges th rough corporate governance guidelines, although the 
success of these measures remains to be seen (section (viii) below).  Another solution that appears to 
be increasingly sought is the sale of LP shares to private investors seeking indirect backdoor 
                                                      
225 The authorities note that "according to the CPC's 'Decision on Issues Regarding the Improvement of 
the Socialist Market Economic System', a shareholding system that absorbs investment from various channels 
should be the major channel through which public ownership could be realized". 
226 Studies cited in Green (2004a and 2004b) show that measures of performance, such as returns on 
assets and earnings per share, have tended to decline after firms have listed. 
227 Green (2004a), for example, documents instances of asset stripping by local authorities including, 
inter alia,  through transfer of value to another firm unde r the control of local au thorities, through loan 
guarantees through parent or sister firms. WT/TPR/S/161/Rev.1 Trade Policy Review 
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listings228, resulting in a change in control of the compan y from the state to the private sector or other 
government entities.  Between 1996 and 2002, for exam ple, there seem to have been 590 such cases, 
resulting in a total of 200-250 privately controlled listed firms.229  Reportedly, since August 2002, the 
Ministry of Finance has authorized the transfer of LP shares to private investors signalling the end of 
a ban on such trade, although under 3.5% of the tota l number of state shares have been transferred to 
non-State holders.230  Current reforms to the shareholding system, however, are addressing this 
problem of the non-tradeability of company shares;  the reform is now being carried out on a case-by-
case basis. 
(v) The private sector 
234. The development of the private sector (or non-p ublic sector) in China has been facilitated first 
by the diversification of shareholdings of existing government agencies and SOEs, in part discussed above, and second, by permitting private sector invest ment in certain sectors of the economy.  Private 
sector development began with the reform of ag riculture and the emergence of township-village 
enterprises (TVEs).  TVEs were formed from Pe ople's Communes and Production Teams based in 
villages and were in part a response to increasing rural unemployment due to agricultural reforms and 
restrictions on the movement of labour from rural to urban areas.
231  The success of the TVEs has 
been considerable, both in terms of employment and value added.232  Not all TVEs are privately 
owned, however;  some continue to be owned by  town or village governments and, according to 
reports, may be subject to interference by governme nt officials, including through unrealistic growth 
and profit targets to meet political objectives.233 
235. The definition, and therefore measurement of the private sector in China, remains complex 
(although it could be thought of as the "non-majority -state-owned" sector).  The "Interim Regulations 
on Private Enterprises", which took effect on 1 July  1988, defines private enterprises as firms whose 
assets belong to individuals and that employ more  than eight workers;  this includes individual 
proprietorship enterprises, partnership ente rprises and private limited liability companies.   Official 
government statistics, however, reportedly include  only domestic Chinese enterprises as "private 
enterprises";  other individual businesses, co mpanies with annual sales below Y 5 million, 
foreign-invested enterprises, and collectively owned enterprises are excluded.234 
236. While the number of state-owned, and especia lly collectively owned, enterprises has been 
declining during the last decade, the number of privately owned companies grew from around 237,000 in 1993 to over 3 million by 2003 and th e number of individual enterprises (sole 
proprietorships) grew from 17.6 milli on in 1993 to 23.5 million in 2003.
235  The private sector has 
also played an important role in providing em ployment, especially in absorbing the redundancies 
generated by SOE reform, and makes significan t contributions to industrial value added.236  Although 
                                                      
228 The authorities note that such indirect listings are on ly possible if the private investor is already an 
LP shareholder. 
229 Green (2004b). 
230 Green (2004b). 
231 ADBI (2004). 
232 See, for example, OECD (2002b), Chapter 2.   According to ADBI (2004), TVEs employed 
133 million people and accounted for around 46% of industrial value added in 2002. 
233 ADBI (2004), Box 1, pp. 16-19. 
234 OECD (2005a), Chapter II. 
235 ADBI (2004), based on data from the State Administration of Industry and Commerce. 
236 Official data provided by the authorities show th at the non-state-owned and state-holding industrial 
sector accounted for  45% of value added in 2003.  In addition, data collected by the ADBI (2004) show that the 
ratio of total industrial output accounte d for by the SOEs declined from 68% in 1991 to 41% in  2002, suggesting 
that the share of indu strial output accounted for by other (non-SOE) companies continued to increase during this China WT/TPR/S/161/Rev.1 
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the structure of the sector has become more diversif ied, it tends to be concentrated in manufacturing 
and to a lesser extent in mining and utilities.  It has less of a presence in key services, including transport, and telecommunications, which tend to be dominated by SOEs.  The private sector also appears to be more active in eastern coastal provinces. 
237. By and large, recent research has found that the private sector tends to have higher total factor 
productivity than the state sector and productivity has been growing more rapidly in the private 
sector.
237  Nevertheless, it appears that private compan ies continue to face constraints, such as 
obtaining financing from the banking sector in the form  of loans, or raising equity finance in the 
capital market.238  Domestic companies also face disadvant ages with respect to foreign-invested 
enterprises, which benefit from certain preferential tax treatment.  Private companies until recently, it 
seems, were prohibited from investing in certain sectors, including electricity, petroleum and chemicals, railways, and air transport services;  on 25 February 2005, the State Council through its 
"Guidelines on Encouraging and Supporting the Deve lopment of the Non-Public Sector, including 
Individual and Private Enterprises" removed some  of these restrictions (Chapter II(6)).  The 
authorities are addressing other potential barriers to entry, such as high minimum capital requirements 
under the Company Law, which have apparently  declined under the amendment effective 
1 January 2006.  In addition, the relatively underdeveloped capital market, which limits the 
availability of debt and especially equity finance, is being improved, inter alia,  through the 
"Guidelines", which direct financial regulators to expand access to bank, equity, and bond financing, 
through pro-active treatment of private companies under the recent interest rate liberalization and 
through impartial treatment of private ente rprises in their access to capital markets. 
(vi) Small and medium-sized enterprises 
(a) Overview 
238. According to information provided by the au thorities, there were around 31.5 million small 
and medium-sized enterprises in China in 2003.  SMEs  include private and public sector companies.  
Under the "Provisional Rules on the Standards of  Medium and Small Enterprises", issued on 
19 February 2003, the definition of an SME varies according to sector and ranges from employment 
of less than 2,000 persons and total assets of le ss than Y 400 million in the industrial sector, to 
employment of less than 200 persons and total sales of less than Y 300 million in the wholesale sector (Table AIII.10).  In 2003, SMEs accounted for aroun d 99% of all registered enterprises in China and 
provided 79% of newly created jobs.  Around 60% of industrial output appears to be accounted for by 
SMEs. 
239. The growth of SMEs has been rapid sin ce the economic reform programme began to 
encourage their establishment.  The policy permitted the development of several forms of ownership, 
including urban collective enterprises, township and village enterprises (TVEs) , as well as privately 
owned companies.  In addition, as part of its reform of state ownership and the decision to "grasp the 
large and let go of the small", several small SOEs ha ve also been sold to th e private sector in recent 
years (section (iv) above).  However, recent research suggests that SMEs have not found it easy to obtain financing.
239  It appears that many SMEs tend to  find it hard to obtain loans through the 
                                                                                                                                                                     
period.  Official statistics only include companies with annual sales of over Y 5 million;  as many private and 
especially individually owned companies are small, this would suggest that their contribution to the economy is 
even higher. 
237 See for example, OECD (2005a), Chapter II. 
238 See for example, García-Herrero et al. (2005);  and Kuijs and Wang (2005). 
239 Estimates of total bank credit for SMEs are wide ranging.  For example, Kuijs and Wang (2005), 
cite an estimate by the People's Bank of China, which st ates that although SMEs accoun t for over half of China's WT/TPR/S/161/Rev.1 Trade Policy Review 
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banking system and rely instead on their own sources of funding or loans from private individuals.  
There also seems to be wide regional variation,  with SMEs in the eastern provinces having better 
access to financing through banks.240 
(b) Assistance for SMEs 
240. The Government has actively encouraged the development of SMEs since the mid 1990s, and 
currently provides assistance thr ough four channels.  The "Fund for Supporting Technological 
Innovation for Technological SMEs" (including those i nvolved in software, high technology research, 
as defined by the Ministry of Science and Tec hnology), established in 1999, provided Y 3.8 billion 
during the period 1999-04;  the "Development Fund for SMEs", established in 2004, provided 
Y 100 million in 2004 and Y 200 million in 2005;  the "Fund for International Market Exploration by 
SMEs", established in 2001 (section (3)(viii) above) , provided around Y 2 billion in support for the 
period 2001-04;  and the "Supportive Fund for SMEs on the Service System", established in 2003, has 
provided Y 50 million annually to local and provi ncial governments and enterprises for providing 
institutional and infrastructural and administrative support for SMEs.   A Department of Small and 
Medium Sized Enterprises also exists in the NDRC. 
241. To address further the problem of  access to financing and to develop the "service system", a 
loan guarantee system was established by the fo rmer State Economic and Technical Commission 
(SETC) and the Ministry of Finance in June 199 9, which was followed by other guidelines and 
circulars to ease access for SMEs.241  In 2001 the "Provisional Administrative Measures on Risks of 
Loan Guarantee Institutions for SMEs" and "Manage ment Methods of Credit Guarantees for SMEs" 
were developed.  These schemes targeted mainly high-tech SMEs.  They involve loan guarantees 
provided by loan guarantee companies set up as inte rmediate entities between the banks and SMEs;  
by the end of 2004 there were 675 credit guara ntee institutions for SMEs across China and a 
guarantee fund of Y 10 billion had been established.   According to the authorities, the State 
Administration for Taxation (SAT) established rules in April 2001, granting a three-year business tax 
exemption for institutions "providing loan guarantees and re-guarantees for non-profit-making 
guarantee institutions for SMEs". 
242. Further financial support for SMEs is authori zed through the Law on the Promotion of Small 
and Medium Sized Enterprises, promulgated on 29 June 2002 and in force since 1 January 2003.  
According to the Law, the State would provide funds for the development of SMEs, through the 
annual budget.  This would include special funds provided through the Central Government budget, 
financial assistance from local governments, as well as through taxation policies.242  Tax reductions or 
exemptions are available for certain SMEs, including those that provide employment to unemployed persons, hi-tech companies, SMEs established in mi nority ethnic areas or poor areas or that provide 
employment to disabled persons.
243  In addition, the Law states that the People's Bank of China (the 
                                                                                                                                                                     
