WT/TPR/S/230/Rev.1 Trade Policy Review 
Page 24 
 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
(1) INTRODUCTION  
1. Despite the sharp decline in external demand due  to the global crisis, China has continued its 
long-term strategy of opening its economy.  Th e trend in tariffs remains downward and the 
Government has been continuing with its Customs transit reform and introduced a direct release 
system into its entry-exit inspection procedures to f acilitate trade.  In addition, China has undertaken 
major reforms of its tax system, and implemen ted a comprehensive competition law to foster 
competition.  Nonetheless, the Government still uses various means (including tariff and non-tariff 
barriers, export restraints, and state-ownership) to, inter alia,  provide "guidance" on the allocation of 
resources. 
2. The tariff remains one of China's main border measures with an average applied MFN tariff 
rate of 9.5% in 2009 (down from 9.7% in 2007).  Applied rates are close to bound rates and bound 
rates are low, thereby imparting the tariff with a high degree of predictability.  Nonetheless, China's 
tariff could be complex, as its applied MFN tariff, for example, contains 60 different ad valorem  rates.  
Tariff exemptions are provided for, inter alia , goods imported in bond under processing trade (which 
accounted for about 40% of China's international trade) , if they are exported within a certain period.   
3. Apart from import prohibitions (to protect public interest, environment, or in accordance with 
international commitments), China has continued to use non-tariff border measures (such as import 
and export licensing) as instruments of its trade and i ndustrial policies.  State trading is still used to 
manage trade in certain imports and exports of, inter alia , some agricultural products and crude and 
processed oil. 
4. The administrative and legislative framework on standards, voluntary or mandatory, remains 
the same.  The General Administration of Qualit y Supervision, Inspection and Quarantine (AQSIQ) 
has reformed its entry-exit inspection procedures a nd introduced a direct release system to facilitate 
trade.   
5. On government procurement, China applied to join the WTO GPA in December 2007, and is 
to make a revised offer in 2010.  China's Govern ment Procurement Law requires the Government to 
procure domestically produced goods and services.  In 2009, in view of the stimulus package 
provided, the Government reiterated the importance of abiding by the Law to attain the State goals for 
economic and social development.  
6. China's export regime is still characterized by various rest rictions, notably prohibitions, 
licensing, quotas, taxes, and less than full rebat es of VAT on exports.  Export taxes and VAT rebates 
on exports are adjusted from time to time, accord ing to the authorities, to reflect the changing 
international environment, or to save energy, protect  the environment, and conserve natural resources.  
Nonetheless, the effectiveness of some of these expor t restraints in achieving their objectives can be 
questioned; indeed, the Government is consider ing alternative measures, such as levying an 
environmental tax, for example, on some natural resource products. 
7. China's tax revenue has been increasing fast , and the Government has been carrying out 
various tax reforms, notably unifying taxes on FIEs  and domestic enterprises, and transforming the 
VAT from a production-based to a consumption-based tax, with a view to simplifying China's tax 
structure and rendering it more neutral as far as investment is concerned.   
8. The Government continues to use industrial po licies to "guide" the development of certain 
sectors, such as the ten (largely manufacturing) sector s identified in early 2009 to counter the effect of China WT/TPR/S/230/Rev.1 
 Page 25 
 
 
the global crisis.  The reform of the public sector , including SOEs, continues, and SOEs still play a 
key role in the economy.  SOEs have been be nefiting disproportionately from the Government's 
economic stimulus measures to boost the economy, a lthough the authorities maintain that this is not 
the intention of the Government.  SOEs also have much better access to capital than private 
enterprises.  Corporate governance, including in  SOEs, has improved by the listing of these 
enterprises on stock exchanges, both in China an d abroad.  In addition, the conversion of non-
tradeable shares of listed SOEs to tradeable shares contributed to the development of China’s capital 
market. 
9. With the entry into force of its Anti-Monopoly Law on 1 August 2008, China has taken a 
major step to promote competition.  As the Law is enforced by different ministries, various 
implementing regulations on different aspects of competition have been issued and implemented by 
them.  However, certain aspects of the Law (e.g. "national security review") still need to be clarified.  
10. China has identified the promotion of innovation as a national development strategy.  In 
June 2008, the State Council issued the Outline of the National Intellectual Property Strategy (the 
Outline), with a view to enhancing IPR protectio n and promoting the creation and utilization of 
intellectual property, and thus encouraging innovatio n activities.  China has continued to improve its 
legislative framework and intensify the enforcemen t of IPR protection;  for example, the revised 
Patent Law raised fines and legal compensation fo r cases of misleading assertion of patent rights.  
Based on the number of international patent ap plications filed with WIPO under the Patent 
Cooperation Treaty (PCT) system, China ranked fift h in the world in 2009 as regards technological 
innovation.  The increase in innovation will undoub tedly contribute to increased awareness of the 
need to protect IPRs. 
(2) MEASURES DIRECTLY AFFECTING IMPORTS  
(i) Customs procedures, valuation, and rules of origin 
(a) Customs procedures and preshipment inspection 
11. China has continued to reform its Customs tr ansit system to simplify Customs declaration 
procedures.  Before the reform began in 2005, importers in inla nd areas of China had to first go 
through Customs transit procedures at the entry port, before declaring the goods at the Customs in the 
destination port.  Following the reform, importers de clare only at the place where they are registered.  
The reform has been expanded nationwide in mainland China. 
12. Apart from the continuing Customs transit refo rm, there has been no major change in the 
Customs procedures or preshipment requirements si nce China's previous Review.  Importers (and 
exporters) must register with MOFCOM or its auth orized bodies before filing Customs declarations.  
Import (and export) declarations must be made in paper and electronic form, and can be made either 
in person or by an authorized enterprise.  Declara tions must be made to Customs at the port of entry 
within 14 days of the goods’ arrival.  China's pr eshipment inspection (PSI) requirements, introduced 
in December 2005, remain unchanged.  PSI is require d for imports of:  certain commodities related to 
national security, with high value or complicated technology;  equipment exceeding certain height, 
length or volume;  solid waste used as raw material s;  and certain used electronic products that are 
deemed to affect public health and environment.1  China has designated some foreign institutions to 
conduct PSI and to issue certificates.  It is not clear to the Secretariat whether China sends people or institutions abroad to conduct PSI inspections. 
                                                     
 
1 China introduced PSI requirements with a view to, inter alia,  protecting public health, improving the 
phytosanitary situation, protecting the environment,  and preventing counterfeit goods from entering China. WT/TPR/S/230/Rev.1 Trade Policy Review 
Page 26 
 
 
(b) Customs valuation  
13. Customs value is determined on the basis of transaction value, which includes the costs of 
transport and insurance and other related charges.2  Under the Rules Regarding Determination on 
Customs Value of Imported and Exported Goods, wher e it is impossible to determine the transaction 
value, the customs value is based on (in sequential order):  the transaction value of identical goods;  
the transaction value of similar goods;  the deductiv e value;  the computed value; and the value 
determined on a "reasonable" basis. 
(c) Rules of origin 
14. During the review period, there has been no change in China’s non-preferential rules of 
origin.  For goods produced or manufactured wholly w ithin one country or region, origin is defined as 
that country or region;  for goods produced in two or more countries or regions, the place of origin is 
the country or region where substantial transforma tion has been made and finalized.  Substantial 
transformation is defined either as a change in the tariff heading of the good according to China's 
tariff classification, or where the value added is no less than 30% of the total value of the product.3  
15. Preferential rules of origin are applied in acco rdance with the various regional and bilateral 
trade agreements China has concluded (Table AIII.1),  and to certain imports from LDCs.  Since its 
previous Review, China has signed free-trade agr eements with Singapore ( on 23 October 2008) and 
Peru (on 28 April 2009), although the China-Peru FTA  has not yet entered into force.  China also 
made early announcement to the WTO of RTAs with Australia and Norway, which are being negotiated.  Preferential rules of origin tend to vary from agreement to agreement, and sometimes 
across product groups, which could add to th e complexity of China's import regime. 
(ii) Tariffs 
(a) Overview 
16. The tariff is one of China’s main border measures pertaining to imports.  In 2009, tariff 
revenue accounted for 2.5% of total ta x revenue, down from 3.3% in 2008.  
17. China’s import tariff rates comprise MFN ta riff rates, non-MFN tariff rates ("agreement" 
tariff rates, "special preferential" tariff rates, "gener al" tariff rates), and tariff-quota rates.  For all these 
rates (apart from the "general" tariff rates), th e Customs Tariff Commission of the State Council may 
set "interim" tariff rates
4, which are implemented on specific pr oducts for a certain period of time.5  
China provides at least MFN treatment for all WTO Members except El Salvador and the territories of 
                                                      
2 Rules Regarding Determination on Customs Value of Imported and Exported Goods.  See WTO 
document G/VAL/N/1/CHN/5, 11 April 2008. 
3 Regulations on the Specification of Substantial Ch ange in the Non-Preferen tial Rules of Origin.  
Viewed at:  http://www.chinacourt.org/flwk/show1.php ?file_id=98464 (in Chinese) [19 Dec 2008].  WTO 
document G/RO/53 (1 August 2002). 
4 China’s tariff is set by the Customs Tariff Commissi on of the State Council, an inter-ministerial body 
composed of, inter alia , the Ministry of Finance, Customs, MOFCOM, NDRC, and the State Council General 
Office. The Tariff Commission may set interim rates whenever it considers such rates necessary. 
5 Where there are interim tariff rates on imported goods to which the applied MFN tariff rates are 
applicable, and rates are no higher than applied MFN tariff  rates, the interim tariff rates apply;  where there are 
interim tariff rates on imported goods to which agreement tariff rates or special preferential tariff rates are 
applicable, the lower tariff rates apply;  where there are interim tari ff rates on imported goods to which tariff-
quota rates are applicable, the interim tariff rates apply.  China WT/TPR/S/230/Rev.1 
 Page 27 
 
 
Ceuta, Gibraltar, and Melilla.6  Data provided by the authorities indicate that in 2007 and 2008, 
virtually all of China's imports were su bject to MFN or more favourable rates.7  
(b) MFN tariff rates 
Bound MFN tariff rates 
18. China bound all its tariff lines at ad valorem  rates.  The applied MFN tariff rates are close to 
the bound rates and bound rates are low, thereby impa rting a high degree of predictability to China’s 
MFN tariff (Table III.1 and Chart III.1).  Bound rat es vary from zero to 65% for agricultural products, 
and from zero to 50% for non-agricultural products. 
Table III.1 
China's tariff structure, 2005, 2007, and 2009 
(Per cent) 
  MFN applied 
    2005 2007 2009 Final  
bounda 
1. Bound tariff lines (% of all tariff lines) 100.0 100.0 100.0 100.0 
2. Simple average rateb 9.7 9.7 9.5 9.9 
    Agricultural products (HS 01-24) 14.6 14.5 14.5 14.6 
    Industrial products (HS 25-97) 8.9 8.8 (8.9)c 8.6 9.1 
    WTO agricultural products 15.3 15.3 (15.2)c 15.2 15.3 
    WTO non-agricultural products 8.8 8.8 8.6 9.0 
        Textiles a nd clothing 11.5 11.5 11.5 11.5 
    ISIC 1 - Agriculture, hunting and fishing 11.2 11.2 11.1 11.3 
    ISIC 2 - Mining 2.3 2.1 1.9 2.8 
    ISIC 3 - Manufacturing 9.8 9.7 (9.8)c 9.5 9.9 
         Manufacturing excluding food processing 9.0 9.0 8.8 9.2 
    First stage of processing 9.6 9.6 9.5 9.9 
    Semi-processed products 7.3 7.2 7.1 7.3 
    Fully processed products 11.1 11.1 10.8 (10.9)c 11.3 
3. Domestic tariff "peaks" (% of all tariff lines)d 2.6 2.3 (2.4)c 2.0 (2.1)c 2.4 
4. International tariff "peaks" (% of all tariff lines)e 15.6 15.4 (15.6)c 14.6 (14.9)c 15.9 
5. Overall standard deviation of tariff rates 7.6 7.5 7.4 (7.5)c 7.6 
6. Coefficient of variation of  tariff rates 0.8 0.8 0.8 0.8 
7. Tariff quotas (% of all tariff lines) 0.7 0.6 0.6 0.6 
8. Duty-free tariff lines (% of all tariff lines) 8.6 8.7 9.4 7.6 
Table III.1 (cont'd) 
                                                      
6 El Salvador notified that it does not apply the mu ltilateral trade agreements between El Salvador and 
the People’s Republic of China, in accordance with  the Article XIII of the Marrakesh Agreement (WTO 
document WT/L/429, 7 November 2001). 
7 Exceptions are "general" rates (section (c) below).   WT/TPR/S/230/Rev.1 Trade Policy Review 
Page 28 
 
 
  MFN applied 
    2005 2007 2009 Final  
bounda 
9. Non- ad valorem  tariffs (% of all tariff lines) 0.7 0.7 0.7 0.0 
10 Nuisance applied rates (% of all tariff lines)f 2.6 2.7 2.7 2.6 
a Based on 2009 tariff schedule.  Implementa tion of final bound rates to be reached in  2010.  In 2009, all but five tariff line s 
reached the U.R. implementation.  The five  lines are:  0810.1000 (current bound rate  15.5%, final bound rate 14%), 0812.9000 
(current bound rate 25.9%, final bound rate 25%), 2206.0010 (42.3%, 40%), 2206.0090 (42.3%, 40%), and 5512.1100 (16.9%, 
15%). 
b The simple averages not including interim rates are, re spectively, 9.9%, 9.8% and 9.8% for 2005, 2007 and 2009. 
c Data in brackets include AVEs for specific rate s provided by the author ities, as available. 
d Domestic tariff peaks are defined as those exceeding three times the overall simple average applied rate. 
e International tariff peaks are defined as those exceeding 15%. 
f Nuisance rates are those greater than zero, but less than or equal to 2%. 
Note: The 2005 tariff is based on HS 02 nome nclature, consisting of 7,550 tariff lines ;  the 2007 and 2009 tariffs are based on  HS 07 
nomenclature consisting, respectively, of  7,645 and 7,867 tariff lines.  Calculations  exclude in-quota rates and specific rates .  The 
ad valorem  part of alternate rates is taken into account for the calcu lations.  Calculations of applied MFN tariffs are based on 
applied rates including interim rates.  For 2007 and 2009, inte rim duty rates are only included when fully applied at the 8-dig it 
level.  For 2005, interim duty rates are also include d when partly applied to an 8-digit tariff line. 
Source:  WTO Secretariat calculations, based on data provided by the Chinese authorities. 
 
02468101214161820
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Calculations exclude specific and in-quota tariff rates and include the ad valorem  part of alternate rates.   Applied averages are 
calculated including interim duty rates.
WTO Secretariat calculations, based on data provided by the Chinese authorities.Per centChart III.1                       
Average applied MFN and final bound tariff ra tes, by HS section, 2007, 2009, and 2010
Note:
Source :01   Live animals & products   
02   Vegetable products
03   Fats & oils      04   Prepared food, etc.
05   Mineral products
06   Chemicals & products07   Plastic & rubber
08   Hides & skins
09   Wood & articles10   Pulp, paper, etc.
11   Textiles & articles
12   Footwear, headgear13   Articles of stones
14   Precious stones, etc.
15   Base metals & products16   Machinery
17   Transport equipment
18   Precision instrument19   Arms & ammunition
20   Miscellaneous manufacturing
21   Works of art, etc.Average applied rate
 2007 (9.7%) and
 2009 (9.5%)Average final bound rate
(9.9%)
MFN 2007
MFN 2009 
Final bound 2010
 
 China WT/TPR/S/230/Rev.1 
 Page 29 
 
 
Applied MFN tariff rates 
19. China's applied MFN tariff rates consist of "s tandard" applied MFN tariff rates as well as 
"interim" MFN tariff rates;  for the relevant produc ts, the interim tariff effectively replaces the applied 
MFN tariff, and the interim rates are no higher than the standard applied MFN tariff rates.   
20. In 2009, China’s applied MFN tariff (including in terim rates) consisted of 7,867 lines at the 
HS 8-digit level (HS 2007), compared with 7,645 lines in 2007.8  Some 7,815 lines (99.3%) involve 
ad valorem  rates.  The applied MFN tariff contained 60 different ad valorem  rates, ranging from zero 
to 65% (Chart III.2).  Non- ad valorem  rates applied to 52 tariff lines;  44 at specific rates;  5 at rates 
involving either an ad valorem  rate, if the price was below or equal to a certain amount, or a 
compound rate, if the price was higher; and 3 alternate rates ( ad valorem  rate or specific rate, 
whichever was lower).9  The authorities provided ad valorem  equivalents (AVEs) for all but two non-
ad valorem  tariff lines.10  The authorities maintain that as China bound all its tariff lines at ad valorem  
rates, these AVEs were at or lower than their bound rates.11  Further, including AVEs does not change 
the simple average applied MFN duty rate (Table III.1).  
21. The authorities stated that China has not in creased any of its applied MFN rates in 2009, 
although apparently China increased the interim tariffs on fuel oil (to 3%) and jet fuel (to 6%) in 2010 
to save energy.12  In 2009, China unilaterally lowered standard applied MFN rates on 5 lines at the 
HS 8-digit level, and implemented lower interim MF N rates on 673 tariff lines.  As a result, the 
simple average applied MFN duty rate fell from 9.7% in 2007 to 9.5% in 2009.13  The simple average 
applied MFN duty rates for agricultural products (WTO definition) and non -agricultural products 
were 15.2% and 8.6%, respectively.    
22. The dispersion in applied MFN rates, indicated by  the coefficient of variation, has remained 
unchanged since 2005, at 0.8%.14  The standard deviation of tariff rates was 7.4%, slightly lower than 
the 7.5% in 2007.  Also, China’s applied MFN tari ffs are subject to positive escalation between semi-
processed and fully processed products, and in some  cases negative escalation between unprocessed 
and semi-processed products (Chart III.3). 
 
