WT/TPR/S/199/Rev.1 Trade Policy Review 
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II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
(1) INTRODUCTION  
1. The overall aim of China's trade policy, whic h has remained unchanged since its previous 
Trade Policy Review, is to accelerate the opening of its economy to the outside world to introduce 
foreign technology and know-how, develop fo reign trade, and promote "sound economic 
development".  China aims to further strengthen the multilateral trading system;  at the same time, it 
has been intensifying its pursuit of bilateral/regiona l free-trade agreements w ith some of its trading 
partners.   
2. China has continued to place high emphasis on the multilateral trading system and has been 
participating in the Doha Developm ent Agenda negotiations.  China grants at least MFN treatment to 
all WTO Members except El Salvador and some terr itories of EC member states.  China has been a 
party to one dispute as a complainant and nine disputes as a respondent since 2006. 
3. During the period under review, two free-trade ag reements entered into force (China – Chile 
FTA on 1 October 2006, and China – Pakistan FTA  on 1 July 2007).  The Agreement on Trade in 
Services of the China–ASEAN Free Trade Area also entered into force on 1 July 2007.  Four further 
agreements (with Australia, Gulf Cooperation Council, Iceland, and New Zealand) are being 
negotiated.  
4. China unilaterally grants preferential treatme nt to some products from 39 least developed 
countries (LDCs). 
5. Although some aspects of China's trade policy regime remain opaque, it has continued to 
adopt measures to increase the level of transparency of its trade and trade-related policies, practices, 
and measures.  Since its previ ous Review, additional measures, such as the Regulation on Open 
Government Information, have been introduced with  a view to enhancing transparency.  The National 
Corruption Prevention Bureau was established on 13 September 2007.  Since its previous Trade 
Policy Review in 2006, several new trade-relate d laws have been adopted, including the Property 
Law, the Enterprise Income Tax Law, the An ti-Monopoly Law, and the Law on Enterprise 
Bankruptcy. 
6. China has recently been moving towards achie ving a level playing field for foreign and 
domestic investors in China.  Until the end of 2007,  China had provided better than national treatment 
in its taxation policies for foreign-invested ente rprises (FIEs);  since 1 January 2008, a uniform 
enterprise income tax rate of 25% has been applie d to all enterprises (including FIEs) in accordance 
with the Enterprise Income Tax Law, with some exceptions, such as certain "grand fathering" and 
lower rates granted for investment in certain industr ies.  It would appear that all tax incentives now 
apply equally to domestic firms a nd FIEs. Several regula tions and rules have been introduced or 
amended with a view to further liberalizing forei gn direct investment and establishing a more rules-
based and predictable business envir onment for foreign investors.   
(2) INSTITUTIONAL AND LEGAL FRAMEWORK  
7. Since its previous Review, China's institutiona l and legal framework has remained largely 
unchanged.  The current Constitution states, inter alia,  that "sole proprietorship", "domestic private", 
and other non-public sectors of the economy, with in the limits prescribed by law, are major China WT/TPR/S/199/Rev.1 
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components of the "socialist market economy".1  It also explicitly provides for the protection of 
private property rights in Article 13, which stat es that a "citizen's lawful private property is 
inviolable".  The role of the Communist Party of China (CPC) in the NPC's legislative and law 
enforcement activities has also largely remained unchanged.2  The most recent amendment to the 
Constitution was adopted on 14 March 2004. 
(i) Institutional structure 
(a) Legislature 
8. Under the Constitution, the National People's C ongress (NPC) is the highest organ of state 
power, and its permanent bod y is its Standing Committee.3    The NPC and its Standing Committee 
exercise the legislative power of the State.  The NPC enacts and amends, inter alia,  criminal, civil, 
and other "basic" laws.4  The Standing Committee enacts and amends laws, except for example the 
Foreign Trade Law and the Customs Law, which are enacted by the NPC.  The NPC has the power to 
elect and remove from office the President and Vice Pr esident of the People's Republic of China.  The 
term of office of the President and Vice-President is five years;  they can serve no more than two 
consecutive terms.5   
(b) The Executive 
9. Executive power is vested in the State Council, which is the Central Government.6  T h e  
Premier is approved by the NPC upon nomination by th e President.  The term of the State Council is 
five years, and the Premier, Vice Premiers, and State Councillors may serve no more than two 
                                                      
1 The authorities classify China's economic entities in to public and "non-public";   the latter includes 
sole proprietorships, domestic privat e enterprises, and foreign invested enterprises (FIEs).  Article 11, as 
translated into English by the authorities, states:  "Ind ividual, private and other non-public economies that exist 
within the limits prescribed by law are major components of the socialist market economy.  The State protects 
the lawful rights and interests of individual and private economies, and guides, supervises and administers individual and private economies."  (Constitution of the People's Re public of China.  Viewed at 
http://english.peopledaily.com.cn/constitution/constitution.html [11 February 2008].) 
2 See WTO (2006), p. 31. 
3 The NPC is composed of deputies from provinces, autonomous regions, municipalities directly under 
the Central Government, the special admi nistrative regions, and from the armed forces.  It has a term of five 
years, meets in session once a year , and is convened by its Standing Committee.  There are a maximum of 
3,000 deputies. 
4 These include, for example, the Organic Law of th e State Council, and the Organic Law of the Local 
People's Congresses and Local People's Governments. 
5 The NPC's other functions include:  amending the Constitution;  approving the Premier of the State 
Council, upon nomination by the President;  examining and approving the national economic and social 
development plan, the state budget, and their implementation reports;  altering or annulling inappropriate decisions of its Standing Committee;  electing the President of the Suprem e People's Court and the Procurator-
General of the Supreme People's Procuratorate;  approving the establishment of provinces, autonomous regions, 
and municipalities directly under the Central Government;  and making decisions on the establishment of special 
administrative regions and their institutional systems.  The functions of the President include:  promulgating 
statutes adopted by the NPC or its Standing Committee;  appointing and removing, inter alia , the Premier, Vice-
Premiers, State Councillors, Ministers in charge of mini stries or commissions, and the Auditor-General of the 
State Council, in accordance with the d ecisions of the NPC and its Standing  Committee.  The President ratifies 
or abrogates treaties and "important" agreements conclude d with foreign states, in accordance with the decisions 
of the NPC Standing Committee.  The President does not have the power to veto laws that have been adopted by 
the NPC or its Standing Committee.   
6 The State Council is composed of the Premier, Vice-Premiers, State Councillors, Ministers, the 
Auditor-General, and the Secretary-General. WT/TPR/S/199/Rev.1 Trade Policy Review 
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consecutive terms.  The State Council's functions in clude:  formulation, adoption, and enactment of  
"administrative regulations" in accordance with th e Constitution and laws;  submission of  proposals 
to the NPC or its Standing Committee;  the exercise of leadership over the work of local organs of 
state administration, and determination of the functional divisions between central and local 
authorities7;  drafting and implementing the national econom ic and social development plan and the 
state budget, and the direction and administration of urban and rural development work;  and the 
conclusion of treaties and agreements with other states.  The State Council reports to the NPC or, 
when the NPC is not in session, to its Standing Committee.     
(c) The Judiciary  
10. China's judicial system consists of the Suprem e People's Court, the local people's courts at 
different levels, and military and other sp ecial courts (e.g. railway and maritime).8  Under the  
Constitution, the people's courts exercise judicial  power independently and are not subject to 
interference by administrative organs, public organizations or individuals.9  The Constitution also 
stipulates that the National People's Congress elects a nd has the power to recall or remove from office 
the President of the Supreme People's Court10, and the Standing Committee of the NPC is empowered, 
in accordance with the suggestion of the President of the Supreme People's Court, to appoint and 
remove:  the vice-presidents and judges of the S upreme People's Court;  members of its Judicial 
Committee;  and the President of the Military Court.   Article 67 of the Constitution stipulates that the 
Standing Committee of the NPC is empowered to supe rvise the work of the Supreme People's Court.  
Article 125 of the Constitution stipulates that all cas es handled by the people's courts, except for those 
involving special circumstances as specified by law, must be heard in public.   
11. Law enforcement has traditionally been based on intermediation rather than recourse to the 
courts, although this appears to be changing gradually;  according to the authorities, most legal 
disputes are now resolved through the courts, with  some resolved through intermediation under the 
auspices of the courts.  The difficulty of law enforc ement in China is attributed to several factors, 
including protection of local interests.11   
12. Since its previous Review, there has been no cha nge in China's judicial review process or for 
appeal regarding administrative actions related to the implementation of laws , regulations, judicial 
decisions, etc. in trade in goods and services, invest ment, and intellectual property rights.   Between 
                                                      