GDP, they receive less than 10% of bank loans.  García -Herrero et al. (2005) put th e estimate at around 15% of 
bank loans.  However, in a recent speech by the Deputy G overnor of the PBC, it is suggested that loans to SMEs 
have accounted for more than 50% of "total credit assets in the past few years, roughly equivalent to the 
contribution of SMEs to GDP".  The Deputy Governor, neverthe less, acknowledges in the speech that it remains 
hard for many SMEs to obtain financing (Wu, 2005). 
240 Wang, Yanzhong (2004). 
241 These measures include the "Gui ding Opinions on Establishment on Pilot Basis of Credit Guarantee 
System for SMEs" promulgated in 1999 by the former SETC.  This was followed by the "Circular on Issues concerning Establishment of Credit Guar antee System for SMEs" in 2001;  also  in 2001, the Ministry of Finance 
promulgated the "Provisional Measures on Risk Management of Financial Guarantee Institutions for SMEs". 
242 Article 12. 
243 Article 24. China WT/TPR/S/161/Rev.1 
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Central Bank) "shall give better guidance in cr edit policies and help improve the financing 
environment for small and medium sized enterprises"  and "shall give more vi gorous support to small 
and medium sized financial institutions and enc ourage commercial banks to readjust their credit 
structure and provide greater credit suppor t to small and medium sized enterprises".244  According to 
the authorities, however, no such support is provided by the People's Bank of China and by 
commercial banks.  It appears that policy banks ma y also lend to SMEs, although details, including 
the percentage of lending that went to SMEs in recent years, were not provided to the Secretariat. 
(vii) Competition policy 
(a) Introduction 
243. Competition policy in China must deal with a dis tinct set of challenges posed by the country's 
gradual transition from a centrally planned to a mo re market-oriented economy.  These include the 
duality of the economy (whereby public ownership remains a mainstay of the economy with the 
public and private sectors developing side-by-side), the continuing ro le of administrative and other 
state monopolies, and the persistence of barriers to internal trade.  Since the 1990s, China has had 
legislation dealing with aspects of unfair competiti on and specific anti-competitive practices such as 
collusive tendering.  However, it lacks a modern , comprehensive competition law incorporating broad 
provisions to deal with cartels, anti-competitive merg ers, and abuses of a dominant position.  This gap 
in its legislative framework is expected to be f illed during the current legislative term (the Tenth 
NPC) by the adoption of a comprehensive co mpetition law, the Anti-monopoly Law.  In 
implementing the new law, it will be important that  China:  ensures non-discriminatory treatment of 
private enterprises versus state-owned enterprises throughout China;  addresses the challenges posed 
by administrative and state monopolies and othe r anti-competitive arrange ments;  and ensures 
continuing non-discriminatory treatment of foreign corporations operating in China. 
(b) Competition issues posed by the structure of the Chinese economy 
244. The structure of the Chinese economy poses a number of challenges for the maintenance of 
competition.  In many sectors, China's economy is relatively unconcentrated, which tends to minimize 
the scope for and impact of anti-competitive pr actices.  However, China's economy is also 
characterized by extensive administrative and state monopolies.  Exclusive rights and privileges pertaining to such monopolies can pose a constrai nt on ease of entry and competition in relevant 
product and geographic markets.
245  In addition, capital market imperfections, state regulations, and 
ambiguous property rights can pose barriers to new en trepreneurship and the efficient allocation of 
resources across economic sectors. 
245. There is an acknowledged problem concerning ma rket "blockages" attributable to local 
government administrative and regulatory actions, wh ich has been addressed by instruments of the 
State Council and other authorities.246  For these and other reasons, the existence of a large internal 
market and a lack of concentration in some econom ic sectors does not remove the need for effective 
legislation and policy advocacy to deal with anti- competitive market structur es and business practices. 
246. In framing responses to these challenges, care must  be taken to avoid an  overly intrusive or 
discriminatory approach.  The experience of countri es that have effective national competition laws 
                                                      
244 Article 14. 
245 Winslow (2002). 
246 See "Regulation on Prohibition of Regional Blockage in Market Economic Activities" by the State 
Council in 2001;  and "Notice on Clearing Regional Blockage Decisions in Market Economic Activities" by 
MOFCOM in 2004. WT/TPR/S/161/Rev.1 Trade Policy Review 
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demonstrates a need for a careful approach that is  well-informed by economic analysis.  "Hardcore" 
cartels (price-fixing or market allocation schemes)  and collusive tendering are deemed by most 
experts to merit strict prohibition.  On the other hand, mergers are often benign and can be necessary 
for industrial restructuring.  Transparent and non-discriminatory enforcement is of paramount 
importance, the removal of administrative restraints to competition in markets is an important 
complement to enforcement practices.247 
247. In China, tensions could arise between the im plementation of an effective competition policy 
and a government development strategy known as th e "big-corporation and big-group" strategy.  The 
strategy is aimed at facilitating scale economies and improved competitiveness.  However, a well-
tailored competition law will lead to efficiencies wh ile helping to prevent accumulations of market 
power and possible related abuses.248 
(c) Existing legislation and statutory provisions 
248. The Law Countering Unfair Competition has been  effective since 1 December 1993.  The law 
aims to encourage and protect fair competition, stop unfair competition, and protect the legitimate rights and interests of business operators and cons umers.   In addition to aspects of "unfair 
competition", such as counterfeiting, bribery, and false advertising, it addresses five practices that 
arguably fall within the domain of competition law:  collusive tendering, predatory pricing, abuse of a 
market-controlling position by public enterprises,  administrative monopoly, and tied selling ("binding 
sales").  Responsibility for enforci ng the Law rests with the SAIC. 
249. The Price Law became effective on 1 May 1998.  In addition to various elements concerned 
more with administrative regulation of prices than with competition, it contains provisions dealing with price-fixing cartels, predatory or expl oitative pricing, and price discrimination. 
250. The Law on Bid Invitation and Bidding or Tende ring, effective 1 January 2000, prohibits 
collusive tendering (see also section (2)(x)).  This is an important aspect of competition policy that 
demonstrates its role in reinforcing a transparent and competitive government procurement regime.  In 
addition, Articles 32 and 33 of China's Foreign Tr ade Law (adopted in 2004) deal specifically with 
monopolistic conduct and the sale of products at unreasona bly low prices in foreign trade.  To date, no 
investigations have been carried out pursuant to these provisions.  In May 2004, a research study was 
prepared for the Anti-Monopoly Division of the Bureau of Fair Trade.
249  No specific actions are 
currently contemplated to implement the findings of this study. 
(d) The forthcoming Anti-monopoly Law 
251. The Anti-monopoly Law is a project of the Eighth and Ninth National People’s Congress. 
According to the Restructuring Plan for the State Council approved in 2003, MOFCOM was 
responsible for the coordination of anti-monopoly polic y.  According to its mandate, MOFCOM is "to 
regulate the market operation and 'distribution or der', to break up market monopoly and regional 
blockage policies ... to neaten and regulate the 'dis tribution order', to deepen the reform of the 
distribution mechanism, and to facilitate the establi shment and improvement of an integrated, open, 
competitive and orderly market system ... to research  and formulate laws, re gulations and standards 
related to market system, and to coordinate the breaking up of market monopoly, industry monopoly 
and regional blockage."  The SA IC is mandated to investigate and punish illegal anti-competitive 
                                                      
 247 Anderson and Jenny (2005).  
248 Evenett (2003). 
249 "The Competition-restricting Behaviour of Multinational Corporations in China and Possible 
Countermeasures". China WT/TPR/S/161/Rev.1 
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activities.  The allocation of competition enfo rcement responsibilities between these bodies will be 
determined by the Anti-monopoly Law, which is to  be approved by the Standing Committee of the 
NPC.  MOFCOM has established an Anti-monopoly Investigation Office, responsible mainly for 
international exchanges, legislation, and investigations on anti-monopoly. 
252. A draft of the new Anti-monopoly Law was released  at an international conference in Beijing, 
in May 2005.  It contains provisions on all of  the major categories of anti-competitive conduct, 
including: cartels and other anti-competitive agreem ents; abuses of a dominant position; mergers and 
the restriction of competition by state authorities ("administrative monopolies").250  Its principal 
purpose is to "prohibit monopolistic conduct".  In a ddition, Article I refers to the objective of 
"ensuring the healthy development of the socialist market economy". 
253. While adoption of the new law will mark a significant further step in the evolution of China's 
legislative framework, much will depend on its implem entation.  In this regard, comments on the draft 
have emphasized the desirability of benefiting from other countries' experience, and the importance of 
a non-discriminatory, economics-based approach to enforcement.251  Other important considerations 
for its effectiveness will be the sectoral coverage of the law and its application in relation to SOEs and 
to administrative and state monopolies. 
(e) International cooperation on competition policy involving China 
254. China is increasingly active in multilateral a nd bilateral cooperation activities relating to 
competition policy. It has participated actively in competition-policy-related activities of APEC, 
UNCTAD, the OECD, and the WTO.  It is also in  the process of developing bilateral competition 
policy and legal exchanges and cooperation with ot her countries.  In May 2004, MOFCOM signed an 
agreement with the EC to establish the Chin a-Europe Dialogue on Competition. Under the 
Agreement, the Commission will provide enhanced t echnical support and capacity-building to China.  
Links are being developed with othe r countries and sources of expertise.  China is encouraged by the 
EC to draw on these sources to ensure the implem entation of the new competition law in ways that 
advance competition, trade, and economic efficiency. 
(viii) Corporate governance 
(a) Overview 
255. Ineffective corporate governance contributes to  the misallocation and perhaps excessive use 
of capital and labour in the corporate sector.  Rea lizing this, the Government has been making efforts 
to improve corporate governance. 
256. China's corporate governance regime is based on the Company Law.  In addition, there are 
various laws regulating enterprises with different ownership structures.252  In December 2004, the 
Governor of the People's Bank of China (PBC) rai sed several issues critical to improving China's 
                                                      