                                                      
8 As at 1 January 2009, 439  tariff lines were fully subject to interim tariffs.  Including "ex-" lines, 
interim tariffs applied to another 234 tariff lines.  However, the analysis here includes only the 439 lines that 
were fully subject to interim rates, which also include lines with non- ad valorem rates. 
9 The 3 lines (HS 4001.1000, 4001.2100, and 4001.22 00) are subject to interim tariff rates, which are 
lower or equal to standard applied MFN rates. 
10 The 2 lines are HS 4001.2100, 4001.2200. 
11 Of the 52 lines, 47 have their AVEs exactly the same as their bound rates;  2 lines (HS 3702.5520, 
4001.1000) have their AVEs of interim rates lower than their bound rates, and 1 "ex-" line (HS 3702.4291) has its AVE of interim rate lower than its bound rate.  According to the authorities, for the 2 remaining lines 
(HS 4001.2100, 4001.2200) whose AVEs were not provided to the Secretariat, the AVEs are lower than their 
bound rates. 
12 China also eliminated lower interim duties on the imports of pork, soybean oil-cake, and neem oil.  
As these imports are now subject to "standard" applied MFN tariff (which are higher than the interim tariff 
rates), they are facing higher tariff rates.  ( Xinhua news , 18 Dec 2008.  Viewed at:  http://news.xinhuanet.com/ 
fortune/2008-12/18/content_10521558.htm (in Chinese) [23/03/09].) 
13 Excluding interim rates, the simple average applied MFN tariff rate was 9.8% in 2009, the same as 
in 2007. 
14 Trade distortions can be caused not only by a high level of tariff protection, but also high disparity of 
protection across different product categories. The greate r the tariff dispersion acr oss products, especially 
closely related products, the more opportunity there is for tariff evasion. WT/TPR/S/230/Rev.1 Trade Policy Review 
Page 30 
 
 
 (2.4%)  (3.8%)  (9.2%)  (15.4%)  (42.8%)  (17.1%)  (8.7%) 
 (8.6%) 
(3.9%)(15.1%)(42.8%)(17.5%)(9.4%)
(2.0%)
05001,0001,5002,0002,5003,0003,5004,000
Duty free >0-5 >5-10 >10-15 >15-20 >20-25 >25
Figures in parentheses indicate the share of total lines.   To tals do not add to 100% as no tariff rates are available for 
0.6% of the tariff lines (i.e. those that have specific tariff rates) for both year s.  Calculations ex clude in-quota rates 
and specific rates, and include interim duty rates.
WTO Secretariat calculations, based on data provided by the Chinese authorities.Number of tariff linesChart III.2
Distribution of MFN tariff rates, 2007 and 2009
Tariff rates (%)
Note:
Sourc e:MFN 2007
MFN 2009
 n.a.n.a.0.02.55.07.510.012.515.017.520.022.525.0
Food,
beverages and
tobaccoTextiles and
leather Wood and 
furniturePaper printing
and publishingChemicals Non-metallic
mineral
productsBasic metals Fabricated
metal products
and machineryOther
manufacturingPer centChart III.3
Tariff escalation by 2-digit ISIC industry, 2009
n.a.
Note:
Source :Not applicable.
Calculations exclude in-quota and specific rates, and include interim duty rates.WTO Secretariat calculations, based on data provided by the Chinese authorities.Average applied rate in 
manufacturingFirst stage of processing
Semi-processed
Fully processed
 
 China WT/TPR/S/230/Rev.1 
 Page 31 
 
 
(c) Non-MFN rates 
23. "Agreement" tariff rates are China's preferentia l tariff rates under vari ous bilateral/regional 
trade agreements or arrangements (Table III.2).  In addition, China offers special preferential tariffs 
(zero rated) unilaterally to imports of some goods from 41 least developed countries (LDCs) with 
which it has diplomatic relations.  In November  2009, China announced that, by 2015, it is to 
gradually eliminate tariffs on 95% of its tariff lines  (at the HS 8-digit level) on imports from these 
LDCs;  in 2010, tariffs were eliminated on some 60% of tariff lines. 
Table III.2 
Summary analysis of China' s preferential tariff, 2009 
(Per cent) 
  Total WTO agriculture WTO non- agriculture Textiles & clothing 
 Average 
(%) Share of 
duty-free
linesa (%) Average 
(%) Share of 
duty-free
linesa (%) Average 
(%) Share of 
duty-free 
linesa (%) Average 
(%) Share of
duty-free 
linesa (%) 
MFN rate 9.5 9.4 15.2 7.1 8.6 9.8 11.5 0.0 
Agreement rates         
APTAb 8.9 9.7 14.3 7.9 8.0 10.0 10.4 0.0 
ASEANc         
Brunei Darussalam 2.6 59.6 4.1 59.0 2.3 59.7 3.6 30.1 
Cambodia 8.6 15.8 10.2 39.1 8.3 12.1 11.5 0.0 
Indonesia 2.6 59.8 4.0 59.5 2.3 59.8 3.5 31.6 
Laos 8.8 14.4 11.9 29.4 8.3 12.0 11.4 0.0 
Malaysia 2.6 59.6 4.1 59.3 2.3 59.7 3.5 31.4 
Myanmar 2.5 60.5 4.1 59.1 2.3 60.7 3.3 35.9 
Philippines 2.7 57.3 4.9 42.1 2.3 59.8 3.5 31.4 
Singapore 2.6 59.8 4.1 58.8 2.3 60.0 3.6 30.2 
Thailand 2.6 59.6 4.2 57.6 2.3 60.0 3.5 31.7 
Viet Nam 2.6 59.6 4.2 55.6 2.3 60.2 3.5 31.8 
Hong Kong, China 7.2 29.3 13.1 19.9 6.3 30.8 5.3 49.5 
Macao, China 8.3 18.2 14. 1 12.9 7.3 19. 0 7.7 27.1 
Pakistan 6.9 19.2 12.7 13.0 6.0 20.1 5.5 40.6 
Chile 2.3 62.6 5.8 43.7 1.7 65.7 0.2 97.2 
New Zealand 5.7 24.7 9.7 14.8 5.0 26.3 6.5 18.0 
Singapore 8.3 18.3 13.8 12.9 7.4 19.1 11.0 3.0 
Least developed 
preferential 
rates         
Special preferential 
tariff agreement for:         
Bangladesh 9.3 10.5 15.1 7.1 8.3 11.1 10.6 4.6 
Cambodia 8.8 14.6 12.4 27.1 8.2 12.6 10.5 8.1 
Laos 8.8 14.1 13.1 20.7 8.1 13.0 9.7 12.9 
Myanmar 9.1 12.3 14.1 14.0 8.3 12.1 10.6 7.3 
31 African countries 8.9 15.3 14.7 11.0 7.9 16.0 9.9 13.2 
Six Asia/Pacific 
countriesd 9.0 13.3 14.8 9.6 8.0 14.0 9.9 11.2 
Table III.2 (cont'd) WT/TPR/S/230/Rev.1 Trade Policy Review 
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  Total WTO agriculture WTO non- agriculture Textiles & clothing 
 Average 
(%) Share of 
duty-free
linesa (%) Average 
(%) Share of 
duty-free
linesa (%) Average 
(%) Share of 
duty-free 
linesa (%) Average 
(%) Share of
duty-free 
linesa (%) 
M e m o r a n d u m  i t e m          
Bangladeshe 8.7 10.8 14.2 7.9 7.9 11.2 9.7 4.6 
Laosf 7.8 18.6 9.6 40.6 7.5 15.0 8.9 13.0 
Cambodiag 8.2 19.0 8.9 50.4 8.1 13.9 10.5 8.1 
Myanmarg 2.5 60.5 4.1 59.1 2.3 60.7 3.3 35.9 
Singaporeh 2.1 68.5 3.8 64.4 1.9 69.2 3.4 33.1 
a Duty-free lines as percen tage of total tariff lines. 
b Preferential rates under APTA are app licable to the Republic of Korea, Sri Lanka, Bangladesh, India, and Laos. 
c Including Early Harvest Ar rangement, as applicable. 
d Including Afghanistan, Yemen, Samoa, Vanuatu, the Maldives and Timor-Leste. 
e Including APTA preferentials, and special preferential tariff rates. 
f Including APTA preferentials, ASEAN preferentia ls, and special preferential tariff rates. 
g Including ASEAN preferentials, and special preferential tariff rates. 
h Including ASEAN preferentials, and Sino-Singaporean Free Trade Agreement. 
Note: Calculations of averages exclude in-quota a nd specific rates, and include interim duty rates. 
Source:  WTO Secretariat calculations, based on information provided by the Chinese authorities. 
24. "General" tariff rates are applied to imports w hose origin cannot be determined, or if they 
originate in the countries and regions that are not subject to MFN tariff rates, agreement rates, or 
special preferential rates (i.e. El Salvador and the territories of Ceuta, Gibraltar, and Melilla, as well 
as WTO non-members).15  The General rates are all higher than or equal to MFN rates.  The simple 
average of  the general rates was 57%, much higher than the applied MFN rate (9.5%) (the simple 
average of the general rates for agricultural produc ts (WTO definition) and non-agricultural products 
were 68.3% and 55.2%, respectively). 
(d) Tariff-rate quotas (TRQs) 
25. In 2009, TRQs continue to be applied to 8 cat egories of imported goods, involving 45 tariff 
lines at the HS 8-digit level.16  These TRQs are applied to imports from all countries.   
(e) Tariff exemptions and reductions 
26. Tariff exemptions apply to:  goods whose value pe r unit including the tariff is Y 50 or less;  
advertising materials and samples of no commerc ial value;  goods and materials provided free by 
                                                      
15 China applies general rates to:  El Salvador; Ceuta, Gibraltar, Melilla; and WTO non-members, 
namely Andorra, Aruba, Bahamas, Bermuda, Bhutan, Bonaire Islands, Canary Islands, Cayman Islands, 
Comorin, Curacao, French Guyana, Gambier Islands, Guadeloupe, Liberia, Marquesas Islands, Marshall Islands, 
Martinique, Montserrat Island, Nauru, Norfolk Island, New Caledonia, Palau, Palestine, Reunion, Sabah, Saint 
Martins Island, Sao Tome and Principe, the Republic of San Marino, Seychelles, Society Islands, Tuamotu 
Islands, Tubai Islands, Turks and Caicos Islands, Tuva lu, Vatican City, British Virg in Islands, and Western 
Sahara. 
16 These were wheat (6 lines), maize (5), rice (14), sugar (6), wool (6), wool tops (3), cotton (2), and 
chemical fertilizers (3).  A sliding duty is applied to  out-of-quota imports of cotton.  In 2009, this duty was 
applied so that, for cotton valued above a certain thres hold, a specific duty of Y 0.57/kg applied;  for cotton 
valued below the threshold, the rate was calculated based on an equation, but was no higher than 40%, taking 
into consideration the c.i.f. price of cotton (in Chinese yuan).  The threshold for 2009 was Y 11.397/kg.  The average applied in-quota rate was 4.8%, while the out-of-quota rate was around 50% in 2009. China WT/TPR/S/230/Rev.1 
 Page 33 
 
 
international organizations or fo reign governments;  goods damaged prior to Customs release;  and 
fuels, stores, beverages, and provisions for use en r oute, loaded on any means of transport in transit 
across the frontier.17  Tariff exemptions and reductions al so apply to goods imported by designated 
enterprises as specified in certain policies.  Fo r example, enterprises (both domestic and foreign-
invested enterprises (FIEs)) in "encouraged" indus tries listed in China’s Industrial Restructuring 
Catalogue and the Catalogue for Foreign Invest ment, such as those manufacturing equipment for 
treating air pollutant, may import equipment for their own use, exempt from import tariffs.   
27. Tariff exemptions also apply to goods impor ted in bond under processing trade into Customs 
controlled areas, if they are exported within a certain period.18  Processing trade accounted for 48.8% 
and 32.1% of total exports and imports, respectivel y, in 2009.  To reduce energy consumption and 
protect the environment, the Government may not grant preferential treatment under processing trade to certain goods.  Thus, such goods are "restri cted" or "prohibited" from being imported under 
processing trade.  In 2009, based on information fr om the authorities, 279 lines (HS 8-digit) were 
subject to import prohibitions (up from 269 in 2007) and another 139 lines were subject to import and 
export prohibitions under processing trade (section (3)(v)).   
28. Further, tariff reductions or exemptions apply to some border trade activities, which 
accounted for 1.2%  of total imports and exports in terms of  volume in 2008, up from 0.98% in 2007. 
Since 1 November 2008, residents within 20 kilome tres of the border may import products worth up 
to Y 8,000 (increased from Y 3,000) per person per day, duty free, through designated places or trade 
fairs.
19   
(iii) Indirect taxes affecting imports 
29. VAT and excise taxes are also collected at the border on imports.  The rates for imports and 
domestically produced goods are generally the sa me, although primary agricultural products sold by 
farmers directly to consumers are exempt from VAT on grounds of, inter alia , administrative 
simplicity, while imports of like products are subject  to VAT.  The current VAT rates are 17% or 13% 
for most goods (section (4)(i)(b)).   Some imports, such as those destined for export processing zones, 
may be subject to VAT reductions or exemptions.   
(iv) Import prohibitions and licensing 
30. China eliminated quantitative restri ctions on imports on 1 January 2005. 
(a) Import prohibitions 
31. China maintains import prohibitions on grounds of  public interest, environmental protection, 
or in accordance with international commitments. In general, prohibited products are listed in 
Catalogues of Commodities subject to Import Prohib itions, issued by MOFCOM and other relevant 
ministries, such as the General Customs Administra tion, AQSIQ or the Ministry of Environmental 
Protection.  Since China's accession to the WTO, six batches of these Catalogues have been released;  
the latest was issued in 2005 to take effect as of 1 January 2006.  Thus, there has been no change to 
products subject to import prohibitions since the pr evious Review. In 2009, imports of 52 tariff lines 
(at the HS 8-digit level) were totally prohibited,  and 528 lines were partially (ex-lines) prohibited, 
                                                      
17 Regulations on Import and Export Tariff. 
18 If the goods are not exported w ithin the specified period, import duties are collected by Customs. 
19 MOF online information.  Viewed at:  http://g ss.mof.gov.cn/guanshuisi/zhengwuxinxi/zhengcefabu/ 
200810/t20081031_86706.html [08/05/09], and MOFCOM online information.  Viewed at:  http://www.mof com.gov.cn/aarticle/b/g/200812/20081205973610.html [08/05/09]. WT/TPR/S/230/Rev.1 Trade Policy Review 
Page 34 
 
 
covering some products of animal origin, opium, mineral products, chemicals, raw hides, waste of 
skins and leather, used clothes, ash of precious metals, used articles of machinery and electronic 
equipment, and second-hand transport equipment. 
32. Imports may also be prohibited on grounds of an imal health, plant health, or human safety.  
For example, China prohibited imports of some me at products from countries with avian flu and/or 
other animal diseases.   
(b) Licensing 
33. Since the previous Review, there has been no change in China’s import licensing regime, 
which applies equally to goods from all WTO Memb ers and non-members.  Details of commodities 
subject to import licensing are published annua lly by MOFCOM, Customs, and the AQSIQ.   
Non-automatic import licences 
34. In 2009, 95 tariff lines (at the HS 8-digit level) were subject to non-automatic import 
licensing; the lines cover ozone-depleting substances, and specific old mechanical and electronic products.
20  Applicants must apply for an import perm it prior to applying for an import licence.  
Import permits are issued by the Ministry of Environmental Protection or MOFCOM, depending on 
the product.21  Once the permit is obtained, a licence is granted automatically by MOFCOM to the 
importer. The licence is valid throughout the cale ndar year, and can be extended once, for a maximum 
of three months.   
Automatic import licences 
35. Automatic import licences are applied to monitor certain imports for statistical purposes.  In 
2009, 560 lines at the HS 8-digit level (7.1% of total lines) were subject to automatic import licensing, 
down from 604 tariff lines (7.9% of total lines) in 2 007.  These concerned mainly poultry, vegetable 
oil, tobacco, chemical fertilizers, coal, natural rubber, iron ore, crude and processed oil, steel, 
machinery products, automobile components, and ships.  
(v) State trading 
36. Under the Foreign Trade Law (2004), the State may subject certain goods to state trading, 
including to ensure stable domestic supply, stabiliz e prices, safeguard food safety, and protect the 
environment and exhaustible resources.22  In 2009, products imported by state-trading enterprises 
(STEs) were:  grain (including wheat, maize, and rice) , sugar, cotton, chemical fertilizer, tobacco, and 
crude oil and processed oil (Table AIII.2).  Imports  of vegetable oil (rapeseed oil, palm oil, and 
soybean oil) have been temporarily removed from the state trading requirement since 2006, although 
the Government reserves the right to conduct state tr ading in respect of thes e products in accordance 
with China's Accession Protocol.   
37. Tobacco must be imported by one state-trading enterprise:  the China National Tobacco 
Import & Export Group Corporation.  All other produc ts subject to state trading may be imported by 
                                                      
20 Non-automatic licences are also required for imports of chemicals used for military purposes 
(64 tariff lines at the HS 10-digit level), toxic materials (42 lines), and radioactive isotopes and their compounds 
(8 lines).  (Catalogue of Goods and Technologies Subject to Import and Export Licence Administration.  Viewed at:  http://cys.mofcom.gov.cn/accesso ry/200901/1231052 560147.xls [0 7/05/09].) 
21 Import permits for ozone-depleting substances are issued by the Ministry of Environmental 
Protection.  For old mechanical and electronic products and other material s, permits are issued by MOFCOM. 
22 China notified the list of STEs to the WTO (WTO document G/STR/N/9/CHN/Add.1, 14 July 2003). China WT/TPR/S/230/Rev.1 
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both STEs and non-STEs meeti ng certain requirements.23  For some products, imports by non-STEs 
were much higher than by STEs (Table AIII.3).   
38. Most state trading products are also subject to tariff-rate quotas.  Data provided by the 
authorities show that the shares of tariff-rate quot as allocated to STEs remain high and relatively 
unchanged.  In 2008, STEs account ed for 90%, 70%, 60%, 50% and 33%  of total quotas allocated for 
wheat, sugar, maize, rice, and cotton, respectivel y, although the shares are declining for NPK (urea 
fertilizer) and diammonium phosphate (Table AIII.2). 
(vi) Contingency measures 
39. China has not made any changes in the institutional and procedural framework on 
contingency measures since its previous Review.  Between 1 January 2007 and 31 December 2008, 
China adopted 16 anti-dumping measures, making it the sixth most frequent user of anti-dumping measures during that period.   Measures involved mainly imports from Japan (4), Chinese Taipei (4), 
and Singapore (3), and most products were chemical  and products thereof (87.5%).  China remains 
the most frequent target of anti-dumping measures:  100 anti-dumping measures  were adopted against 
China during the same period (48 in 2007 and 52 in 2008), partly reflecting China's pre-eminent 
position as a big exporter.   
40. China initiated its first counter vailing investigation on 1 June 2009.  By the end of 2009, it 
had initiated three investigations, involving grain- oriented flat-rolled electrical steel, chicken meat, 
and saloon and cross-country cars, all originating in  the United States.  On 11 December 2009, China 
imposed provisional countervaili ng measures on grain-oriented flat-rolled electrical steel.   
41. China has not initiated any safeguard investig ations pursuant to the WTO Agreement on 
Safeguard since its previous Review.   
(vii) Standards and other technical requirements  
(a) Standards and technical regulations 
42. The General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) is 
the enquiry point for the SPS and TBT Agreements  under the WTO.  Other AQSIQ functions include 
quality management, metrology management, f ood safety, certification and accreditation, and 
standardization.  Through its 31 provincial Bureaus of Quality and Technical Supervision, it is in 
charge of quality management.   
43. China has four types of standards:  national,  professional, local, and enterprise standards.  
Within the national, professional, and local sta ndards categories, there are voluntary and mandatory 
standards.  In 2007 (the latest year for whic h data were available) , around 14.5% of national 
standards, 15% of professional standards
24, and 19% of local standards were mandatory.  Voluntary 
standards, however, can become mandatory if th ey are referenced in mandatory conformity 
                                                      
