CHINA’S SUPPORT PROGRAMS

FOR SELECTED INDUSTRIES:

AGRICULTURE

Trade Lawyers Advisory Group

Terence P. Stewart, Esq.

Jin Ma, Esq.

Stewart and Stewart

June 2007
Copyright © 2007 by The Trade Lawyers Advisory Group LLC 

This project is funded by a grant from the U.S. Small Business Administration 

(SBA). SBA’s funding should not be construed as an endorsement of any 

products, opinions or services. All SBA-funded projects are extended to the public 

on a nondiscriminatory basis. 
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CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

TABLE OF CONTENTS 

PAGE

EXECUTIVE SUMMARY.............................................................................................. iv 

INTRODUCTION ................................................................................................................ 1 

I. CHINA’S AGRICULTURAL POLICY UNDER THE NEW 11TH 5-YEAR 

GUIDELINE ................................................................................................................ 4 

A. OVERVIEW OF CHINA’S AGRICULTURAL POLICY ............................................ 4 

1. Introduction to China’s Agriculture Sector ...................................... 4 

2. New Policy Trends................................................................................... 5 

3. Level of China’s Agricultural and Rural Support............................ 10 

B. THE FRAMEWORK OF CHINA’S AGRICULTURAL SUPPORT MEASURES......... 13 

1. Primary Policy Objectives..................................................................... 13 

2. Administrative Structure and Legal Authorities............................. 14 

3. Major Agricultural Support Measures ............................................... 15 

a. Domestic Support .............................................................................. 15 

i. Subsidizing Agricultural Inputs ............................................ 15 

ii. Facilitating Farmers’ Access to Affordable Loans............. 17 

a. Rural Credit Cooperatives Reform.................................. 19 

b. Micro Loans and Joint-Guarantee Group 

Lending Programs .............................................................. 22 

c. Loan Guarantee Companies ............................................. 23 

d. Agricultural Insurance Services ..................................... 23 

iii. Developing an Integrated National Market for 

Agricultural Products............................................................... 25 
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iv. Achieving Structural Adjustments for the 

Agricultural Industry ............................................................... 29 

a. Moving the Industry Up the Value Chain...................... 29 

b. Industrializing the Agriculture Sector .......................... 32 

v. Promoting Technology Proliferation and 

Development............................................................................... 36 

vi. Maintaining Grain Production Capacity............................. 37 

b. Trade Measures ................................................................................. 42 

i. Border Measures........................................................................ 42 

a. Tariff...................................................................................... 42 

b. Border VAT........................................................................... 42 

c. Export Taxes ........................................................................ 43 

ii. Export Promotion Measures................................................... 43 

c. Environmental Protection Measures ............................................ 50 

d. Other Support Programs................................................................. 52 

C. ADMINISTRATION OF AGRICULTURAL PROGRAMS AT THE CENTRAL 

GOVERNMENT LEVEL ........................................................................................ 53 

1. Programs Administered by the Ministry of Agriculture................ 54 

a. MOA Transparency and Disclosure Practice.............................. 54 

b. List of Distribution Reports ............................................................ 56 

D. AGRICULTURAL SUPPORT PROGRAMS AT THE LOCAL LEVEL....................... 58 

E. TRANSPARENCY AND THE GOLDEN FISCAL MANAGEMENT SYSTEM ............ 60 
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II. CHINA’S WTO COMMITMENTS ON TRADE IN AGRICULTURAL PRODUCTS 

AND ITS COMPLIANCE WITH RESPECT TO ITS SUBSIDY OBLIGATIONS................ 61 

A. CHINA’S AGRICULTURAL COMMITMENTS........................................................ 61 

B. AGRICULTURAL SUBSIDIES IDENTIFIED IN CHINA’S SCM

NOTIFICATION.................................................................................................... 66 

C. AGRICULTURAL SUPPORT PROGRAMS IDENTIFIED BY OTHER WTO

MEMBERS ........................................................................................................... 92 

1. Industry-Specific Subsidies .................................................................. 92 

a. Cut Flower Industry ......................................................................... 92 

b. Dehydrated Garlic ............................................................................ 93 

c. Agricultural Machinery Industry.................................................. 93 

d. Fertilizer ............................................................................................. 94 

2. Subsidy Programs Applicable to Multiple Industries..................... 95 

a. Policy Loans ....................................................................................... 95 

b. Tax Breaks.......................................................................................... 97 

c. Export-Related Subsidies ................................................................ 101 

d. Currency Policy ................................................................................. 106 

e. Preferential Policy Toward SOEs.................................................. 107 

f. Subsidies for Energy, Land and Other Utilities......................... 108 

g. Industrial Parks................................................................................ 109 

h. Legal Fees Subsidies......................................................................... 109 

i. Brand Name Building...................................................................... 110 

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CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

EXECUTIVE SUMMARY 

For decades, China had been following the policy of taxing agriculture to 

support its urban industrialization efforts. The success of its recent economic 

reform not only gives the central government the fiscal means but also creates an 

urgent need to change this policy. Discrepancy in the rate of growth of the 

manufacturing sector compared to agriculture sector has led to a large income 

inequality between urban and rural populations. This gap poses a threat to the 

nation’s social stability. 

2004 was a year of change. In that year, the Chinese Communist Party 

Central Committee and the State Council jointly issued their No. 1 policy directive 

calling for an increase in government support to agriculture and to farmers. This 

policy change was later incorporated into the 11th 5-Year Guideline for National 

Economic and Social Development, which was approved by the National People’s 

Congress in March 2006. This Guideline is China’s most authoritative development 

strategy and it laid out a clear roadmap for future agricultural and rural 

development. 

Under the 11th 5-Year Guideline, food security remains a key policy objective. 

New priority policy objectives include providing income support to farmers, 

developing a vertically-integrated, innovative and knowledge-intensive rural 

economy, and promoting a sustainable and environmentally-friendly development 

pattern. 
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The measures adopted to achieve these policy goals include: (1) subsidizing 

grain production and agricultural inputs, such as fertilizer and improved crop 

strains and animal breeds; (2) developing an integrated national market and 

establishing unified national agricultural product standards, and an effective 

national safety and quality inspection system for agriculture products; (3) 

restructuring the agricultural sector to move the industry up the value chain; and (4) 

encouraging technology proliferation and enhancing innovation capacity in the 

industry. In addition, China has taken measures to encourage the adoption of 

environmentally-friendly methods of agricultural production, which evidences a 

shift in policy priorities from the food supply to environmental concerns. 

China’s central government has also undertaken a major effort to provide 

low-cost loans to farmers. The government has conducted a nationwide reform to 

consolidate and recapitalize the Rural Credit Cooperatives, the primary lender in 

rural areas. It is estimated that China has infused RMB 160 billion into these 

Rural Credit Corporatives to allow them to write off bad loans. Pilot programs have 

also been launched, such as micro-loans and joint-guarantee group lendings, to find 

viable ways to extend loans to small farmers. In the more developed regions, local 

governments also are experimenting with providing subsidized agricultural 

insurance to farmers. 

As a result of these policy changes, government support to agriculture and 

farmers has been steadily increasing in recent years. In 2006, the Chinese 

government spent RMB 339.7 billion (US$ 42.45 billion) on the “Three Rural” 
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vi

projects — projects that are related to agriculture, rural areas, and farmers. 

Another RMB 12 billion in a special fund was distributed directly to grain farmers 

to encourage grain production. Of the “Three Rural” projects, investment in 

agricultural and rural infrastructure was the largest investment category. 

According to the OECD, between 1998 and 2002, the Ministry of Agriculture alone 

invested RMB 126.3 billion in water conservancy works, and RMB 44.3 billion in 

forestry and ecological preservation works, including programs such as “grain for 

green.” 

OECD reports show that China’s Producer Support — that is, the measure of 

government support to farmers — is estimated to be 6 percent of the farmers’ total 

income between 2000 and 2003, which is equal to one-fifth of the OECD average. 

However, China’s Total Support Estimate — which measures the total government 

investment in agriculture, including infrastructure investment and general services, 

as well as direct support to producers — is almost twice as high as the OECD 

average. 

The transparency of China’s government support programs is improving. 

Since 2003, the website of the Ministry of Agriculture has been publishing 

information on certain subsidy programs, application guidelines, and itemized 

public funds distribution reports. This disclosure practice of the MOA, however, 

only covers those expenditures where distribution is discretionary — about 2 

percent of total agriculture expenditures. While recent efforts to build an 

integrated government fiscal management system might eventually provide the 
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vii

necessary technical means to allow full public access to government support 

programs in agriculture, full transparency and access do not presently exist. 

According to the terms of China’s accession to the WTO, as set out in the 

Working Party Report, China is allowed recourse to an 8.5 percent de minimis

exemption for both product-specific and non-product-specific agricultural support. 

Although no official numbers are available, a U.S. Department of Agriculture report 

estimates that China’s current level of support remains below this threshold. 

On the other hand, on several occasions, China’s trading partners have raised 

concerns in the WTO that some of China’s agricultural support programs may not 

be consistent with China’s subsidy commitments. For example, the United States 

has pointed out that China has extended loans to farmers and rural enterprises at 

below market rates, and that local governments in China appear to provide various 

forms of agricultural support and assistance that is inconsistent with China’s WTO 

obligations and commitments. 

In addition, in the WTO’s 2006 Trade Policy Review of China, the 

Secretariat’s Report noted that China subsidizes some agricultural inputs, 

particularly fertilizer and agricultural machinery. Press reports, also, have noted 

that China had provided industry-specific subsidies to both dehydrated garlic and 

cut flower producers which have aided exportation of the two products. 