250 Wilmer Cutler Pickering Hale and Dorr ( 2005);  and Hogan and Hartson LLP (2005). 
251 American Bar Association, Sections of Antitrust Law, Intellectual Property Law and International 
Law (2005).  Joint Submission on the Proposed Anti-Mo nopoly Law of the People's Republic of China 
(19 May). 
252 In addition to those regulating SOEs, foreign-invested and foreign-owned enterprises mentioned in 
section (4)(iii) above, to regulate collectively-owned en terprises (COEs), there are the "Regulations on Urban 
Collectively-Owned Enterprises" of 1991 and the "Law on  Township Enterprises" of 1997;  and to regulate 
individually owned (or private) enterprises, there are the "Law on Individual Proprietorship Enterprises" of 2000 and the "Law on Partnership Enterprises" of 1997. WT/TPR/S/161/Rev.1 Trade Policy Review 
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corporate governance:  the role of Government a nd the Communist Party in corporate governance;  
the selection of corporate governance models;  th e problem of insider control and ownership 
ambiguity;  the remaining issues of "debt-equity" swaps;  means of promoting corporate governance, 
apart from listing companies;  the role of stakeholders and the protection of their interests;  the role of 
independent directors and institutional investors; the role of banks as creditors;  and corporate 
governance in non-state-owned enterprises.253  
(b) Listed joint-stock companies  
257. Listed companies are defined as joint stock limited companies that issue shares listed and 
traded on the stock exchanges.  A major law rela ted to corporate governance for listed companies is 
the Securities Law, issued on 29 December 1998 an d most recently revised on 27 October 2005.  A 
"Code of Corporate Governance for Listed Compani es" (the Code), based on the Company Law, the 
Securities Law, and other relevant laws and regulations254, was issued by the China Securities 
Regulation Commission (CSRC) and the State Economic and Trade Commission (SETC) on 7 January 2002.
255  The Code, which is mandatory, sets out the basic principles for corporate 
governance, the protection of investor interests, and the behaviour of directors, supervisors, managers, 
and other senior management in listed companies.  
258. Under the Code, a listed company must ha ve independent directors on its board.256  T h e  
"Guidelines for Establishing Independent Directors of Listed Companies", issued on 16 August 2001 by the CSRC, required at least one third of the board, to comprise independent directors by 30 June 2003.  
259. In addition, in 2001, the CSRC issued rules, under which one third of newly listed companies 
would be reviewed randomly every year.  Areas to  be examined include:  governance structure, 
financial issues, and information disclosure.  Th e CSRC also investigates complaints from investors 
and by the media.  The "Measures on the Administration of Information Disclosure on Shareholding Changes of Listed Companies", effective 1 December 2002, set up disclosure requirements for listed companies engaged in takeover activities. 
260. There are several other laws, regulations, and policy papers on corporate governance.  One of 
the most important is the State Council's "Several  Opinions on Promoting the Reform, Opening-up 
and Steady Development of the Capital Market" (the  Opinions), issued on 1 February 2004.  The 
Opinions are targeted at improving the capital ma rket, developing new securities investment products, 
and improving the corporate governance of listed comp anies.  To implement the Opinions, the CSRC 
promulgated the "Rules on Strengthening Protection of  Individual Shareholders' Right and Interests" 
                                                     
 
253 People's Bank of China online information.  Available at:  http://www.pbc.gov.cn/english/ 
detail.asp?col=6500&id=68 [18 April 2005] 
254 In addition, in 1994, the State Council promulgated a "State Council' s Special Rule for Shareholding 
Limited Companies to be Listed Overseas";  and the former State Council's Securities Committee and the State 
Commission for Restructuring the Economic System formulated a "Compulsory Clauses of Articles of 
Association for Companies to be Listed Overseas", as a supplement to the Company Law.  The China Securities 
and Regulatory Commission (CSRC) issued the "Guidelines to Articles of Association of Listed Companies" in 
1997, and the "Standardization of Shareholders' Meeti ngs" in 2000;  both become guidelines for listed 
companies' operation. 
255 Before that, the Shanghai Stock Exchange issued  "Guidelines for Corporate Governance of Listed 
Companies" in October 2000, the first code on co rporate governance for lis ted companies in China. 
256 Independent directors refer to those who do not hold any additional posts in the company, and who 
have no relation either with the management and the controlling shareholders, or with the persons providing financial, legal or consulting services to the company. China WT/TPR/S/161/Rev.1 
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on 7 December 2004.  These Rules mark a step towards protecting the interests of minority 
shareholders in China's listed companies. 
(c) Listed state-owned companies 
261. Based on information provided by the authorities, by the end of February 2005, 
1,378 companies were listed on China's two domestic  stock exchanges, of which 71.6% (987) were 
state-holding companies.  Around 36% of all shares in listed companies are tradeable, which means 
almost two thirds of the shares are not.  Among the non-tradeable shares, the shares owned by the 
state accounted for 73.6% in 2004;  the state ho lds 46.9% of the shares of all listed companies 
(Table III.15).  As this may indicate a lack of dis tinction between the state's role as a shareholder and 
a regulator, reducing state involvement may impr ove corporate governance in listed companies. 
Table III.15 
Tradeable and non-tradeable shares of domestically listed companies, 2000-04 
(Billion unless otherwise specified) 
 2000 2001 2002 2003 2004 
Number of tradeable shares 135.5 181.3 203.7 226.8 257.7 
A Sharesa 107.8 131.8 150.9 171.5 199.3 
B Sharesb 15.2 16.3 16.8 17.5 19.7 
H Sharesc 12.5 33.2 36.0 37.8 38.8 
Number of non-tradeable shares  243.6 340.5 383.8 414.7 454.3 
State-owned shares 147.5 241.1 277.3 304.7 334.4 
State-owned shares as a percentage 
of non-tradable shares (%) 60.6 70.8 72.3 73.5 73.6 
Total (billion) 379.1 521.8 587.5 641.5 712.1 
State-owned shares as a percentage 
of total shares (%) 38.9 46.2 47.2 41.5 46.9 
Tradable shares as a percentage of 
total shares (%) 35.7 34.7 34.7 35.4 36.2 
a A shares are shares issued by joint stoc k companies registered in China and listed on  the domestic stock exchanges, with face  
value denominated in RMB, and traded in RMB by domestic companies, institutions, organizations or individuals (excluding 
investors from Hong Kong, China;  M acao, China;  and Chinese Taipei). 
b B shares are shares issued by joint stoc k companies registered in China and listed on the domestic stock exchanges, with face  
value denominated in RMB, but traded in U.S. dollars on the Sh anghai Stock Exchange and in HK dollars on the Shenzhen Stock 
Exchange. 
c H shares are shares issued by joint st ock companies registered in China but liste d on stock exchanges abroad (Hong Kong, Chin a;  
London;  New York;  Singapore);  face value is do minated in RMB, traded in local currencies. 
Source:  CSRC (2005), China Securities and Fu tures Statistical Yearbook . 
262. According to the authorities, under the current sh areholding structure, there are conflicts of 
interest between holders of non-tradeable and trad eable shares, and between controlling shareholders 
and minority shareholders.  Holders of non-tradeable shares pay more attention to an increase in the 
value of net assets while holders of tradeable shares care more about the fluctuation of stock prices in 
the secondary markets, which is often neglected by th e former.  In order to deal with these divergent 
interests, reforms were carried out on the share structure of listed companies. 
263. Efforts made in this regard include:  creating an improved framework for foreign investors to 
acquire shares in domestic companies257;  not allowing listed companies to, inter alia , pay salaries, 
benefits, insurance or advertising costs of related parties;  restricting listed companies from providing 
                                                      
257 The "Notice on Relevant Issues Concerning the Transfer of State-owned Shares and Corporate-
owned Shares of Listed Companies to Foreign Investors", issued jointly by the CSRC, the MOF and the SETC on 3 November 2002. WT/TPR/S/161/Rev.1 Trade Policy Review 
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guarantees to their shareholders, or any other aff iliates in which the listed company holds shares of 
less than 50%, or to companies with a debt- asset ratio exceeding 70% (unless they meet certain 
conditions).258  In addition, under the "Notice on Questions Regarding Transfers of State-owned 
Property Rights in Enterprises", and the "Provisi onal Measures Governing Transfer of State-owned 
Assets of Enterprises", if any transfer of state-owne d assets in listed companies were to lead to a 
change in the ownership of these assets, e.g., a transf er to a private enterpri se, information regarding 
the transaction must be publicized in advance so th at potential competitors could participate, and the 
transaction be held in a transparent manner;  prior approval from SASAC must be obtained.259 
(d) Non-listed companies  
264. Corporate governance in non-listed companies is regulated under the Company Law, most 
recently amended on 27 October 2005.  Under the Law,  a company means a limited liability company, 
or a joint stock limited company.  For both, the hi ghest authority of the company is the shareholders' 
meeting, and the board of directors is th e decision-making body (section (iii) above). 
(e) Accounting standards and regulations 
265. The Accounting Law, adopted in January 1985 and amended in December 1993 and 
October 1999, and the "Law on Certified Public Acc ountants", effective 1 January 1994, provide the 
main legal basis for accounting. 
266. China's first accounting standard was issued in November 1992 by the MOF,260 based on 
International Accounting Standard s established by the Internati onal Accounting Standards Board 
(IASB).  Since then, the MOF has issued 16 other standards, including on:  disclosure of related party 
relationships and transactions;  cash flow statements;  debt restructuring;  investment;  construction 
contracts;  changes in accounting policies and est imates, and corrections of accounting errors.   
267. The "Accounting System for Business Enterpri ses (ASBE)" was applied to all joint stock 
limited companies on 1 January 2001, to all FIEs on 1 January 2002261, and on 17 March 2003 to all 
enterprises established on or after 1 January 2003, except SMEs and financial institutions.262  T h e  
MOF intends to apply the ASBE to all compani es (including those established before 2003), except 
SMEs and financial institutions. 
268. There are accounting guidelines for specific industries, including:  civil aviation, 
telecommunication services, publishing, and agricu lture.  In addition, between 2002 and 2004, the 
MOF issued four sets of questions and answers (Q&As) relating to the accounting system and standards, with a view to clarifying current practice.   
269. The Chinese Institute of Certified Public Acc ountants (CICPA), established under the MOF, 
became a member of the International Federation of  Accountants (IFAC), and of the Confederation of 
                                                     