23 For wheat, maize, rice, sugar, cotto n, and chemical fertilizers, these requirements are specified in the 
annual announcement of the quota volume and allocation methods issued by MOFCOM;  for crude and processed oil, the requirements are set out in MOFTEC (now MOFCOM) Decree No. 27 of 2002 and MOFTEC 
Announcement No. 19 of 2002. 
24 Data for professional standards are for 2006, the latest year for which data were provided to the 
Secretariat. WT/TPR/S/230/Rev.1 Trade Policy Review 
Page 36 
 
 
assessment procedures.  Concerns  were raised in the TBT Comm ittee in cases where no advance 
notice was given regarding such changes.25 
44. As at the time of China's previous Review, th e major legislation on standards (both voluntary 
and mandatory) is the Standardization Law of 1988 and its Implementing Regulations.  The 
Standardization Administration of China (SAC), u nder the AQSIQ, administers standardization in 
China.26  It submitted 184 notifications to the WTO on technical regulations in 2008 and 199 in 2009 
(Table AII.2).   
45. National standards are developed for technical requirements that need to be adopted 
nationally.27  National standards take precedence over professional and local standards. Once 
equivalent national standards are developed, they replace the professional and local standards 
automatically.  In addition, there are national advi sory technical documents, which are developed in 
areas where technology is changing fast and standard s need to be developed rapidly.  The process of 
drawing up these documents is the same as that for developing standards, bu t the review period is 
three years for national advisory technical documents , while it is five years for standards.  National 
advisory technical documents are thus more  likely to reflect fast-changing technology. 
46. The process of developing standards has not cha nged greatly since the previous Review.  In 
January 2009 the SAC announced that foreign- owned companies established in China would be 
allowed to participate as voting members in techni cal committees responsible for the promulgation of 
national standards;  the authorities emphasized fore ign companies registered in China could always 
participate in standardization activities, although before 2009 they could participate as observers 
only.28  Once a standard is published, relevant tec hnical committees are responsible for initiating a 
periodic review of the standard.  The maximum period between the date of publication of the standard 
and the review is five years.  In 2007, 46.5% of national standards were equi valent to international 
standards;  however, no recent data were provided to the Secretariat.  China revised the Measures for the Adoption of International Standards again in 200 7 to reinforce the alignment with international 
standards.    
47. The SAC also represents China in internationa l and regional standardization organizations.
29  
China has signed some intergovernmental agreements on cooperation in the field of conformity assessment, and participates in the APEC MRA on Conformity Assessment of Electrical and Electronic Equipment (APEC EE MRA).   
(b) Sanitary and phytosanitary measures (SPS) 
48. The institutional framework for implementing Ch ina's SPS measures has re mained largely the 
same during the review period.  MOFCOM is in charge of submitting notifications on SPS measures 
                                                     
 
25 WTO document G/TBT/W/300, 5 November 2008. 
26 The SAC is in charge of unified management, supervision, and overall coordination of standards in 
China, by organizing, coordinating, and drafting programmes on the development and revision of national 
standards, and by examining, approving, and publishing national standards. 
27 When there are no national standards available, but unified technical requirements are needed in a 
certain professional field at a national level, professional standards are developed.  Local standards may be developed where neither national nor professional standards are available, but unified requirements for safety 
and hygiene of industrial products are needed within a local area.  When national, professional or local standards 
are not available, an enterprise may develop its own en terprise standards, although it is encouraged to adopt 
national, professional, or local standards if they are available.   
28 WTO documents G/TBT/W/326, 29 Octobe r 2009, and G/TBT/M/49, 22 December 2009. 
29 These include the International Organization for Standardization (ISO), the International 
Electrotechnical Commission (IEC ), and the Pacific Area Sta ndards Congress (PASC).   China WT/TPR/S/230/Rev.1 
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to the WTO, and the AQSIQ is the Enquiry Point under paragraph 3 of Annex B of the SPS 
Agreement.  The State Food and Drug Administra tion supervises safety of food, health foods, 
cosmetics, and pharmaceuticals.  Specific supervisi on of food products and processed food products is 
provided by the Ministries of Agriculture and Health, and the State Administration of Industry and 
Commerce (SAIC). 
49. China's main SPS legislation includes:  the Law on Quality and Safety of Agricultural 
Products, the Law on the Entry and Exit of Animals and Plant Quarantine, the Food Hygiene Law, the Law on Animal Disease Prevention, the Law on Import and Export Commodity Inspection, the Law on Frontier Health and Quarantine, as well as accomp anying implementing regulations and rules.  A 
new Food Safety Law, which entered into force on 1 June 2009, involves, inter alia , the promulgation 
of "unified" national food safety standards.
30  China submitted seven notifications to the WTO on its 
SPS measures in 2008 and 90 in 2009 (Table AII.2).  However, concerns were raised in the SPS 
Committee about the lack of notification of the new Food Safety Law befo re its implementation.31  
50. In response to incidents related to melamine contamination of infant formula (of the Sanlu 
brand) in 2008, China notified the SPS Committee of a large number of measures that had the 
objective, inter alia , of strengthening product testing of dair y products for domestic consumption as 
well as for export.32  In 2009, China also revised its food safety regime for exports of poultry and 
related products.33 
51. Entry/exit inspection on SPS grounds is required fo r products listed in the Catalogue of Entry-
Exit Commodities Subject to Inspec tion and Quarantine, which is formulated by AQSIQ and revised 
whenever needed to reflect, inter alia , consumers’ concerns.  For example, in 2009, AQSIQ removed 
647 tariff lines (at the HS 8-digit leve l) from the Catalogue, and added 357.34  Thus, a total of 
4,815 tariff lines (at the HS 8-digit level) were listed in the Catalogue in 2009. AQSIQ, through its 
35 provincial level Inspection and Quarantine Bureaus (CIQs), is in charge of entry/exit inspection as 
well as quarantine.  Some products not listed in th e Catalogue may also require entry-exit inspection;  
spot checks may be carried out on grounds of safet y, sanitary, and environmental protection, or on 
products about which consumers cons tantly complain.  In addition, China issued its Catalogue of 
Pests for Entry Plant Quarantine in May 2007, and formulated the Administrative Rules on the 
Inspection and Quarantine of Imported and Exporte d Feedstuffs and Feed Additives in 2009, to 
strengthen inspections on imported a nd exported plants and feedstuffs. 
52. Since July 2008, AQSIQ has been reforming its entry-exit inspection procedures by 
introducing a direct release system, with a view to  facilitating trade.  Prior to the reform, importing 
(and exporting) enterprises were subject to inspect ions only at the ports.  After the reform, some 
enterprises, when importing certain goods, ma y undergo inspections at the destination.35  These 
imports must be from disease-free areas and transporte d in sealed containers.  Further, not all goods 
                                                      
30 WTO document G/SPS/N/CHN/121, 27 August 2009. 
31 WTO document G/SPS/R/56, paragraph 179, 28 January 2010. 
32 WTO document G/SPS/R/53, paragraph 5, 22 December 2009. 
33 WTO document G/SPS/N/985, 8 December 2009. 
34 The 647 tariff lines cover, inter alia , some primary textile products, mineral products, products of the 
chemical and related industries, stone articles, and mechanical appliances.  The 357 tariff lines cover, inter alia , 
tobacco substitutes, chemical products that can be used as food additives, daily use products, clothes for babies 
or children, and household appliances. 
35 These enterprises must have, inter alia , no administration punishment record in the past two years;  
annual import and export value above US$1.5 million;  and a management system such as HACCP or ISO9000 
(AQSIQ Announcement No. 82 2008.  Viewed at:  http://tgyws.aqsiq.gov.cn/xwdt/zdxw/200807/t2008072483 155.html (in Chinese) [20/01/2009]). WT/TPR/S/230/Rev.1 Trade Policy Review 
Page 38 
 
 
can be inspected at their destination;  products corresponding to 1,895 tariff lines (at the HS 10-digit 
level) listed by the AQSIQ, mainly live animals and live plants and feedstuffs, must be inspected at 
the ports.   
53. Some products (including commodities listed in th e Catalogue) are exempted from entry/exit 
inspection and quarantine requirements.  These produ cts must have their own brand names and have a 
leading position in the industry in their country/r egion of origin in terms of product ranking and 
quality;  a "good reputation" in the international market, with no quality defects or claims;  and a 
100% product inspection pass rate for the previous th ree consecutive years.  F ood, animals, and plants 
and their products, danger ous goods and their packag ing, products with a highly variable quality, and 
bulk goods (such as mineral ores) are not eligible for exemption. 
54. China participates in international organizations related to SPS;  it is a member of the World 
Organization for Animal Health (OIE), the Codex Alimentarius Commission, and the International 
Plant Protection Convention.  In 2007 and 2008, Ch ina signed 60 bilateral or regional agreements on 
standards and SPS measures with WTO Members, in cluding the EU, Japan, and the United States.    
(c) Certification and accreditation 
55. China’s compulsory product certification system is applied to products related to health and 
safety of human, life and health of animals a nd plants, environmental protection, and national 
security.36  In July 2009, AQSIQ released a revised  version of China's Compulsory Products 
Certification Management Re gulation (Circular 117/2009) to, inter alia , clarify some aspects of the 
certification process.  Nonetheless, concerns were raised in the TBT Committee that the compulsory 
product certification system could be burdens ome and thus an impediment to trade.37  The authorities 
pointed out that improvements have been ma de continuously, and China was committed to 
simplifying the procedure of the system and thus mitigate the burden on enterprises.38 
56. The Certification and Accreditation Administration of China (CNCA) under AQSIQ 
administers China's compulsory product certification system and the China Compulsory Certification (CCC) mark.  The Catalogue of Products Subject to Compulsory Certification, which is revised 
whenever necessary, lists products requiring th e CCC mark.  Without a CCC mark, these products 
cannot be marketed in or imported into China.  In 2009, the Catalogue contained 23 groups, and 
172 subcategories of products, covering, inter alia , electrical wires and tools, household electrical 
appliances, motor vehicles, safety parts and accessories, and toys.   
57. Certain products listed in the Catalogue ma y be exempted from CCC mark, if they are, 
inter alia , goods for personal use by diplomatic staff,  goods for commercial exhibition, or products 
for research and tests.
39  Exemption from CCC does not necessarily mean exemption from import 
inspection. 
58. Voluntary certifications may be applied for pr oducts not requiring a CCC mark.  For example, 
the China Quality Certification Centre (CQC) is  responsible for the CQC voluntary certification 
system (the CQC mark), covering more than 500 products.40  CQC is also a member of the CB 
                                                      
36 AQSIQ Decree No. 5, Regulations for Compulsory Product Certification.  Viewed at: 
http://www.ccc-us.com/rule.htm [16/01/09]. 
37 WTO document G/TBT/W/326, 29 October 2009. 
38 WTO document G/TBT/M49, 22 December 2009. 
39 CNCA Announcement No. 3 of 2005. 
40 CQC online information.  View ed at:  http://www.cqc.gov.cn/E nglish/product/index.asp?Product 
TypeID=34 (in English) [15/01/09]. China WT/TPR/S/230/Rev.1 
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Scheme of the IEC System for Conformity Testing and Certification of Electrical Equipment 
(IECEE), and can issue the CB Test Certifications recognized by 52 countries and regions within the 
CB Scheme.41   
59. China has been participating actively in regi onal and international MRAs on certification and 
accreditation.42  China has established the national accreditation system for certification and 
inspection bodies and laboratories, in accordan ce with the ISO17020, ISO17021, and ISO17025 
standards.     
(d) Labelling 
60. China's labelling requirements are maintained  under the Standardization Law, the Food 
Hygiene Law, the Law on Product Qua lity, and various regulations on, inter alia , food, drugs, and 
cosmetics.  Labels must be written in Chinese, except for products manufactured in China for export 
only. 
(viii) Government procurement 
61. There have been no substantial changes to China's regulatory regime or institutional 
framework for government procurement.  The Govern ment's objectives of improving efficiency in the 
use of public funds, protecting the rights and inte rests of the parties participating in government 
procurement, and promoting be tter governance have not changed.43   
62. China is an observer to the WTO Government Pr ocurement Agreement (GPA).  It applied for 
accession to the Agreement on 28 December 2007 and its  initial offer was circulated to parties in 
January 2008.44  Subsequently, it has submitted informati on on its domestic legislation, and held 
several rounds of consultations with parties.  It  has also provided further information on its GPA 
accession preparations, and the challenges it faces in  this regard.  Parties have expressed their 
willingness to work with China to facilitate its  accession process;  in 2009, China submitted a 
progress report that was well received by parties.45  A revised offer and further consultations with the 
parties are expected in the course of 2010.46 
63. The main laws regulating government procurem ent procedures in China are the Government 
Procurement Law of 2002 together with the Law on Bid Invitation and Bidding or Tendering of 1999.  
                                                      
41 Other voluntary certifications in clude certification of feeds, go od agricultural practices (GAP), 
hazard-free agricultural products, organic products, as well as certifications on management systems such as the 
hazard analysis and critical control points (HACCP) syst em, the ISO-9000 system, and the ISO-14000 system.   
42 These include the International Laboratory A ccreditation Cooperation (ILAC) MRA;  the Asia 
Pacific Laboratory Accreditation Cooperation (APLAC) MRA; the Pacific Accred itation Cooperation (PAC) 
multilateral MRA pertaining to quality management system;  the International Accreditation Forum (IAF) 
Multilateral Agreement;  and the International Auditor an d Training Certification Association (IATCA) MRA.  
China National Accreditation Committee for Laborato ries (CNACL) and the La boratory Accreditation 
Committee on Import and Export Commodity Inspection of China (CCIBLAC) are both members of ILAC and 
APLAC. 
43 Law on Government Procurement, Article 1. 
44 WTO documents GPA/ACC/CHN/1, 7 January 2008, and GPA/93, 14 January 2008. 
45 Subsequently, some parties have expressed concerns in the GPA Committee regarding (i) recently 
tabled draft Chinese procurement regu lations that do not, in their view, move China decisively toward GPA 
compliance;  and (ii) China's indigenous innovation initia tive, which allegedly contains a number of preferential 
features raising issues vis-à-vis  the GPA and other WTO Agreements.  
46 WTO document GPA/103, 12 November 2009, paragraphs 15-17. WT/TPR/S/230/Rev.1 Trade Policy Review 
Page 40 
 
 
Other laws such as the Budget Law, the Contract La w, the Product Quality Law, the Price Law, and 
the Anti-Unfair Competition Law may also have  a bearing on government procurement. 
64. The Government Procurement Law prescribes the principles and methods to be followed by 
government entities in procuring goods and services in China and sets out procedures for contract 
awards, transparency, complaints, and the s upervision of government procurement processes.   
65. Under the Law, the Government should pr ocure domestic goods, projects, and services.47  
However, there are no provisions on local content, or rules of origin, to determine whether a product 
is produced domestically.  Purchasing of fo reign products may be allowed under exceptional 
circumstances;  e.g. when the goods, projects, or services required are unavailable in China or 
unavailable on reasonable commercial terms, or when the goods, projects and services are procured 
for use outside China.  Nonetheless, in practice, procurement of foreign products appears to occur 
routinely, although there are no data on the annua l value or proportion of procurement of foreign 
products.  Hence, in 2009 in view of the stimulus  package provided, the Government reiterated the 
importance of abiding by the Law to attain the State goals for economic and social development.48 
66. China's government procurement system wa s established in the 1990s.  Between 1998 and 
2007, the total value of government procurement increased from Y 3.1 billion to Y 466.1 billion, an 
annual growth rate of 11%.49  In 2008, government procurement,  valued at Y 599.1 billion, accounted 
for 2% of GDP (in many countries, government procurement can account for 15-20% of GDP).  The 
authorities maintain that this small percentage is  mainly because China’s government procurement 
system is new, and the coverage is small.  It covers only procurement by government departments, 
institutions, and public organizati ons at all levels, using fiscal f unds, for goods, construction, and 
services listed in a Centralized Proc urement Catalogue issued by the Mi nistry of Finance or provincial 
bureau of finance, or where the valu e is above a prescribed threshold.50  Procurement by SOEs is not 
covered, even when they may be performing non-commercial or quasi-governmental functions. 
67. Goods and services may be procured using:  publ ic invitation or tendering, invited bidding, 
competitive negotiation, single-source procuremen t, request for quotations, and other methods 
confirmed by the supervising department under the State Council (i.e. the Ministry of Finance), 
depending on the circumstances.  Public invitatio n (a form of open tendering) is required for 
procurement of items exceeding the prescribed proc urement thresholds.  In 2009-10, the thresholds 
for central government procurement are Y 1.2 m illion for goods and services, and Y 2 million for 
construction projects.  Approval by the Ministry of Finance is required for procurement exceeding 
these thresholds by any other method.  The met hod of procurement for procurement below these 
thresholds is decided by the procuring entity, in accordance with the Law.  Invited bidding may be 
used if the goods or services have special characteris tics that limit the number of suppliers or if the 
cost of purchase through public tender is too high as a proportion of the total value of the 
procurement.  The procurement agency must identify at least three qualified suppliers and invite them 
                                                      