In April 2006, China made its first subsidy notification to the WTO SCM 

Committee. That submission revealed that China’s agriculture sector may benefit 
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from many governmental support programs. Among the 78 subsidy programs listed 

in the notification, 67 are potentially-usable by enterprises in the agriculture sector. 

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CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: 

AGRICULTURE

INTRODUCTION

This report is a review of China’s new agricultural policy after the adoption of the 11th 5-

Year Guideline for National Economic and Social Development (“11th 5-Year Guideline”)1 in 

early 2006, with a focus on the new policy trends featuring increased government support to the 

agricultural sector and farmers, and its effort in fostering a more efficient, innovative and 

environmentally-friendly rural economy. The report is comprised of two parts. 

Part I

Part I provides an overview of China’s new agricultural policy and its rural development 

scheme based on publicly-available information from various government authorities at both the 

national and the sub-national level. To assist an understanding of the structure of China’s 

agricultural support programs and their administration, the report begins with an introduction to 

China’s agricultural sector and the new policy priorities as laid out in the 11th 5-Year Guideline

and subsequent implementation plans issued by the State Council Ministries, followed by a 

snapshot review of China’s agricultural fiscal expenditures for 2005 and its budget for 2006. 

After an overview of the basics of China’s agricultural sector, the report examines 

specific policy measures that are currently operational or that have been laid out by the Chinese 

government. In the past two decades, reform has resulted in fast economic growth in urban areas, 

which have benefited primarily from a burgeoning manufacturing sector. Robust economic 

growth, in turn, has boosted government income and made possible a substantial increase in 

 

1

 See 11th 5-Year Guideline for National Economic and Social Development. See Exhibit A-I-2. 
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governmental expenditures in rural areas. 2004 is notable as a year of change. In that year, the 

Chinese Communist Party Central Committee (CCPCC) and the State Council called for the 

government to give more attention to the “three-rural issue” and spelled out concrete measures to 

increase farmer income in its “No. 1 Central Directive” (Zhongyang Yihao Wenjian).2 The 

“three-rural issue” is a term used in China to refer generally to issues concerning agriculture, 

farmers, and the countryside. Echoing this new policy, the 11th 5-Year Guideline for National 

Economic and Social Development, drafted the next year by the State Council and later approved 

by the National People’s Congress (NPC) in March 2006, gave top priority to the “three-rural 

issue.” After the approval of the 11th 5-Year Guideline, the functionaries within the State 

Council promptly released implementation plans for areas that fell within their respective 

provinces. This report reviews in detail the measures employed by these implementation plans 

in light of their respective policy objectives. 

In China, a myriad of government agencies have authority to initiate and administer 

agricultural support programs, including the State Council Ministries, the Central Bank (People’s 

Bank of China (PBC)), as well as the authorities at the sub-national level. After a brief overview 

of China’s overarching policy objectives and the administrative structure for its agricultural 

support programs at the central government level, the report reviews the major support measures 

currently employed nationwide, including both domestic support programs and some trade 

measures. 

 

2

 See CCPCC and State Council Opinions on Several Policies Regarding Farmer Income Promotion. See

Exhibit A-I-1. 
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The report next discusses the administration of agricultural programs at the central 

government level, with a focus on the functions of the Ministry of Agriculture (MOA) and the 

programs that it manages. The MOA plays a pivotal role in formulating and implementing 

agricultural policies and is a reliable source for detailed information on the discretionary support 

programs that it administers. 

The governmental authorities at the sub-national level have broad discretion to initiate 

agricultural support programs. The report presents some examples of the programs administered 

by the provincial and local governments. While there is presently limited information on the 

support provided by the provincial and local governments, this situation may soon change if the 

“golden fiscal management system” is implemented as planned. The report provides a brief 

introduction to this system. 

Part II

Part II of this report reviews specific government support programs available to the 

agricultural sector. It begins with a review of China’s WTO commitments for trade in 

agricultural goods. The report then discusses the support programs that either are expressly or 

potentially applicable to the agriculture sector based on information found in China’s first 

notification to the WTO Committee on Subsidies and Countervailing Measures (SCM), filed in 

April 2006. The report concludes with a review of Chinese agricultural support programs 

identified by other WTO Members as well as by foreign private industry associations. 
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I. CHINA’S AGRICULTURAL POLICY UNDER THE NEW 11TH 5-YEAR 

GUIDELINE

A. OVERVIEW OF CHINA’S AGRICULTURAL POLICY

1. Introduction to China’s Agriculture Sector 

Given its huge population, the most prominent feature of China’s agriculture sector is the 

short supply of the two primary agricultural inputs: cultivated land and water. As to land, 

although China is one of the largest countries on Earth, it has a cultivated land area of only 130 

million hectares (hereinafter, “ha”), roughly 10 percent of the world’s arable land. Thus, China’s 

challenge is to use 10 percent of the world’s farmland to feed 21 percent of the world’s 

population.3

 As to water, China suffers from a limited water supply for its population. China’s 

per capita water supply stands at only one-quarter of the world average.4 Another important 

feature of China’s agriculture sector is the small scale of farm operations which stems from the 

fact that a large portion of China’s population still lives on the land. Under the collective land 

ownership system in place in China’s countryside, 80 percent of rural households have a land 

allocation of about 0.65 ha.5

Until recently, China was predominantly an agricultural economy, with agriculture 

providing employment for 80 percent of the population.6

 In years past, China’s policy was to tax 

agriculture to support industrialization. This landscape has changed dramatically in the past two 

decades as China’s export promotion strategy has been fostering the fast growth of its 

 

3

 OECD Review of Agricultural Policies: China (2005) at 28; available at http://www.oecd.org/document/ 

57/0,2340,en_2649_201185_35557433_1_1_1_1,00.html. 4

 Id. 

5 Id. at 36, citing Tan Shuhao, et al., Land Fragmentation and Its Driving Forces in China, LAND USE POLICY

(2005). 

6 OECD Review of Agricultural Policies: China (2005) at 28. 
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manufacturing sector. Government statistics show that in 2004 agriculture contributed a mere 

13.1 percent to the national GDP. Despite the relatively small share of GDP accounted for by 

agriculture, a large portion of China’s population continues to live on the land. Indeed, 47 

percent of the national population is still employed in agriculture.7 The GDP per worker in 

agriculture is less than one-fifth of that in the rest of the economy. Not surprisingly, rural 

income lags far behind the income of urban workers; and the gap continues to increase as the 

industrial sector of China’s economy grows at a much faster pace than the agriculture sector. In 

the mid-1980s, per capita income in urban areas was 1.85 times that in rural areas. By 2003-

2004, this ratio had grown to 3.2.8

 In 2005, per capita income in rural areas was RMB 3255 

(USD $425.2).9

2. New Policy Trends 

The sluggish growth of the agriculture sector has given rise to many social problems in 

rural areas, and the inequality between urban and rural income levels poses threats to social 

stability in China. In response to these conditions, China has taken measures in recent years to 

promote agricultural growth, with the primary aim of increasing the income level of farmers. 

Legislation was passed to support agricultural and rural development.10 

2004 has been noted as the year of change, with the CCPCC using its No.1 Central 

Directive to signal this policy adjustment by urging more government support to raise farmer 

 

7 Id. at 33. 8

 Id.

9

 See Development Guideline for Agriculture and the Rural Economy during the 11th 5-Year Period (August 8, 

2006) at 2. See Exhibit A-I-3. 10 See Agriculture Law of the People’s Republic of China (2001). 
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income levels.11 The old policy of taxing agriculture to support the growth of the manufacturing 

industry was finally abandoned. In its place, China’s policy is to channel newly created wealth 

from urbanized areas to the impoverished countryside. 

The 11th 5-Year Guideline12 is China’s most authoritative development blueprint for the 

period between 2006 and 2010. It was drafted by the State Council in accordance with a guiding 

outline authorized by the Chinese Communist Party National Congress (CCPNC) in late 2005, 

and approved in March 2006 by the NPC. Echoing the CCPCC’s policy initiative laid out in its 

No. 1 Central Directive for 2004, the 11th 5-Year Guideline gives top priority to agricultural 

growth and income promotion for farmers. After the 11th 5-Year Guideline was approved by the

NPC, State Council functionaries released a number of detailed implementation guidelines for 

areas within their respective provinces. Table 1 lists the implementation guidelines released so 

far. 