 
258 The "Notice on Certain Issues on the Capital Flows between Listed Companies and Related Parties 
and Outbound Guarantees of Listed Companies", issued on 28 August 2003 by the CSRC and State-owned 
Assets Supervision and Administration Commission (SASAC). 
259 The "Notice on Questions Regard ing Transfers of State-owned Property Rights in Enterprises" was 
issued on 25 August 2004 by the SASAC.  The "Pr ovisional Measures Governing Transfer of State-owned 
Assets of Enterprises" were promulgated by the MOF and SASAC and effective on 1 February 2004. 
260 The "Accounting Standard for Business  Enterprises (the Basic Standard)". 
261 At the same time, the Accounting System for Fore ign Invested Enterprises and related regulations 
on accounting practices and reports, released in 1992, were repealed. 
262 The "Accounting System for Small Business Enterprises (A SSBE)" came into force on 
1 January 2005, and the "Accounting System for Fi nancial Institutions (ASFI)" on 1 January 2002. China WT/TPR/S/161/Rev.1 
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Asian and Pacific Accountants in 1997.  In add ition to the MOF, the National Audit Office also 
regulates the work of the CICPA, which in turn  regulates accounting firms in China and requires 
them, when preparing audit reports for companies, to state clearly whether the company being audited 
has complied with the related accounting system. 
270. The CSRC supervises the implementation of th e accounting standards by listed companies, 
and formulates relevant information disclosure rules.  The CSRC also supervises qualifications and the quality of operation of accounting firms and ass et appraisal firms engaged in securities business.
 
271. To bring China's accounting system further into  line with international accounting standards, 
the MOF is in close contact with the International Accounting Standards Board (IASB);  it is not clear 
to the Secretariat what the remaining differen ces are between China's accounting system and 
international standards although accord ing to reports in the press, it appears that China has agreed to 
take on board the principles of the International Financial Reporting Sta ndards in its accounting 
system.263 
(ix) Intellectual property rights 
(a) Overview 
272. Protection of intellectual property rights is essen tial for ensuring the continued inflow of FDI 
and the associated transfer of newly developed technologies, as well as fostering the development of new technologies and services in China over the longer term.  Thus, China has made major changes to 
its intellectual property rights legislative framework  in recent years.   These include amendments to 
the Patent Law (2000), the Trademark Law (2001) and the Copyright Law (2001), as well as new 
regulations on the protection of computer soft ware (2001), new plant varieties (2001) and layout 
designs of integrated circuits (2001);  further amendments to the Patent Law are planned.  
Furthermore, an extensive and complex framework has been established to administer and enforce 
intellectual property rights (Chart III.7).  There ar e two levels of administration:  administrative 
bodies under the State Council and local administra tive authorities.  The administrative bodies under 
the State Council are responsible for examining a nd granting or registering intellectual property 
rights, while the local administrative authorities admi nister and enforce intellectual property rights at 
the local level.  China has also strengthened its enforcement activities, including through a National 
Working Group on Intellectual Property Rights and an  Intellectual Property Tribunal (the Third Civil 
Chamber) set up in 1996, alt hough enforcement remains a problem (section (g) below). 
273. Since the 1980s China has acceded to many of  the major international conventions on the 
protection of intellectual property rights (Table  III.16) and is considering acceding to other 
international treaties.  It is currently drafting re levant regulations to prepare to accede to the WIPO 
Copyright Treaty (WCT) and the Performances and Phonograms Treaty (WPPT).  China also 
cooperates on intellectual property rights issues with  other countries and regions.  For example, it 
signed the Memorandum of Understanding on the Prot ection of Intellectual Property with the United 
States in 1992, followed by a framework for regular  consultation on intellectual property in 2000;  and 
the Intellectual Property Protection Working Gro up of the Joint Commission of Commerce and Trade 
(JCCT) was set up in 2004.  Similarly, the EU-Chi na IP Co-operation Programme started in 1996 and 
lasted for six years.  China and the EU also signed an agreement on 30 October 2003 to establish a 
China-EU Dialogue on Intellectual Property.  China has regular dialogue on intellectual property with 
other countries including Japan, Korea, and Fr ance and has held many seminars on the subject.
264 
                                                      
263 "China To Adopt New International Standards" ( Financial Times), 15 February 2005. 
264 Ministry of Commerce (2005a). WT/TPR/S/161/Rev.1 Trade Policy Review 
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Chart III.7
The structure of IPR administration and enforcement
State
CouncilState Patent Office
In charge of receiving patent applications 
and granting patentsState Intellectual Property Office
Administration of patents nationwide, 
including accepting and granting patent 
applications and integrated circuit designs; 
also in charge of handling and co-
ordinating IPR-related international affairsLocal IPR administrative offices
In charge of patent disputes
State Trademark Office
In charge of registration and 
enforcement of trademarks and 
geographical indications
Local trademark offices
In charge of administration of 
trademarks and geographical indicationsState General Administration, 
Industry and Business
 Deals with trademark registration and 
administration, and infringements and 
geographical indications
Public Security and Procuratorate
 In charge of investigating and prosecuting 
criminal activities involving IPRsForest Industry Office of the 
Agriculture Department
In charge of the protection of new plant 
varieties
Customs
 In charge of supervising and enforcing 
IPRs at the borderLocal copyright offices
In charge of local copyright registration 
and administration of copyrightState Copyright Office
Deals with copyright administration on a 
national scale, and copyright cases
National Working Group on 
Intellectual PropertyState Office  of IPRs,
Ministry of CommerceAdministration of Quality Supervision, 
Inspection & Quarantine 
(AQSIQ) also deals with the administration 
of geographical indications
 
 China WT/TPR/S/161/Rev.1 
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Table III.16 
China's membership of international intellect ual property rights conventions, October 2005 
Convention Date of accession 
Berne Convention for the Protection of  Literary and Artistic Works  1992 
Budapest Treaty on the International Recognition of th e Deposit of Micro-Organisms for the Purposes of 
Patent Procedures  1995 
Convention Establishing WIPO 1980 
Convention for the Protection of Producers of Phonogra phs Against Unauthorized Duplication of their 
Phonograms 1993 
International Convention for the Protec tion of New Varieties of Plants 1999 
Locarno Agreement Establishing an Internationa l Classification for In ternational Design 1996 
Madrid Agreement Concerning Intern ational Registration of Marks 1989 
Nice Agreement Concerning the International Classifica tion of Goods and Services for the Purpose of the 
Registration of Marks 1994 
Paris Convention for the Protection of Industrial Property 1985 
Patent Co-operation Treaty 1994 
Protocol Relating to the Madrid Agreement con cerning the International Registration of Marks 1995 
Strasbourg Agreement Concerning Inte rnational Patent Classification 1997 
Treaty on Intellectual Prope rty in Respect of Integrated Circuits  1989 
Universal Copyright Convention 1992 
Source:  Information provided by the authorities.  
(b) Patents 
274. Patent rights in China are protected under the Patent Law, the Implementing Regulations of 
the Patent Law, and rules promulgated by the SIPO to implement the Patent Law.  Under the Patent 
Law (last amended on 25 August 2000), a patent is granted for a period of 20 years from the date of 
filing (ten years from filing for utility models and patent rights for design).265  Patents may be granted 
for most inventions, provided they are new, involve  an inventive step, and are capable of industrial 
application.266  A key amendment in the legislation involves the judicial review of design and utility 
models.  As part of its restructuring of the IP framework,  China set up the State Intellectual Property Office (SIPO), previously the Chinese Patent Offi ce, in 1998.  The SIPO al so represents China in 
international fora on intellectual property rights. 
275. Patent applications must be made to the SIPO, which must, if it finds the application to be in 
conformity with the requirements of the Patent Law,  publish the application 18 months after the date 
of filing;  the applicant may request publication at an earlier date.  The applicant must submit a 
request for substantive examination within thr ee years from the date of filing, otherwise the 
application is deemed to have been withdrawn.  SI PO will then carry out a substantive examination of 
the application.  The delayed substantive examinatio n process is based on two considerations:  first, it 
ensures that the applicant can wit hdraw the application if he or she considers it no longer necessary, 
thus saving the applicant the cost of the fees;  and second, it reduces the costs to the SIPO of 
                                                     
 
265 Chapter V of the Patent Law (WTO document IP/N/1/CHN/I/1, 8 July 2002). 
266 There are some exceptions.  These include under  Article 25 of the Patent Law:  scientific 
discoveries;  rules and method s for mental activities;  methods for the diag nosis or treatment of diseases;  animal 
and plant varieties (which are protected under the Regulations for the Protection of New Varieties of Plants);  
and substances obtained by means of nuclear transformation.   In addition, under Article 5 of the Patent Law, "no 
patent right shall be granted for any invention-creation that is contrary to the laws of the State or social morality or that is detrimental to public interest". WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 148 
 