47 Law on Government Procurement, Article 10. 
48 NDRC (2009). 
49 CCGP online information.  Viewed at:  http://w ww.ccgp.gov.cn/cgtt/809459.shtml (in Chinese)  
[23/01/09].  Local government entities have been playing a major role in the total value of government procurement, accounting for 90.2%  in 2008. 
50 Article 8 of the Government Procurement Law specifies that the thresholds for government 
procurement items under the central budget are prescribed and published by the State Council, and the thresholds for items under local budget are prescribed and published by local governments (of provinces, 
autonomous regions, municipalities), or the department authorized by them.  For example, in 2010, the threshold 
for procurement under the central budget is Y 500,000 for goods and services, and Y 600,000 for construction projects (http://www.zycg.gov.cn/Policy/Policy/20 08-12-23/200812231524401854.htm (in Chinese)). China WT/TPR/S/230/Rev.1 
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to submit bids.  Competitive negotia tions 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 ur gently;  or it is not possible to calculate the total 
price in advance.  Request for quot ation is used when:  the specifi cations and standards of the goods 
are uniform;  there is an abundant stock of existin g goods;  and fluctuations in prices are small.  
Single-source procurement is used when there is only one supplier;  in case of an emergency;  and for 
purposes of maintaining uniformity or complementarity of services procured previously, provided that 
the total amount of the additional procurement doe s not exceed 10% of the value of the original 
contract.  The Law states that public invitati on or tendering should be the principal method of 
procuring.  According to the most recent information provided by the authorities, procurement by 
public tendering continued to be the most co mmon method in 2007, accounting for 70% of total 
procurement value (67.7% in 2006).  Procuremen t of construction and engineering projects is 
regulated by both the Government Procurement La w, and the Law on Bid Invitation and Bidding or 
Tendering. 
68. Procuring entities must announce government pr ocurement and bidding information in media 
designated by the Ministry of Finance in a timely an d standard manner to ensure transparency and fair 
competition.51  Suppliers, if unfairly excluded from procurement processes or treated in a 
discriminatory way, can complain to the procurin g agency, appeal to the Government Procurement 
Division of the Ministry of Finance, or subsequently file a complaint with a court. 
69. China has not signed any bilateral, regiona l, or multilateral agreement on government 
procurement.52  Partly reflecting its intention to join the WTO GPA, in 2007, China made legal 
provisions for the inclusion of imported products under certain circumstances into its government 
procurement system.53  Imports used for procurement purposes require an approval from the Ministry 
of Finance, or its corresponding departments at th e local level.  Local governments appear to account 
for a major part of government procurement in Ch ina, although no recent data were provided to the 
Secretariat (in 2006, they accounted for some 80% of the total value of government procurement).54  
The Y 4 trillion economic stimulus package announ ced in November 2008 will further increase the 
size of China's government procurement.  
70. China continues to face challeng es in implementing a consistent and transparent approach to 
procurement across all levels of government.  From  May to October 2008, the Ministries of Finance, 
Supervision, National Audit Office, and Nati onal Anti-Corruption Bureau conducted a joint 
investigation of government procurement in China.  Problems identified include:  circumventing the 
government procurement system; giving preferen ces to specific suppliers; and lack of budget 
constraints for government procurement programmes.   This is due mainly to the size of the 
Government and the number of local government entiti es, in addition to historical and institutional 
differences in approach across regions, which leads to inconsistent application of the Law.  To solve 
these problems, the Government has been, inter alia :  accelerating the formulation of the 
Implementation Regulations of the Government Pr ocurement Law, improving  coordination between 
the Government Procurement Law and the Law on  Bid Invitation and Bidding or Tendering, and 
                                                      
51 The official government procurement website is www.ccgp.gov.cn.   
52 CCGP online information.  Viewed at:  http://www .ccgp.gov.cn/web/cgf/zongze3.asp (in Chinese)  
[12 February 2008]. 
53 Measures on Administration of Government Procurement of Imports, issued by the Ministry of 
Finance and effective 27 December 200 7.  In July 2008, the Ministry of Finance, in consultation with the 
Customs, issued a notification to further regulate gov ernment procurement of imported products, to clarify 
Article 10 in the Government Procurement Law (CCGP online information.  Viewed at:  
http://www.ccgp.gov.cn/gzdt/724707.sht ml (in Chinese) [23/01/09]). 
54 WTO (2008). WT/TPR/S/230/Rev.1 Trade Policy Review 
Page 42 
 
 
promoting competition between government procuremen t agencies.  Also, although the Law tends to 
promote SMEs, it does not specify measures to prom ote the development of SMEs in the government 
procurement framework.   
(ix) Import-related financing 
71. The Export-Import Bank of China (EXIM Bank) offers import credit to importers in China to 
facilitate imports of key technologies and equipment,  or petroleum, natural gas, and other mineral 
products in large-volume and long-term containers .  In 2008, EXIM Bank facilitated imports of 
resource-based products and technical e quipment to a value of US$96.1 billion. 
(3) MEASURES DIRECTLY AFFECTING EXPORTS  
(i) Procedures 
72. China has continued its reform on Customs transit procedures for exports, to simplify 
procedures for enterprises located in inland ar eas.  Exporters now go through Customs transit 
procedures only at the place where they are register ed;  before the reform, exporters from inland areas 
had to go through Customs transit procedures at the inland Customs, before declaring goods at 
Customs at the departing port.   
73. Exports of animals and plants and their produc ts are subject to SPS requirements similar to 
those on imports and to the requirements of the importing country.  After the AQSIQ’s reform of its 
entry-exit inspection procedures and the introduction of the direct-release system in July 2008, 
enterprises exporting certain products may go through inspection at their production areas, rather than 
at ports.  AQSIQ has a positive list of these products, comprising 2,623  tariff lines at the HS 10-digit 
level.55  However, exports of these products still need to be inspected at the port if they are transported 
in bulk, are for foreign assistance, n eed to be repacked at ports, or are subject to bilateral or regional 
agreements requiring SPS inspection at the border.  Goods that do not meet the SPS requirements are 
not allowed to leave the country.  
74. China’s other customs procedures on exports (and imports) have not changed since its 
previous Review.  Exporters must register with Customs before making customs declarations, which 
must be made after the goods arrive at the custom s surveillance zone, and 24 hours before loading, 
unless otherwise approved by Customs. China does not require preshipment inspection (PSI) for 
exports;  its PSI agencies inspect exports for its trading partners that require PSI.  Licences are 
required for exports subject to restri ctions (section (vi) below).     
(ii) Export subsidies 
75. The authorities state that China does not prov ide any export subsidies.  China made 
commitments, when it joined the WTO, not to maintain or introduce any export subsidies to its 
agricultural products.56   
(iii) Export taxes 
76. China’s export taxes, in the form of statutor y rates and interim rates (applied for a specific 
period), are levied on an MFN basis.57  The customs value of export goods is based on the transaction 
                                                      
55 AQSIQ online information.  Viewed at:  http://tgyws.aqsiq.gov.cn/xwdt/zdxw/200807/P020080729 
584402885325.xls [17/11/09]. 
56 WTO document WT/L/432, 23 November 2001. China WT/TPR/S/230/Rev.1 
 Page 43 
 
 
value of the goods, together with its transportation, insurance, and other relevant costs for the goods to 
arrive at the departing point but before loading.  Interim export duty rates can be higher than statutory 
export tax rates;  where there are interim export duties on export goods to which the statutory export taxes are applicable, the interim rates apply.  Thus, in 2009, st atutory export taxes were applied to 
95 tariff lines (at the HS 8-digit level), of which,  66 lines were subject to lower and 3 to higher 
interim export taxes.
58  Interim export taxes also applied to 258 tariff lines that were not subject to 
statutory export taxes.  Most export duties involve ad valorem  rates ranging from 0 to 40%;  the 
simple average was around 13.5%.   
77. From time to time, China has been revising its export tax rates or adjusting the list of 
commodities subject to export taxes, or levying specia l export taxes, with a view to curtailing exports 
of certain products, including restricting exports  of highly polluting and high-energy-consuming 
products;  promoting environmental protection;  improving sustainable economic development;  and 
conserving natural resources. The authorities maintain  that these export taxes and their adjustments 
are consistent with WTO disciplines as they are based on Article XX of GATT 1994.  It seems that 
from 2008 China started to levy special export duties,  mainly on some chemical fertilizers.  In 2009, 
35 lines (at the HS 8-digit level) were subject to special export duties.59  They included mainly 
chemical fertilizers and their raw materials.  If in cluding special export duties, the simple average 
export tax rate was around 20% in 2009.60 China also removed or lowered export taxes on some 
products to mitigate the negative effects of the gl obal crisis on its exports;  for example, as of 
1 July 2009, China removed or lowered export taxes on, inter alia , wheat, rice, fertilizers, steel, and 
some non-ferrous metals.  
78. Although the authorities believe that export taxes could help conserve natural resources or 
protect the environment, their economic effectiv eness in achieving these objectives is questionable 
(Box III.1). 
(iv) Tax rebates on exports 
79. Excise tax is fully rebated on exports. 
80. VAT may be rebated on exports, although the reba te rates are, by and large, lower than the 
VAT rates actually paid.  The difference between th e two rates constitutes a levy on exports, which 
may in turn constitute assistance to downstream processing of the products affected (Box III.1).  
China adjusts VAT rebate rates as part of its indus trial policies, to control, restrict, or otherwise 
"manage" the export of certain products.  In par ticular, since the beginning of the global financial 
crisis, China has increased VAT reba te rates several times, the last one in June 2009.  VAT rebates on 
exports reached Y 648.7 billion in 2009, some 7.9% of tota l merchandise exports (up from 
Y 586.6 billion and 5.9% in 2008).61 
                                                                                                                                                                     
57 In Annex 6 of its Protocol of Accession, China lis ted 84 lines at the HS 8- digit level at statutory 
export tax rates, and confirmed these would be the maximum export tax levels (WTO document 
WT/ACC/CHN/49, 1 October 2001). 
58 HS 7201.1000, 7201.2000, 7201.5000 had interim rates at 25%, higher than the corresponding 
statutory export duty rate of 20%. 
59 China Tariff Schedule 2009.  Some lines were subject to special export duties only. 
60 According to China's 2009 Tariff Schedule, these special export duties were levied at two rates, 50% 
or 75%. 
61 These figures include rebated excise tax on exports, which is negligible. WT/TPR/S/230/Rev.1 Trade Policy Review 
Page 44 
 
 
Box III.1:  Export restrictions and their economic implications 
Export restrictions, explicit or implicit, are a majo r feature of China's trade regime. The main explicit 
restrictions involve: 
- export prohibitions;  
- export quotas;  
- export licensing re quirements;  and 
- export taxes.  (The Government pointed out that export taxes are not used to raise tax revenues but 
are levied to preserve exhaustible natural resources  and to protect the environment.  The not-fully-
rebated VAT, however, was originally due to lack of fiscal capacity.) 
Implicit export restrictions include:  
- less-than-full rebate of VAT on exports (the difference between the VAT rate actually paid, and the 
 rebate rate, constitutes a levy on exports);  and perhaps 
- state trading arrangements, whereby exports of certain products may be curtailed as a result of 
regulations requiring them to be exported throug h state-trading entities.  (The authorities pointed 
out whether state trading arrangements become import or export restrictions depends on specific 
circumstances.) 
The officially-stated rationale for these restrictions include: 
- implementation of China's international obligations, which requires prohibitions and/or licensing; 
- conservation of natural resources, using prohibitions, export quotas, licensing and  taxes; 
- environmental protection and energy saving, using quotas, taxes, and only partial VAT rebates;  - ensuring stable domestic supply, and therefore avoiding large price fluctuations, in certain products, 
 using quotas, export taxes, only partial VAT rebates, and state trading;  and  
- management of trade so as to, for example, reduce China's current account surplus.  
However, whether intended or not, export restraints for whatever reason tend to reduce export volumes of 
the targeted products and divert supplies to the domestic market, leading to a downward pressure on the 
domestic prices of these products.  The resulting gap between domestic prices and world prices constitutes 
implicit assistance to domestic downstream processors of the targeted products and thus provides them a 
competitive advantage. Insofar as China is a major suppli er of such a product, export restraints may also 
shift the terms of trade in China's favour.  Also, some export restrictions might be imposed to pre-empt 
imposition of import restrictions by governments in export markets.  
More generally, export restraints may not be the best way to achieve some of the objectives/rationales 
mentioned above.  In particular, restricting the export of some highly polluting or high-energy consuming 
products is not the most economically efficient way to protect the environment or reduce energy 
consumption.  Nor are export restraints the best way to conserve natural resources.  China is starting to 
consider more suitable internal (rather than trade) measures to achieve these objectives.  Although the 
Government increased its export restrictions on rare earth by, for example cutting export quotas or 
increasing export taxes, it has imposed domestic production caps on rare earth and is considering levying an environmental tax on the production/extraction of natural resources during the 12
th Five-Year period 
(2011-15), with a view to preserving non-recyclable natural resources and protecting the environment.   
Source:   WTO Secretariat. 
(v) Tax concessions under processing trade 
81. Under the mode of "processing trade", import tariffs are exempted if the goods are imported 
in bond and exported within a certain period.  Ho wever, some products are "prohibited from being 
exported under processing trade".  If these produc ts are not prohibited from being exported under 
normal trade (see below), their export is allowed;  however, when exported under normal trade, like 
other products, import tariffs must be paid on th eir imported inputs.  As China does not have tariff 
drawbacks, these tariffs can constitute taxes on expor ts (Box III.1).  In 2009, 1,016 tariff lines at the China WT/TPR/S/230/Rev.1 
 Page 45 
 
 
HS 8-digit level were subject to  export prohibitions (up from 617 lin es in 2007), and another 139 lines 
were subject to both import and expor t prohibitions under processing trade. 
(vi) Export prohibitions, restrictions, and licensing 
(a) Export prohibitions 
82. Products listed in the Catalogues of Products subject to Export Prohibitions are prohibited 
from being exported under normal trade, mainly b ecause of China's international obligations and 
domestic considerations regardi ng environmental and human health  protection, and preservation of 
natural resources.  China has released five batc hes of export prohibition catalogues since its accession 
to the WTO;  the last took effect on 1 January 200 9.  Three tariff lines at the HS 8-digit level were 
added, covering some peat and anim al or vegetable fertilizers.  In total, China maintained general 
export prohibitions on 45 items at th e HS 8-digit level in 2009.   
(b) Export quotas and licensing 
83. Since the previous Review of China, there h as been no significant change to its export quota 
and licensing regime. 
Export quotas 
84. China applies both global quotas and destinati on-specific quotas.  Destination-specific quotas 
apply to live cattle, live swine, and fowl to be exported to the Hong Kong and Macao SARs.  After 
exporters obtain a quota, an export licence is issued by MOFCOM.  In 2009, global export quotas applied to 173 lines at the HS 8-digit level, 27 lines more than 2007, although export quotas on silk 
and silk cocoons were removed from January 2009.   
85. The method of allocating quotas remains the sam e;  some quotas are allocated by the NDRC 
or MOFCOM, some through a bidding process (Table  III.3). When allocating quotas, the Government 
considers an enterprise's export performance, its  previous quota usage, business performance, and 
production volume in the previous three years.  Some products are subject to state trading (section (viii) below).  For these products, export quotas are allocated directly to state trading enterprises.  For other products, MOFCOM allocates quotas either directly to enterprises, or to 
departments at the provincial level, which allocate quotas to enterprises.   
Export licences 
86. China's export licensing requirements are implemen ted mainly to fulfil its obligations under 
international agreements.
62  In 2009, 231 lines at the HS 8-digit level were subject to export licensing;  
these do not cover lines subject to global export quotas.63  Of the 231 lines, exporters of products 
corresponding to 139 tariff lines can obtain a licen ce from MOFCOM or its authorized agencies if 
they have the relevant export contracts.  For the remaining 92 tariff lines (covering mainly substances 
depleting ozone, and some metals and their products), exporters must obtain a permit prior to applying 
                                                      
62 Including:  the Montreal Protocol on Substances that Deplete the Ozone Laye r;  the Conventions on 
the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on their Destruction;  the Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances;  and the 
Basel Convention on the Control of  Transboundary Movement of H azardous Waste and Their Disposal. 
63 In addition, exporters of chemicals that may be used for military purposes, and toxic materials, must 
obtain export licences from MOFCOM before exporting. WT/TPR/S/230/Rev.1 Trade Policy Review 
Page 46 
 
 
for a licence.  Export permits are granted by the Ministry of Environmental Protection (for ozone-
depleting substances) and MOFCOM (for others).  After the exporter obtains the permit, an export 
licence is issued automatically by MO FCOM or its authorized agencies. 
Table III.3 
Products subject to expo rt quotas and licensing, 2009 
Measures Products 
Quotas allocated by NDRC Rice, maize, wheat, cotton, coal 
Quotas allocated by MOFCOM  Live cattle, live swine and fowl (for Hong Kong and Macao SARs), maiz e flours, rice flours, 
wheat flours, sawn timber, coke, crude oil, proce ssed oil, rare earth, antimony and its products, 
tungsten and its products, zinc ore, tin and its products, silver, indium and its products, 
molybdenum, phosphate rocks 
Quotas allocated through bidding  Rushes and rushes products, s ilicon carbide, fluorspar lump (pow der), talc lump (powder), lig ht 
(dead) burned magnesium, bauxite, liquorice and its products  
Export licences (where a licence 
is granted if the exporter has the 
relevant export contract) Live cattle, live swine and fowl (for markets ot her than Hong Kong or Macao SARs), beef, pork, 
chicken meat, paraffin wax, pl atinum (through processing trade only), automobiles (including 
completely knocked down) and chassis, motorcycle s (including all terrain motorcycles) and their 
engines and frames, vitamin C, industrial salts of  penicillin, disodium sulphate, some metals and 
their products (excluding ferroalloy) 
Export licences (A permit is 
required before applying for a 
licence)  Substances depleting ozone, zinc and zinc-base alloy, ferroalloy, natural sands (including standard 
sands), molybdenum products, citric acid 
Source:  MOFCOM online information.  Viewed at:  www.mofcom.gov.cn. 
(vii) Measures maintained by importing countries 
87. MOFCOM continues to identify major trade barri ers to Chinese exports in its annual Foreign 
Market Access Report.  According to the 2009 Report, in 2008 WTO Members initiated 
93 anti-dumping, countervailing, safeguard, and pr oduct-specific safeguard investigations against 
Chinese exports, at a value of US$6.1 billion, an annual increase of 69.4%.64 
(viii) State trading 
88. China maintains state trading on some exports with a view to:  ensuring stable domestic 
supply; avoiding drastic price fluctuations in inte rnational markets;  safeguarding food safety; and 
protecting exhaustible and non-recyclable natural res ources and the environment.  State trading is not 
used to fulfil the Government's contractual obliga tions, except in certain ci rcumstances, such as food 
aid to foreign countries.65 
89. Exports subject to state trading remain the sa me as at the time of the previous Review, 
covering maize, rice, coal, crude and processed oil,  cotton, antimony and an timony products, tungsten 
and tungsten products, silver , and tobacco (Table AIII.4).  China has temporarily abolished its state 
trading requirement for exports of tea and silk;  and has not applied state trading arrangements since 
its WTO accession on soybeans, unbleached silk and cott on sewed thread.  China reserves its right to 
subject these exports to state trading arrangements. 
90. While imports subject to state trading may be imported by non-state-trading enterprises 
(STEs), state trading of exports must be c onducted by STEs.  Some STEs, however, are not 
State-owned enterprises (SOEs) (for example, for th e exports of tungsten, antimony, and silver).  
According to the authorities, export prices char ged by STEs are determined by the enterprises 
                                                      