Table 1 

The 11th 5-Year Implementation Guidelines 

and Legislation for the Agriculture Sector 

Title Title in Chinese Issuing 

agency 

Date of 

issuance 

1 

Development Guideline for Agriculture and the 

Rural Economy during the 11th 5-Year Period. (See

Exhibit A-I-3) 

全国农业和农村经济发

展第十一个五年规划 MOA*

 09-08-2006 

2 

National Development Guideline for the Socialized 

Agricultural Machinery Rental Service during the 

11th 5-Year Period. (See Exhibit A-I-4) 

全国农机社会化服务

“十一五”发展纲要 MOA 09-08-2006 

3 

11th 5-Year Guideline for Economic and Social 

Development for the State-Owned Segment of the 

Agricultural Industry. (See Exhibit A-I-5) 

全国农垦经济与社会发

展第十一个五年规划 MOA 09-26-2006 

 

11 CCPCC and State Council Opinions on Several Policies Regarding Farmer Income Promotion. See Exhibit 

A-I-1. 12 11th 5-Year Guideline for National Economic and Social Development. See Exhibit A-I-2. 
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Title Title in Chinese Issuing 

agency 

Date of 

issuance 

4 11th 5-Year Development Guideline for Agricultural 

Products Exportation. (See Exhibit A-I-6) 

农产品出口“十一五”发

展规划 MOFCOM** 08-24-2006 

5 

National Development Guideline for Mechanized 

Agricultural Production during the 11th 5-Year 

Period. (See Exhibit A-I-7) 

全国农业机械化发展第

十一个五年规划 MOA 08-26-2006 

6 

Development Guideline for the Food Processing 

Industry during the 11th 5-Year Period. (See Exhibit 

A-I-8) 

全国食品工业 “十一五” 

发展纲要 MOA 10-19-2006 

7 

Development Plan for the National Quality and 

Safety Inspection System for Agricultural Products 

(2006-2010). (See Exhibit A-I-9) 

全国农产品质量安全检

验检测体系建设规划 MOA 10-2006 

8 National Grain Production Development Guideline. 全国粮食生产发展规划 MOA 10-12-2006 

9 11th 5-Year Guideline for Rural Market System 

Development. (See Exhibit A-I-13) 

农村市场体系建设“十

一 五” 规划 MOFCOM 10-30-2006 

10 

National 10-Year Development Guideline for Rice 

Farming Mechanization (2006-2015). (See Exhibit 

A-I-11) 

全国水稻机械化 10 年

发展规划 MOA 11-16-2006 

11 11th 5-Year Guideline for the Feeds Industry. 饲料工业十一五发展规

划 MOA 09-18-2006 

12 Development Plan for the National Agricultural 

Products Market during the 11th 5-Year Period. 

“十一五"时期全国农产

品市场体系建设规划 MOA 12-15-2006 

13 11th 5-Year Development Guideline for Village and 

Township Enterprises. (See Exhibit A-I-14) 

乡镇企业“十一五”发展

规划 MOA 12-13-2006 

14 Rural Specialized Agricultural Cooperative 

Promotion Act 

中华人民共和国农民专

业合作社法 NPCSC*** 10-31-2006 

15 

Development Guideline for the Agricultural 

Processing Industry during the 11th 5-Year Period. 

(See Exhibit A-I-10) 

农产品加工业“十一

五”发展规划 MOA 12-2006 

* MOA = Ministry of Agriculture 

** MOFCOM = Ministry of Commerce 

*** NPCSC = Standing Committee of the National People's Congress 

Among these guidelines, the Development Guideline for Agriculture and the Rural 

Economy during the 11th 5-Year Period 13 is the master document that lays out the principal 

 

13 Development Guideline for Agriculture and the Rural Economy during the 11th 5-Year Period

(August 8, 2006). See Exhibit A-I-3. 
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policy goals and implementation measures for agriculture and rural areas. Box 1 below presents 

a summary of this guideline. 

Box 1 

The National Agriculture and Rural Economy 

Development Guideline for the 11th 5-Year Period

The MOA released this principal Guideline for Agriculture and the Rural Economy in August 2006. 

After reviewing the achievements made during the 10th 5-year period (2000-2005), the Guideline identified 

the following major challenges for the agricultural sector. 

(1) The agricultural industry is faced with resource and environmental constraints resulting from economic 

development. The total acreage of cultivated land is unavoidably diminishing over time as a result of 

population growth and urbanization. The shortage of water supply has been a chronic problem, and is 

exacerbated by the wasteful use of water for which China has yet to find a solution. The rural areas are 

also facing the problem of energy supply shortage; yet not enough attention has been paid to develop 

renewable resources. 

(2) Low levels of investment and capital accumulation in agriculture results in the sector being excessively 

dependent on natural weather conditions. There are not enough irrigation works to defend the 

agricultural sector against unfavorable weather conditions. 

(3) After the reduction of tariff rates, the agricultural sector is now facing intensified market competition 

from imports. 

(4) The small scale of agricultural operations leads to a low level of productivity, which makes the task of 

raising farmer income levels enormously difficult. 

(5) The national disease and epidemic control system have not been receiving enough investment from the 

government in recent years; the system is even less efficient today than it used to be. 

Based on this assessment of the situation, the Guideline lists three principal goals to be achieved 

during the 11th 5-year period: 

(1) To safeguard the grain production capacity so as to achieve food supply self-sufficiency. 

(2) To make sustained improvement in labor productivity levels and farmer income. 

(3) To achieve harmonious development in the rural society. 

The Guideline then highlights nine development measures, as listed below, to achieve these three 

goals. 

(1) Raising grain production capacity and stabilizing grain planting acreage. Efforts will be concentrated 

on the main grain production counties; the existing cultivated land will be strictly protected; measures 

will be taken to stabilize aggregate grain-planting acreage; and the government will subsidize highquality grain strains research and popularization projects, as well as projects to upgrade the fertility 

level of the cultivated land. 

(2) Speeding up technology innovation and the application process; upgrading the technology level of 

agricultural production. 

(3) Optimizing the structure of the agricultural industry; developing commercialized agricultural 

production. 

(4) Changing the development pattern of the industry; developing resource-efficient and environmentallyfriendly methods of production. 
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Box 1 (Continued) 

The National Agriculture and Rural Economy 

Development Guideline for the 11th 5-Year Period

(5) Strengthening the country’s ability to control diseases and epidemics, and its ability to handle natural 

disasters. 

(6) Intensifying implementation of agricultural production standards; improving the safety and quality 

level of agricultural products. 

(7) Continuously deregulating the rural economy; promoting a market-oriented agriculture industry. 

(8) Diversifying farmer income sources; achieving sustained income increases for farmers. 

(9) Speeding up the construction of public facilities in the countryside; fostering the development of a 

grass-roots democratic political process. 

In particular, the government sees an urgent need to increase investment in the agricultural industry 

and rural areas. The Guideline calls for continuously increasing governmental financial support for the 

agricultural industry, and expanding the coverage of public fiscal support in rural areas. The government 

will establish a system that guarantees a stable increase in funds supporting agriculture. The focus of the 

national infrastructure development will be shifted gradually from urban areas toward rural areas. The 

government will ensure an accelerated increase of budget allocations each year for the three-rural projects. 

The new additions of national spending on education, hygiene and cultural support shall be primarily used 

for rural areas. 

The Guideline urges the central and local governments to focus their infrastructure investments in rural 

areas, increasing investment in the “Grand Seven Systems.” 14 Local fiscal allocations shall favor 

agricultural investment, and local authorities shall make efforts to diversify revenue sources to alleviate the 

burden on agriculture and to guarantee sufficient investment for the sector. Local government may raise 

the fees for converting cultivated land for commercial use, and shall apply the proceeds exclusively for 

developing new cultivated land. 

The government will deepen reform of the investment management system for rural projects. For 

projects that are entirely or partially developed with public funds, the information of the project must be 

disclosed to the public, and contracts will only be granted through a bidding process. The local government 

will trace the usage of public funds, conduct audits and assessments of projects, ensure that the funds are 

used properly, and guarantee the quality of the projects. More rural and agricultural projects will be open 

to private investments. The government may undertake measures such as discounted loans, subsidies, and 

tax preferences, or direct public investment as guidance for private investment, and will encourage private 

capital investments in agricultural and rural infrastructure programs. 

The central authority will gradually improve the agricultural subsidization system, and continue 

subsidizing farmers or rural enterprises in adopting improved crop strains and livestock breeds, purchasing 

agricultural machinery, and developing or popularizing new agricultural technology. 

 

14 The term “Grand Seven Systems” refers to the following systems: (1) improved crop strains/animal breeds 

system; (2) agricultural technology innovation and application system; (3) animal and plantation protection 

system; (4) agricultural products quality and safety system; (5) agricultural products market information 

system; (6) agricultural resources and ecological protection system; and (7) socialized agriculture service and 

management system. See Development Guideline for Agriculture and the Rural Economy during the 11th 5-

Year Period (August 8, 2006) at section I.1.6. See Exhibit A-I-3. 
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3. Level of China’s Agricultural and Rural Support 

As noted above, the Chinese government in recent years has benefited from a steady and 

substantial revenue boom. Increased government income has made large increases in 

agricultural support possible. The most recently-published official data show that the 

government spent RMB 297.5 billion (roughly USD $37.18 billion, based on an exchange rate of 

8 RMB per 1 USD) in 2005 on the “three-rural” projects, a 13.3 percent increase from the 

previous year. The increase in agriculture funding was faster than the GDP growth rate, but 

slower than the growth in government revenue, which was 19.7 percent for 2005. The largest 

category of expenditure by the central government was infrastructure projects investment. A 

total of RMB 81.3 billion was directly invested in rural and agricultural infrastructure projects in 

2005; another RMB 9.85 billion was used for upgrading cultivated land. A further RMB 27.83 

billion was expended to improve the education and hygiene systems in rural areas.15 

The second largest expenditure category was farmer income support. China abolished 

the national agriculture tax in 2005. The government allocated RMB 66.2 billion in the budget 

to offset the impact of this huge tax cut, which is estimated to have alleviated the tax burden on 

RMB 120 billion of farmer income.16 Another RMB 17.47 billion was distributed directly to 

farmers in compensation for grain production and the purchase of improved crop strains and 

agricultural machinery.17

 

15 See MOF, 2006 Budget Report to the National People’s Congress (March 17, 2006); available at 

http://news.xinhuanet.com/misc/2006-03/17/content_4313792.htm. See Exhibit A-I-18. 