7 China is divided administratively into provinces, autonomous regions, special administrative regions, 
and municipalities directly under the Ce ntral Government.  In addition to the central and provincial levels, 
administrative jurisdictions are further sub-divided into prefecture-level cities (including autonomous 
prefectures), counties (including autonomous counties), and townships (including ethnic townships).  Local people's congresses at different levels are the local organs  of state power.  Executive power at the local level is 
vested in local governments, which report to people's congresses at corresponding levels, or when the people's 
congresses are not in session, to their standing committees.  Local government s report to the state administrative 
organs at the next level.  Local governments are stat e administrative organs under the leadership of State 
Council and are s ubordinate to it. 
8 The Supreme People's Court comprises the Judici al Committee, the No. 1 Criminal Tribunal, the 
No. 2 Criminal Tribunal, the Civil Tribunal, the Econom ic Tribunal, the Administrative Tribunal, the Complaint 
and Appeal Tribunal and the Communication and Transportation Tribunal (see WTO (2006) for further details).   
9 Article 126. 
10 Articles 62 and 63. 
11 The Constitution stipulates that local people's congresses at and a bove the county level, elect, and 
have the power to recall, presidents of people's courts at the corresponding level (Article 101), and the standing 
committee of a local people's congress at and above the county level supervises the work of the people's court at 
the corresponding level (Article 104), thus creating a stro ng incentive to protect local  interests and for greater 
political involvement in judicial decision making.   China WT/TPR/S/199/Rev.1 
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1 January 2006 and 11 September 2007, the NPC adopt ed 22 laws (including five amendments) and 
eight decisions concerning legal issues;  it abolis hed two laws.  During the same period, the State 
Council enacted 48 administrative regulations (i ncluding eight amendments);  it abolished 
24 regulations.12  There were also several trade-related judi cial interpretations of the Supreme People's 
Court (and the Supreme People's Procuratorate);  th ese include judicial interpretations on IPR cases 
issued in April 2007 and February 2008.13 
13. Decisions by the lower courts can be appealed to  higher courts.  The j udgement and order of a 
people's court of second instance is final, and cannot be  appealed further;  however, in criminal cases, 
if the procuratorate feels that there is an error in a judgement by a people's court, it can file a protest 
against the judgement to a people's court at th e same level, which then conducts a retrial.14   
14. China is party to the United Nations Conve ntion on the Recognition and Enforcement of 
Foreign Arbitral Awards (for commercial disputes onl y).  Both China's "Civil Procedure Law" and the 
relevant judicial interpretations accept the principl e that, when an international treaty concluded or 
acceded to by China contains provisions that differ from the provisions of the "Civil Procedure Law", 
the provisions of the international treaty will apply, except for cases in  which China has made 
reservations.  
15. Under the Constitution and the "Law on the Pro cedures of the Conclusion of Treaties", the 
WTO Agreement falls within the category of "im portant international agreements", subject to 
ratification by the Standing Committee of the NPC.15  The WTO Agreement and China's Protocol of 
Accession are implemented domestically through enab ling legislation.  Individuals and enterprises 
can bring to the attention of the national author ities cases of non-uniform application of the trade 
regime.16 
(ii) Legal structure and the legislative process 
16. Legislation in China includes the Constitution, laws, administrative regulations, departmental 
rules, local regulations, and rules.  The Constitu tion is the highest law, followed by laws and 
administrative regulations;  national administrative regulations take precedence over local regulations 
and rules.17   
                                                      
12 Currently, local governments from 31 provinces, autonomous regions and municipalities, and 
49 large cities have the right to formulate local regulations (these are called local governments "with legislative power").  Between 1 January 2006 and 11 September 2007, local people's congresses and their standing 
committees "with legislative power" adjusted 287 local rule s, 16 SAR rules, and 72 separate regulations;  they 
abolished 85 rules.  During the same period, local governments "with legislative power" enacted 105 local rules;  they abolished 305 rules. 
13 The Supreme People's Court website.  Viewed  at:  http://ww.court.gov.cn/lawdata/explain 
[12 March 2008]. 
14 Articles 203 to 207 of the "Criminal Procedure Law". 
15 Ministry of Foreign Affairs online information.  Viewed at: http://www.fmprc.gov.cn/chn/ 
wjb/zzjg/tyfls/tfsckzlk/xggnlf/t70826.htm [11 February 2008].  
16 See WTO (2006), p. 33 for details.  
17 The NPC has the power to alter or annul laws form ulated by its Standing Committee;  the Standing 
Committee of the NPC has the power to annul administrative regulations that contradict the Constitution and 
laws or local regulations that contra dict the Constitution, laws, and admini strative regulations;  the State Council 
has the power to annul departmental and local government rules that are deemed inconsistent with the Constitution and laws. WT/TPR/S/199/Rev.1 Trade Policy Review 
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17. Under the Legislation Law, the "basic" economic system, finance, taxation, customs, banking, 
and foreign trade must be governed only by law.18  The Law Committee under the NPC organizes 
discussions and conducts a review of all draft b ills on the NPC’s agenda, based on the opinions of 
delegates and special committees.19  With regard to legislative bills on the agenda of a session of the 
NPC, the legal committee, relevant special committ ees, and the Standing Committee of the NPC must 
solicit opinions from related authorities and citizens through, inter alia,  fora such as seminars, expert 
meetings, and hearings20;  it would appear that draft laws are published in some, if not all, cases.  
These related authorities and citizens can make comme nts or suggestions concerning the draft bills.  
In 2006, 101 legislative hearings and 1,579 pane l discussions were held among 29 local governments 
"with legislative power" and 45 agencies led by th e State Council;  490 proposed regulations were 
subject to public comment procedures.  No in formation was available on the amount of draft 
legislation and regulations for whic h opinions were not solicited.  Bills are usually deliberated on at 
three meetings of the Standing Committee before being voted upon. 
18. Administrative regulations are formulated by th e State Council.  The draft is prepared by 
ministries or commissions, which may organize seminars , expert meetings, heari ngs, etc. to solicit the 
opinions of other ministries or the public.  Accord ing to the authorities, during the drafting process, 
international fora may be held and foreign-invest ed enterprises (FIEs), foreign chambers of commerce 
and foreign experts invited to par ticipate in consultations.  The drafts are reviewed by the SCLAO.  
Drafts of regulations "directly beneficial" to citizen s, legal persons, or other organizations, are, after 
approval by the State Council, issued for public comment.  Drafts approved by the standing 
committee of the State Council enter into force after being signed by Premier.  The regulation is then 
published in the State Council's Gazette and in national newspapers.     
19. Departmental rules, issued by ministries, commissions, and other regulatory agencies directly 
under the State Council, are published in the State Council or departmental Gazette, and in national 
newspapers.   Under the Legisla tion Law, the Government must seek opinions from various sources or 
public comments on drafts of these rules before issuing the final rules.   
20. Provinces, autonomous regions, municipalities di rectly under the Central Government, and 
certain large cities may formulate local regulations  and rules.  They may formulate regulations on 
matters needing specific provisions due to conditions in the respective administrative area, in order to 
implement the provisions of laws or administrative re gulations;  and on matters of local character that 
require formulation of local regulations.  They may also formulate rules required to implement 
provisions of laws, administrative regulations, and local regulations;  and rules on specific 
administrative matters pertaining to the respectiv e administrative areas.  Local governments must 
organize seminars, expert meetings, hearings a nd publicize the draft to solicit written opinions of 
ministries or the public. 
                                                      