64 MOFCOM (2009). 
65 WTO document G/STR/N/9/CHN/Add.1, 14 July 2003. China WT/TPR/S/230/Rev.1 
 Page 47 
 
 
themselves, based on, inter alia , domestic prices plus transportation and storage costs, interest rates, 
inspection fees, and international market prices. 
(ix) Export facilitation and marketing assistance 
91. China facilitates exports mainly through e xport finance operated by the Export-Import Bank 
of China (EXIM Bank), export credit insurance by the China Export & Credit Insurance Corporation 
(SINOSURE), and export fairs.  According to the authorities, there are no local-content requirements 
to obtain export finance and insurance from EXIM Bank and SINOSURE.  China used to provide tax 
concessions to foreign-invested enterprises based on their export performance;  these tax preferences 
were removed in 2008 when the Enterprise Income Tax Law entered into effect (section (4) below).   
92. The EXIM Bank is the only policy bank providing export credit in China.  In 2008, the Bank 
approved credits of Y 402.4 billion, of which, Y 296 .1 billion of loans were actually provided, up by 
53% and 51% respectively, from the previous year.  By providing financial support, the Bank stated that it facilitated US$102.8 billion of exports and ov erseas investment projects, including exports of 
mechanical and electronic products, high- and new- tech products, and agricultural products.  By end 
2008, the NPL ratio of the EXIM Bank was reduced to 1.52%.
66   
93. SINOSURE is the only official export and credit insurance company in China.  As a wholly 
state-owned company, SINOSURE was set up to facil itate exports, particularly high value-added and 
high-tech capital goods.  Between 2002 and 2008, SI NOSURE facilitated more than US$170 billion 
of China’s exports and outward investment, and he lped more than 110 banks to provide Y 350 billion 
in export finance to exporters.67  The share of total exports with SINOSURE credit insurance was 3% 
in 2006 (the latest data available to the Secretariat). 
94. Other export assistance includes online info rmation provided by MOFCOM to facilitate 
exporters, export fairs held by China Foreign Trade Centre under MOFCOM, consultation services 
offered by the China Council for the Promotion of International Trade (CCPIT), and the International 
Market Exploration Fund managed by MOFCOM a nd MOF, to promote SMEs participation in 
overseas exhibitions.  In an attempt to fight the gl obal crisis, the Governme nt launched campaigns to 
facilitate China’s exports, such as the "421 pr oject" by MOFCOM, under which US$42.1 billion in 
export credits was provided for machinery and electronics products in 2009.  
(4) MEASURES AFFECTING PRODUCTION AND TRADE  
(i) Taxation and tax incentives 
(a) Overview 
95. China's tax revenue has been increasing rapidly;   it was up by 18.9% in 2008, almost double 
the GDP growth rate (9.6%), although the growth  rate slowed to 9.8% in 2009 (Table III.4).68  The 
share of tax revenue in GDP increased slight ly, from 17.3% in 2008 to 17.7% in 2009.  
96. During the period under Review, China has continue d its various tax reforms, with a view to 
making its tax system simpler, more neutral, and more equitable.  For example, it unified income 
taxes for foreign-invested enterprises and dom estic enterprises, transformed the VAT from a 
                                                      
66 EXIM Bank online information (20 January 2009).  Viewed at:  http://www.eximbank.gov.cn/xwzx 
article/xwzx/yaowen/200901/9097_1.html (in Chinese) [28/01/09]. 
67 Sinasure online information.  Viewed at:  www.sinosure.com.cn.   
68 Tax grew even faster in 2007, at 31.1 %, well above the GDP growth rate of 14%. WT/TPR/S/230/Rev.1 Trade Policy Review 
Page 48 
 
 
production-based to a consumption-based tax, and in creased the threshold for payment of individual 
income tax.  China also implemented a series of tax policies to promote rural development, 
technological innovation, energy conservation, and environmental protection.  A more neutral tax 
policy could indicate the Government is to adopt l ess direct interference measures into the allocation 
of resources. 
Table III.4 
Tax revenue, 2005-09 
  2005 2006 2007 2008 2009 
Total government revenue (Y billion) 3,164.9 3,876.0 5,132.2 6,133.0 6,847.7 
Central government (%) 52.3 52.8 54.1 53.3 52.4 
Local government (%) 47.7 47.2 45.9 46.7 47.6 
Tax revenue (Y billion) 2,877.9 3,480.4 4,562.2 5,422.4 5,951.5 
Central government (%) 55.8 56.2 57.8 57.1 .. 
Local government (%) 44.2 43.8 42.2 42.9 .. 
Indirect taxes (% of total tax revenue) 74.2 72.7 73.8 72.5 74.0 
Consumption (excise) taxa (% of total tax revenue) 5.7 5.4 4.8 4.7 8.0 
Value-added taxb (% of total tax revenue) 37.5 36.7 33.9 33.2 31.1 
Consumption tax and VAT collected at the border (% of total tax 
revenue) 14.6 14.3 13.5 13.6 13.0 
VAT and consumption tax rebates for exports (% of total tax revenue) -14.1 -14.0 -12.4 -10.8 -10.9 
Tariffs (% of total tax revenue) 3.7 3.3 3.1 3.3 2.5 
Business tax (% of total tax revenue) 14.7 14.7 14.4 14.1 15.1 
Agriculture-related taxesc (% of total tax revenue) 3.3 3.1 3.2 3.1 .. 
Direct taxes (% of total tax revenue) 25.8 27.3 26.2 27.5 26.0 
Enterprise income tax (% of total tax revenue) 18.6 20.2 19.2 20.6 19.4 
Individual income tax (% of tota l tax revenue) 7.3 7.1 7.0 6.9 6.6 
Total government expenditure (Y billion) 3,393.0 4,042.3 4,978.1 6,259.3 7,587.4 
Central government (%) 25.9 24.7 23.0 21.3 .. 
Local government (%) 74.1 75.3 77.1 78.7 .. 
.. Not available. 
a Not including the excise tax collected at the border on imports. 
b Not including the VAT collected at the border on imports. 
c As of 2006, agriculture-related taxes comprise deed tax, farmland occupation tax,  and tobacco leaf tax. 
Source:  National Bureau of Statistics of China, China Statistical Yearbook 2009;  Ministry of Finance online information.  
Viewed at: http://szs.mof.gov.c n/shuizhengsi/zhengwuxinxi/gon gzuodongtai/201002/t20100211_270552.html (in 
Chinese) and http://gks.mof.gov.cn/guokusi/zhe ngfuxinxi/tongjishuju/201002/t20100205_269099.html (in 
Chinese) [22/02/10];  and WTO Secretariat calculations.  
(b) Indirect taxes 
97. Indirect taxes, including VAT, consumption tax,  and business tax, account for most of China's 
tax revenues (74% in 2009). 
98. Since its previous Review, China has continued to  reform its indirect taxes with a view to 
lowering tax burdens and thereby encouraging consump tion (except for some energy products such as 
coal and refined oil, whose VAT and/or consumpti on tax rates were raised to help save energy and 
protect the environment).  China WT/TPR/S/230/Rev.1 
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Consumption tax 
99. China's consumption tax, which is essentially an excise, is levied on certain domestically 
produced products as well as imports ther eof;  it is rebated fully on exports. 
100. China revises its consumption tax from time to time, mainly to encourage energy saving and 
environmental protection (Table AIII.5).  For exam ple, as of 1 September 2008, the consumption tax 
was increased for high-emission passenger vehicles, and reduced for low-emission passenger vehicles.  Petrol tax reform began in 2009;  the Governme nt cancelled charges on six items, including road 
maintenance fees, but raised the consumption tax on gasoline diesel;  and other refined oils. 
Value-added tax 
101. China’s main indirect tax is its value added ta x (which, excluding tax collected at the border, 
accounted for some 31% of tax revenue in 2009);  the revenue is shared 75:25 between the Central 
and local governments. VAT is levied at a standard  rate of 17% and a lower rate of 13% on certain 
items;  in 2009, VAT rate was raised from 13% to  17% on mineral products (such as coal, aluminium, 
copper), but lowered to 3% for small-scale tax paye rs (section (d) below).  Exporters are entitled to 
VAT rebates, but the VAT is often not fully rebated (section (3)(iii)). 
102. In 2009, China transformed its VAT from a production-based to a consumption-based tax at 
the national level.
69  Before the reform, VAT paid on inputs, including capital equipment, could not be 
offset against the VAT payable on the final product.  This was partly corrected by not collecting VAT at the border on imported capital goods.  Following the reform, VAT paid on capital is credited 
against VAT on the final product.
70  Thus, the VAT exemption on imported capital equipment was 
discontinued (although tariff exemptions remain). The authorities consider the transformation helps 
remove the cascading effects of the production-based  VAT.  Because of the transformation, China's 
tax revenue was reduced by Y 140 billion in 2009.71 
Business tax 
103. Business tax continues to be applied to domestic taxable services, transfers of intangible 
assets, and sales of immovable property, all of which are excluded from VAT.  The business tax on 
imported services must be collected if the organizations or individuals receiving the services are 
within mainland China.  Business tax on imported ra tes for entertainment activities are determined by 
provincial governments within a range  of 5-20%;  other than this, business tax rates are set at 3% or 
5% on business turnover.   
104. The Government is consideri ng consolidating the business tax and VAT into a general goods 
and services tax to simplify China's tax structure;  there is no specific timetable.   Under the revised 
Provisional Regulations on Business Taxes, which took effect on 1 January 2009, declaration and 
                                                      
69 Provisional Regulations on Value Added Tax;  revised version entered into force on 1 January 2009. 
70 Capital goods such as small passenger vehicles, motorcycles, and yachts are excluded, and are 
subject to consumption tax. 
71 Central Government online information.  Viewed at:  http://www.gov.cn/2010lh/content_1550 
075.htm (in Chinese) [08/03/10]. WT/TPR/S/230/Rev.1 Trade Policy Review 
Page 50 
 
 
collection of business tax have been moved, except on construction services, from the place where the 
services are supplied to the place where the tax payer is registered.72 
Other reform 
105. A simplified tax structure would facilitate business operation.  Since 2007, China has 
continued with the tax reform to further unify its  taxes applied to FIEs and domestic enterprises.  
Since 1 January 2007, the city and township land  use tax, previously levied only on domestic 
enterprises and individuals, has been levied on a ll enterprises (including FIEs) and individuals using 
land in China.  At the same time, the land use ch arge on FIEs and foreign individuals using land in 
China was removed.  In addition, the vehicle and ve ssel usage tax, applied to domestic enterprises and 
individuals, and the vehicle and vessel licence tax, ap plied to foreign enterprises and individuals were 
unified into the vehicle and vessel tax, levied on domestic and foreign enterprises, individuals, and 
organizations. Similar measures we re taken in 2008 and 2009.  Fr om 2008, the farmland occupation 
tax, which had been levied only on domestic enterprises, organizati ons, and individuals, also covers 
FIEs and foreign individuals.  Until 2009, FIEs we re subject to the urban real estate tax, while 
domestic enterprises paid the house property tax.  On 1 January 2009, the urban real estate tax was 
removed;  and FIEs and domestic en terprises now pay a house property tax. 
106. At present, the only tax difference between FI Es and domestic enterprises is the city 
maintenance and construction tax, which is not levied on FIEs.   
(c) Direct taxation 
107. Direct taxation accounted for 26% of total tax revenue in 2009.  Revenues from enterprise 
income tax and individual income tax are shared 60:40 between the central and local governments.  
Enterprise income tax 
108. Under China's enterprise income tax system, FIEs  were subject to lower rates of tax than 
domestic enterprises, and benefited from various ta x holidays.  The Enterprise Income Tax Law, 
which was issued in March 2007 and entered into force in January 2008, uni fied enterprise income 
taxes for FIEs and domestic enterprises, with a tran sition period for tax incentives already granted to 
FIEs. 
109. Thus, FIEs established before 16 March 2007 (when the new Law was issued), and those 
subject to a 15% income tax rate before 2008, paid  income tax at 18% in 2008 and 20% in 2009, and 
will pay 22% in 2010, 24% in 2011, and the statutory of  25% in 2012.  FIEs that were subject to an 
income tax at 24% before 2008 began to pay 25% from 2008.  FIEs that were benefiting from the 
"two-year exemption followed by a three-year half deduction" or the "five-year exemption followed 
by a five-year half deduction" tax holidays,  retain the tax holidays until they expire.73 
                                                      
72 The authorities pointed out that the revision was made because, in most cases (apart from, inter alia , 
construction services), the place where the services are provided  is the same as the registration place of the tax 
payer.  For construction services, bus iness tax is still collected at the place where services are provided. 
73 If an FIE was entitled to such a tax holiday, but the tax holiday had not commenced due to 
accumulated losses, it would start benefiting from the ta x holiday from 2008.  Stat e Council Notice (No. 39, 
2007) on the Implementation of the Transitional Preferential Enterprise Income Tax Policies. China WT/TPR/S/230/Rev.1 
 Page 51 
 
 
Individual income tax 
110. China's individual income tax is payable on wo rldwide income for Chinese residents, and on 
income earned in China by non-residents. The stan dard threshold for payment of individual income 
tax was raised from Y 1,600 to Y 2,000 on 1 March 2008,  with a view to reducing the tax burden for 
people of middle and low income;  foreign expatiate s receive an additional allowance of Y 2,800 per 
month (thus their threshold is Y 4,800 per month).   
111. The progressive income tax rates on salaries and wages currently range from 5% to 45%.  For 
individual industrial and commercia l households, income from their production or business operations 
is taxed at rates ranging from 5% to 35%, with deducti ons for relevant costs and fees.  A flat rate of 
20% applies to other income, including royalties, inter est, dividends, incidental income, income from 
property renting (i.e. rentals).  A reduced tax rate of 10% is imposed on the dividends distributed by 
domestically listed Chinese companies, dividends received by foreigners residing in China are temporarily exempt from the tax. 
112. On 9 October 2008, interest income from ba nk deposits was exempted  from tax; this 
exemption, following the lowering of the tax rate  from 20% to 5% in August 2007, was intended to 
increase interest income from saving deposits. 
(d) Tax incentives 
113. Most tax incentives are in the form of enterpri se income tax rate reduc tions or exemptions, 
although they may also take the form of VAT redu ctions.  Under the Enterprise Income Tax Law, 
incentives are now given to enterprises investing in  less developed regions, such as western China, 
and for investment in activities encouraged by th e Government, such as agriculture, environmental 
protection, renewable energy, software and integrat ed circuits industries, and securities investment 
and fund development.  For example, enterprises engaging in high-tech a nd new technology activities 
pay a tax rate of 15%;  if these enterprises were established in special economic zones (SEZs) or 
Shanghai Pudong New Area on or after 1 January 2008,  they are exempt from income tax in the first 
two years from the year during which revenue from production and business operation is first derived, 
and then subject to a rate of 12.5% (i.e. half of the standard statutory rate of 25%) in the third to the 
fifth years.
74   
114. Tax incentives are also given to SMEs to facilita te their development (section (4)(iv)(d)).  For 
example, small and medium-sized enterprises (SMEs) may benefit from, inter alia , lower enterprise 
income tax and lower VAT.  Sma ll-scale, low-profit enterprises meeting certain requirements pay 
enterprise income tax at a rate of 20% (instead of the statutory 25%).75  Further, for small enterprises 
with taxable income below Y 30,000 in 2010, their ta xable income is reduced by half.  Small-scale tax 
payers, who were subject to VAT at 6% or 4%, now pay VAT at 3%.76   
                                                      