16 Interview with Wuyun Qimuge, Vice Chairman of the NPC; available at http://www.mof.gov.cn/news/ 

20061220_2115_22840.htm. 17 See MOF, 2006 Budget Report to the National People’s Congress (March 17, 2006). See Exhibit A-I-18. 
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For 2006, the budget for “three-rural” projects was set at RMB 339.7 billion at the central 

government level, a 14.2 percent increase from 2005; actual expenditure reached RMB 351.7 

billion. In 2007, the government allocated RMB 391.7 billion for total “three-rural” 

expenditures; another RMB 223.5 billion will be used to provide free education in rural areas.18

As reviewed above, Chinese government support to agriculture and rural areas has been 

increasing at a rapid rate in recent years. To gauge how large the government support is, it is 

useful to compare the level of support provided by China to the level of support that various 

OECD members provide to their farmers. This comparison shows that China provided more 

support under at least one measurement – the Total Support Estimate (TSE)19. As measured by 

TSE, which includes support for agriculture infrastructure and direct budgetary transfers, China’s 

support to agriculture is equivalent to 3.3 percent of its GDP for the 2000-2003 period, which is 

higher than the OECD average level of support (1.25 percent) for the same period.20 The level of 

support for China’s farmers, as calculated using the OECD’s Producer Support Estimate (PSE), 

reached 6 percent of gross farmer receipts for the period of 2000-2003, which was only one-fifth 

of the OECD average level of support (31 percent) and far below the level of support in Japan

and Korea (58 percent and 64 percent, respectively).21 This low PSE is due to the fact that the 

 

18 Wen Jiabao, PRC Premier Report to the National People’s Congress on the Work of the Central Government, 

XINHUA NEWS AGENCY (March 5, 2007); available at http://news.xinhuanet.com/misc/2007-03/05/content 

_5801368.htm 

19 The TSE is the broadest measure of support, which is the sum of transfers to agricultural producers (i.e., the 

Producer Support Estimate, or PSE), expenditures for general services (i.e., the General Services Support 

Estimate, or GSSE), and direct budgetary transfers to consumers. Thus, the TSE directly measures the total 

level of support to the agricultural sector in the context of the overall economy. See OECD Review of 

Agricultural Policies: China (2005) at 141. 

20 OECD Policy Brief: Agricultural Policy Reform in China (October 2005) at 5; available at http://www.oecd. 

org/dataoecd/3/48/35543482.pdf. 21 Id.
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majority of China’s agricultural support went to expenditures for general services such as 

agriculture infrastructure investment, which is not included in the PSE calculation. 

The OECD has observed that one positive feature of China’s agricultural support is its 

relatively high General Service Support Estimate (GSSE) as compared to total support. The 

GSSE calculates the cost to the economy of investment in rural infrastructure, advisory services, 

training, research and development, and inspection services, which are believed to be less tradedistorting than other types of agriculture support. China’s GSSE accounted for 72 percent of the 

TSE in 2000 and for 51 percent in 2003, much higher rates than the OECD average of 18 percent 

for comparable periods.22

The OECD has noted, however, that “[w]hile the overall producer support is low, the 

levels of support for commodities facing import competition, such as sugar, milk, sheep meat, 

cotton and soybeans, as well as export commodities” is significant.23 And the support “is 

dominated by price support and input subsidies, among the least efficient and most trade 

distorting ways of providing agricultural assistance.”24

 

22 OECD Review of Agricultural Policies: China (2005) at 143. 23 OECD Policy Brief: Agricultural Policy Reform in China (October 2005) at 5. 24 Id.
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Table 2 

2005 Central Government “Three-Rural” Expenditure (billions) 

Expenditure category RMB USD % 

1 Rural infrastructure investment 81.3 10.16 27.3

2 Agricultural tax cut offsetting expenditure 66.2 8.26 22.3

3 Investment in agricultural infrastructure, such as irrigation, and weather 

forecast systems 53.5 6.69 17.9

4 Various agricultural production subsidies 43.2 5.40 14.5

5 Rural education, hygiene and technology development support 18.9 2.36 6.4

6 Poverty alleviation direct subsidies 13.0 1.63 4.4

7 Agriculture comprehensive development investment 9.9 1.24 3.3

8 Other “three-rural” expenditures 11.5 1.44 3.9

 TOTAL 297.5 37.18 100

Source: PRC Ministry of Finance and the State Statistics Bureau. 

B. THE FRAMEWORK OF CHINA’S AGRICULTURAL SUPPORT MEASURES

1. Primary Policy Objectives 

Historically, the primary agricultural policy objective for the Chinese government was 

maintaining a sufficient food supply at stable prices. Under the 11th 5-Year Guideline, however, 

although food security remains one of the key policy objectives, raising farmers’ income and 

achieving overall development of the rural area are given equal priority to food security. The 

Guideline also highlights two additional key policy objectives: (a) promoting the efficiency of the 

sector, and (b) protecting the environment. Food security is to be achieved primarily through 

subsidizing grain production, supplemented by technology innovation. China has an abundant 

supply of labor but not of cultivated land; thus, producing low-yield products like grains is not as 

financially rewarding as raising more labor-intensive specialty crops. The government is

fighting an uphill battle trying to encourage farmers to produce grain. It has been relying 
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primarily on direct support to farmers and other subsidy programs to induce grain production. 

Achievement of other policy objectives will depend more on raising the level of productivity 

through measures that induce capital investment in the sector, optimize the industrial structure 

and promote trade. The following sections discuss in detail the measures employed to achieve 

these policy objectives. 

2. Administrative Structure and Legal Authorities 

Agriculture and rural development falls within the province of various government 

agencies at each administrative level.25 At the national level, the National Development and 

Reform Commission (NDRC), the Ministry of Agriculture, and the Ministry of Commerce 

(MOFCOM) are the principal entities that initiate and administer national agricultural support 

plans. These plans are then implemented through the Ministry of Finance (MOF) or the People’s 

Bank of China (PBC), which is China’s central bank,26 when the allocation of public funds is 

involved, or through the State Administration for Taxation (a branch of MOF) if the program 

calls for preferential tax treatments. Sub-national governments frequently launch supporting 

programs in accordance with the particular situations of their respective regions. 

No specific legislative delegation is required for launching an agricultural support 

program. Legislation, the relevant 5-year guidelines, and CCP or State Council policy directives 

are all competent authorities for government agencies to allocate public funds for an agricultural

 

25 The report by the WTO Secretariat in the 2006 Trade Policy Review of China estimated that at least 16 

institutions in the central government are involved in administering agriculture and its upstream and 

downstream sub-sectors. See Trade Policy Review – People’s Republic of China; Report by the Secretariat, 

WT/TPR/S/161/Rev.1 (26 June 2006) at 165. 

26 For example, it is believed that the PBC injected capital worth RMB 160 billion for reform of rural credit 

cooperatives. See infra at section I.B.3.a.ii.a (Rural Credit Cooperatives Reform). 
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support program as long as the matter falls within their recognized jurisdiction and the funds are 

available to the agency. Coordination between agencies has been difficult to achieve.27 The 

following section presents a snapshot of China’s agricultural support programs based on 

publicly-available information. 

3. Major Agricultural Support Measures 

This section provides a brief introduction to the support measures that have been laid out 

in China’s 11th 5-Year Guideline and the implementation guidelines subsequently issued. The 

measures are roughly grouped into domestic measures, trade measures, environmental measures, 

and other measures. Domestic measures cover six aspects: agricultural input, loans, market 

system, industrial structure, technology, and food security. Trade measures include border 

measures that manage exports and imports of agricultural products and export promotion 

measures. Environmental protection has become a key area that is drawing increasing attention. 

A separate section is devoted to the discussion of measures aimed at reducing the environmental 

impact from economic development. Finally, other measures basically cover infrastructure 

investments. 

a. Domestic Support 

i. Subsidizing Agricultural Inputs 

The primary means through which the government channels fiscal funds into the 

agricultural sector are subsidies for agricultural inputs. The MOF annual fiscal report 

summarized the central government’s agricultural subsidy programs as “three subsidies policy

 

27 See Trade Policy Review – People’s Republic of China; Report by the Secretariat, WT/TPR/S/161/Rev.1 (26 

June 2006) at 165. 
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(San Butie Zhengce),” i.e., (a) subsidies for purchasing improved crop strains/animal breeding 

stock, (b) subsidies for purchasing agricultural machinery, and (c) direct subsidies to grain 

farmers.28 Two of these three subsidies are for agricultural production inputs. 

Improved crop strains/animal breeds popularization subsidies (Liangzhong Butie) are 

distributed directly to farmers who purchase improved seeds or livestock breeding stocks 

recommended by the government. In 2002, the government provided RMB 100 million in 

improved crop strain subsidies for high-yield soybean seeds, covering 10 million mu (0.6 million 

ha). Certain wheat farmers, covering about 30 million mu (2 million ha) in wheat planting 

acreage, also received subsidies in 2003. By 2004, subsidized crops included wheat, rice, maize, 

and high-yield soybeans. The 2006 MOF fiscal report to the NPC reveals that, in 2005, the 

government, both central and sub-national, distributed RMB 3.87 billion in subsidies for the 

purchase of improved seeds/breeding stocks.29 

The other important agricultural input subsidy is for farming machinery. Farmer co-ops 

that purchase farming machines are entitled to reimbursement from the government of up to 30 

percent of the purchasing price.30 In 2005, the government distributed RMB 300 million in 

agricultural machinery purchasing subsidies.31

 

28 See MOF, 2006 Budget Report to the National People’s Congress (March 17, 2006). See Exhibit A-I-18. 

29 See id. (Exhibit A-I-18). For example, the Jiangsu provincial government has allocated RMB 80 million in 

subsidies for the purchase of high-quality rice strains. See Jiangsu launches its improved rice strain 

popularization support program, JIANGSU AGRICULTURAL INFORMATION NETWORK (February 24, 2006); 

available at http://www.agri.gov.cn/ztzl/qtbjhflssc/xdcs/t20060224_557980.htm. 30 See Fred Gale, et al., China’s New Farm Subsidies (USDA, Economic Research Service Outlook Report WRS05-01, February 2005) at 6 (hereinafter “USDA-ERS China Subsidies Report”); available at 

http://www.ers.usda.gov/publications/WRS0501/WRS0501.pdf. 