18 If laws have not been enacted on these matters, the NPC or its Standing Committee may authorize 
the State Council to formulate administrative regulations. 
19 Legislative bills may be submitted to the NPC or its Standing Committee, by any of the following:  
the State Council, the Central Military Commission, the Supreme People's Court, the Supreme People's 
Procuratorate, a special committ ee of the NPC, a delegation or a group of th irty or more deputies, or ten or more 
Standing Committee members.  The Rules on Procedures for Formulating Administrative Regulation also set 
out which laws are to be formulated by the State Council.  Ministries or commissions preparing a draft law 
solicit opinions of other ministries or public by, inter alia,  organizing seminars, expert meetings or hearings.  
Draft laws are reviewed by the State Council's Legisla tive Affairs Office (SCLAO) to ensure their conformity 
with, inter alia,  the Constitution and existing laws.  
20 It would appear that while "lobbying" in China has become more prevalent, no laws regulating 
lobbying activities seem to exist (Cha (2007)).  China WT/TPR/S/199/Rev.1 
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(iii) Transparency 
21. During the past two years, China has continue d to take steps to improve transparency, 
including notifications to the WT O and participation in the TPRM.  Nonetheless, some aspects of 
China's trade policy regime remain complex and opaque.21  This leaves scope for administrative 
discretion and thus corruption.  The Government  recently adopted various measures to enhance 
transparency in the public sector.  In 2005, the Gene ral Office of the State Council issued the Opinion 
on Further Enforcing Government Administration Publication.  The Opinion, inter alia,  clarified main 
publication requirements for government administration.  
22. Since China's previous Trade Policy Review, one of the Government's key objectives has 
been prevention and reduction of corruption and it  has continued to adopt measures to enhance 
transparency in the public sector. China's emphasis on cracking down on corruption was reiterated, for 
example, in a speech by the President at the 17th National Congress of the CPC, held in October 2007, 
where he called upon CPC members to carry out th e anti-corruption campaign in a comprehensive 
manner, addressing both its symptoms and root cause, and called for both prevention and punishment.
22 
23. On 5 April 2007, the State Council promulgate d the Regulations on Open Government 
Information, which is to enter into force on 1 May 2008.23  The Regulations are intended to reduce 
corruption by "keeping the government open and transparent in exercising its power".24  T h e  
Regulations stipulate, inter alia,  requirements for disclosure of government information.  Under 
Article 9, administrative agencies must disclose government information that:  involves the vital 
interests of citizens, legal persons or other organi zations;  needs to be broadly known to the public;  
reflects the structure, functions, procedures and condi tions related to the administrative agency;  and  
other information that should be disclosed in accord ance with other laws and re gulations.  In addition, 
the General Office of the State Council is in charge of promoting, guiding, coordinating, and supervising the disclosure of government informatio n, and local governments are to establish "public 
institutions of government information".
25  However, government officials are apparently not able to 
release information deemed to be secret or that might "threaten national, public or economic security 
or social stability", thereby possibly leaving cons iderable scope for non-disclosure of information.26   
24. On 8 July 2007, the Supreme People's Court and Supreme People's Procuratorate jointly 
promulgated a Circular on the Opinions to Address the Issues in Handling Criminal Cases Involving 
the Taking of Bribes;  it explicitly classifies certai n acts by government officials, such as securing 
                                                      
21 China ranked 44th among 48 countries on the 2004 Opacity Index, which measures the degree to 
which countries lack clear, accurate, easily discer nible, and widely accepted practices governing the 
relationships among governments, businesses, and investors (WTO (2006), Chapter II(2)(iv)).  According to a 2007 Corruption Perceptions Index, which measures perceptions of corruption among public officials and 
politicians in 180 countries, China ranked 72
nd, with a score of 3.5 out of 10 (Transparency International.  
Viewed at:  http://www.transparency.org [11 February 2008]);  in 2005, it ranked 78th (out of 159 countries) 
with a score of 3.2.  
22 China Daily  online, "Hu Jintao:  No tolerance to corruption".  Viewed at:  http://english.people. 
com.cn/90002/92169/92187/6283181.html [11 February 2008]. 
23 Central Government online information.  View ed at:  http://www.gov.cn/zwgk/2007-04/24/content_ 
592937.htm (in Chinese) [11 February 2008]. 
24 China Development Brief (2007).   Viewed at:  http://www.china developmentbrief.com/node/1111 
[11 February 2008]. 
25 Article 4 of the Regulations. 
26 Article 14 of the Regulations and Financial Times,  24 April 2007. WT/TPR/S/199/Rev.1 Trade Policy Review 
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benefits for someone and, in return, accepting co rporate shares from the person without due payment, 
as bribery.27   
25. On 13 September 2007, the National Corruption Pr evention Bureau, which reports directly to 
the State Council, was established.  The Bureau is responsible for assuri ng the transparency of 
government information at various levels, with a view to preventing corruption, and studying 
measures to prevent and reduce corruption;  the Bureau  is to monitor the flow of suspicious assets and 
corruption activities through an information-shari ng system among the judiciary, police and banks. 
26. The Administrative Permission Law defines the le gal basis, the agencies, and the procedures 
for granting "administrative permission", aimed at ensuring a more uniform application of 
administrative permissions and thereby improving their transparency.28  The Law stipulates that:  
provisions on administrative permission must be pr omulgated before its entry into force.  Also, all 
administrative permission outcomes, except for those related to state or business secrets or individual privacy, must be published, and the public has the right to consult decisions by administrative departments on whether to grant permission and the "s upervision records" of the individuals that have 
been granted permission.  Administrative departme nts must make public all matters related to the 
application and its permission, including the basi s for granting permission, the requirements, the 
quantity, procedure, time limit, and the catalogue  of related materials regarding the relevant 
permission, together with application forms.
29  According to the authorities, laws and regulations that 
have recently been adopted or modified with a view to further increasing transparency include the 
Law on Response to Emergency, the Anti-Monopoly Law, the Regulation on Report and Investigation 
of Cases Concerning Product Safety, and the Rule  on Administrative Punishment of Price-related 
Violations. 
27. All foreign trade-related laws, regula tions, and rules are published in the China Foreign 
Trade and Economic Gazette,  edited and published by MOFCOM .  Enquiry points and enquiry 
websites are set up under the MOFCOM and the Ge neral Administration of Quality Supervision, 
Inspection and Quarantine (AQSIQ);  China mak es regular notifications to the WTO.  Newly 
promulgated trade-related laws a nd regulations are compiled and publis hed by the Legislative Affairs 
Office of the State Council, which also publishes the yearly collection of China's laws and regulations 
governing foreign-related matters.  
28. According to the authorities, by the end of 2006, all 73 national government agencies, local 
governments of 31 provinces, autonomous regions a nd municipalities directly reporting to the State 
Council, 323 of the 330 prefecture-level cities, a nd 80% of all the county governments had established 
their websites.  More than 280 of China's laws and administrative regulations provide measures to 
promote transparency;  about 80 involve the publication of government information. 
                                                      