74 State Council Notice (No. 40 of  2007) on the Implementation of the Transitional Preferential Tax 
Treatment for Advanced and New Technology Enterprise Newly Established in SEZs and Shanghai Pudong 
New Area.   
75 Small-scale, low-profit enterprise s are:  industrial enterprises whose total assets are less than 
Y 30 million, with annual taxable income lower than Y 0.3 million, and with less than 100 employees;  or other 
enterprises whose assets are less than Y 10 million, with annual taxable income lower than Y 0.3 million, and with less than 80 employees. 
76 The criteria for small-scale taxpayers also changed:  they are now taxpayers with total sales of less 
than Y 0.5 million (down from Y 1 million) engaged in the production of goods or taxable services, or those with total sales of less than Y 0.8 million (down from Y 1.8 million) in wholesaling or retailing. WT/TPR/S/230/Rev.1 Trade Policy Review 
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115. Preferential tax treatment, in terms of lower rate  enterprise income tax, previously given to 
firms located in special economic and high-tech devel opment zones, is being gr andfathered.  After the 
transition period, there will no preferential tax treatment for enterprises in these zones.   
116. The Government has not undertaken any cost-b enefit analysis of these tax incentives, which 
raises questions about their cost-effectiveness and t hus China's fiscal transparency.  The authorities 
maintain that they are gradually enhancing ev aluation of tax incentives to improve their cost-
effectiveness and transparency. 
(ii) Direct expenditures, industrial polici es, and price "guidance" measures  
117. In 2008, total government expenditure was Y 6,259.3 billion, accounting for 20.8% of GDP.  
Of the total, expenditure for general public service s was the biggest outlay, although expenditure for 
industry, commerce, and banking grew the fastest (Table III.5).  China's total budget expenditure 
increased further in 2009, to Y 7,587.4 billion, up  21.2% from 2008.  This increase mainly reflected 
the Y 4 trillion (13% of 2008 GDP) economic st imulus package announced in November 2008, 
covering the period up to 2010.  Y 1.18 trillion come s from the Central Government, and the rest 
from, inter alia , local governments budgets, and investment  carried out by SOEs together with 
investment arms affiliated with the governments, as well as bank loans.  In 2009, Y 908 billion 
(76.9% of the Y 1.18 trillion from the Central Government budget) was already allocated for the package, which is intended to cover, inter alia :  infrastructure investment including rail, road, and 
water (37.5%), reconstruction in post-earthquake areas (25%), construction of low-rent housing 
(10%), and rural infrastructure c onstruction (9.25%) (Table III.6). 
Table III.5 
Selected government transfers, 2007-08 
(Y billion and per cent) 
 2007a 2008 Growth 
rate (%) 
Total government expenditure 4,978.14   6,259.27    25.7 
Expenditure for general public services 851.4 (17.1%) 979.6  (15.7%)  15.1 
Expenditure for education 712.2 (14.3%) 901.0  (14.4%)  26.5 
Expenditure for science and technology 178.3  (3.6%) 212.9  (3.4%)  19.4 
Expenditure for social safety net and employment effort 544.7  (10.9%) 680.4  (10.9%)  24.9 
Expenditure for medical and health care 199.0  (4.0%) 275.7  (4.4%)  38.5 
Expenditure for environment protection 99.6  (2.0%) 145.1  (2.3%)  45.7 
Expenditure for urban and rural community affairs 324.5  (6.5%) 420.6  (6.7%)  29.6 
Expenditure for agriculture, forestry and water conservancy 340.5  (6.8%) 454.4  (7.3%)  33.5 
Expenditure for transportation 191.5 (3.8%) 235.4  (3.8%) 22.9 
Expenditure for industry, commerce and banking 425.7  (8.6%) 622.6  (9.9%) 46.3 
Extra-budgetary expenditures 611.2 .. .. .. .. 
General public services 61.2 .. .. .. ..  
Education 219.7 .. .. .. ..  
Social safety net and employment effort 25.6 .. .. .. ..  
Transport 97.6 .. .. .. ..  
Urban and rural community affairs 77.1 .. .. .. ..  
Other 130.1 .. .. .. ..  
.. Not available. 
a The classification of expenditure accounts was adjusted in  2007, and is not comparable with the previous years. 
Note: Figures in parenthesis show percenta ge of total budgetary expenditure, or per centage of total extra-budgetary expenditure . 
Source:  National Bureau of Statistics, China Statistical Yearbook 2009. China WT/TPR/S/230/Rev.1 
 Page 53 
 
 
Table III.6 
Y 4 trillion Stimulus Package, November 2008 
Projects Estimated investment 
(Y billion) 
Important infrastructure projects, such as railways, road  networks, airports, and irri gation systems Y 1,500  (37.5%) 
Reconstruction of post-earthquake areas Y 1,000 (25%) 
Construction of low-rent housing and residence renewal Y 400 (10%) 
Rural infrastructure construction, including water,  electricity grid, road networks, and natural 
gas Y 370 (9.25%) 
Innovation and structural adjustment programmes Y 370 (9.25%) 
Energy-saving, emission-reducing, and envi ronmental protection projects Y 210 (5.25%)  
Medical and health care, education, and cultural businesses development Y 150 (3.75%) 
Source : Central Government online information.  Viewed  at:  http://www.gov.cn/gzdt/2009-03/09/content_1254645.htm 
(in Chinese) [09/03/09]. 
118. Industrial policies remain important aspects of Government's policies to "guide" the allocation 
of resources.  In early 2009, the Government iden tified ten sectors (nine manufacturing) most affected 
by the reduced external demand due to the global crisis.77  To boost their development, sector-specific 
policies were issued.  The major measures include:  lowering the taxes levied on enterprises, by, for 
example, adjusting VAT rebate rates;  providing preferential loans or other financial assistance to 
enterprises in these i ndustries to encourage, inter alia , innovation.  For example, Y 10 billion was 
allocated to the automobile industry in a thr ee-year period to facilitate R&D activities.  The 
Government also aims to consolidate industry st ructures by encouraging mergers and acquisitions.  
Through these measures, the Government intended to achieve 12% growth rate of its manufacturing 
industry in 2009:  the value added of China’s secondary industry (which comprises mainly 
manufacturing) grew by 9.5% in 2009. 
119. The Government also provides "guidance" regarding some prices of:  commodities and 
services deemed to be of great importance to the national economy and pe ople's livelihood (such as 
electricity and certain medicines);  scarce natural resources (processed petrol eum products and natural 
gas);  operations of natural monopolies (water suppl y); important public utilities (public transport);  
public welfare services (education fees).  Accordi ng to the authorities, these "guidance" prices 
account for 3% of all prices in the economy.78  Some products and services are subject to price 
"guidance"  at the central level, and some at the local le vel.  At the central level, the NDRC is in 
charge of price "guidance" in respect  of, for example, key reserve materials of the State79, natural gas, 
electric power, important transport (such as rail a nd civil aviation), and post and telecom services.80  
                                                      
77 Nine manufacturing sectors (iron and steel, autom obile, shipbuilding, petrochemical industry, textiles 
and clothing, light industry, non-ferrous metal, equipment manufacturing, electronics and information industry);  
and one services sector (logistics). 
78 Under the Price Law, there are government-set prices and government-guided prices.  Government-
set prices are fixed prices, and governm ent-guided prices are usually set as  a basic level, and a range within 
which prices can fluctuate.  However, it is not clear to the Secretariat which commodities are subject to which 
type. 
79 For key reserves of the State, designated SOEs st ockpile these commodities as required by the State, 
but their purchase is at market prices.  When the cas e when these SOEs claim losses from the Ministry of 
Finance, they may refer to government guided prices.  These settlement prices extend only to products held by 
the State as its reserves.   
80 Key reserve materials of the State are grain, cotto n, sugar, silkworm cocoons, crude oil, processed 
oil, and chemical fertilizer.  Other products subject to pr ice controls at the central level are: state-monopolized 
tobacco, edible salt, civil explosive equipment, some fertilizers, some key medicines, educational materials,  
water-resource projects subordinated to the Central Government or constructed in more than one province, and military materials. WT/TPR/S/230/Rev.1 Trade Policy Review 
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At the local level, the Bureau of Commodity Prici ng in each province is in charge of price "guidance"  
concerning, inter alia , health-related services, and passenger transport by road.81  In addition, 
minimum procurement prices for rice and wheat remain for main grain-producing areas (seven provinces for rice, and six provinces for wheat) (Cha pter IV(2)(iii)).  These prices were increased 
several times in 2008 and 2009, to reflect the increasing cost of grain farming.   
(iii) State-owned enterprises, private enterprises, and corporate governance 
120. Based on the ownership structure, enterprises ca n be grouped into state-owned enterprises and 
enterprises where the State has controlling sh ares (SOEs), collectively owned enterprises
82, joint-stock 
enterprises, "domestic private" enterpris es, individual businesses (sole proprietorships)83, and foreign-
invested enterprises.  During the re form process, in general, under the "guidance" of the Government, 
SOEs have been retreating from some more co mpetitive sectors, where private enterprises were 
permitted to operate alongside SOEs.  In particular, FIEs, whose produc tivity is usually higher, have 
been encouraged owing to their more advanced technology, or better sales channels abroad.   
121. However, SOEs have been benefiting dispr oportionately from the Government's recent 
measures to boost the economy, particularly the ec onomic stimulus.  At the same time, domestic 
private enterprises are finding it more difficu lt to access credits from banks.  The authorities 
emphasized that the Government has always s upported the development of enterprises of all 
ownership structures equally, and has no intention of  favouring SOEs through the stimulus packages.   
(a) SOEs 
122. SOEs consist of wholly state-owned enterp rises, and enterprises in which the State has 
controlling shares (state-controlled enterprises).84  Also, SOEs comprise central-level, and local-level 
enterprises.  The State-Owned Asset Supervision and Administration Commission (SASAC) at the central level is responsible for managing government assets and reform of central-level SOEs;  and 
SASACs at local levels are responsible for managing government  assets and reform of local-level 
SOEs.  The number of central-level non-financial SO Es has continued to fall, from 159 in 2006 to 129 
in December 2009.  SASAC intends to reduce the number of SOEs subject to its management to 
80-100 by the end of 2010.  The remaining SOEs are on average much bigger than domestic private 
enterprises, and larger than their foreign counterpa rts.  The share of SOEs' output in GDP is not 
available to the Secretariat. 
123. Recently, "guided" by the State Council's Opini ons issued in December 2006, SOEs have 
been retreating from some of the more competitive industries, but remain concentrated in other 
industries with a state monopoly (according to the authorities, these are industries related to national 
                                                     
 
81 Prices of freight transport by road, and waterway  transport are determined by the market.  Other 
prices controlled by local governments  are: thermal power, water resources (apart from those subject to price 
controls by the Central Government), medical services, education, selling prices and rents of residential 
apartments and home s for the elderly. 
82 Collectively owned enterprises usually take the form  of township-village enterprises (TVEs) as most 
were founded by town or village governments or village-collective economic organizations.  Some TVEs have been transformed into private enterprises and belong to th e "non-public" sector;  those that continue to be owned 
by town or village governments or village-collective organizations belong to the "public" sector. 
83 Those with self-owned means of production, are self-operated, and have self-owned output are 
classified as indi vidual businesses. 
84 The latter refers to enterprises in which the State,  or another SOE, holds more than 50% of equity;  
or, if the share of the equity is less than 50%, the State or another SOE has controlling influence on its management and operation.   China WT/TPR/S/230/Rev.1 
 Page 55 
 
 
security and overall economic developmen t, including petroleum and coal).85  The associated 
monopoly position arguably gives these SOEs competiti on advantage over private enterprises. Profits 
of SOEs continued to rise (they increased by 9.8% in 2009). 
124. Against the background of SOEs' increasing prof its, China has started collecting dividends 
from them.86  As of 2008, resource-oriented central-level SOEs (including those in tobacco, coal, oil, 
power generation, and informati on industries) pay 10% of net pr ofits;  general industrial SOEs 
(including those in steel, automobile, and electronics)  pay 5% of net profits;  military enterprises and 
SOEs transformed from research institutions are ex empt from paying dividends for three years, as 
their profits are usually low.  Paying divide nds would reduce the amount of retained earnings 
available to SOEs for financing their investment s, and thus could help improve the governance of 
SOEs, especially as far as investment is concerned.   However, although dividends are paid to the 
Ministry of Finance, they are grouped into a " separate budget item" earmarked for SASAC, raising a 
question on the efficient use of these dividends (i.e. they may be used only by other SOEs). 
125. Corporatization and listing on stock exchang es have improved the corporate governance of 
SOEs.  At end-September 2009, SO Es accounted for 58% of market  capitalization in China (down 
from 83.1% in 2007).87  SOEs have also been actively seeking listings on overseas stock markets:  at 
end 2008, 113 SOEs were listed on the Hong Kong stock market and one in Singapore.  China has 
been continuing with its reform to convert non-trad eable shares into tradeable shares of listed SOEs.88  
China Securities Regulatory Commission (CSRC), a nd other related agencies, such as SASAC and 
MOFCOM, have issued various rules to regulate th e conversion.  For exampl e, specified shares of 
SOEs engaged in certain sectors must be reserved fo r the State;  i.e. 51% of shares in SOEs in 
resource-based and high-tech industries, and 35% in agriculture and manufacturing.89  In addition, 
there is a "lock-up" period (on average three years) for conversion, during which the shares being converted cannot be traded.  Following the conversi on, in June 2009, China issued a policy requiring 
listed SOEs to transfer 10% of their shares to Ch ina’s social security fund, with another "lock-up" 
period (Chapter 4).  The CSRC pointed out that "in theory", all shares are to be floated in 2016.  
These reforms, by creating more floating shares, could reduce enterprises’ reliance on retained 
earnings and consequently SOEs’ sav ings, which, in turn, would lead  to a lower saving-investment 
gap (Chapter I). 
126. However, despite all the reforms, SOEs still tend to have a lower cost of and better access to 
capital than domestic private enterprises (section (b) below). 
                                                     
 
85 In December 2006, the State Co uncil issued the Opinion on Guidelines for Promoting the 
Restructuring of State-Owned Assets and SOEs, under which the Government intends to retain state ownership 
in "industries involving national security, major infrastructure and important mineral resources, industries 
supplying important public goods and se rvices, and important backbone enterp rises in 'pillar' industries and high 
and new technology industries".  According to the au thorities, SOEs have comparative advantage in these 
industries. 
86 The State Council issued the Opinions on the Pilot Programme of Budget Management of State-
owned Assets in September 2007. 
87 OECD (2008).  According to the authorities, by en d October 2009, 750 of the 1,650 listed enterprises 
were state-owned or stat e-controlled enterprises. 
88 Listed SOEs have three different types of shares:  state shares ( guojia gu ), legal person (LP) shares 
(faren gu ), and public shares ( geren gu ).  Before the CSRC issued the Circular on the Pilot Programme of Non-
Tradeable Shares Reform of Listed Co mpanies on 29 April 2005, only public  shares were tradeable.  Reform 
began in 2005 to covert non-tradeab le shares into tradeable shares. 
89 SASAC of Shanghai Municipal Government onlin e information.  Viewed at: http://www.shgzw. 
gov.cn/gb/gzw/gzjg/gzyw/userobject1ai35 174.html (in Chinese) [12 February 2008]. WT/TPR/S/230/Rev.1 Trade Policy Review 
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(b) Domestic private enterprises 
127. Some researchers argue that the real source of China's economic development has been its 
domestic private enterprises90, which do not include fo reign-invested enterprises.91  These enterprises 
developed despite various entry ba rriers and financial constraints. 
128. During the review period, the development of domestic private enterprises has been "guided" 
mainly by the Guidelines on Encour aging and Supporting the Development of the Non-Public Sector 
including Individual and Private Enterprises (als o known as the State Council's 36-Clause of 2005 on 
the non-public sector).  The 36-Clause in principl e removed barriers for domestic private firms and 
FIEs to enter certain sectors that had been closed to them.92  However, in practice, the implementation 
of the 36-Clause is uneven across areas, and across industries.  In particular, some industries are 
characterized by state monopolies, such as the exclusive postal services, telecommunications, and 
financial services, which constitute entry barriers for domestic private enterprises.93 
129. In general, domestic private enterprises are also  more constrained financially than SOEs and 
FIEs.94  China’s financial system has been dominated by state-owned banks, which have traditionally 
favoured SOEs over domestic private enterprises.  The preference is partly due to the perception that 
SOEs are generally larger and likely to be able to pay back loans at due date, and that large SOEs are 
less likely to go bankrupt because they will be bailed out by the Government (e.g. airlines recently).  
Moreover, proposals to establish small and medium -sized regional level banks have not been 
approved by financial services regulators.  These banks, with the majority of their capital from domestic private enterprises, could better serve SMEs, which are mainly domestic private 
enterprises.
95 
130. In addition to these barriers and constraints, domestic private enterprises used to pay higher 
enterprise income tax than FIEs until the appli cation of the Enterprise Income Tax Law in 2008 
unified the different tax rates.   
(c) Foreign-invested enterprises (FIEs) 
131. FIEs include mainly wholly foreign-owned enterp rises, as well as equity and contractual joint 
ventures.96  Wholly foreign-owned enterprises are those in which foreign investors hold 100% of the 
shares;  equity joint ventures are those registered  as limited liability companies, with a minimum of 
25% of the capital provided by foreign partner(s).  The State, or SOEs, may also have shares in these 
                                                      
90 Huang (2008). 
91 Domestic private enterprises are profit-making firms whose assets belong to individuals and that 
employ workers.  They incl ude private joint-equity companies, private limited liability companies, partnership 
companies, and individually owned companies, but do not include FIEs or individual businesses (sole 
proprietorship). 
92 Since the issuance of the 36-Claus e, Chinese governments at various levels have reviewed more than 
1.3 million regulations, orders, and announcements, and revised or abolished more than 5,000 regulations 
inconsistent with the 36-Clause (All China Fede ration of Industry and Commerce, 2007, p. 29). 
93 Also, SASAC explicitly identified seven industrie s for state control, creating entry barriers for 
private enterprise (All China Federation of Industry and Commerce, 2007, p. 30). 
94 Poncet, Steingress, and Vandenbussche (2009).  It was also found that the presence of foreign capital 
alleviated credit constraints faced by  private Chinese firms, while that of state firms crowded out domestic 
private investment.  Thus, reforms of the state-owned sector and further liberalization of foreign capital inflow could help overcome financial constraints and boost private investment. 
95 All China Federation of Industry and Commerce (2007), p. 29. 
96 FIEs are regulated under the Law on Foreign Capital Enterprises, the Law on Chinese-Foreign 
Equity Joint Ventures, and the Law on Chinese-Foreign Contractual Joint Ventures. China WT/TPR/S/230/Rev.1 
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companies.  Contractual joint ventures, on the othe r hand, do not have a minimum capital requirement 
for the foreign partner(s); the parties may bear lia bility independently rather than as a single entity.97 
132. FIEs paid lower income taxes than domes tic enterprises until 2008, when the Enterprise 
Income Tax Law entered into force;  existing tax preferences are grandfathered (section (i)(c)).   
133. Labour productivity is generally higher in FIEs  than SOEs or domestic private enterprises.98  
FIEs also account for more than half of China's international trade and in particular its processing 
trade.  In 2009, 55.9% of total exports were by FI Es;  73.4% of all FIEs' exports were exported under 
the mode of processing trade.  FIEs also accounted for 54.2% of total imports;  of all FIE imports, 49.7% were imported under processing trade (Table A III.6).  Thus the global financial crisis and the 
consequent decline in external demand have significan tly affected the performance of FIEs in China.  
Nonetheless, China remains an important destination for FDI (Chapter I).       
(d) Small and medium-sized enterprises (SMEs) 
134. SMEs are classified according to their scale, not their ownership.
99  They include both private 
and public companies.  SMEs have pr ovided more than 80% of urban jobs.100   
135. Due partly to their small size, and partly because many are domestic private enterprises, 
SMEs have continuously faced more severe financ ial constraints than other enterprises.  Thus, the 
Government has been supporting the development of SMEs by, inter alia , improving their credit 
conditions, providing tax incentives,  and offering various grants. 
136. The recent development of SMEs has been supported mainly by the Law on Promoting SMEs 
(effective from 2003), the State Council's 36-Clause for non-public enterprises (issued in 2005)101, 
and the newly issued State Council's Opinions on  Further Promoting the Development of SMEs 
(36-Clause on SMEs).102  In 2009, the Government allocated Y 5.11 billion to improve credit 
conditions for SMEs, of whic h, Y 1.6 billion was provided as credit guarantees to SMEs.103  T h e  
authorities are now considering establishing a Nati onal SME Development Fund.  SMEs have also 
been benefiting from the moderately loose moneta ry policy, although not as much as SOEs;  bank 
loans to SMEs increased by 28% in the first nine months of 2009.104  The Government provides tax 
incentives for SMEs involving lower enterprise income  tax and VAT rates (section (4)(i)(d)).  In 
                                                      