31 See MOF, 2006 Budget Report to the National People’s Congress (March 17, 2006). See Exhibit A-I-18. 

Distribution reports for these funds are available from MOA’s website. See http://www.agri.gov.cn/cwgk/. 
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In addition, China has subsidized fertilizer in an effort to reduce production costs for the 

agricultural industry. In the Trade Policy Review of China conducted in 2006, the WTO 

Secretariat noted: “China has sought to reduce the cost of agriculture input through measures 

including tax relief for manufacturers and service providers; and price regulation of essential 

services. For example, to lower prices of fertilizers, fertilizer producers have been given access 

to lower price electricity; and are exempted from VAT.”32

ii. Facilitating Farmers’ Access to Affordable 

Loans 

To promote investment in agriculture and rural areas, in recent years the government has 

encouraged banks and rural credit cooperatives (RCCs) to increase loans to farmers. 

Notwithstanding that income in the countryside lags far behind that in urban areas, savings from 

rural areas are continuously flowing into urban areas and exacerbating the deficiency of 

investment in rural areas.33 Outstanding agricultural loans account only for 5 percent of the 

national total, while agriculture contributes 13.1 percent of the GDP.34 The agriculture sector 

and rural areas are viewed as being significantly underserved by China’s financial institutions at 

the present time. Official statistics show that, in 2005, only 60 percent of farmers with both a 

need and credit qualification, have ready access to bank loans.35 Similarly, a report from the 

Economic Research Service of the U.S. Department of Agriculture regarding new directions in 

 

32 See Trade Policy Review – People’s Republic of China; Report by the Secretariat, WT/TPR/S/161/Rev.1 (26 

June 2006) at 175. 

33 See Representatives Calling for Increasing Financial Service to Agriculture, XINHUA NEWS (March 8, 2006). 

34 See Fred Gale & Robert Collender, New Directions in China’s Agricultural Lending (USDA, Economic 

Research Service Outlook Report WRS-06-01, January 2006) at 11 (hereinafter “USDA-ERS China Lending 

Report”); available at http://www.ers.usda.gov/publications/WRS0601/WRS0601.pdf. 

35 Interview with Wu Xiaolin, Vice Governor of the Central Bank, PRC; available at http://nc.people.com.cn/ 

GB/61160/4951484.html. 
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China’s agricultural lending found that, although almost all of the farmers who sought loans 

during 2004 managed to secure some lending, only half of the loans were obtained from an RCC 

or a bank; the other half were financed by family and friends.36

It is no surprise that rural areas are underserved by China’s financial institutions. China’s 

farming operations are mostly small in scale and are spread across remote areas far from the 

urban sites of the major financial institutions. As a result, administrative costs and loan risks 

involved in lending to rural areas will be relatively high. In addition, costs and risks are high 

because no security interests can be legally attached to rural land, and farmers usually lack other 

assets that could serve as collateral for secured lending. Further, the government normally has 

maintained a mandatory lending rate ceiling to protect farmers, which made lending to higherrisk farmers unattractive. For example, during the RCCs reform, the State Council limits the 

maximum rate lenders can charge to twice the bench market rate set by the PBC.37

In recent years, the government has introduced many pilot programs to improve access to 

loans for farmers. The most important of these is the program to revitalize Rural Credit 

Cooperatives (RCCs). Rural Micro Loans and the Joint-Guarantee Group Lending Program are 

two new pilot programs designed to achieve the same purpose. The Postal Bank reform is

another measure which has allowed the bank to extend loans to rural areas. In the past, the 

Postal Bank accepted deposits from farmers, but was not allowed to conduct retail lending. 

 

36 See USDA-ERS China Lending Report at 11. 

37 See State Council Notice on Pilot Programs for the Deepening of RCC Reforms, Guo Fa [2003] No. 15. See

Exhibit A-I-17. 
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a. Rural Credit Cooperatives Reform 

The Agricultural Bank of China (ABC), the Agricultural Development Bank of China 

(ADBC), and the China Development Bank (CDB) all service rural areas. However, the 

financial services market in rural areas traditionally has been dominated by some 35,000 RCCs, 

which in 2005 provided 81 percent of rural loans.38 The vast majority of these RCCs, however, 

have been operating at or near losses for a number of years because of nonperforming loans. 

Statistics for 2002 show that, out of RMB 557.9 billion in total outstanding loans from RCCs, 

nonperforming loans (NPLs) accounted for RMB 330 billion.39 The RCCs had a negative capital 

ratio of 8.45 percent at the time, since net capital was a negative RMB 121.2 billion.40

In 2003, the State Council allowed experimental reform to be carried out in eight 

provinces and cities, which was later expanded nationally in August 2004. 41 Under this 

experimental reform, provincial and local authorities were expected to increase their capital in 

the RCCs, and the PBC was to provide the participating RCCs with Special Central Bank Bills to 

allow the RCCs to write off part of their NPLs that qualified as “historical burden.” While these 

bills are not transferable, they will be redeemed by the Central Bank once the RCCs have met 

certain prescribed criteria such as capital sufficiency. By 2005, the Central Bank issued nearly 

RMB 160 billion in Special Bills to some 2300 RCCs.42 The State Council also requested that 

 

38 Muren, RCC Reform is Showing Positive Results, PEOPLE’S DAILY (August 18, 2005); available at 

http://finance.people.com.cn/GB/1040/3624637.html. 

39 Id. 40 Id.

41 See Council Notice on Pilot Programs for the Deepening of RCC Reforms, Guo Fa [2003] No. 15. See Exhibit 

A-I-17. 

42 See David Scott and Wang Jun, Developments and Prospects for Rural Finance in China, Stanford Center for 

International Development Working Paper No. 292 (September 2006) at 7 (hereinafter “Rural Finance in China 

Report”); available at http://scid.stanford.edu/pdf/SCID292.pdf. This number is consistent with the USDA-
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local and provincial governments inject funds at a similar magnitude as the central government 

in order to alleviate the old NPLs problem for the RCCs.43

Tax breaks have also been provided to the RCCs to reduce their operational costs. The 

State Tax Administration issued a notice in January 2004 which exempted RCCs in the west 

region, and in Jiangxi and Jilin provinces, from corporate income tax, reduced income tax rates 

by half for the rest of the regions participating in the experimental reform, and applied a reduced 

3 percent operational tax rate for these RCCs.44 After this experiment was extended to other 

provinces and cities, the tax breaks followed as well, with Jiangxi and Jilin provinces being recategorized into the group that enjoyed an income tax rate half that of the normal rate.45

In addition to injecting more funds into the RCCs, the provincial governments have 

coordinated consolidation of RCCs. Under this policy, RCCs in some economically-developed 

regions, most of which are in a relatively healthy financial status, are merged into rural 

commercial banks or rural cooperative banks, and RCCs in less-developed regions are merged 

into RCC Unions (RCCU), usually one RCCU for each county, which are supervised by a

provincial-level rural credit cooperative union. The provincial level RCCU also provides 

services to the county-level RCCU.46

 ERS China Lending Report, which estimated that the Central Bank has spent roughly USD $20 billion to clean 

up the old NPLs for the RCCs participating in the experimental reform program. See USDA-ERS China 

Lending Report at 7. 

43 Id. 44 SAT, Notice on Experimental Area RCCs Tax Policy, Cai Shui [2004] No. 35. See Exhibit A-IV-28.

45 SAT, Notice on Expending Experimental Area RCCs Tax Policy, Cai Shui [2004] No. 177. See Exhibit A-IV29. 46 See Rural Finance in China Report at 7. 
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By 2005, the original 2300 RCCs that participated in the reform were consolidated into 9 

Rural Commercial Banks (Joint Stock Banks, or Gufenzhi Yinhang), 40 rural cooperative banks, 

and 175 county-level RCCUs.47

The RCC reform program has produced positive results. By mid 2005, although the 

RCCs still carried RMB 385.1 billion in NPLs on their books, the NPL ratio was reduced to 17.5 

percent. When their aggregate outstanding loans doubled to RMB 2.1968 trillion, the RCCs 

managed to roughly stabilize the total amount of NPLs.48 The RCC reform appears to have 

benefited from capital infusion from the Central Bank. The USDA-ERS China Lending Report 

suggests that the Central Bank has committed funds to cover up to 50 percent of the RCCs’ 

nonperforming loans.49 A report by the National People’s Congress Committee estimated that 

the Central Bank provided funds of RMB 165.8 billion in relation to the RCC reform. 50 

Although no information is available regarding support from the sub-national governments, the 

PBC’s policy has been that it would redeem the Special Bills only on the condition that the 

RCCs obtain capital infusions from local governments.51

 

47 Id.

48 Wuyun Qimuge, Agricultural loans increase markedly, XINHUA NEWS AGENCY (December 27, 2006); 

available at http://202.123.110.3/jrzg/2006-12/27/content_481251.htm. 

49 See USDA-ERS China Lending Report at 7: “Loans from the Peoples Bank of China to RCCs supported the 

increase in agricultural lending, and the central government has committed roughly $20 billion to cleaning up 

old nonperforming loans in RCCs.” In 2003, about $99 billion in new agricultural loans were issued. Id. at 5. 