 
unnecessary examinations.  The patent is provisiona lly protected during the period from publication 
of the application to the grant of the patent. 
276. Once a decision has been taken by the SIPO to grant the patent, and a notification to do so 
issued, the applicant must complete the formalities of registration within two months of receipt of this 
notification including paying the regi stration, annual, and printing fees.  If the applicant is unable to 
complete these formalities within the specified time limit, the applicant is assumed to have 
relinquished his/her right to obtain the patent.  Acco rding to the authorities, the average time required 
to complete a substantive patent ex amination is currently 26 months.   
277. Between 2000 and 2004, there was a steady increase in both the number of patent applications 
and the number of patents granted (Table III.17). 
Table III.17 
Patents applied for and granted, 2000-04 
 2000 2001 2002 2003 2004 
Patent applications 51, 747 63,204 80,232 105,318 130,133 
Domestic 25,346 30,038 39,806 56,767 65,786 
Foreign 26,401 33,166 40,426 48,549 64,347 
Patents granted 12,683 16,296 21,473 37,154 49,360 
Domestic 6,177 5,395 5,868 11,404 18.241 
Foreign 6,506 10,901 15,605 25,750 31,119 
Source:  Data provided by the authorities.  
278. Patent applications may be re-examined by the Patent Re-examination Board established in 
1985, which, according to the Implementing Regulations of the Patent Law, consists of technical and 
legal experts appointed by the SIPO and headed by the head of the SIPO.  Under the Rules for the 
Implementation of the Patent Law (Article 62), if th e Board finds that the decision taken by the SIPO 
does not comply with the provisions of the Patent  Law and its accompanying rules and regulations, it 
can revoke the decision and ask the SIPO to continue the patent examination.  As at end 2004, the Re-
examination Board had accepted 9,345 requests fo r re-examination and was currently examining 
2,561 of them.  The average period of re-examinati on, according to the authorities, is 24 months, but 
is expected to fall to 12 months over the next five years. 
279. Compulsory licences may be granted by the SIPO under Chapter VI of the Patent Law:  at any 
time after the date of announcement of the patent in  cases of national emergency;  or any time after 
the expiry of three years from the date of the annou ncement, where an entity capable of exploiting the 
invention has been unable to agree reasonable term s and conditions for exploitation with the patent 
holder.  In addition, a compulsory licence may be granted for a previously patented invention 
representing important technical advance of economic significance.  The scope and duration of such a 
compulsory licence are also determined by the SIPO "on the basis of the reasons justifying the grant".  
The exploitation of such compulsory licences is restricted predominantly to supply in the domestic 
market.  In the case of compulsory licences granted for semiconductors, exploitation is restricted to 
public non-commercial use or to remedy a practice dete rmined after judicial or administrative process 
to be anti-competitive.  The compulsory licen ces granted are not exclusive and a "reasonable 
exploitation fee", fixed by the two parties through co nsultations, must be paid by the entity exploiting 
the patent to the patent holder.  Where there is di sagreement regarding the fee, the SIPO adjudicates.  
According to the authorities, no compulsory li cences have thus far been granted under these 
provisions.  The patent holder may also initiate le gal proceedings in a people's court if dissatisfied 
with the SIPO's judgement. China WT/TPR/S/161/Rev.1 
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280. There is no clear reference to parallel imports in the patent legislation.  The authorities appear 
to be considering a revision to the Patent Law to address this.267 
(c) Copyright and related rights 
281. Copyright protection is granted under the Co pyright Law (adopted on 7 September 1990, and 
last amended on 27 October 2001), and its accompanying regulations.  In addition, protection for 
computer software is provided under the Regulations  on Computer Software Protection, promulgated 
on 20 December 2001 and effective 1 January 2002. 
282. Copyright protection is administered by the Copyright Administration Department under the 
State Council for nationwide administration and by the copyright administration department of the 
government of each province, autonomous region, and municipality in its administrative area.  
Protection for cinematographic and photographic works is granted for fifty years, expiring on 31 December of the fiftieth year after first publi cation.  Typographical designs are protected for a 
period of ten years, expiring on 31 December of th e tenth year following first publication of the book 
or periodical using the design.   
283. Protection for computer software is grante d from the date on which its development was 
completed, for the lifetime of the author plus fifty years, expiring on 31 December of the fiftieth year 
after the author's death (or the death of the last surviving developer in the case of jointly developed 
software).
268  Where the copyright belongs to a legal entity or other body, protection is granted for 
50 years, expiring on 31 December of the 50th year after the first publication of the software;  
however, if any such software has not been published within 50 years from its date of development, it 
is no longer protected. 
284. Copyright owners may authorize others to use or transfer their works, receiving appropriate 
remuneration as agreed between the two parties or  as established by the copyright administration 
department.  Under Article 27 of the Law, remuneration for the exploitation of works may be agreed 
between the two parties, or can be determined  under the tariffs established by the Copyright 
Administration Department through the "Rules on Remuneration from the Publication of Written 
Works" (1999), which also lists detailed tariffs for di fferent works.  In the case of computer software, 
according to Article 22 of the Regulations on Comput er Software Protection, a Chinese citizen, legal 
entity or other organization that authorizes a foreigner to exploit software copyright or transfers it to a foreigner, must comply with the "Regulations on Administration of Technology Import and Export". 
285. As they are not covered by the legisla tion, parallel imports are not prohibited. 
(d) Trade marks 
286. Trade marks are protected under the Trademar k Law, adopted in August 1982 and last 
amended on 27 October 2001, and th e "Regulations for the Implemen tation of the Trademark Law", 
promulgated on 3 August 2002.  The State Administ ration for Industry and Commerce (SAIC) also 
issued the "Provisions on the Determination and Protection of Well-Known Marks" on 17 April 2003. 
287. Trade marks are defined as "any visual sign capab le of distinguishing the goods or services of 
one natural person, legal person or any other organization from those of others, including words, 
                                                     
 
267 Under Article 11 of the Law no individual or  entity may, without the authorization of the 
rightholder, exploit a patent or utility model, including through importation. 
268 Chapter II, Section 3 of the Copyright Law and Article 14 of the Regulations on Computer Software 
Protection. WT/TPR/S/161/Rev.1 Trade Policy Review 
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devices, letters, numeral, three-dimensional symbols, combinations of colours or the combination of 
the said elements".269  All applicants are required to register their trademarks with the Trademark 
Office of the SAIC.  Foreigners and foreign en terprises are required to file an application in 
accordance with any agreement concluded between their country of origin and China, or any 
international treaty to which both are parties, or on the basis of reciprocity.  Foreigners and foreign 
enterprises not domiciled in China or without indust rial or commercial establishments in China, 
wishing to register their trade marks in China mu st do so through an agency qualified to act as an 
agent by the SAIC.  Preliminary registration may take place after the Trademark Office has examined the trade mark and ensured it is in conformity w ith the relevant provisions of the law and is not 
identical or similar to other registered trade mark s.  Any person may file an opposition, within three 
months of the date on which the trade mark is re gistered and published by the Trademark Office.  If 
no opposition to the published trad e mark is registered, registration is approved and a certificate 
issued. 
288. Trade marks are valid for ten years, and renewabl e for ten years indefinitely;  an application 
for renewal of registration must be made within si x months of expiry of the ten-year period.  An 
additional grace period of six months may be pe rmitted for submitting a renewal application;  
however, if no application is filed within the gr ace period, the registered trade mark is cancelled.
270  In 
addition, under Article 44 of the Law, the Tradem ark Office may request the trade mark holder to 
rectify the situation or cancel the trade mark if, inter alia,  the registered trade mark has been altered 
unilaterally, details of the regist ration (such as name and address of the holder) have been changed 
unilaterally, or the trade mark h as not been used for three consecu tive years.  In the case of non-use 
for three consecutive years, the Trademark Office is required to give the holder two months to provide 
evidence of use or "proper" reasons (including import restrictions or force majeure ) for non-use 
before cancelling the registered trade mark. 
289. Appeals against a decision by the Trademark Office to refuse registration may be made within 
15 days from receipt of the notification, to the Trademark Review and Adjudication Board.  If the 
decision taken by the Board is also unsatisfactory, legal proceedings may be instituted in the People's 
Court within 30 days of  notification by the Board.   There is no time limit within which the Board 
must make its decision.  In 2004, 10,144 review a pplications were received by the Board and 6,305 
were reviewed. 
290. A trade mark may be cancelled if it violates, inter alia,  other identical or similar trade marks 
(Article 13), if the application for registrati on has been made without the owner's approval 
(Article 15), and if the trade mark contains a geographical indication with respect to goods not 
originating in the place indicated (Article 16).  Wh ere a trade mark infringes another party's existing 
prior rights (Article 31), the owner of the mark or an y interested party may, within five years of the 
date of registration, request the Trademark Review and Adjudication Board to cancel the registration;  
of where a registration was obtained in bad faith, the owner of a well-known trade mark is not bound 
by the five-year limitation.271 
291. As in the case of patents and copyright, the i ssue of parallel imports is not addressed in the 
legislation on trade marks and the au thorities are studying this further. 
                                                      
269 Article 8 of the Trademark Law. 
270 Where a trade mark is cancelled or is not renewe d, however, under Article 46, the Trademark Office 
must not approve any application for registration of a tradem ark that is identical or similar to the cancelled trade 
mark within one year of the date of cancellation. 
271 Article 41 of the Trademark Law. China WT/TPR/S/161/Rev.1 
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(e) Layout-designs of integrated circuits 
292. Layout-designs of integrated circuits are prot ected under the "Regulations for the Protection 
of Layout-Designs of Integrated Circuits" for a peri od of ten years from the date of filing or the date 
on which it was first commercially exploited anywhe re in the world, whichever expires earlier;  
however, in either case, the maximum duration of pr otection is 15 years from the date of creation of 
the design.272  Layout designs are registered with and granted by the SIPO.  Applications for 
protection by foreign nationals or entities not norma lly resident in China must be made through a 
patent agency designated by SIPO.  Under th e "Rules for Implementing the Regulations on the 
Protection of Layout Designs of Integrated Circ uits", Chinese nationals and entities may choose to 
appoint a patent agency to make their applications.273  There are currently 115 patent agencies 
designated by SIPO .  It takes, on average, two to three mont hs for the SIPO to register the layout 
design provided that the application is complete and a ll fees have been paid.  If the application is not 
filed with the SIPO within two years of first comme rcial exploitation anywhere in the world, it cannot 
be registered. 
293. Under Article 25 of the "Regulation on the Prot ection of Layout Designs", the State Council 
may, under certain circumstances, grant a "non-voluntary" licence to exploit the layout design to 
remedy unfair competition practices.  The circum stances include:  national emergencies;  any 
extraordinary state of affairs;  for the purposes of public interest;  or if it is determined by the 
competition authority that there is a need to re dress anti-competitive behaviour resulting from the 
protection.  According to the authorities, th ere have thus far been no such instances. 
294. Under Rule 11, licensing or transfer of protected layout designs of integrated circuits by 
Chinese entities to foreign entities must be approve d by the competent department of the State 
Council, which is the Ministry of Commerce.  Under the "Regulations on the Administration of 
Technology Import and Export", technology that is prohibited or restricted from export requires a 
licence from the Ministry of Commerce before it can be exported.  Once the exporter has obtained the licence, SIPO can authorize the transfer. 
(f) Other IPRs 
Geographical indications 
295. Geographical indications are protected either under the Trademark Law (Articles 3, 16, 52, 
and 53) and the "Regulations for the Implementati on of the Trademark Law", and/or by the State 
General Administration of Quality Supervision,  Inspection and Quarantine (AQSIQ) under various 
administrative regulations and rules to protect geogr aphical indications.  Article 3 of the Trademark 
Law provides protection to geographical indications as collective marks or certification marks.  Under 
the Law Countering Unfair Competition, unfair co mpetition includes:  counterfeiting a registered 
trade mark owned by another person;  using a unique  name, package or decoration of another person's 
well known commodity or similar to another pe rson's well known commodity;  using, without 
authorization, the name of another enterprise or person;  and forging or counterfeiting authentication 
marks, well-known product marks or other product quality marks, forging the origin of their products, 
or making false and misleading references to the qua lity of their products (Article 5).  Geographical 
indications are also protected under the "Regula tions on Protection of Products of Geographical 
Indications" issued by the AQSIQ in June 2005. 
                                                     