27 Supreme People's Court online information.  View ed at:  http://www.court.g ov.cn/lawdata/explain/ 
criminal/200707090002.htm (in Chinese) [11 February 2008]. 
28 "Administrative permission" means approval given to citizens, legal persons, and other organizations 
for engaging in "special activities" by administrative departments, on the basis of, and upon examination 
according to law, of their applications.  The Law stipul ates that only the NPC and its Standing Committee, the 
State Council, the provincial people's congresses a nd their standing committees, and provincial level 
governments, have the right to grant administrative permission.  The Law also attempts to clarify the procedure  
for granting administrative permission, including by sp ecifying time limits within which all government 
departments must make decisions concerning administrative permission. 
29 In addition, the Legislation Law specifies that, when  drafting legislation, apart from laws enacted or 
amended by the NPC, opinions from organizations and the public must be solicited, through, inter alia , 
seminars, appraisal meetings, and hearings.  Draft legislation is also made public for comment when necessary, in official gazettes or newspapers. China WT/TPR/S/199/Rev.1 
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29. Judging from the absence of published materi al from government sources on the economic 
evaluation of policies and measures, including tax and non-tax incentives, this form of transparency is 
not a major feature of China’s institutional frame work, to the detriment of public accountability, and 
thus governance. 
(iv) Centre–subnational relations and local barriers to internal trade 
30. Policy coherence between the central and lo cal governments is partly assured through a 
system in which top local government officials are appointed by the Central Government.  Nonetheless, it would appear that boundaries of re gulatory responsibilities between the central and 
local governments are not clearly defined;  for ex ample, internal trade of some products, notably 
tobacco, seem to remain subject to restrictions by certain local governments.
30  In general, 
coordination between central and local governments is  improving, but remains weak;  for instance, it 
would appear that sometimes the Central Government  designs policies that have implications at the 
local level without consulting local governments.31  The authorities attach importance to coordination 
between the central and local governments and to the soliciting of local government opinions when formulating laws, regulations, and other policies.  They consider that the Anti-Monopoly Law will 
reduce barriers to internal trad e, such as local protectionism.
32  
(3) FORMULATION , ADMINISTRATION , AND IMPLEMENTATION OF TRADE POLICY  
(i) Main trade laws 
31. China's main laws covering international trad e include the Foreign Trade Law, the Customs 
Law, and the Regulations on Import and Export Tariffs, which contain the tariff schedules, as well as 
laws and regulations rela ting to standards, SPS, anti-dumping, countervailing and safeguard measures, 
and intellectual property rights (Table AII.1). 
32. Various trade-related laws and regulations have been adopted or amended during the review 
period.  Laws and regulations that entered into  force in 2006 included:  the Company Law;  the 
Agricultural Product Quality Safety Law;  Re gulations on the Administration of Company 
Registration, Regulations on Customs Statistics, Re gulations on the Administration of the Import and 
Export of Endangered Wild Fauna and Flora, Regula tions on Export Products Responding to Anti-
dumping Cases.  
33. The Property Law, which entered into force on 1 October 2007, defined, for the first time in 
the current regime, the ownership of property, and st ipulated the protection of property rights of right 
holders (private or public entities).  The Law on Enterprise Bankruptcy, which aims to regulate 
bankruptcy procedures for enterprises, settle credit and debt, and protect the rights and interests of 
creditors and debtors, entered into force on 1 June  2007;  the Law on Partnership Enterprises entered 
into force on the same day.  Other regulations that  entered into force in 2007 include the  Regulation 
on the Administration of Commercial Franchises (1 May).    
                                                      
30 WTO (2006), p. 41. 
31 OECD (2005). 
32 Article 33 of the Anti-Monopoly Law, inter alia,  prohibits local authorities' obstruction of free 
circulation of products across regions, such as: discri minatory setting of fees, prices, and technical measures 
concerning products originating from other regions;  a dopting administrative licensing requirements specifically 
targeted at products originating from other regions;  and establishing checkpoints or using other means to block 
the entry into the local markets of products originating in other regions, or to block the outflow of locally produced products. WT/TPR/S/199/Rev.1 Trade Policy Review 
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34. The Anti-Monopoly Law was adopted by the Standing Committee of the NPC on 
30 August 2007, and is to enter into fo rce on 1 August 2008 (Chapter III(4)(iv)). 
(ii) Agencies involved in trade policy implementation  
35. Since its previous Trade Policy Review, the structure of China's central government has 
remained largely unchanged.  The Ministry of  Commerce (MOFCOM) has main responsibility for 
policy coordination and implementation in respect of all trade-related issues.33  Other key agencies 
that have an influence on trade policy include:  the National Development and Reform Commission 
(NDRC), which is in charge of overall national economic and social  development policy;  and the 
Ministries of Finance, Agriculture, Information Industries, Communications, and Land and 
Resources.34 
36. Several industry associations also collect a nd share information, identify and deal with 
industry problems, discuss trade policy issues that af fect their industries, and represent their sectors in 
relation to Government.35 
(4) TRADE POLICY OBJECTIVES  
37. China's overall trade policy objective has remained largely  unchanged since its previous 
Trade Policy Review:  to accelerate its opening to  the outside world (with a view to introducing 
foreign technology and know-how), develop foreign trade, and promote sound economic 
development.36  China wishes to achieve this objectiv e by further strengthening the multilateral 
trading system as embodied in the WTO, and has been participating in th e DDA negotiations.  The 
authorities stress China's commitment to the DDA a nd its intention to make every effort toward 
reaching agreement in the negotiations.  China provides at least MFN treatment for all WTO 
Members except El Salvador and some territories of EC Member States.  Data provided by the authorities indicate that in 2006, 99.99% of China's to tal imports were subject to applied MFN tariffs, 
or more favourable rates. 
                                                     
 
33 MOFCOM is responsible for, inter alia :  formulating laws, regulations, and policies related to 
domestic and international trade and foreign investment;  harmonizing domestic legislation on trade and economic affairs and bringing China's economic and trade laws into conformity with multilateral and bilateral 
agreements;  countering monopoly activities and ensuring orderly market development;  developing and 
administering import and export regulations, including the allocation of import and export quotas and licences;  and other WTO-related affairs.  MOFCOM is also in charge of trade promotion and facilitation, through its 
Trade Development Bureau, the Investment Promotion Agency, the International Centre for Economic and 
Technical Exchanges, and the China Foreign Trade Centre. 
34 Other agencies that have influence on other trade policies include:  the People’s Bank of China (the 
Central Bank);  State Administration of Foreign Exchange (SAFE);  State-owned Assets Supervision and 
Administration Commission;  General Administration of Customs;  State Administration of Taxation;  State Administration for Industry and Commerce;  General Administration of Quality Supervision, Inspection and 
Quarantine (AQSIQ);  China Standardization Administra tion;  China National Certification and Accreditation 
Administration;  State Intellectual Property Office;  Ge neral Administration of Civil Aviation;  State Food and 
Drug Administration;  National Tourism Administration;  Legislation Affairs Office of the State Council;  and 
Banking Regulatory Commission, Insurance Regulatory Commission, Securities Regulatory Commission, and State Electricity Regul ation Commission.   
35 These include:  the Chin a Coal Industry Association;  China Iron and Steel Association;  China 
National Textiles and Clothing Association;  China Machine Industry Federation;  China Petroleum and Chemical Industry Association;  China Light Industry Federation;  China Building Material Industry 
Association;  China Nonferrous Metals Society. 
36 See Article 1 of the Foreign Trade Law.  Vi ewed at:  http://english.mofcom.gov.cn/aarticle/ 
policyrelease/internationalpolicy/200703/20070304473373.html [11 February 2008]. China WT/TPR/S/199/Rev.1 
 Page 33 
 