In 2003, about 37% of RCC loans were nonperforming. Id. at 7. Thus, the $20 billion commitment from the 

central government is equal to about half of the RCCs’ nonperforming loans. See also Rural Finance in China 

Report at 7 (The “central government agreed to purchase half the so-called ‘historical burden’ of {RCCs’} 

non-performing loans ....”). 

50 Wuyun Qimuge, Agricultural loans increase markedly, XINHUA NEWS AGENCY (December 27, 2006). 51 See Rural Finance in China Report at 7: “More specifically, with the support and encouragement of provincial 

and county governments, the RCCs are to raise additional capital to offset at least some of their capital 

deficiency. In return the central government agreed to purchase half the so-called “historical burden” of nonperforming loans with special PBC bills which pay interest but cannot be sold or borrowed against. Beneficiary 
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b. Micro Loans and Joint-Guarantee Group 

Lending Programs 

In addition to revitalizing the RCCs, the government has also initiated two major 

programs to increase the flow of funds to rural areas: the rural micro loans and rural jointguarantee group lending programs. While the details of these two pilot programs are not yet 

available, it appears that, under these two programs, through the coordination of the local 

authorities, the banks and RCCs have agreed to delegate their credit rating functions to local 

commissions, which are believed to be better situated to assess the creditworthiness of the 

farmers within their villages. This will reduce both the risks and administrative costs for 

extending loans. Also, such commissions are able to apply peer pressure on debtors when loans 

are not serviced in a timely manner. 

The China Development Bank (CDB), the largest official policy lender, is conducting a 

program named Micro- and Small- and Medium-Enterprise Finance Pilot (MSME). In 2005, 

CDB established a branch tasked with providing lines of credit and technical assistance to local 

banks (partner banks) interested in providing loans to small businesses, presumably including 

farmers. Loans provided under this program range between RMB 100 and RMB 500, 000. In 

early 2006, CDB launched an experimental program in two cities: Baotou (Inner Mongolia 

Autonomous Region) and Taizhou (Zhejiang Province). In both cities, CDB partnered with the 

two local city banks, provided the local banks with credit lines and technical support; and used 

the branch network of the two local banks to reach farmers and other small businesses.52

 RCCs are then to raise additional capital and take steps to improve governance. If, after two years, the RCC 

has met these and other criteria, the PBC will redeem the bills.” 52 See Rural Finance in China Report at 9-10. 
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The PBC is also conducting its own experiment with micro loans. A pilot program was 

launched in Pingyao County (Shanxi Province) in 2005. Under this pilot program, credit 

companies formed by private investors are allowed to extend loans to local small businesses 

under the guidance of the local government and the PBC. A similar pilot program launched in 

Sichuan will allow international investors to join such credit companies. The credit companies 

are not allowed to accept deposits from farmers or rural communities, but must rely exclusively 

on capital contributions of the owners for funds.53

c. Loan Guarantee Companies 

In China, lending to farmers is hindered by the fact that no security interest may legally 

be attached to collectively-owned land in rural areas.54 Experiments have been conducted with 

various new loan guarantee mechanisms. The central government is encouraging local 

authorities at the city and county level to use their revenue income to fund some agricultural loan 

guarantee institutions, and to allocate part of their budgets to compensate for the anticipated 

operating losses of these guarantee institutions.55

d. Agricultural Insurance Services 

The government has also introduced measures encouraging insurance institutions to 

extend their services to farmers. The China Insurance Regulatory Commission (CIRC) initiated 

pilot programs for agriculture insurance reform in 2004. Three licenses were issued to 

companies that specialized in providing agricultural insurance in Shanghai, Jilin and 

 

53 See Rural Finance in China Report at 10-11. 

54 See Land Administration Law of the People’s Republic of China (revised 2004). 

55 See Fang Likui, Finding a Solution to the Three Obstacles in Promoting the Agricultural Industry and the 

Farmers’ Income; available at http://www.zjagri.gov.cn/html/main/zjModernAgriView/2006012664447.html. 
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Heilongjiang provinces, respectively. The three companies conducted different pilot programs to 

test three business models. Under one of the models, the insurance company operates on a 

commercial basis while the insured receives a subsidy to cover part of the insurance premium 

cost. In the other two models, the government is directly involved in the operation of the 

insurance company. In these two cases, the local government either acts as the insurer itself and 

contracts out clerical functions such as contracting, adjustment and indemnification services, or 

forms a joint venture with a commercial insurance company. These programs have been 

expanded to other provinces. By the end of 2006, 90 percent of provinces had joined this 

program. In 2005, the rural insurance industry saw an 89 percent increase in premium income, 

and 100 percent growth in insurance compensation payments. 56 By 2006, total insurance 

premiums reached RMB 850 million, reversing what had been a downward trend since 1994.57

This program relies heavily on local government fiscal support. In Jiangsu province, 

three different models of operations were adopted. In Huaian City, the city government formed a 

joint venture with a commercial insurance company. Under this arrangement, the commercial 

insurance company conducts the daily operation of the joint venture for a management fee equal 

to 20 percent of the premium income, and is responsible for 30 percent of the indemnification 

payments, while the city government subsidizes 50 percent of the cost of premiums to the 

insured. 

 

56 See Wuyun Qimuge, Agricultural loans increase markedly, XINHUA NEWS AGENCY (December 27, 2006). 

57 See Xiaomei Mao, Every Year for the Last 4 Years, the No 1 Central Document has Urged for More 

Agriculture Insurance Service, XINHUA NEWS AGENCY (January 31, 2007); available at 

http://www.gov.cn/jrzg/2007-01/31/content_514180.htm. 
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In Suzhou City, the local government subsidizes 60 percent of the insurance premium 

payments for four types of farming operations: rice farm, tree seedling nursery, pig breeds stock 

nursery, and fresh water fish farm. Under this program, through a public bidding process, the 

city government selects a commercial insurance company to operate the agricultural insurance 

service. The company will be awarded 11.45 percent of the premium income as compensation 

for its management services. Insurance indemnification payments will first be made out of the 

paid-in premiums. The portion of the indemnification payment that exceeds the paid-in 

premiums will be borne by the commercial insurance company and local government in the 

proportion of 1:9. In 2006, 1125 agricultural insurance policies were issued with premium 

income reaching RMB 15.75 million.58 

iii. Developing an Integrated National Market for 

Agricultural Products 

In anticipation of a continuing increase in demand for agricultural goods as the economy 

expands, the Chinese government released two guidelines in late 2006 to lay out a blueprint for 

building more efficient channels of commerce in rural areas. 59 The channels planned are 

comprised of three major components. At the base level is the “Ten Thousand Village, One 

Thousand Township Market Project.” This project envisions a basic commercial distribution 

channel in rural areas comprised of tens of thousands of standardized convenience stores similar 

 

58 See Jiangsu Creates Three Models of Agricultural Insurance, CHINA FINANCE NET (March 16, 2007); available 

at http://news.zgjrw.com/news/2007316/news/650576239110.html. 

59 The two guidelines are: (1) MOA, Development Plan for the National Agricultural Products Market during the 

11th 5-Year Period, Nong Shi Fa [2006] No. 21 (see Exhibit A-I-12), and (2) MOFCOM, 11th 5-Year 

Guideline for the Rural Market System Development., Shang Jian Fa [2006] No. 535 (see Exhibit A-I-13). 
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to the general stores in the United States, but, preferably, to be run according to a chain-store 

business model. 

These stores are expected to cover 85 percent of the townships and 65 percent of the 

administrative villages by 2010. They are aimed at satisfying the basic needs of farmers arising 

out of household consumption and agricultural production. 60 In addition to performing the 

functions of a general store, these township and village convenience stores will also be the main 

channel of commerce for purchasing farm products and the main channel through which 

agricultural production-related services are provided, such as market information, agriculture 

machinery rental services, and technology consulting services. The government also envisions 

that these chain stores may themselves organize local farmers into large scale commercialized 

farming operations, thus achieving the vertical integration of distribution and production. To 

meet the goal set for 2010, various levels of government are encouraging chain grocery stores in 

the cities to expand into rural areas. 

At a more advanced level of trade is the “Two-Hundred Project.” Under this program, 

the government will establish around 100 agricultural commodity exchanges across the nation 

and will, at the same time, incubate 100 or so commodity trading companies to serve as the 

market makers for various agricultural commodities.61 The government has not yet released 

specific details about this plan. The third component of this system will be 10 large enterprises 

that have annual turnovers above RMB 10 billion, and are engaged in manufacturing or trading 

 

60 See 11th 5-Year Guideline for the Rural Market System Development., Shang Jian Fa [2006] No. 535 at 

Chapter 3, Section 2 (hereinafter “Rural Market Development Plan”). See Exhibit A-I-13. 

61 See MOA, Development Plan for the National Agricultural Products Market during the 11th -5 Year Period, 

Nong Shi Fa [2006] No. 21. See Exhibit A-I-12. 
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agricultural production material and equipment, such as seeds, animal breeding stocks, fertilizer, 

and agricultural machinery. The government favors an oligarchic market structure for the 

purposes of ensuring product quality and production efficiency. At the same time, the 

government is maintaining a certain level of competition in the market.62

The two guidelines do not specifically address whether foreign companies will be 

allowed to enter the rural distribution market. It is clear, however, that the government does not 

intend to create an administrative entry barrier. The guidelines expressly state that, 

notwithstanding that the government will support some leading companies, the government 

encourages private entry into those markets unless the law specifically precludes entry. The 

guidelines also anticipate that the number of private enterprises serving the distribution channel 

will increase from 20,000 today to 40,000 by 2010. In providing support to 1000 leading private 

enterprises, the government’s policy goal is to establish a mature market structure at the earliest 

possible time.63

In addition to establishing the channels of commerce, the government recently has made 

efforts to facilitate the flow of agricultural products within the channels of commerce by 

establishing nationally-unified product standards, improving the inspection and quality/safety 

certification systems for agricultural products, and by taking other measures as well.64 Since 

2003, MOA has allocated around RMB 30 million each year for product standard setting and 

 

62 See Rural Market Development Plan at Chapter 3, Section 3. 

63 See Rural Market Development Plan at Chapter 3, Section 1. 

64 See MOA, Development Plan for the National Quality and Safety Inspection System for Agricultural Products 

(2006-2010). See Exhibit A-I-9. 
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updating purposes.65 Box 2 below provides a detailed review of the government’s plans to 

improve the inspection and quality/safety certification systems for agricultural products. 