 
272 Article 12 of the "Regulations on the Protection of Layout Designs of Integrated Circuits". 
273 According to the authorities, this requirement is permitted by paragraph 2(3) of the TRIPS 
Agreement and is to ensure that the service is available to foreigners not normally resident in China. WT/TPR/S/161/Rev.1 Trade Policy Review 
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296. Geographical indications are registered as coll ective marks or certification marks with the 
Trademark Office under the same procedures as for trad e marks.  It appears also that the AQSIQ is 
involved in implementation of policy concerning geogr aphical indications.  As at the end of 2004, 
there were 110 geographical indications registered  and over 300 applications  under consideration.  
Under the regulation issued by the AQSIQ, 539 ge ographical indications had been approved and 
protected. 
Plant varieties protection 
297. Under the "Regulations on Protection of Ne w Varieties of Plants", promulgated on 
20 March 1997 and effective 1 October 1997, protecti on is granted to "new varieties" including 
artificially cultivated plants or plant varieties de veloped from discovered wild plants, which are novel, 
distinctive, homogenous, and stable and are named.  The protection is granted for a period of 20 years 
from the date of authorization for vines, forest trees, fruit trees, and ornamental trees, and 15 years for other plants.  Permission for exploitation of a protected va riety is not required for breeding and other 
scientific research activities and for self-exploitatio n and self-propagation by farmers of propagating 
materials of the protected variety (Article 10). 
298. Applications for the protection of new plant vari eties are made to the agriculture and forestry 
administration departments (under the State Council) , which are jointly responsible for accepting and 
examining the applications.  Chinese enterprises or na tionals may apply either directly or through an 
approved agency.  Foreign nationals or entities must  apply in accordance with any bilateral agreement 
concluded between the country of the national and China or the international treaty to which both 
countries have acceded, or the regulations on protecti ng the new plant varieties based on reciprocity.  
The agriculture and forestry administration departme nts must notify the applicant within one month of 
receipt of the application so that the applican t may pay the application fee.  They conduct a 
preliminary examination to determine whether the ap plicant is qualified to apply, whether the variety 
conforms to the provisions of novelty, and whether th e name of the new plant variety is appropriate.  
The preliminary examination must be completed w ithin six months of acceptance of the application 
and the results of the examination notified to th e applicant so that the applicant can pay the 
appropriate examination fees within three months.  A substantive examination of the characteristics of 
distinctness, homogeneity, and stability of the variety follows, after which the plant variety right is 
granted, registered, and announced.  As at 10 A ugust 2005 the Ministry of Agriculture had accepted 
2,518 applications;  572 applications had been gran ted.  The average period of approval of protection 
of new plant varieties is around three years;  effort s are being made to reduce this to 2.5 years by 
2006.  The forestry administration department had re ceived 344 applications as at June 2005, of which 
89 had been granted. 
299. Any decision taken with regard to the granting of protection to a new plant variety may be 
appealed to the new varieties plants review comm ittees established within the agriculture and forestry 
administrations, within three months of receipt of  the notice about the application.  The review 
committee must make its decision and notify the appli cant within six months of receiving the request 
for re-examination.  Further appeals may be made to  the People's Court within 15 days of receipt of 
the decision by the review committee.  As at 10 August 2005, the New Varieties Plants Review 
Committee under the Ministry of Agriculture had accep ted four appeals and had announced that three 
of these varieties were invalid while one remained  valid.  The Review Committee in the Forestry 
Administration has thus far not received any appeals. 
300. Compulsory licences may be granted by the approval and examination authority (the 
agriculture and forestry administrations) for exploita tion of the protected plant variety where it is in 
the national or public interest (Article 11).  The authorities indicate that none have actually been China WT/TPR/S/161/Rev.1 
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granted to date.  The individual or entity granted the compulsory licence must pay the owner of the 
right a reasonable exploitation fee negotiated between th e two parties.  If they fail to reach agreement, 
the decision is taken by the authority of approval a nd examination.  If there is dissatisfaction with the 
decision on compulsory licences or compensation for the compulsory licence, the matter may be taken 
before a people's court within three months of receipt of the decision. 
Undisclosed information 
301. Undisclosed information and trade secrets are protected, inter alia,  through the 
Administrative Enforcement of Trade Secrets by the Department of Fair Trade Transactions in the SAIC.  When the damage or loss incurred by the ri ght holder is judged to be severe and criminal 
activities may be involved, the public security agency is  authorized to begin a criminal investigation.  
(g) Enforcement 
302. As China makes an effort to  upgrade obsolete technologies and move production into higher 
value added sectors, it recognizes that there is a ne ed to improve legislation on intellectual property 
rights as well as enforcement, in order to attr act private sector investment in new and high 
technologies.  In this regard, according to a White Paper on Intellectual Property Rights issued by the 
Government in April 2005, as gradual improvement s have been made to the legal system on IPR 
protection in China, the focus has shifted from legi slation to law enforcemen t.  In October 2003, a 
new IPR Leading Group was formed to tackle the problem of enforcement.  A one-year campaign to 
promote IPR protection across the country was al so launched in August 2004;  the campaign was 
extended to the end of 2005.
274  In addition, in May 2005, a State Intellectual Property Working 
Group was established, led by a Vice Premier.  Th e Working Group, which is based in MOFCOM and 
administered by the State Office of Intellectual Property Rights, consists of 12 administrative and 
judicial departments related to IPR protection that  are responsible for the planning and coordinating 
IPR protection across the country and supervising "material cases".  The Supreme Court and Supreme 
Procuratorate also jointly issued an "Interpretation on Several Issues of Concre te Application of Laws 
in Handling Criminal Cases of infringing Intellectual Property" on 22 December 2004.  It appears that 
this Interpretation clarifies certain aspects of the cr iminal law dealing with intellectual property rights, 
including lowering the criminal responsibility th resholds, and further defining the penalties for 
different types of IPR infringement crimes. 
303. The main problems identified by China's major tr ading partners include:  lack of coordination 
among the main enforcement agencies;  local protec tionism and corruption;  inadequate deterrence 
provided by the system of administrative, civil, and criminal penalties;  and a lack of sufficient 
training of personnel.  In July 2003, the State C ouncil's Development Research Centre estimated that 
the market value of counterfeit goods in China was between US$19 billion and US$24 billion.  The 2005 White Paper on Intellectual Property Protection in China states that the number of seizures of material in violation of trade mark, copyright a nd patent protection increased substantially between 
2001 and 2003.  The number of cases settled through administrative means remains high, although an 
increasing number of cases, especially for copyright, ar e being transferred to the courts (Table III.18). 
304. Enforcement of intellectual property rights in China is complex with a large number of 
responsible authorities:  the SIPO for patents and lay out designs of integrated circuits;  the SAIC and 
its Trademark Office for trade marks and, along with the AQSIQ, for geographical indications 
registration and administration;  the National Copyri ght Administration for copyright;  the State Drug 
Administration for protected medicines;  MOFCOM (previously the State Economic and Trade 
                                                     
 
274 China Daily Online, "New Progress in China's protection of in tellectual property rights".  Available 
at:  http://www.chinadaily.com.cn/english/doc/20 05-04/22/content_436527.htm [22 April 2005]. WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 154 
 