97 WTO (2006), p. 129. 
98 Labour productivity in FIEs is more than nine times that in the rest of the economy (Whalley and 
Xian, 2006). 
99 Under the Provisional Rules on the Standards of Medium and Small Enterprises, issued on 
19 February 2003, the defi nition of SMEs varies according to the sector they engage in, and ranges from 
employing less than 2,000 persons and total assets of less than Y 400 million in the industrial sector, to 
employing less than 200 persons and total sales of less th an Y 300 million in the wholesale sector.  For details of 
the definition of SMEs, see WTO (2006), Table AIII.10. 
100 Central Government online information.  View ed at:  http://www.gov.c n/zxft/ft152/wz.htm (in 
Chinese) [24.11.2009].   
101 Guidelines on Encouraging and Supporting the Development of the Non-Public Sector including 
Individual and Private Enterprises. 
102 Issued on 22 September 2009.  Central Government online information.  Viewed at:  
http://www.gov.cn/zwgk/2009-09/22/content_1423510.htm  (in Chinese) [23.11.2009]. 
103 MIIT online information.  Viewed at:  http://www.miit.gov.cn/n1129 3472/n11295074/ n11298898/ 
11791629.html (in Chinese) [27/03/09]. 
104 China Daily,  "China's loan balance to SMEs up 28% in Jan-Sept", 28/10/09. WT/TPR/S/230/Rev.1 Trade Policy Review 
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addition, the Government has been promoting the establishment of small and medium-sized financial 
institutions, as well as a credit insurance system for SMEs.105 
137. China has also been developing its capital market  to promote the development of SMEs.  The 
SME Board, established in Shenzhen Stock Exchange  in 2004, provides improved financing channels 
for SMEs.  At end-October 2008, 273 SMEs were liste d on the Exchange with a total market value of 
Y 97.3 billion.  Further, in October 2009, the Growth  Enterprises Board was set up in Shenzhen;  also 
known as the ChiNext, this Board aims to attract  start-up companies in novelty business mainly 
involving innovation activities.106  At end-October 2009, 28 companies had been approved by the 
CSRC and were listed on the Board. 
(e) Corporate governance 
138. Good corporate governance is essential for the est ablishment of an efficient capital market, 
which channels domestic savings into the most pr oductive investments. China's corporate governance 
regime is generally based on the Company La w, the Securities Law, the Law on Enterprise 
Bankruptcy, and various codes of governance for lis ted companies.  For example, the Code of 
Corporate Governance for Listed Companies sets mandatory principles for corporate governance and 
specifies the behaviour of senior management in listed companies.107   
139. In addition, the Law on Enterprise Bankruptcy , which entered into force on 1 June 2007, 
started to be applied to all bankruptcies including  SOEs from 2009.  Before 2009, a large number of 
SOEs bankruptcy cases were "policy-led", through wh ich the Government obliged SOEs "with long-
term losses and no possibility of recovery or with  debts larger than assets" to declare bankruptcy 
within a certain time frame.  In contrast with common practice, under "policy-led" bankruptcies, these 
enterprises' remaining assets (if any) were used to  assist the reallocation of employees, instead of 
paying debts.  In 2009, "policy-led bankruptcies" of  SOEs were terminated, and the Law on Enterprise 
Bankruptcy was applied to all enterprises equally. This  indicated a significant step forward in China's 
corporate governance system, as it streng thens substantially creditors' rights.108   
(iv) Competition and consumer protection policy 
(a) Competition policy 
140. China has a variety of laws and regulations re lated to competition policy.  A major addition 
during the period under review is the Anti-Monop oly Law (AML), which entered into force on 
1 August 2008.  Other competition-related legislat ion includes the Anti-Unfa ir Competition Law, the 
Price Law, the Law on Bid Invitation and Bidding or Tendering, and the Rules on Acquisitions of 
Domestic Enterprises by Foreign Investors.109  Regulations for certain sectors, such as aviation, 
                                                      
105 Small and medium-sized financial institutions incl ude micro-credit institutions, township banks, and 
rural finance cooperatives.  China has started to set up a credit insurance system for SMEs, and has more than 
3,000 credit insurance institutions, covering over Y 1 trillion loans for 700,000 SMEs.  There are also credit 
reinsurance companies for SMEs in north-east China and in Beijing and Guangdong Province. 
106 The SME Board is for SMEs not large enough for the main Board, and the ChiNext Board is to 
encourage companies' innovation activities. 
107 The Code was issued by the China Securities Regulation Commission (CSRC) and the State 
Economic and Trade Commission (SETC) on 7 January 2002.   
108 World Bank (2009).  The previous Enterprise Bankruptcy Law (Trial) was formulated in 1986, and 
applied only to SOEs. 
109 Although the Implementing Regulations of the Anti-Monopoly Law have not been issued, various 
regulations have been formulated to facilitate enfo rcement of the Law.  For example, the State Council 
formulated Provisions on Thresholds for Prior Notification of Concentration of Undertakings, MOFCOM issued China WT/TPR/S/230/Rev.1 
 Page 59 
 
 
electricity, postal and telecommunications services, and those issued by local governments, also 
contain provisions on market competition.  Th e Anti-Monopoly Law does not take precedence over 
other competition-related legislation.   
141. The Anti-Monopoly Law entered into effect  on 1 August 2008, and an Anti-Monopoly 
Commission of the State Council was set up, to organize, coordinate, a nd "guide" anti-monopoly 
enforcement.  The State Council designated the NDRC, MOFCOM, and SAIC (State Administration 
of Industry and Commerce) as enforcement agenci es.  The NDRC supervises the enforcement of 
price-related monopoly behaviour;  MOFCOM c onducts anti-monopoly reviews of mergers and 
acquisitions, including M&As of domestic enterpri ses by foreign investors;  the SAIC enforces the 
Anti-Unfair Competition Law on issues related to m onopoly agreements, abuse of market dominance 
and abuse of administrative powers (excluding price-related monopolies).  
142. The Anti-Monopoly Law covers all sectors of the economy and all types of enterprises, but it 
does not apply to alliances or concerted actions am ong farmers and farmers’ economic organizations 
in producing, processing, selling, transporting, or st oring agricultural products.  Under Article 7 of the 
Law, the State protects SOEs that hold a domin ant position in the econom y and affect national 
security, or that operate with exclusive rights gr anted by the Government.  By protecting "the 
legitimate business activities" of these SOEs, and by requiring them to comply with laws and 
regulations and not to harm cons umers, Article 7 reflects a compromise between China's industrial 
policies and competition policy.110   
143. On the other hand, the Law covers specifically three types of "monopolistic conduct":  
conclusion of monopoly agreements, abuse of dom inant market positions, and concentration of 
enterprises that have (or are likely to have) the effect  of eliminating or restricting competition.  On 
monopoly agreements, the Law prohibits five t ypes of horizontal agreements (those among 
competitors) and two types of vertical agreements  (those among counterparties).  A dominant market 
position is defined as one that enables an enterpri se to control price, output, and conditions in a 
relevant market or to control the entr y into this market by other enterprises.111  Enterprises with a 
dominant market position are prohibited from, inter alia, selling products at unreasonably high prices 
or purchasing products at unreasona bly low prices, and "without valid reasons", selling products at a 
price below cost, or tying products or imposing unreasonable trading conditions.  The NDRC is to 
issue a regulation to define "without valid reasons " specified under the Law, and has been soliciting 
opinions on the draft regulation.112  
144. M&As that lead to change of control or "decisive influence", and are above a certain 
threshold, must be notified to and obtain approval from the Anti-Monopoly Law Enforcement 
Authority.113  The Law also specifies that, foreign acqui sitions of Chinese companies, if relating to 
                                                                                                                                                                     
Rules on Notification of Concentration of Undertakings, and Rules on Review of Concentration of 
Undertakings, and the SAIC issued Procedural Regulations on the Investigation of Cases of Monopoly Agreements and Abuse of Market Dominant Positions, an d Procedural Regulations on Abuse of Administrative 
Power to Eliminate or Restrict Competition. 
110 OECD (2009). 
111 Presumption of dominant market position includes:  one enterprise accounting for more than half the 
total market share;  the joint market share of two enterprises accounting for more than two thirds;  the joint market share of three enterprises accoun ting for more than three fourth.  In joint-dominance situations, if one 
enterprise takes less than 10% of the market share, it is considered not to have a dominant market position. 
112 NDRC online information.  Viewed at:  http ://www.ndrc.gov.cn/fjbak/t20090812_296055.htm (in 
Chinese) [23.11.2009]. 
113 The State Council issued notification thresholds:  first, if in the previous fiscal year, the combined 
global turnover of all pa rticipants exceeded Y 10 billion, and at l east two had the earnings from China above 
Y 400 million each;  second, if in the previous fiscal y ear, the combined turnover from  China of all participants WT/TPR/S/230/Rev.1 Trade Policy Review 
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national security, must go through a "national security  review" in addition to the competition review.  
However, the Law does not define "national security ", nor does it specify which government agency 
is to conduct "national security reviews".  The au thorities maintained that, the Anti-Monopoly Law is 
not the legislation govern ing national security, and this provisi on is only for general information. 
145. In practice, mergers and acquisitions, includi ng acquisitions by foreign enterprises of 
domestic companies, are regulated by MOFCOM.114  MOFCOM approval is required for any 
acquisition transferring control of a domestic compan y relating to key industries with an actual or 
potential effect on national economic security, or of a company with a famous trade mark or 
"venerable" company registration.  Exemptions include transactions proved able to improve 
competition or where the acquisition target is maki ng a loss and the takeover would preserve jobs, the 
takeover would improve international compe titiveness through transfer of technology and 
management, or the transaction woul d improve environmental conditions.115  Between August 2008 
and end-September 2009, MOFCOM re ceived 87 notifications on M&As, and 59 were closed:  4 were 
approved with conditions, 1 rejected, and the rest obtained unconditional approval.116  The AML also 
allows private actions:  where enterprises or indi viduals consider their rights related to competition 
are violated by monopolistic behaviour, including so me "administrative monopolies", they may raise 
the issue in peoples' courts. 
146. The Anti-Monopoly Law prohibits "a dministrative monopolies" where, inter alia , 
administrative departments including local gove rnments adopt measures to stop or discourage 
competition from other parts of the country.117  Administrative measures are to be adopted as 
sanctions against such conduct.  If an organizatio n or agency abuses its administrative power to 
restrict competition, its supervisory body is responsible for correcting the problem.  The Anti-Monopoly Enforcement Authority is authorized to recommend actions to the supervisory body.  However, as administrative monopolies are complex, it remains to be seen whet her the Government is 
able to prohibit them;  this would depend not only on the efficiency of the Anti-Monopoly Law 
Enforcement Authority, but also on enforcement at the local level. 
147. China has also been making e fforts to achieve a balance between protecting intellectual 
property rights and encouraging competition.  This was reflected in Article 55 of the Anti-Monopoly 
Law, on the abuse of intellectual property rights to eliminate or restrict competition.  However, the 
Law does not provide detailed descriptions of such  illegal behaviour, nor any sanction measures.  
According to the authorities, there have been no such cases so far. 
148. The Anti-Monopoly Law applies not only to monopolistic conduct in China, but also to 
activities outside the territory of China that have "e liminative or restrictive effects" on competition in 
                                                                                                                                                                    
 
exceeded Y 2 billion, and at least two had the earnings  from China above Y 400 million each.  Regulation on 
Notification Thresholds for Concentrations of Undertakings.  State Council Regulation No. 529.  Viewed at:  
http://www.gov.cn/zwgk/2008-08/04/content_1063769.htm [23/11/09]. 
114 The Rules on Acquisitions of Domestic Enterprises by Foreign Investors were issued jointly by 
CSRC, MOFCOM, SAFE, SAIC, SASAC, and SAT, and entered into force on 8 September 2006.   
115 OECD (2009). 
116 The application of the Anti-Monopoly Law to foreig n acquisitions of domestic enterprises has raised 
some concern.  For example, MOFC OM’s rulings with conditional approval and rejection are reportedly 
opaque, and need to be more fully explained.   
117 Administrative monopolies might be in the form of:  designating commodities providers;  
obstructing the free flow of goods among different regions by, inter alia , setting different prices or standards for 
products from other regions, imposing different technical or inspection criteria, subjecting them to special 
licence requirements, or hindering trade through checkpoints;  excluding or restricting non-local operators from 
participating in local bidding activities;  excluding or rest ricting non-local operators from investing or setting up 
branches;  and setting out regulations related to the elimination and restriction of competition. China WT/TPR/S/230/Rev.1 
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China's domestic market.  This extra-territoriality  is to be achieved mainly through international 
cooperation on competition policy.118   
(b) Consumer protection 
149. The main legislation on consumer protection in cludes the Law on the Protection of Consumer 
Rights and Interests of 1994, the Product Qua lity Law, and the Anti-Unfair Competition Law.119  
Major enforcement agencies include the SAIC (con sumer protection), the Customs (enforcement at 
the border), and the AQSIQ (quality control).   
150. In particular, the AQSIQ is in charge of qua lity inspection of products.  However, certain 
enterprises are exempted from quality inspection.  The exemption system began in 2000 to facilitate 
the free flow of goods among different provin ces because some local governments were using 
administrative measures to obstruct the free flow, by imposing different technical or inspection 
criteria for products originated in other regions.  Thus, in 2000, the AQSIQ issued its Administration 
Measures on Products Exempted from Quality Inspec tion and Examination, which was revised in 
2001.  Under the exemption system, "qualified" enterprises could apply to local level quality inspection bureau, which forwarded the applicati on documents to the AQSIQ.  Approval was granted 
by AQSIQ and was valid for three years, with pos sibility of renewal.  As some enterprises (for 
example, Sanlu) abused the exemption system, it was suspended in September 2008 after the melamine case;  food products no long er qualify for inspection exemption. 
(v) Intellectual property rights 
151. China has become increasingly aware of the importance of IPR protection in facilitating 
innovation in the economy, and has been strengtheni ng the administration of all main categories of 
IPR.  For much of the past decade, China had double-digit annual growth in its use of the PCT 
system.  Other areas of IP, such as trademarks, had similar growth levels, and the proportion of 
domestic use of the IP system is among the highest in the world.  Such an increase in innovation can 
be expected over time to increase public awareness of the need to protect IPRs and to make effective 
use of the IP system as a tool for economic growth.  In addition, better protected IPR could encourage 
technology transfers from those FIEs with more advanced technology.  China has identified building 
an innovative country as a national development st rategy.  When, in June 2008, the State Council 
issued the Outline of the National Intellectual Property Strategy, it sought to enhance China's 
capability of creating, utilizing, managing and protec ting intellectual property.  The Outline identifies 
the strategic goal of China becoming, by 2020, "a country with a comparatively high level in terms of the creation, utilization, protection and administration of  IPRs".  In particular, over the next five years, 
China aims to promote the level of domestic applica tions of IPRs, increase the utilization of IPR-rich 
products, improve IPR protection, and promote the awar eness of IPRs in the society.  The authorities 
                                                     