 
38. At the same time, China has been intensifying its pursuit of bilateral/regional arrangements 
involving free-trade agreements (section (5)(ii) below).  It is of the view that  whereas the multilateral 
trading system is the main channel to promote tr ade liberalization, regional and bilateral trade 
arrangements serve as new platforms and complement  the multilateral system;  regional/bilateral trade 
arrangements interact with the multilateral tradin g system in a mutually beneficial way.  The 
authorities consider that an FTA can provide an  institutional guarantee to the development of 
bilateral/regional trade and economic relations  and benefit businesses and consumers in the 
participating countries and economies, by helping expand trade, achieve market diversification, 
reduce consumer prices, and lower producer costs;   and drive economic growth and create new job 
opportunities.  It would appear that all countries a nd economies that have conc luded bilateral/regional 
FTAs recognize China as a market economy.    
39. China also supports the open regionalism appro ach of the Asia-Pacif ic Economic Cooperation 
(APEC) forum, and participates in various other regi onal trade fora, such as the Asia-Europe Meeting 
(ASEM), the ASEAN+3, and the East Asia Summit. 
(5) TRADE AGREEMENTS AND ARRANGEMENTS  
(i) WTO 
(a) Participation in the WTO 
40. China acceded to the WTO on 11 December 2001.37  While China is not yet a signatory to the 
plurilateral Agreement on Governme nt Procurement, it submitted its initial offer to join the GPA, 
together with its initial Appendix I offer of coverage, on 28 December 2007.  It is an observer to the 
Agreement on Trade in Civil Aircraft.  China has b een participating in the WTO, including in the 
Doha Development Agenda (DDA), as a strong su pporter of the multilateral trading system. 
(b) Notification 
41. Like all Members of the WTO, in the interest of transparency, China is required to make 
regular notifications to the WTO (Table AII.2). 
(c) Disputes 
42. Since 2006, China has been involved in one dispute as a complainant and nine disputes as a 
respondent (Table AII.3).  In addition, China pa rticipated as a third party in 15 dispute cases. 
(ii) Regional agreements 
(a) Asia-Pacific Economic  Cooperation (APEC) 
43. In 2006, 73.6% of China's merchandise impor ts were from APEC members (up from 67.8% 
in 2004), and 66.6% of its merchandise exports were to APEC (70.2% in 2004).  Other APEC 
                                                      
37 Under China's Protocol of Accession, the WTO Agreement and the Protocol apply to the entire 
customs territory of China, including border trade regions, minority autonomous areas, Special Economic 
Zones, open coastal cities, economic and technical development zones, and other areas where preferential 
regimes for tariffs, taxes, and regulations are established.  Article 18 of the Protocol sets up a Transitional 
Review Mechanism (TRM) for review ing China's compliance with its WTO commitments.  The TRM takes 
place annually for eight years following accession, with a final review in year ten or at an earlier date decided by 
the General Council. WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 34 
 
 
members accounted for 60.6% of China's FDI in 2006 (69.8% in 2004).  In keeping with its policy of 
supporting multilateral trade and investment liberal ization, China supports APEC's open regionalism 
goals.  Like other members, China submits an a nnual Individual Action Plan (IAP), which provides a 
roadmap of its intended actions in various policy areas  with a view to realizing APEC's liberalization 
goals.38  At the Fourteenth APEC Leaders' Meeting,  in November 2006, leaders of APEC economies, 
inter alia,  reaffirmed their support for the Doha Deve lopment Agenda as a top priority.  At the 
Fifteenth meeting, in September 2007, leaders, inter alia , agreed that the Doha Round negotiations is 
at a critical juncture;  they i ssued a statement setting out the ur gent need for progress and pledged 
their commitment to work to deliver an "ambitious  and balanced" result.  China participates in the 
APEC Business Travel Card (ABTC) Scheme. 
(b) ASEM (Asia-Europe Meeting) 
44. At the sixth ASEM Summit held in He lsinki in September 2006, leaders, inter alia, 
commemorated the first ten years of the ASEM, and agreed to "commence the second decade" by 
focusing on key policy areas such as strengthening multilateralism and addressing issues including:  
globalization, competitiveness and structural cha nge in the global economy, science and technology, 
and sustainable development.   
(c) China and ASEAN (Association of Southeast Asian Nations) 
45. China, Japan, and the Republic of Korea, hold regular meetings with ASEAN under the 
ASEAN+3 framework of cooperation.  High level meetings are held annually.  The eleventh 
ASEAN+3 summit and the third East Asia Summit meeting (involving parties to the ASEAN+3 as 
well as Australia, India and New Zealand) were  held in November 2007 in Singapore.  
ASEAN–China free-trade area (ACFTA) 
46. Under the Framework Agreement on Comprehe nsive Economic Cooperation between China 
and ASEAN, which entered into force on 1 July  2003, both parties agreed to negotiate the 
establishment of an ASEAN–China Free Trade Area (ACFTA) within ten years, including by:  
progressively eliminating tariff and non-tariff ba rriers to substantially all trade in goods;  
progressively liberalizing trade in services;  estab lishing an open and competitive investment regime 
to facilitate and promote investment among partners  to the ACFTA;  simplifying customs procedures;  
and developing mutual recognition arrangements.39   
47. An "early harvest programme", to accelerate th e establishment of the ACFTA, specified that 
tariffs on all products in HS Chapters 1-8 and a limited number of products outside these chapters 
would be eliminated over three years beginning 1 January 2004;  a longer time-frame (no later than 
January 2010) was accorded to Cambodia, Lao PDR, Myanmar and Viet Nam.  Some products 
including poultry, meat, tomatoes, and carrots from Lao PDR and the Philippines are excluded from 
the list of products in HS Chapters 1- 8 for which tariffs would be eliminated. 
48. An Agreement on Trade in Goods and an Ag reement on the Dispute Settlement Mechanism 
of the Framework Agreement on Comprehensiv e Economic Cooperation between ASEAN and China 
                                                      
38 The latest IAP of China was submitted in 2007 (APEC (2007)). 
39 The ACFTA, involving the original ASEAN 6 (B runei, Indonesia, Malaysia, the Philippines, 
Singapore, and Thailand) is to be established by 2010;  flexibility up to 2015 has been provided for Cambodia, 
Laos, Myanmar, and Viet Nam. ASEAN and China agr eed to strengthen econom ic cooperation by building 
upon existing activities and developing new programmes in five priority sectors:  agriculture;  human resources 
development;  information and communication technology;  investment;  and Mekong River basin development. China WT/TPR/S/199/Rev.1 
 Page 35 
 
 
entered into force on 1 January 2005.40  It was notified to the WTO under the Enabling Clause on 
21 September 2005.41  The authorities indicate that since the tariff reduction began, there has been a 
boom in imports and exports between China a nd ASEAN, and a narrowing trade imbalance. 
49. The Agreement on Trade in Services of the China-ASEAN Free Trade Area was signed in 
January 2007 and entered into force on 1 July 2007.42  China is also negotiating with ASEAN in the 
area of investment.  
(d) The Asia-Pacific Trade Agreement (APTA)  
50. China is party to the Asia-Pacific Trade Agreement (Bangkok Agreement until 
1 November 2005), a preferential trading arrangeme nt between developing countries in the Asia-
Pacific region.43  Under the agreement, in 2007, 1,652 tari ff lines carry rates that are lower than the 
MFN rates;  as a result, the overall average tariff ap plied to parties to the APTA is 9.1%, compared 
with an MFN rate of 9.7% (Chapter III(2)(iii)). 
(e) Others 
51. Academics from China, Japan, and the Republic  of Korea have been conducting a feasibility 
study for a trilateral free-trade agreement c overing trade and investment, information and 
communication technology industries, environmen tal protection, and financial cooperation;  
government officials participate in the study as observers. 
52. In 2005, China initiated a study on the "10+3"  (i.e. ASEAN countries, China, Japan, and 
Korea) East Asia Free Trade Area (EAFTA), and in 2007 a phase II study was initiated by Korea.  
(iii) Bilateral agreements 
53. China has concluded bilateral free-trade agreements  (FTAs) with a few trading partners, all of 
whom recognize China as market economy;  it has been negotiating (or seeking negotiations on) free-
trade agreements with some other trading partners.    
                                                      