 
Commission) for administrative protection of agricu lture-related chemicals;  and the Ministry of 
Agriculture and the State Forestry Administrati on for the protection of new plant varieties.  
Enforcement at the border is carried out by Customs,  while the SAIC is in charge of enforcement of 
laws against unfair competition, including the protection of trade secrets.  In addition, other 
government agencies such as the State Press and Publication Administration and the Ministry of 
Public Security are also involved in enforcement. 
Table III.18 
Enforcement of intellectual property rights, 2001-04 
 2001 2002 2003 2004 
Patents     
Number of disputes 977 1,442 1,517 1,455 
of which:     
- related to inventions 80 104 .. .. 
- related to utility models 426 622 .. .. 
- related to design patents 471 716 .. .. 
Number concluded 888 1,291 1,237 1,215 
- through decisions by local IPOs 223 262 .. .. 
- through intermediation 487 711 .. .. 
- settled by other means or withdrawn 178 318 .. .. 
Copyright     
Number of disputes 4,420 6,408 23,013 9,691 
Number concluded 4,306 6,107 22,429 .. 
of which:     
- imposition of fine 3,650 5,250 21,032 7,986 
- intermediation 633 721 1,173 .. 
- cases transferred to judicial agencies 66 136 224 .. 
Trade marks     
Number of disputes 41,163 39,105 37,489 51,851 
of which:     
- trade mark infringements 22,813 .. 26,488 40,171 
- other 18,350 .. 11,001 11,680 
- cases transferred to judicial agencies 86 59 45 96 
- value of fine (Y million) 210 214 242 268 
.. Not available. 
Source:  WTO documents IP/C/W/384, 11 October 2002, IP/C/W/415, 18 November  2003 and IP/C/W/436, 
29 November 2004;  Ministry of Commerce (2005), Intellectual Property Protection in China , Tables 3, 4 and 
5, March;  and data provided by the authorities. 
305. Intellectual property rights in China may be enforced by two means:  administrative actions, 
and judicial measures, the latter including civil ac tions and criminal prosecutions.  Administrative 
actions, which are an important feature of IPR pr otection in China, consist of mediation by the 
authorities.  Judicial actions, whether civil or crim inal, are taken through the courts.  The SAIC can 
begin administrative actions upon request by the trade mark holder, but also as a result of a complaint by a third party or on its own initiative.  If mediation does not produce satisfactory results, the administrative authority usually refers the case to  the people's court where it follows procedures under 
civil procedural law.  In addition, under some la ws, for example, the Copyright and Trademark Laws, 
the administrative authority may impose fines on the infringing party and confiscate (or destroy in the case of the Copyright Law), the infringing goods or c opies and materials, tools or devices mainly used 
for the infringement.  Under the Copyright Law, admi nistrative fines of up to three times the value of 
the actual loss to the right holder can be imposed;  if  the actual loss cannot be determined, the fine is China WT/TPR/S/161/Rev.1 
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based on the value of the counterfeited goods and not  in excess of Y 100,000.  In addition, where the 
loss to the right holder cannot be determined by th e administrative authority, a people's court may 
grant compensation to the right holder not exceeding Y 500,000.  It appears that a large percentage of cases involving intellectual property rights infringement  are handled through this method:  in the case 
of trade marks, over 90% of infringement case s are handled through administrative actions. 
306. Civil actions accompanied by monetary fines are included under the Patent, Trademark and 
Copyright laws.  Article 58 of the Patent Law a llows fines up to Y 50,000 or three times the illegal 
earnings, for passing off another person’s patent  as ones own, while fines up to Y 50,000 are 
permitted under Article 59 for passing off any non-pa tented process or product as a patented process 
or product.  Under Article 56 of the Trademark law, the people's court can impose compensation not 
exceeding Y 500,000.  Article 36 of the "Revised Im plementing Regulations of the Copyright Law" 
authorizes fines of up to Y 100,000 for copyright infringements.  Criminal remedies could include 
monetary fines based on either the value or volum e of the counterfeited goods  or both.  Under the 
"Regulations on Computer Software Protection" , infringement may result in fines ranging from 
Y 100 per copy or not more than five times the va lue of the infringed products, to not more than 
Y 50,000.
275  Failure to resolve disputes through mediati on may result in appeals to the people's court. 
307. In the case of infringements of the Patent Law and for cases involving Articles 6 to 11 of the 
"Regulations on Protection of Plant Varieties", jurisd iction lies with the intermediate courts set up in 
the prefectures, cities directly under provinces (a utonomous regions and municipalities directly under 
the Central Government), and districts in the four municipalities directly under the Central 
Government, as well as with intermediate cour ts designated by the People's Supreme Court276;  cases 
under Articles 1-5 of the Regulations are examined by the second intermediate court of Beijing.  First 
instance, cases concerning trade mark infringements ar e heard by the intermediate or higher courts.  
The High Court can, according to its jurisdiction a nd subject to approval by the People's Supreme 
Court, designate one or two elementary courts in the large cities to hear first instance trade mark 
cases.277  First instance cases involving issues under paragr aphs 5-10 of Article 1 of the Regulations 
for the Protection of Layout Designs of Integrated Circ uits are heard by the first intermediate court of 
Beijing;  all other cases are heard by the intermediate  courts of the prefectures, cities directly under 
provinces (autonomous regions and municipalities di rectly under the Central Government) and 
districts in the four municipalities directly under the Central Government, as well as the intermediate 
courts of the special economic zones.278  
308. Criminal prosecutions may also be undertaken in certain cases.  Under the Criminal Law, 
seven specific types of IPR infringement are regard ed as criminal acts.  These are:  counterfeiting 
registered trade marks (Article 213);  selling goo ds bearing counterfeited registered trade marks 
(Article 214);  illegally producing and selling representations of registered trade marks (Article 215);  
forging another person’s patent (Article 216);  copyright infringement (Article 217);  selling 
infringing reproductions (Article 218);  and infri nging commercial secrets (Article 219).  The public 
security body is responsible for carrying out crimin al investigations concerning IPR infringements.  
Minor criminal cases are heard directly by the people 's courts of first instance;  the procuratoral 
system is responsible for cases believed to "gravely  endanger public order a nd national interests".  
Criminal offences concerning intellectual property rights carry a maximum prison sentence of up to 
seven years and/or monetary fines.  The author ities state that the people's court must pronounce its 
                                                      
275 Article 24 of the "Regulations on Computer Software Protection". 
276 As at August 2005 the Supreme Court had designated 17 intermediate courts for patent cases and for 
trials related to new plant varieties. 
277 As at August 2005, the High Court had designated 14  elementary courts to h ear first instances cases 
concerning trade mark violations. 
278 WTO document IP/N/6/CHN/1, 19 July 2002. WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 156 
 
 
judgement no later than one and a half months afte r accepting the case.  Appeals to the people's court 
of second instance are to be concluded within the same time period.279  
309. For enforcement of intellectual property rights at the border, the "Regulations on Customs 
Protection of Intellectual Property Rights" enable  Customs to seize imports and exports of goods 
infringing patents, trade marks, and copyright and related rights.  As of 4 February 2002, Customs 
may prohibit imports and exports of goods infringing  the Olympic symbol under the "Regulations on 
the Protection of Olympic Symbol".  Since 1 December 2004, Customs can also prohibit the import and export of goods infringing the proprietary right of World Exhibition Fair Symbol.  In order to 
enhance the efficiency of seizures by Customs, the owner of the intellectual property right may 
"record" or file their right in writing with Customs.  Customs must make a decision on whether to 
"record" the intellectual property right within 30  days of accepting all the relevant documentation 
from the right-holder.  The right-holder must pay a fee of Y 800 when recording or filing an IPR with Customs.  By recording or filing an IPR, the au thorities feel they have a better understanding of the 
IPR and of the right-holder, and are therefore more  efficient in their seizures and investigation.  
According to the White Paper issued in April 2005, by the end of 2004, Customs had confirmed 6,257 
filings of IPR for customs protection. 
310. The process of protecting IPRs differs dependi ng on whether the IPR has been filed or 
recorded at Customs beforehand.  If the IPR is recorded, Customs can seize the goods at the border 
and inform the right-holder in writing if it is fou nd that the goods infringe the holder's IPRs.  The 
right-holder must provide an application letter re questing that the goods be detained, along with a 
guarantee, within three days of receipt of the notice from Customs.  The value of the guarantee 
depends on the value of the goods to be seized:  equa l to the value of the goods if the value of the 
goods is less than Y 20,000;  half the value of the goods, but not less than Y 20,000, if the value of 
goods is between Y 20,000 and Y 200,000;  and Y 100,000 if the value of the goods is greater than Y 200,000.  Customs must investigate and confirm th e infringement within 30 working days after first 
detaining the goods suspected of infringement.  Goods confirmed to be infringing IPRs are 
confiscated by Customs and fines imposed, while goods  not infringing the holder's IPR are released.   
311. Where the IPR is not recorded or filed at Customs, the owner of the IPR must apply to 
Customs, submitting the following documentation:  de tails about the right-owner;  details about the 
IPR;  details of the consigner and consignee of the goods suspected of infringement;  the name and 
details of the goods suspected of infringement;  and details of the port, time, and transport of the 
goods entering or leaving the country. The IPR holder must also provide evidence of infringement by 
the goods entering the port or pending clearance from Cu stoms.  The right-holder must also provide a 
guarantee equal to the value of the detained goods.  Under this method of protection, Customs do not 
have the right to investigate the detained goods fo r infringement.  Instead the owner of the IPR must 
obtain a court injunction and provide it to Customs within 20 days from when Customs detained the 
goods.  Failing this, Customs must release the goods .  Under Article 18 of the "Regulations on 
Customs Protection of Intellectual Property Rights", Customs may seize goods in an  ex officio  
capacity.
280  In both cases, the guarantee is returned to the relevant party with relevant fees and 
expenditures deducted .  
312. Customs authorities have been increasingly in volved in seizures and investigations of 
infringing goods.  According to Ch ina's notifications to the WTO, the number of cases investigated 
and dealt with by Customs rose from 330 in 2001 to 569 in 2002, 756 in 2003 and 1,051 in 2004.  The 
number of arrests and legal action taken by the Procurator's office against infringers has also 
apparently been rising, although th e data provided by the authorities was difficult to interpret clearly.  
                                                      
279 WTO document IP/N/6/CHN/1, 19 July 2002. 
280 WTO document IP/N/6/CHN/1, 19 July 2002. China WT/TPR/S/161/Rev.1 
 Page 157 
 
 
Coordination between the administrative agencies a nd the judicial authorities has also been stepped 
up, notably as a result of an "Opinion" issued in March 2004 by the Supreme People's Procurator and the Public Security Body on promoting closer wo rking relations between the administrator, the 
People's Procurator, and the Public Secur ity Body to ensure better enforcement. 
313. Despite these efforts, it appears that en forcement remains weak and infringement of 
intellectual property rights widespread.  In add ition to inadequate dete rrents provided through the 
prosecution system, it is also claimed that "local protectionism" is a major cause of IPR infringement.  Local protectionism may be the result of discretionary  actions that give preference to local traders and 
producers, and of local corruption, which may provide local manufacturers or traders of counterfeit 
goods advance notice of police raids;  there is also  concern that regional administrative agencies lack 
sufficient knowledge and training in IPR enforcement. 
 WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 158 
 