Box 2 

Agricultural Products Quality and Safety Inspection System Development

Development Plan for the National Quality and Safety Inspection 

System for Agricultural Products during the 11th 5-Year Period 

The guideline notes that, in the past, the government’s agricultural policy mainly focused on increasing 

production capacity. After China graduated from a subsistence economy into a relatively affluent one, the 

quality and safety of agricultural products drew more attention as the increased use of fertilizer, chemical 

pesticides, feed additives and hormones caused much concern. The guideline points out that an effective 

national quality and safety inspection system is indispensable for the structural adjustment of the 

agricultural industry to be successful, and is necessary for increasing the efficiency of the industry and 

raising farmer income, as well as for increasing the global competitiveness of China’s agricultural products. 

Fast economic development and the active importation of advanced agricultural production technology 

have put pressure on China’s products inspection system. The system today is not capable of conducting 

the quality and safety inspection for many high-tech products that is necessary to meet elevated inspection 

requirements. For example, the recent inspection standard for vegetables requires conducting inspections 

on 48 properties of the products. Yet only 5 inspection centers in the country have the inspection 

technology and equipment to conduct the tests/inspection required. Most of the inspection centers lack 

experienced and qualified staff members, and there has not been enough government investment in this 

area in recent years. As a result, the producers bear a disproportionate share of the inspection cost, unlike 

in most industrialized countries where the cost is mostly paid for by public funds. 

To improve the inspection capability, in addition to specifying technical requirements for the 

inspection centers, the guideline lays out a blue print for future development, which includes constructing 

one national research center for agricultural products quality standard and inspection technology, 42 

ministerial-level specialized inspections centers, 15 ministerial-level regional inspection centers, 36 

provincial general service inspection centers, and 1200 county inspection stations. A total investment of 

RMB 5.91 billion will be allocated for construction of these inspection centers in the next 5 years (i.e., 

2006-2010), with RMB 3.852 billion coming from the central government and RMB 2.054 billion coming 

from local governments. 

These inspection service centers will be categorized as “shiyie danwei” –– publicly-funded quasigovernmental entities. The guideline also calls for respecting the WTO rules with regard to sanitary and 

phytosanitary measures. 

 

65 See MOA, Notice on Distribution of Funds for 2006 Agricultural Industry Standards Setting and Updating, 

Nong Cai Fa [2006] No. 64. See Exhibit A-II-5. 
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iv. Achieving Structural Adjustments for the 

Agricultural Industry 

a. Moving the Industry Up the Value Chain 

The government is now directing more production resources into labor-intensive and 

high-value-added subsectors, such as specialty crops, fishery, and livestock. It is also 

encouraging the processing of raw products for exportation. In 2006, MOA allocated the 

following amounts: 

 for the protection of livestock species resources - RMB 20 million;66

 for fishery species resources preservation - RMB 15 million;67

 for a demonstrative project to popularize standardized livestock farming facilities - 

RMB 15 million;68

 for subsidizing the popularization of a new apple packing technology - RMB 17 

million;69

 for fishing ports public facilities maintenance - RMB 15 million;70 and 

 for purchasing high quality livestock breeding stocks - RMB 5 million.71

Another important measure to move the industry up the value chain is the building of 

brand names for some “Dragon Head” agricultural enterprises. Each year, relevant governmental 

authorities certify a certain number of brands as “recognized famous brands” and some 

 

66 See MOA, Notice on Distribution of Funds for Livestock Species Resources Preservation, Nong Cai Fa [2006] 

No. 44. See Exhibit A-II-17. 67 See MOA, Notice on Distribution of Funds for Preservation of Fishery Species Resources, Nong Cai Fa [2006] 

No. 33. See Exhibit A-II-6. 68 See MOA, Notice on Distribution of Funds for Standardized Livestock Breeding Farm Program, Nong Cai Fa 

[2006] No. 54. See Exhibit A-II-15. 

69 See MOA, Notice on Distribution of Funds for Apple Packing Key Technology Demonstration Program, Nong 

Cai Fa [2006] No. 56. See Exhibit A-II-18. 

70 See MOA, Distribution Report for Fishing Ports Public Facilities Maintenance. See Exhibit A-II-14. 

71 See MOA, Notice on Distribution of Funds to Subsidize Purchasing Improved Livestock Breeding Stocks, 

Nong Cai Fa [2006] No. 84. See Exhibit A-II-7. 
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enterprises are given the title of “Dragon Head” enterprises.72 The list of these enterprises and 

their brand names are then publicized and given significant media exposure. These efforts have 

been very effective in boosting the name recognition of these enterprises. At the same time, the 

government expects that the designated Dragon Head enterprises will help to move the whole 

industry up the value chain, will engage more in value-added processing of agricultural products, 

will take advantage of economics of scale and scope, and will conduct more R&D. 

In addition, government guidelines call for allowing township and village enterprises 

(TVEs) to play an active role in developing the new socialist countryside.73

Box 3, below, presents a summary of the new policy regarding TVEs. 

Box 3 

Township and Village Enterprise Developing Guideline 

for the 11th 5-Year Period

Township and Village Enterprises (TVEs) are an important component of the rural economy. In 2005, 

they employed 143 million workers, providing jobs for 28% of the rural labor force; contributed 27.7% of 

the national GDP (in comparison, the agricultural sector contributes only 13.1% of the GDP), and 

generated RMB 518 billion in tax revenue. On December 22, 2006, the Ministry of Agricultural issued the 

guideline for the development of TVEs for the 11th 5-year period. 

According to the guideline, during the 11th 5-year period, the Ministry of Agriculture will continue to 

support the active participation of TVEs in developing the new socialist countryside, will support the 

engagement of TVEs in agricultural products processing, and will encourage TVEs to follow a harmonious 

development path and a sustainable growth pattern. 

The guideline (in chapter 4) spells out the important measures the government will take in the next 5 

years to help attain the goals stated above. The guideline starts with a new definition of TVEs. 

Traditionally, TVEs were collectively-owned enterprises normally under direct control of the township or 

village administrative authorities. The guideline abolishes this collective ownership feature of the TVEs. 

The guideline specifically states that TVEs are distinct from other business organizations for two reasons 

only: (1) they operate in rural areas; and (2) they are staffed by a rural labor force. The guideline further 

 

72 See General Administrative Office of the MOA, Rules on National Brand Name Certification for Agricultural 

Products, Nong Ban Shi [2006] No. 20. See Exhibit A-I-19. 

73 See MOA, 11th 5-Year Development Plan for Township and Village Enterprises, Nong Qi Fa [2006] No. 5. 

See Exhibit A-I-14. 
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Box 3 (Continued) 

Township and Village Enterprise Developing Guideline 

for the 11th 5-Year Period

clarifies that TVEs could take the form of individual private enterprises, enterprises limited by shares, etc. 

In essence, TVEs are no longer a distinct type of business organization. As a result, the guideline applies to 

all enterprises operating in rural areas, covering the entire non-agricultural sector of the rural economy, 

including both state-owned and privately-owned enterprises in rural areas. The guideline then lists the 

following measures that the Ministry will take in the period between 2006 and 2010. 

(1) Establish an efficient administrative management system for TVEs 

The government will institutionalize administrative agencies that provide service and guidance to 

TVEs, and will strengthen information collection and analysis abilities in order to effectively trace the 

development of the TVEs and give them timely guidance. The government will also encourage the 

formation of industry associations or business chambers by the TVEs. 

(2) Protect the legal rights of TVEs and broaden market access for TVEs 

The guideline recognizes TVEs as a primary market participant and allows TVEs to enter into any 

market that the law does not prohibit, including public utility, infrastructure projects, and financial 

services. The legitimate interests and rights of TVEs will be protected by law. No one will have the 

privilege of altering the property rights of TVEs unless through a process prescribed by law. 

(3) Reduce the fiscal burden of TVEs 

The government will implement the “TVEs fiscal burden management rule,” will abolish certain 

administrative fees, will prohibit any abusive use of administrative power in collecting money from 

TVEs, and will regulate the conduct of administrative inspections carried out to reduce the fiscal 

burden on TVEs.

(4) Construct an effective social security system for employees of TVEs 

The government will speed up construction of the social security system for TVE employees, which 

will guide TVEs in following the laws with regard to pension, unemployment insurance, health 

insurance, employment-related accident insurance, and birth insurance. The government will be 

realistic and will, at the current stage, seek primarily to establish the basic social security protection for 

TVEs employees, but will push to expand this basic coverage to as many employees as the enterprises 

are realistically able to provide. 

(5) Protect the legal rights of employees and employers 

The government will strengthen enforcement of PRC labor law, ensuring that employment contracts 

comply with relevant laws and regulations and are executed only after free will negotiation on equal 

footing. The government is endeavoring to gradually improve labor conditions, guarantee that workers 

are allowed to join unions and worker assemblies, and encourage the establishment of party organs 

within the TVEs. 