40 The Agreement on Trade in Goods s tipulates that tariff reductions and eliminations shall apply to all 
tariff lines not covered by the Early Harvest Programme under Article 6 of the Framework Agreement;  these 
tariff lines are grouped under two categories, the normal track and the sensitive track.  The agreement explicitly 
adopts GATT 1994 provisions on national treatment in resp ect of internal taxation and regulation, transparency, 
balance-of-payments safeguard measures;  and commits pa rties to abide by the provisions of WTO disciplines 
on, inter alia , non-tariff measures, technical barriers to trade, sanitary and phytosanitary measures, subsidies and 
countervailing measures, anti-dumping measures, and intellectual property rights.   
41 WTO document WT/COMTD/51/Add.1, 27 September 2005. 
42 This agreement has not been notified to the WTO;  the authorities state that the parties to this 
agreement are communicating with their respective permanent missions in Geneva with a view to notifying it as 
soon as possible. 
43 The other members are Bangladesh, India, the La o People's Democratic Republic, the Republic of 
Korea, and Sri Lanka (WTO documents WT/COMTD/N/22, 27 July 2007 and WT/COMTD/62, 27 July 2007). WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 36 
 
 
(a) CEPAs:  China–Hong Kong, China;  and China–Macao, China 
54. Under the Closer Economic Partnership Arrangements (CEPAs) with the Special 
Administrative Regions (SARs) of Hong Kong a nd Macao, from 1 January 2004, China began to 
implement a staged elimination of tariff s on imports originating in these two SARs.44  
55. Since 1 January 2006, tariffs on merchandise impor ts originating in the SARs of Hong Kong 
and Macao have been fully eliminated.   Since 1 January 2005, China has gradually liberalized markets 
in various services sectors;  on 1 January 2006, it further relaxed restrictions in legal services, 
accounting, construction, audio-visual services, distribution, banking, securities, tourism and 
transportation;  it also relaxed equity restrictions  and thresholds on registered capital, qualification 
requirements, geographical limitation, limitations  on business scope and the movement of natural 
persons applicable to individual business owners  that are permanent residents (with Chinese 
citizenship) of the Hong Kong and Macao SARs.  
56. The Third Supplemental Agreements to the Mainland and Hong Kong/Macao Closer 
Economic Partnership Arrangements (CEPA III) was signed in June 2006 and entered into force on 
1 January 2007.  China further lowered the mark et access threshold in certain service sectors, 
including legal, accounting, information technol ogy, conventions and exhibitions, audiovisual, 
distribution, tourism, and transport and certain i ndividually owned stores.  Protection of intellectual 
property rights, and conventions a nd exhibitions were added to the scope of trade facilitation under 
the two CEPAs. 
57. The Fourth Supplemental Agreements were signed during June and July 2007. On 
1 January 2008, the Mainland further relaxed the ma rket access conditions on 28 areas, namely, legal, 
medical, computer and related services, real estate, market research, services related to management consulting, public utility, job intermediary, buildi ng-cleaning, photographic, printing, translation and 
interpretation, conventions a nd exhibitions, telecommunications, audiovisual, distribution, 
environmental, insurance, banking, securities, social  services, tourism, cultural, sporting, maritime 
transport, air transport, road transport, and individually owned stores. 
(b) China–Chile FTA 
58. On 18 November 2005, China and Chile signed an FTA, which entered into force on 
1 October 2006.
45  Information provided by the Chinese authorities indicate that under the FTA, 74% 
of Chile's tariffs were eliminated immediately, wh ile 63% of China's tariffs were eliminated in two 
steps from 1 October 2006 to 1 January 2007.  Most othe r tariffs are to be eliminated within five or 
ten years with 97% of both countries' tariffs elimin ated by 1 January 2015.  The agreement includes 
provisions on trade remedies, SPS and TBT measures, and disputes settlement.46  Negotiations on 
trade in services and investment were launched in  January 2007.  China's overall average tariff on 
imports from Chile was 3.5% in 2007, the low est overall average among China's FTA partners. 
                                                      
44 Both CEPAs have provisions regarding non-tariff measures, non-application of tariff-rate quotas, 
anti-dumping and countervailing measur es, safeguard measures, trade in services, transparency, standards and 
conformity assessments, and information exchange.   
45 The FTA includes chapters on, inter alia , national treatment and mark et access for goods, rules of 
origin, trade remedies, SPS, TBT, transparency, and di spute settlement.  In addition to tariff concessions on 
trade in goods, the FTA intends to strengthen cooperation in:  economic matters, research, science and 
technology, education, labour , social security and environment, sma ll and medium-sized enterprises, culture, 
intellectual property rights, investment promotion, mining, and industry. 
46 WTO document WT/REG230/N/1, 28 June 2007. China WT/TPR/S/199/Rev.1 
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(c) China–Pakistan FTA 
59. In November 2003, China signed a preferential trad e agreement with Pakistan, its first PTA.  
Under an Early Harvest Agreement, which entered into force on 1 January 2006, bilateral tariffs on 
certain products were to be eliminated gradually by 1 January 2008.  The China-Pakistan Free Trade 
Agreement was signed on 24 November 2006 and entere d into force on 1 July 2007.  The Agreement 
covers trade in goods and investments.47  As a result, China's overall average tariff on imports from 
Pakistan was 7.9% in 2007, compared with the ov erall MFN average of 9.7% (Chapter III(2)(iii)).  
(d) China–Australia  
60. China and Australia signed a Trade and Economic Framew ork Agreement on 
24 October 2003.  Following the completion of a joint study, the two countries agreed to commence 
FTA negotiations in 18 April 2005.  A sixth round of talks was concluded in June 2006.  
(e) China–New Zealand 
61. China and New Zealand signed a similar Trade and Economic Cooperation Framework 
Agreement on 28 May 2004.  Following a joint f easibility study, FTA negotiations started in 
December 2004;  a fifteenth round of negotiation was held in December 2007.  
(f) China–Gulf Cooperation Council (Bahrain, Ku wait, Oman, Qatar, Saudi Arabia, and 
the UAE)  
62. In July 2004, China and the Gulf Cooperation Council announced that they had signed a 
Framework Agreement on Economic, Trade, Investment and Technology Cooperation.  They also 
established a joint committee for cooperation to impl ement the agreement and to create a consultation 
mechanism, and agreed to launch FTA negotiations.  Four rounds of negotiations had been held by 
December 2007. 
(g) China–Iceland 
63. On 4 December 2006, China and Iceland agreed to start negotiating an FTA;  in April 2007, 
the first round of negotiations between the two countries was held.   
(h) China–Southern African Customs Union (SACU) 
64. In June 2004, China and SACU issued a joint declaration, in which SACU granted China 
market economy status.  At the same time, FTA nego tiations were launched.  To date, it would appear 
that no negotiations have taken place. 
(i) Other potential bilateral agreements 
65. China and India agreed to form a Joint Study Group in June 2003, to explore the potential for 
expanded bilateral trade and cooperation;  the Gr oup met in March 2004.  China and India also 
concluded bilateral tariff-reduction negotiations in February 2003, a nd signed the Bilateral Agreement 
on Adopting the Bangkok Agreement (now the Asia P acific Trade Agreement).  A feasibility study on 
a China–India FTA was started in April 2005.  
                                                      