 
Annex III.1:  The use of AVEs in China's tariff 
1. Upon its accession to the WTO, China bound all its tariff lines.  In contrast to its bound 
tariffs, all of which involve ad valorem  rates, 0.6% of its current a pplied MFN rates are subject to 
specific rates.  In the 2005 tariff schedule, 44 tari ff lines bear specific rates.  Of these, 37 are in 
photographic products (HS subheading 3701 and 3702), six in meat and edible offal of poultry (HS 
subheading 0207) and one corresponding to  frozen gizzards (HS code 05040021).1  Data on the unit 
value of imports of these specific duty tariff lines for 2005 were provided by the authorities.  These 
data enabled the Secretariat to calculate the corresponding ad valorem  equivalents (AVEs).  The 
method used by the Secretariat is based on the ratio of the specific duty to unit value of imports (total 
value of imports divided by the quantity).2  The unit values provided by the authorities are based on 
Customs data on the four-year average price of impor ts in the case of some tariff lines and the average 
international market price for others.  The authorities note that for some tariff lines, data collected by 
Customs are not correct due to problems of tari ff evasion and circumvention through false customs 
declarations, which is why interna tional market prices were used. 
2. The results of this calculation are found in Annex Table III.1.3  In 2005, using the data 
provided by the authorities, it appears that out of 44 specific rates, 6 have an AVE that is higher than 
the current bound rate (27 if the calculation is based  on the method used by the Secretariat);  17 lines 
are at their bound levels.  Specific duties for photog raphic products have only been in effect since 
1997;  before this, the rates on all items in this category group were ad valorem .  The Secretariat did 
not receive clarification on why these ad valorem  rates were changed to specific duties. 
3. The simple average of all specific tariff duties whose AVEs were calculated was 17.57% in 
2005 (30.3% based on the method used by the Secretar iat), which is roughly twice the simple average 
of ad valorem  rates.  Including AVEs in the tariff anal ysis has little impact on the overall tariff 
average.4 
                                                      
1 For 2002 and 2003, a specific duty is also imposed on beer (HS code 2203).  In 2004 and 2005 this 
line is duty free. 
2 See Note to Annex Table III.1 for the formula applied.  
3 There is still no agreed methodology to convert sp ecific duties into AVEs.   Hence, variations of 
AVEs are possible depending on whether calculations are based on the importing country's  import unit value (in this case China) or on the world average import unit value.  The use of exchange rates also has an impact on 
the calculation of AVEs. 
4 For 2005, the overall average excluding and including AVEs is 9.7% and 9.8%, respectively;  for 
2002 (based on Secretariat data), the figures are 12.2% and 12.6%. China WT/TPR/S/161/Rev.1 
 Page 159 
 
 
Annex Table III.1 
Ad valorem  equivalents compared to bound rates, 2002-05  
 2002 2003 2004 2005 
HS code MFN 
specific 
ratea AVE 
(%) Bound 
rate 
(%) MFN 
specific 
ratea AVE 
(%) Bound 
rate 
(%) MFN 
specific 
ratea AVE 
(%) Bound 
rate 
(%) MFN 
specific 
ratea AVE 
(%) Bound 
rate 
(%) 
02071200 1.6 .. 20.0 1.3 16.5 20.0 1.3 16.5 20.0 1.3 16.5 
(18.9) 20.0 
02071411 1.0 15.2 14.0 0.8 13.9 12.0 0.6 10.4 10.0 0.6 10.4 
(9.6) 10.0 
02071419 1.5 11.6 14.0 1.2 9.0 12.0 1.0 7.5 10.0 1.0 7.5 
(9.1) 10.0 
02071421 1.2 12.8 14.0 1.0 11.5 12.0 0.9 10.4 10.0 0.9 10.4 
(10.5) 10.0 
02071422 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 0.5 .. 
(..) 10.0 
02071429 0.8 14.4 14.0 0.6 10.7 12.0 0.5 8.9 10.0 0.5 8.9 
(9.3) 10.0 
05040021 1.7 23.4 20.0 1.4 21.5 20.0 1.4 21.5 20.0 1.4 21.5 
(20.1) 20.0 
22030000 3.0 30.1 28.0 1.5 15.7 14.0 n.a. n.a. n.a. n.a. n.a. n.a. 
37013021 9.0 32.5 12.0 4.5 12.8 10.0 4.5 12.8 10.0 4.3 12.2 
(10.1) 10.0 
37013022 12.0 34.2 12.0 3.9 6.6 10.0 2.9 4.9 10.0 2.9 4.9 
(7.9) 10.0 
37013023 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 6.8 .. 
(..) 10.0 
37013029 9.0 8.8 12.0 6.8 4.2 10.0 6.8 4.2 10.0 6.8 4.2 
(7.3) 10.0 
37023100 145.0 67.2 50.0 92.9 41.4 46.7 73.3 32.7 43.3 67.7 30.2 
(40.0) 40.0 
37023220 9.0 18.0 12.0 7.0 19.4 10.0 6.4 17.8 10.0 5.3 14.7 
(10.1) 10.0 
37023290 40.0 42.6 22.0 40.0 24.8 22.0 36.8 22.8 22.0 36.8 22.8 
(21.9) 22.0 
37023920 9.0 8.7 12.0 3.7 2.0 10.0 3.7 2.0 10.0 3.7 2.0 
(2.6) 10.0 
37023990 38.0 39.8 22.0 38.0 32.3 22.0 36.9 31.3 22.0 36.9 31.3 
(22.0) 22.0 
37024100 58.0 214.9 19.6 34.1 61.0 17.8 30.7 54.9 16.0 30.7 54.9 
(16.0) 16.0 
37024221 9.0 127.2 12.0 1.1 17.5 10.0 1.0 16.7 10.0 1.0 16.7 
(10.2) 10.0 
37024229 9.0 64.0 12.0 3.7 20.4 10.0 3.7 20.4 10.0 3.7 20.4 
(2.6) 10.0 
37024290 65.0 430.9 35.4 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 
37024291 n.a. n.a. n.a. 1.1 7.8 30.6 1.1 7.8 25.7 1.1 7.8 
(0.6) 20.9 
37024299 n.a. n.a. n.a. 58.0 154.1 30.6 41.8 110.1 25.7 34.0 89.5 
(20.9) 20.9 
37024321 9.0 40.1 12.0 3.7 17.9 10.0 2.9 14.0 10.0 2.7 13.1 
(9.9) 10.0 
37024329 9.0 36.7 12.0 3.7 11.7 10.0 3.7 11.7 10.0 3.7 11.7 
(2.6) 10.0 
37024390 90.0 597.6 27.5 39.0 34.2 20.0 33.2 29.1 20.0 33.2 29.1 
(20.0) 20.0 
37024421 9.0 28.2 10.0 3.7 16.4 10.0 2.9 12.8 10.0 2.7 11.9 
(9.9) 10.0 
Annex Table III.1 (cont'd) WT/TPR/S/161/Rev.1 Trade Policy Review 
Page 160 
 
 
 2002 2003 2004 2005 
HS code MFN 
specific 
ratea AVE 
(%) Bound 
rate 
(%) MFN 
specific 
ratea AVE 
(%) Bound 
rate 
(%) MFN 
specific 
ratea AVE 
(%) Bound 
rate 
(%) MFN 
specific 
ratea AVE 
(%) Bound 
rate 
(%) 
37024422 9.0 96.3 10.0 1.1 12.9 10.0 1.0 12.3 10.0 1.0 12.3 
(10.2) 10.0 
37024429 9.0 49.9 10.0 3.7 12.7 10.0 3.7 12.7 10.0 3.7 12.7 
(2.6) 10.0 
37024490 65.0 539.1 27.5 39.4 38.1 20.0 33.5 32.4 20.0 33.5 32.4 
(20.0) 20.0 
37025100 170.0 46.5 53.5 164.9 43.0 51.3 134.6 35.1 49.2 128.6 33.6 
(47.0) 47.0 
37025200 170.0 102.3 53.5 122.7 .. 51.3 100.1 .. 49.2 95.6 .. 
(47.0) 47.0 
37025300 170.0 44.9 53.5 164.9 38.0 51.3 134.6 31.0 49.2 128.6 29.6 
(47.0) 47.0 
37025410 155.0 121.1 42.0 155.0 102.2 36.0 120.0 79.1 30.0 96.0 63.3 
(24.0) 24.0 
37025490 150.0 88.5 42.0 115.7 75.1 36.0 82.0 53.2 30.0 65.6 42.6 
(24.0) 24.0 
37025520 6.0 11.7 26.0 6.0 12.4 26.0 6.0 12.4 26.0 6.0 12.4 
(4.4) 26.0 
37025590 145.0 110.8 50.0 111.7 106.6 46.7 88.1 84.1 43.3 81.4 77.7 
(40.0) 40.0 
37025620 16.0 .. 24.0 13.8 44.2 24.0 13.8 44.2 24.0 13.8 44.2 
(10.1) 24.0 
37025690 145.0 79.6 50.0 107.2 227.0 46.7 84.6 179.2 43.3 78.2 165.6 
(40.0) 40.0 
37029100 65.0 79.7 24.0 65.0 54.0 22.0 54.7 45.4 20.0 54.7 45.4 
(20.0) 20.0 
37029310 65.0 107.8 22.5 65.0 44.8 20.0 65.0 44.8 20.0 65.0 44.8 
(16.3) 20.0 
37029390 65.0 41.3 22.5 64.3 70.4 20.0 54.7 59.9 20.0 54.7 59.9 
(20.0) 20.0 
37029420 15.0 22.3 24.0 11.7 19.0 22.0 9.0 14.6 20.0 9.0 14.6 
(19.9) 20.0 
37029490 60.0 22.8 24.0 60.0 30.2 22.0 54.7 27.5 20.0 49.2 24.7 
(18.0) 18.0 
37029520 15.0 .. 24.0 10.4 .. 22.0 10.4 .. 22.0 10.4 .. 
(..) 22.0 
37029590 60.0 116.7 24.0 50.5 60.8 22.0 39.0 47.0 20.0 35.1 42.3 
(18.0) 18.0 
.. Not available, as no imports are recorded for the corresponding HS code. 
n.a. Not applicable. 
a Products under HS sub-headings 0207 and 05 04 are based on Y/kg;  HS 2203 is based on Y/litre;  products under HS subheading 
3702 are based on Y/m2. 
Note: The following formula has been used  for the calculation of AVEs:  AVE= (sp/uv)*100 where, uv = v/q and sp - specific tari ff;  
uv - import unit value;  v - import value;  q - import quantity .  2005, 2004 and 2003 AVEs are ba sed on 2003 import unit value;   
2002 AVEs are based on 2002 import unit value.  Import unit valu es are taken from UNSD, Comtrade database.  For the 
calculation of AVEs, import values in US$ ha ve to be converted into yuan.  Annual av erage exchange rates, provided by the IMF 
have been used to make the conversion (see Table I.1). 
 AVEs in parenthesis for 2005 ar e based on unit values provided by  the authorities, which are eith er based on international mar ket 
prices or on import values over a four-year period. 
Source:  WTO calculations, based on data received from th e authorities;  and UNS D, Comtrade database.