 
118 China has participated in competition-policy-related activities of APEC, the OECD, UNCTAD, and 
the WTO.  Bilaterally, SAIC and MOFCOM have signe d cooperation agreements.  China also engages in 
exchanges and cooperation with competition authorities of the European Union, Japan, Republic of Korea, and 
the United States.  These include the China-EU Competition Policy Dialogue, the China-EU Workshop on 
Practical Issues for Merger Review, the China-Japan Economic Law and Enterprise Law Improvement Project, 
and Anti-Monopoly Seminars with the Am erican Bar Association and the USTDA. 
119 Other laws and regulations concerning consumer protection include the Agricultural Products 
Quality Safety Law, which stipulates the requirements for agricultural products;  the Advertisement Law, which 
prohibits the publication of false advertisement;  and th e Trade Mark Law, which prohibits the fraudulent use of 
trade marks. WT/TPR/S/230/Rev.1 Trade Policy Review 
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consider the issuance of the Outline as a landmar k in China's history of IPR development and 
protection.120 
152. China has been progressively improving and updating its legislative framework on IPR 
protection.  It formulated and promulgated major components of IPR related legislation, such as the 
Trademark Law, the Patent Law, and the Copyright Law, in the 1970s and 1980s.  Since then, China 
has been revising its legislation in accordance with its emerging needs.  For example, the Regulations 
on the Protection of the Right of Communication through Information Network (formulated in 2006) 
clarified the scope of copyright protection in the di gital environment under the Copyright Law.  Also, 
the third revision of the Patent Law was complete d in December 2008, responding to emerging policy 
needs.  China is also preparing to revise the Trad emark Law, the Copyright Law, and the Anti-Unfair 
Competition Law. 
153. China has also been intensifying the enforcement of IPR protection, for which it has a double-
track system:  administrative actions (consisting of mediation by the authorities), and judicial 
measures (including civil actions and criminal prosecutions through the courts) (Box III.2 and 
Table III.7).  Regarding criminal penalties, the Supreme People's Court and the Supreme People's Procuratorate promulgated two judicial interpretations  on the application of criminal law in IP Cases 
in 2004 and 2007, respectively.  Since then, the numbe r of intellectual property-related criminal cases 
has increased considerably.  In  addition, Chinese governments at different levels conduct special 
operations such as campaigns, targeting on specifi c areas of IPR protection, to increase the public 
awareness of IPR protection. 
154. Supervision and coordination of IPR protecti on have been enhanced since 2006, through, 
inter alia , the annual IPR Protection Action Plans.  China also set up reporting and complaint centres 
in 50 large and medium-sized cities, opened a hotline, "12312", and online reporting and complaint windows.  In addition, China participates in IPR -related activities in APEC, WIPO, and the WTO, and 
is a member of various multilateral IPR conventions (Table AIII.7).
121  China has set up IPR working 
groups and information-exchange mechanisms with  various countries and regions to enhance IPR 
protection. 
(a) Patents 
155. The State Intellectual Property Office (SIPO) under the State Council is in charge of patent 
administration nationwide.  The State Patent Offi ce under SIPO is in charge of receiving patent 
applications and granting patents, while local IPR administrative offices are responsible for patent 
disputes.   
156. Patent rights (for inventions, utility models, and industrial designs) are protected by the Patent 
Law, its Implementing Regulations, and rules promulga ted by SIPO.  Patent rights for inventions are 
granted for 20 years from the date of filing, and 10 years from filing for utility models and industrial 
designs.   
                                                      
120 To facilitate the implementation of the Outline, in October 2008 the State Council approved the 
establishment of an inter-ministerial meeting mechanis m involving 28 ministries (including MOFCOM), which 
coordinates the implementation of national IPR strategy. 
121 From October 2008, the WIPO Copyright Treaty, and the Performance and Phonographs Treaty, 
apply also to the Hong Kong SAR. China WT/TPR/S/230/Rev.1 
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Box III.2:  IPR enforcement 
Protecting IPRs through administrative actions is an im portant feature of enforcem ent in China.  Various 
authorities are involved:  the SIPO for patents and la yout designs of integrated circuits;  the State 
Trademark Office for trade marks;  the National Copy right Administration for copyright;  the State Drug 
Administration for protected medicine s;  MOFCOM for agriculture-related chemicals;  and the Ministry of 
Agriculture for new plant varieties.  Some IPRs are en forced by several agencies:  GIs are regulated by the 
State Trademark Office, AQSIQ, an d the Ministry of Agriculture. 
These agencies can begin administrative actions on the request of the IP right holder, a third party, or on 
their own initiative.  Depending on the investigation results, the administrative authority conducts 
mediation among the parties.  The administrative authority can impose fines on the infringing party, and/or confiscate/destroy the infringing goods or copies, and materials, tools, or devices used mainly for the 
infringement. 
If mediation does not produce satisfactory results, the administrative authority may refer the case to the 
people's court.  Criminal remedies include monetary fines based on either the value or volume of the 
counterfeited goods or both.  Crimin al prosecutions may be taken in certain cases in accordance with the 
Criminal Law.  The public security body is in charge  of carrying out criminal investigations concerning 
IPR infringement.   
The number of cases settled through administrative actions remains high, although the number of cases 
dealt with by courts has increased fa ster;  24,406 first instance civil IP R cases were accepted by courts in 
2008, and 23,518 were concluded, up by 36.5% and 35.2%, respectively (Table III.7). 
Enforcing intellectual property rights at the border is the responsibility of Customs, which seizes imports 
and exports of goods infringing patents, trade marks, and copyright and related rights (ex officio).  The 
process for Customs to protect IPRs at the border depends on whether the IPR has been filed or recorded at 
Customs.  The number of cases handled by Customs has grown rapidly, from 2,475 cases in 2006 to 11,135 cases in 2008 (Table III.7).    
Furthermore, although the TRIPS Agreement does not oblige Members to apply bor der measures in cases 
of the exportation of counterfeit trademark or pirated copyright goods, China has paid special attention to 
the intellectual property protection of exports.  In th is regard, China has cooperated with the United States, 
the EU, as well as with other Members, to strengthen enforcement regulations on counterfeit and pirated 
exports, improve cooperation with foreign customs, and educate domestic manufacturers and exporters of intellectual property protection. 
At its meeting on 20 March 2009, the Dispute Settlement Body adopted a Panel report on China - 
Measures Affecting the Protection and Enforcement of Intellectual Property Rights  (WT/DS362).  On 
15 April 2009, China informed the DSB of its intention to implement the recommendations and rulings of 
the DSB in connection with this matter.  The dispute concerned measures relating to enforcement of IPRs, 
including: the Regulations of Customs Protection of Intellectual Property Rights, and the Implementing Measures of Customs for the Regulations of the People's Republic of China on Customs Protection of 
Intellectual Property Rights. 
Following a Decision of the Standing Committee of the Eleventh National People's Congress on Amending 
the Copyright Law, adopted on 26 February 2010, China recently re ported to the DSB that it has 
implemented the recommendations and rulings of the DSB with respect to the Copyright Law.  On 17 March 2010, the State Council adopted the decision to revise the Regulations for Customs Protection of 
Intellectual Property Rights. 
Source:   WTO Secretariat. 
 WT/TPR/S/230/Rev.1 Trade Policy Review 
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Table III.7 
Intellectual property enforcement, 2006-08 
 2006 2007 2008 
Intellectual property cases dealt with by administrative actions    
Patents    
Number of disputes 1,270 1,013 1,126 
Number concluded 973 749 868 
Copyright    
Number of disputes/adminis trative penaltie s 10,559 9,816 9,032 
Number concluded  10,344 ..a ..a 
Imposition of fines (Y million) 7.6 19.1 14.2 
Cases transferred to judicial agencies  235 268 238 
Business inspected .. 548,646 782,670 
Illegal operation units banned .. 13,170 36,601 
Underground den detected .. 1,224 694 
Trade marks     
Number of disputes  50,534 50,318 56,634 
Trade mark infringements  41,214 42,314 47,045 
Other  9,320 8,004 9,589 
Cases transferred to judicial agencies 252 229 137 
Value of fine (Y million)  398 417.6 467.4 
IPR cases handled by Customs at the border 2,475 7,456 11,135 
Value (US$ million) 27.2 64.5 43.2 
Intellectual property cases dealt with by courts    
First instance civil IPR cases accepted  14,219 17,877 24,406 
First instance civil IPR cases closed 14,056 17,395 23,518 
Patent cases accepted 3,196 4,041 4,047 
Patent cases closed 3,227 3,847 4,132 
Trademark cases accepted .. 3,855 6,233 
Trademark cases closed .. 3,617 6,068 
Copyright cases accepted 5,719 7,263 10,951 
Copyright cases closed 5,751 7,226 10,255 
Technical contract cases accepted 681 669 623 
Technical contract cases closed 668 649 636 
Unfair competition cases  accepted 1,256 1,204 1,185 
Unfair competition cases  closed 1,188 1,230 1,210 
Other IPR cases accepted 846 727 1,340 
Other IPR cases closed 844 705 1,217 
Second instance civil IPR cases accepted 2,686 2,862 4,759 
Second instance civil IPR cases closed 2,652 2,870 4,699 
.. Not available. 
a The Chinese authorities changed their statistical methods in 200 7 so the number of cases conc luded regarding copyright is no 
longer available. 
Source:  Data provided by the authorities. 
 
157. The Patent Law was first implemented in 1985, and has been revised th ree times;  the last 
revision was completed in 2008 and the revised versi on entered into effect on 1 October 2009.  Under 
the revised Law, penalties now include the patent ow ner's expenditure in prot ecting the patent;  and 
fines, as well as legal compensation, have been increased for patent counterfeit and infringement China WT/TPR/S/230/Rev.1 
 Page 65 
 
 
cases.122  Thresholds for granting patents are changed fro m "relative novelty" to "absolute novelty":  a 
patent is granted only if the invention, utility m odel, or industrial design has not been publicized 
anywhere in the world.123  Further, the revision explicitly allo ws parallel imports regarding patents.124  
158. The revision also includes further grounds on which a compulsory licence may be issued. 
Under the previous Patent Law, compulsory  licences could be granted in the event of, inter alia , 
"national emergency", or "any extraordinary state of affairs occurs", or "in the public interest".125  The 
revised Law further enables the grant of compulso ry licences in certain circumstances for patented 
pharmaceutical products.  This amendment gives eff ect to the WTO General Council Decision on the 
Implementation of Paragraph 6 of the Doha Declaration on the TRI PS Agreement and Public Health 
and subsequent Decision on the Amendment of th e TRIPS Agreement in providing for compulsory 
licensing to enable third parties to manufacture pate nted drugs for export to recipients under the WTO 
"paragraph 6" mechanism. 
159. Moreover, it allows for a compulsory licence if the patent owner, without justification, has 
failed to "sufficiently" exploit patent rights for th ree years or uses the rights in a manner that 
eliminates or restricts competition.  According to the authorities, this test of sufficiency of use will be 
explained in the implementing regulation (to-be-promu lgated), and the test of "without justification" 
is provided in the Paris Convention.  China ha s not granted any compulsory licences since the 
issuance of the Patent Law.   
160. The revised Patent Law also requires patent a pplicants to disclose the direct and original 
source of genetic resources when the completion of an invention depends upon such genetic 
resources126, a measure implemented in the light of the Convention on Biological Diversity.  For 
inventions depending upon genetic  resources the access or use of which is against law and/or 
administrative regulations, the inventio n should not be granted patent rights.127 
161. During the period under review, patent applications  and grants continued to increase rapidly.  
In 2008, there were 828,328 applications, up 19.3 % from 2007:  domestic applications increased by 
22.2%, and foreign applications by 3.5%.  Most fo reign applications were for inventions (85.7%), 
while domestic applications were mostly for industr ial designs (42%) and utility models (31%).  In 
the same year, 411,982 patents were granted,  an increase of 17% from 2007 (Table AIII.8).  
                                                      
122 For patent counterfeit, fines are increased from three times the illegal earnings to four times;  for 
cases with no illegal earnings, fines are increased fro m Y 50,000 to Y 200,000.  In the case of patent 
infringement, if neither the loss of the patent owner, nor the gains of the infringer, nor the licence fee of the patent can be fixed, the People’s Court can order the infringer person to compensate between Y 10,000 and 
Y 1 million.   
123 The previous Patent Law specified that if any invention or utility model had not been published 
anywhere (in or outside China), nor been used in public or known by public anywhere, it could be granted a 
patent right;  any industrial design, if not published in or out of China, nor used public ly within China, could be 
granted a patent right. 
124 See Article 69 of the revised Patent Law.  The previous Law stipulates that, without the 
authorization of the right holder, no entity or individual may exploit, including import, the patent;  that is, parallel import regarding patent was prohibited.   
125 The previous Patent Law also stipulated that compulsory licences could be granted in other 
circumstances.  For example, under Article 48, any entity  qualified to use a patent and who had requested but 
not obtained permission to use it from the patent holder within a reasonable period of time, could apply for a 
compulsory licence. 
126 See Article 26 of the revised Patent Law. 
127 See Article 5 of the revised Patent Law. WT/TPR/S/230/Rev.1 Trade Policy Review 
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(b) Trade marks 
162. The State Trademark Office, under the State Administration of Industry and Commerce 
(SAIC), is in charge of the registration and ad ministration of trade marks.  Local enforcement 
authorities are responsible for administration at the local level. 
163. Trade marks are protected under the Trademar k Law, its Implementa tion Regulations, and 
various rules issued by the SAIC.  The Trademark Law 1982 is being revised for the third time;  the 
revision is to shorten the examin ation period and enhance trade mark protection.  Trade marks are 
protected for ten years, renewable for ten years, inde finitely.  Trade marks must be registered with the 
Trademark Office to be protected under the Trad emark Law.  Foreign applicants must file 
applications in accordance with any agreements conc luded between their country of origin and China, 
or any international treaty to which both are parties, or on the basis of reciprocity.  Trade marks may be registered through an agent recognized or designated by the SAIC. 
164. In 2008, for the first time, the number of trade marks reviewed was higher than the number of 
applications, reflecting faster registration.
128  The authorities noted that trade mark registration now 
takes 30 months down from around 36 months.  If the Trademark Office refuses registration, appeal 
may be made to the Trademark Review and Adjudica tion Board, or further to a people's court.   
165. Parallel imports are still not addressed in the legisl ation on trade marks, and it is not clear to 
the Secretariat whether they are prohibited/allowed.  
(c) Copyright and related rights 
166. The National Copyright Administration of China under the State Council administers 
copyright on a national scale.  Local copyright registration and administration is carried out by local 
copyright administration offices. 
167. Protection is granted under the Copyright Law,  its Implementing Rules, and accompanying 
regulations.129  Protection for cinematographic and photographic works is for 50 years, and 
typographical designs for 10 years.130  Protection for computer software is granted from the date on 
which its development was completed, and the term of protection varies.131  The National Copyright 
Administration has been speeding up registration for computer software.  In 2008, 49,087 items of 
computer software were registered, an increase of 91.25% from 2007.132 
                                                      
128  In 2007, there were 708,000 trade mark applications, and 405,000 were reviewed;  in 2008, there 
were 698,000 applications, and 750,000 were reviewed (SIPO online information. Viewed at:  
http://www.sipo.gov.cn/sipo2008/zwgs/zscqbps/2 00904/t20090427_457166.html [08/05/09]). 
129 These include, inter alia , the Regulations for the Protection of Computer Software, and the 
Regulation on the Collective Administration of Copyright, and the Regulations on Protection of the Right of 
Communication through Information Network. 
130 Article 21 of the Copyright Law specifies that ci nematographic or photographic works are protected 
for 50 years after first publication;  however, the work is not protected under this Law if it is not published 
within 50 years of completion of its creation. 
131 Software copyright exists from the date on which its development is completed.  For a natural 
person, protection is for the lifetime of the person plus 50 years.  For software developed jointly by two or more 
persons, protection expires at the end of the 50th year after the death of the last surviving developer.  Copyright 
belonging to a legal entity or other body is protected for 50 years from first publication;  however, if it has not 
been published within 50 years of its development, it is not protected. 
132 SIPO online information:  http://www.sipo.gov.cn/sipo2008/ zwgs/zscqbps/200 904/t200904 274571 
66.html (in Chinese) [08/05/09]. China WT/TPR/S/230/Rev.1 
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168. Parallel imports are not covered in the copyright legislation, and the authorities maintain they 
are not prohibited.   
(d) Geographical indications 
169. Geographical indications (GIs) are currently regulated by:  the State Trademark Office, the 
AQSIQ, and the Ministry of Agriculture.  Apparently , a law on geographical indication is to be issued 
in 2010.   
170. From 2003, GIs can be registered as collectiv e marks or certification marks with the State 
Trademark Office under the same procedures as for trade marks.  From 2008, the Trademark Office 
accelerated its examination of applications for pr otection of GIs:  from 1994 to 2007, the Trademark 
Office approved 301 GIs, while in 2008 and the first half of 2009, 321 were approved.133  Protection 
of GIs registered with the State Trademark Office is the same as for other trade marks, i.e. ten-year 
protection, renewable for ten years, indefinitely.   
171. From 2005, GIs can also be registered with the AQSIQ.  By the end of September 2009, 
932 geographical indications had been approved by  the AQSIQ.  Once registered with the AQSIQ, 
these GIs are protected permanently. 
172. From February 2008, GIs for agricultural products may also be registered with the Ministry of 
Agriculture.  Agricultural products' GIs from foreig n countries must be registered in China to be 
protected.  At end-October 2009, 185 GIs  had been approved by the Ministry of Agriculture.  Once 
registered, these  GIs are protected permanently. 
(e) Other IPRs 
173. Since the previous review of China, there h as been no significant change to the legislation 
protecting other IPRs, including layout-designs of in tegrated circuits, plant varieties, and undisclosed 
information or trade secrets.   
174. Layout-designs of integrated circuits are regi stered with and granted by SIPO.  They are 
protected for 10 years from the date of filing or the date of first commercial exploitation anywhere in 
the world, whichever expires earlier;  the maximum dur ation of protection is 15 years from the date of 
creation.  In special circumstances (such as nati onal emergencies), or to remedy unfair competition 
practices, a "non-voluntary" licence can be issued to exploit a layout design.134  So far, no "non-
voluntary" licences have been issued. 
175. Plant varieties are protected for 20 years from the date of authorization of vines, forest trees, 
and ornamental trees, and 15 years for other plants .  Applications for the protection of new plant 
varieties are made to the Ministry of Agriculture or the State Forestry Administration.  Compulsory 
licences may be granted by the approval and examin ation authority for exploi tation of the protected 
plant variety where it is in the national or public interest.  No such compulsory licences have been 
granted. 
                                                      
133 SIPO online information:  http://www.sipo.gov.cn/sipo2008/zwgs/zscqbps/200904/t20090427_4571 
66.html (in Chinese) [08/05/09]. 
134 Special circumstances refer also to: any extraordinary state of affairs;  for the purposes of public 
interest; or determination by the competent authority that there is a need to redress anti-competitive behaviour resulting from the protection. WT/TPR/S/230/Rev.1 Trade Policy Review 
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176. Undisclosed information and trade secrets are protected by, inter alia , the Criminal Law, the 
Anti-Unfair Competition Law, the Labour Law, and re gulations issued in acco rdance with these laws.  
The SAIC is in charge of protecting trade secrets, while the public security agency is responsible for 
criminal investigation in cases involving severe dama ge or criminal activity related to undisclosed 
information or trade secrets.  According to the Implementation of the Law of Drug Control, China 
protects test data and other data that are self-obt ained, undisclosed, and submitted by manufacturers or 
sellers to obtain an approval for manufacturing or sel ling a drug that contains new chemical entities.  
No one should use such undisclosed test data and other data for improper commercial purpose.  
Within six years from the date the manufacturer or seller obtains the approval for manufacturing or 
selling the drug, the drug supervision and administ rative authorities should not grant another approval 
to others who apply for approval using the same data.