47 WTO document WT/REG237/N/1, 21 January 2008. WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 38 
 
 
66. After the completion of a China-Korea FTA study , the Official Business and Academic Joint 
Study was launched in November 2006.  Three rounds of meetings were held in 2007 covering issues 
including trade in goods, trade in services and invest ment.  The fourth meeting, in February 2008, 
covered economic coope ration and other remaining issues.   
67. The China-Peru FTA feasibility study, launc hed in March 2007, e nded in September 2007 
after two rounds of meetings.  The first round of  FTA negotiations was held in January 2008. 
(iv) Unilateral preferences 
68. As of March 2008, unilateral preferential tariffs  on certain products were offered to 39 least 
developed countries (Chapter III(2)(iii)). 
(6) FOREIGN INVESTMENT REGIME  
(i) Recent developments in FDI policy 
69. In 2006, China was the third largest recipient of  FDI in the world, after the United States and 
the United Kingdom.48  China has continued to provide a business environment conducive to FDI, 
which, often embodying new technology, has conse quently played a key role in the country's 
economic development since its previ ous Review.  Foreign investment has been encouraged mainly in 
manufacturing with particular emphasi s on high value-added production.   
70. Until end 2007, China provided better than nati onal treatment in its taxation of foreign-
invested enterprises (FIEs), which were subject to enterprise income tax rate of 15% or 24% 
(depending on their location) compared with the standard rate of 33%.  Since 1 January 2008, 
however, a statutory rate of 25% has been set in  accordance with the Enterprise Income Tax Law, 
which was approved on 16 March 2007.  The rate is applicable to all enterprises, except for certain 
"grandfathering" of incentives during a transitional pe riod of five years from 1 January 2008;  during 
this period, preferential tax rates for foreign invest ors will continue in certain industries and projects 
(Chapter III(4)(i)). 
71. Several other regulations  related to foreign direct invest ment in China were adopted during 
the period under Review.   
− The "Regulations for Merger with and Acquisition of Domestic Enterprises by 
Foreign Investors", promulgated by MOFCOM  and five departments, entered into 
force on 8 September 2006.  The Regul ations, which supersede the Interim 
Regulations, stipulate, inter alia : criteria for granting FIE status as a result of mergers 
and acquisitions (Article 9);  anti-monopoly provisions (Article 12); and conditions in 
regard to payment, such as share swaps (Article 29).   
− MOFCOM's "Interim Measures concerning Complaints from Foreign-invested 
Enterprises" entered into force on 1 October 2006.  They, inter alia,  set up a 
procedure for FIEs and foreign investors who consider their rights have been impaired by the authorities to file a formal complaint, and provide for the establishment of the Complaint Coordination Office for Foreign-Invested Enterprises 
and the National Complaint Centre fo r Foreign-invested Enterprises.   
                                                     
 
48 In 2006, inflows of FDI into China were US$69.4 billion, those into the United States and the 
United Kingdom were US$175.4 billion and US$139.5 billion, respectively (UNCTAD (2007)).   China WT/TPR/S/199/Rev.1 
 Page 39 
 
 
− On 27 May 2007, MOFCOM and the State Administration of Foreign Exchange 
(SAFE) issued the Circular on Further Strengthening and Regulating the Examination, Approvals and S upervision of Foreign Direct Investment in Real Estate 
(Circular 50), which is aimed at regulati ng FDI in the booming real estate sector.
49  
The Circular, inter alia , requires commercial presence when foreign investors engage 
in domestic real estate development or operations;  it also requires that the local commerce authorities strictly implemen t MOFCOM’s opinions and circulars 
concerning market access and management of foreign investment in the real estate market.
50 
72. China also encourages outward FDI, largely to upgrade technical skills and to secure supplies 
of key raw materials, such as petroleum and iron ore.  In accordance with the Regulations on Items 
Subject to Approval of Overseas Investment for Establishing Enterprises (MOFCOM Decree No. 16, 2004) and the Regulations on Ex amination and Approval for Ma inland Enterprises Establishing 
Enterprises in the Hong Kong and Macao Special Ad ministrative Regions, local commerce authorities 
of various provinces, autonomous regions, and municipalities directly  under the Central Government, 
and cities with independent budgetary status, are de legated the authority of examination and approval 
for overseas investment.  In July 2006, China el iminated restrictions on the purchase of foreign 
currency for the purpose of outward FDI, in acco rdance with the Circular on the Adjustment of 
Foreign Exchange Management Policy concerning Overseas Investment, issued by the SAFE.  In 
October 2007, it established a new sovereign wealth f und, China Investment Corporation, which aims 
to invest a part of the country's large foreign reser ves;  the fund's operational assets appear to be about 
US$200 billion. 
(ii) Legislative framework and procedures 
73. Laws and regulations specifically related to FDI include:  the Law on Chinese-Foreign Equity 
Joint-Ventures, Law on Chinese-Foreign Contract ual Joint Ventures, Law on Foreign-Capital 
Enterprises, and their implementing regulations.
51  Under the three laws, FIEs include equity joint 
ventures (with foreign investment no less than 25% of  registered capital), contractual joint ventures, 
and wholly foreign-owned enterprises (WFOEs).  FIEs  often involve state-owned enterprises (SOEs).   
74. The Provisions on Guiding Foreign Investment Direction stipulate the basic regulations 
concerning FDI in China;  they classify foreign inv estment projects into four categories:  encouraged, 
permitted, restricted, and prohibited.52  The current Catalogue for the Guidance of Foreign Investment 
Industries, which entered into force on 1 Decemb er 2007, lists industries that are encouraged, 
restricted, and prohibited;  projects that do not fall into these three groups are "permitted".  The 
                                                      
49 MOFCOM online information.  Viewed at:  h ttp://english.mofcom.gov.cn/aarticle/policyrelease/ 
gazettee/200708/20070804974142.html [11 February 2008].  
50 Opinions No. 171 (2006), issued by MOFCOM and five other departments, and MOFCOM Circular 
No. 192 (2006). 
51 Other laws and regulations related to FDI includ e:  Interim Provisions on Mergers and Acquisitions 
of Domestic Enterprises by Foreign Investors;  Provisions on Foreign Invested Investment Companies;  Interim Provisions on Foreign Invested Joint Stock Limited Companies;  Company Law;  Contract Law;  Insurance 
Law;  Arbitration Law;  Labour Law;  Provisional Regul ations on Value-Added Tax;  Provisional Regulations 
on Consumption Tax;  Provisional Regulations on Business Tax;  and Law on Protection of Investment by Compatriots from Taiwan (Invest in China online inform ation.  Viewed at:  http ://www.fdi.gov.c n/pub/FDI_EN/ 
Laws/GeneralLawsandRegulations/BasicLaws/t20060620_50886.jsp [11 February 2008]). 
52 Provisions on Guiding Foreign Investment Directio n.  Viewed at:  http://english.gov.cn/laws/ 2005-
07/25/content_16873.htm [11 February 2008].   WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 40 
 
 
current Catalogue of Advantaged Industries for Fore ign Investment in Central-Western China entered 
into force on 1 September 2004.  
75. In general, it appears that projects in the en couraged category are those that use improved 
technology and are less polluting53, while "restricted", and "prohib ited" projects are those that use 
outdated technologies, over-exploit scarce natural resources, and tend to harm the environment.  
Foreign equity limits tend to vary by industry  and are not necessarily related to the category. 
76. Foreign investors in the encouraged category are permitted to import capital equipment duty 
free.  In addition, they may enlarge their scope of business, with approval, if they are engaged in the 
construction and operation of infrastructure facilities re lated to energy, transportation, and utilities in 
urban areas, which need a large amount of investment and involve a long payoff period.  Foreign 
investment in the restricted category may be rega rded as permitted, if export sales are over 70% of 
total sales of the product.   
(iii) Examination and approval procedure 
77. FDI in "important or restricted" projects requires verification by the authorities, as stipulated 
by the Decision on Reforming the Investment Syst em and the Catalogue of Investment Projects 
Requiring Government Verification (issued by the NDRC), which includes non-government-funded, 
important or restricted fixed asset investment  projects, in several industries or sectors.54  All other 
investment projects, irrespective of the amount of in vestment, are required only to register with the 
relevant authorities, such as the local development and reform commissions (DRCs).     
78. The Interim Measures for the Administration of Examining and Verifying Foreign Investment 
Projects based on the Decision and on the Admini strative Permission Law is the main regulation 
stipulating examination and approva l procedures for FDI in China;  the Interim Measures entered into 
force on 9 October 2004.55   To establish an FIE applications must be submitted for examination and 
verification to the NDRC, or to other government ag encies such as the local DRCs.  Projects valued at 
more than US$100 million for permitted and enco uraged industries (US$50 million for restricted 
industries) must be verified by the NDRC at th e national level;  applica tions for permitted and 
encouraged industries valued at over US$500  milli on (US$100 million for restricted industries), after 
being examined by the NDRC, are submitted for verification to the State Council.  The NDRC must 
                                                      
53 Encouraged industries include:  projects to deve lop new agriculture technologies and agriculture, or 
to develop energy, transportation or important raw material industries;  those for high and new technologies, or 
advanced application of technologies to improve produ ct quality, increase technology efficiency, or produce 
new equipment or new materials that cannot be produced domestically;  those helping to meet domestic and export market demand;  those adopting new technology or equipment for saving energy and raw materials;  and 
those making full use of human and natural resources in central and western parts of China.  Restricted 
industries include:  those that use outdated technology, or do not favour resource-conservation and the environment;  those using resources protected by law or regulations;  and "industries that shall be opened 
gradually".  Prohibited industries include:  those that endanger the safety of the State or damage social and 
public interests;  those that pollute the environment, destroy natural resources or impair human health;  those 
that occupy large amounts of arable land, or are unfavourable to protection and development of land resources;  
those that endanger the safety of military facilities a nd their performance;  and those that use Chinese 
craftsmanship or technology to make products. 
54 These include:  agriculture and forestry;  energy;  transportation;  information technology;  raw 
materials;  manufacturing;  light industry and tobacco;  high and new technology;  urban infrastructure;  social projects (including tourism), and financial services. 
55 These measures apply to Chinese-foreign contract ual joint ventures, Chinese-foreign equity joint 
ventures, wholly foreign-owned enterprises, mergers betw een enterprises, acquisitions of domestic enterprises 
by foreign investors, and increases in capital of foreign-owned enterprises. China WT/TPR/S/199/Rev.1 
 Page 41 
 
 
complete its examination and verifi cation within 20 working days afte r accepting the application;  this 
may be extended by ten working days, if it is difficult to reach a decision (the project applicant is informed of the delay).  In addition, all FIEs (e xcluding in the financial sector) seeking to establish in 
China must submit an application simultaneously  to MOFCOM, which grants an FIE Approval 
Certificate to approved projects;  the FIE is th en permitted to complete all the other procedures 
necessary, such as registration of th e enterprise, to commence operations. 
79. Local DRCs can verify FDI projects with  a total value below US$100 million in the 
encouraged or permitted categories, as well as project s in the restricted category with investment 
below US$50 million.  Under the Interim Measures, th e power to verify restricted industries cannot be 
delegated to a department at a lower level than a pr ovincial DRC.  For an investment project of more 
than US$30 million involving FDI, local government s must submit a copy of the examination and 
verification document to the NDRC within 20 working days. 
80. The authorities state that there are no restrictions on lending by domestic banks to foreign-
invested enterprises. 
(iv) FDI incentives 
(a) Tax incentives 
81. Taxes applicable to FIEs and foreign individual s include:  enterprise income tax, individual 
income tax, turnover taxes (including value-a dded, consumption and bus iness tax), tariffs, land 
appreciation tax, resource tax, urban real estate ta x, stamp tax, deed tax,  farmland occupation tax, 
vehicle and vessel tax, vehicle purchase tax, and vess el tonnage tax (Chapter III(4)(i)).  Differences in 
the tax treatment between domestic enterprises and FIEs may include:  FIEs do not need to pay city 
maintenance and construction tax
56;  instead, they pay urban real estate tax, while domestic enterprises 
pay house property tax.  Until the end of 2007, the sta ndard enterprise income tax rate was 33%, while 
a rate of 15% applied to FIEs located in th e special economic zones (SEZs), or involved in 
manufacturing in the economic and te chnological development zones (ETD Zs);  a rate of 24% applied 
to FIEs involved in manufacturing and located in the costal economic open zones, or the old urban 
districts of cities where the SEZs or ETDZs were loca ted.  Subsidiaries of FIEs in different locations 
could be taxed differently.   
82. The entry into force of the Enterprise In come Tax Law on 1 January 2008 altered the 
structure of tax incentives accorded to FIEs.  A unifo rm enterprise income tax rate of 25% is now 
applied to all enterprises, including FIEs, excep t for enterprises subject to "grandfathering".57   
83. Specific terms and conditions on tax incentives to remain after the entry into force of the 
Enterprise Income Tax Law are specified in the Im plementation Rules to the Enterprise Income Tax 
Law.  Tax incentives are accord ed to enterprises engaging in high-tech and new technology 
activities58, and those located in the western areas or autonomous regions.59  Certain small enterprises 
                                                      
56 FIEs had not been subject to the farmland occupation tax until end 2007. 
57 FIEs established on and after 16 March 2007 (the date of promulgation of the Enterprise Income Tax 
Law) are subject to an income tax rate of 25% from the first year of establishment.  There will be a five-year 
period (2008-2012) of "grandfathering" to the implementation of the Enterprise Income Tax Law 
(Chapter III(4)(i)).   
58 They will continue to be subject to a preferential tax rate of 15%.   
59 Before the entry into force of the Enterprise Income Tax Law, FIEs op erating in encouraged 
industries in Central-Western Chin a were accorded a two-year tax holid ay during the first two years after 
making profits and a 50% income tax reduction during the following six years.   WT/TPR/S/199/Rev.1 Trade Policy Review 
Page 42 
 
 
are subject to a preferential rate of 20%.  Domestic and foreign-invested firms are treated equally 
under the Law. 
(b) Promotion and facilitation 
84. MOFCOM promotes foreign investment in Ch ina through its Investment Promotion Agency, 
and the International Investment Promotion Cent re of China.  Many provinces provide one-stop 
services to foreign investors, and each province h as set up an investment promotion centre.  China 
also promotes investment through, inter alia , the International Fair for Investment and Trade, Hi-Tech 
Fair, and Export Commodities Fair.   
(v) Bilateral investment and tax agreements 
85. China had signed 112 bilateral investment protection agreements by end-of-May 200760;  and 
93 agreements or arrangements on avoidance of do uble taxation by end-July 2007.  The agreements 
on avoidance of double taxation incorporate "tax sparing" provisions, which stipulate that in respect of certain "taxable income", tax is to be levied only by one party to the agreement;  they have no MFN 
provisions.  In addition, China's CEPAs with th e SARs of Hong Kong and Macao provide certain 
privileges to investors from these SARs (section (iii) above).
61 
                                                      
60 The bilateral investment protection agreements provide protection against expropriation without 
adequate compensation and include provisions on dispute settlement.  
61 Other international agreements signed by China include:  the United Nations Convention on 
Contracts for the International Sale of Goods (Vienna Convention), in 1991;  and the Hague Convention on the Service of Documents Abroad, in 1991.