(6) Further transform the government administrative functions 

The government will implement the PRC Administrative Licensing Law. Governmental approval of 

licenses will be necessary only if specifically required by law, and the government also will make an 

effort to increase its efficiency in handling applications. 
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Box 3 (Continued) 

Township and Village Enterprise Developing Guideline 

for the 11th 5-Year Period

(7) Help TVEs to secure financial resources 

The MOA will advocate government support for TVEs in their efforts to secure financial guarantees, 

loans, capital investments and public offerings of stock. The government will do the following: (a) 

hold regular meetings to promote cooperation between banks and TVEs, (b) provide guidance for 

TVEs seeking participation in overseas capital markets, (c) encourage TVEs to conduct stock-backed 

financing and project financing, (d) help TVEs to receive their export rebate payments in a timely 

manner, (e) provide TVEs with export credit, export loan guarantees, and speed up the development of 

the TVEs’ credit rating system and default penalty system; (f) push forward the TVEs’ credit record 

system, and (g) establish and improve TVEs’ credit data base. 

The MOA also plans to build or improve an R&D service system, a training system, a job market, and 

an information service system to help to upgrade TVEs. It will also help TVEs to improve their 

corporate management system, clarify ownership and management relationships both within the TVEs 

and with outside investors and creditors, as well as to improve their asset management system. 

b. Industrializing the Agriculture Sector 

The industrialization of the agricultural sector is another China policy objective that is 

frequently mentioned. It essentially means the commercialization of agricultural production 

through government measures that encourage the use of machinery, measures that set up or 

update national standards to facilitate standardized production, and measures that improve 

coordination between upstream and downstream producers, such as vertical integration of market 

undertakings. The government envisions the ideal agricultural production structure as one that 

enhances efficiency through the vertical integration of production and distribution, such as the 

following.74

 

74 See MOA, Guideline for Agricultural Industrialization Programs; available at www.agri.gov.cn/cwgk. 
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Dragon Head enterprises are the cornerstone of many agricultural industrialization 

measures. The Dragon Head enterprises are primarily agricultural product processors, but 

sometimes they are also producers. The government expects that they will organize farmers into 

large-scale commercialized production through intermediaries. The Dragon Head enterprises are 

expected to provide necessary production technology, equipment, and production funds. 

Intermediaries are mostly rural specialized farmer co-operatives. They purchase products from 

farmers, and provide farmers with transportation, storage, and technical consulting services. 

Under this vertically-integrated structure, (1) market information is passed promptly from the 

Dragon Head enterprises to the farmers through the intermediaries, (2) the farmers farm under 

the guidance and with the help of the Dragon Head enterprises through the intermediaries, and (3) 

products catering to market needs are then collected from the farmers by the intermediaries, and 

processed and marketed by the Dragon Head enterprises. 

The MOA supports Dragon Head enterprises that engage in this business model through a 

fund of RMB 30 million. Qualified programs include Dragon Head enterprises that provide 

Dragon Head 

Enterprises 

Intermediaries 

(farmer co-ops) Farmers 

Farming Technology, Working Funds, 

Crop Insurance 

Farm Products 
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assistance to farmers such as technical support and subsidizing farmers’ purchases of improved 

crop strains and production equipment.75 The MOA also subsidizes Dragon Head enterprises 

that partially reimburse farmers for their insurance expenses. 76 Some large Dragon Head 

enterprises are publicly-listed companies, and their annual reports usually disclose the subsidies 

they receive from the government. Table 3 below lists such information. 

Table 3 

Subsidies to Listed Dragon Head Companies 

(in RMB, unless otherwise noted) 

Company Stock 

exchange 

2005 

Government 

Grant 

2005 

Turnover 

2004 

Government 

Grant 

2004 

Turnover 

2003 

Government 

Grant 

2003 

Turnover 

China Mengniu 

Dairy Co., Ltd. HKEX -- 10,825,950,000 17,865,000 7,213,827,000 4,561,000 4,071,468,000

Bright Dairy and 

Food Co., Ltd. SHSE 6,183,202 6,903,862,650 5,504,968 6,785,678,602 13,621,874 5,981,051,611

Inner Mongolia 

Yili Industrial 

Group Co., Ltd. 

SHSE 23,362,612 12,175,264,123 16,945,489 8,734,990,975 10,898,005 6,299,333,498

China Yurun 

Food Group Ltd. HKEX 13,922,000 

(Q1/05 only) 4,453,965,000 55,336,000 2,592,730,000 22,400,000 --

Zhongpin, Inc OCTBB $ 2,515,592 $ 73,400,000 $ 928,302 $ 42,787,000 149,158 29,593,000

Xuzhou VV Food 

& Bever-age Co., 

Ltd. 

SHSE 8,172,900 2,915,720,864 12,303,916. 2,262,383,673 7,006,897 1,660,651,115

Source: Annual reports of the listed companies. 

In addition to assisting Dragon Head enterprises, some government industrialization 

measures are directed toward helping farmer co-operatives, which are expected to provide 

various services to the member farmers, including the renting of agricultural machinery. Box 4, 

below, summarizes the government’s development plan for the agricultural machinery rental 

 

75 See MOA Notice on Distribution of Funds for Agricultural Industrialization Programs, Nong Cai Fa [2006] No. 

55. See Exhibit A-II-8. 76 Id. at 2. 
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service industry. In 2003, to encourage the use of machinery, the MOA provided RMB 30 

million to subsidize purchases of agricultural machinery by farmer co-operatives.77 Also since 

2003, the MOA has promoted farmer co-operatives under a program with an annual funding of 

RMB 30 million.78 

Box 4 

The 11th 5-Year Guideline for the Development of 

Socialized Agricultural Machinery Rental Service Industry

China’s agricultural sector is dominated by small-scale household farming operations. The only 

feasible way to increase the use of machinery is to develop an agricultural machinery rental service 

industry. By 2005, China had 33.863 million agricultural machinery rental service providers, hiring 40.752 

million workers. The total market value for the agricultural machinery rental service industry reached 

RMB 260 billion in 2005. In the same year, the government invested RMB 4 billion to subsidize the 

purchase of machinery by farmer co-ops. The private sector investment in agriculture machinery is 

estimated at RMB 28.3 billion. 

In addition to direct subsidies, MOA calls for favorable policies toward the machinery rental service 

industry. In September 2006, MOA issued a 5-year guideline for the development of what is called “the 

socialized agricultural machinery rental service industry.” (See Exhibit A-I-4.) The guideline laid out the 

following five major measures to be implemented in the next 5 years. 

(1) Establish a Comprehensive Government Support System 

The government will increase fiscal support for the purchase of agricultural machinery, continue the 

current policy of exempting certain agricultural vehicles from highway construction fees, coordinate 

local policies to reduce the road maintenance fees for agricultural vehicles, and reduce the business 

operation tax rate, as well as registration fees, for service providers. In addition, MOA will coordinate 

with other administrative agencies to provide preferential treatment for machinery rental services as to 

loans, insurance, emergency assistance, favorable capital deduction treatment and land-use policy. 

(2) Develop a Friendly Legal Environment that is Conducive to the Growth of the Industry 

The government will promulgate laws and regulations regarding such matters as intermediary 

regulation, arbitration, service quality supervision, and information services. In addition, the 

government will encourage trade associations to establish internal disciplines for member service 

providers, draft standard renting service contracts, and standardize rental services in order to protect 

the legal interests of service providers. 

 

77 See MOA, 2003 Distribution Report for Funds Used to Subsidize Purchase of New Agricultural Machinery; 

available at http://www.agri.gov.cn/cwgk/xgzl/t20031031 _132110.htm. See Exhibit A-II-12. 

78 See MOA, Notice on the Distribution of Funds for Specialized Farmers’ Cooperatives Demonstration 

Program, Nong Cai Fa [2006] No. 28. See Exhibit A-II-2. 
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Box 4 (Continued) 

The 11th 5-Year Guideline for the Development of 

Socialized Agricultural Machinery Rental Service Industry

(3) Build an Agricultural Technology Promotion Center Network in Rural Areas 

These centers are non-profit in nature, and will be supported by public funds. However, they are not 

expected to substitute for technology service providers that currently operate under market 

mechanisms. These centers will help to implement government support policy, and help machinery 

rental service providers to popularize new machinery and technologies among farmers. 

(4) Establish a Service Information System for the Rental Industry 

(5) Strengthen the Government’s Role in Providing Guidance for the Industry 

v. Promoting Technology Proliferation and 

Development 

Technology development is viewed as the ultimate solution for the “three-rural issue.” 

China has implemented several programs that promote innovation and technology development 

in agricultural production as well as to spread their achievements. The Agricultural Technology 

Jump Plan is one of the programs administered by the MOA which subsidizes various 

agricultural R&D programs with an annual funding of RMB 30 million.79

The MOA also administers programs that promote the adoption of new technology or 

improved crop seeds/animal breeding stocks by farmers. In 2006, the MOA distributed the 

following amounts under this program: 

 For supporting the popularization of a key rice-planting technology in dry areas - 

RMB 20 million.80

 

79 See MOA, Notice on Distribution of Funds for Agricultural Technology Jump Plan, Nong Cai Fa [2006] No. 

27. See Exhibit A-II-4. 

80 See MOA, Notice on Distribution of Funds for Advantageous Agricultural Products and Key Technology 

Popularizations (Water Saving Technology for Farming in Dye Areas), Nong Cai Fa [2006] No. 30. See

Exhibits A-II-9. 
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 For popularizing advantageous agricultural products - RMB 32 million.81

 For adopting improved livestock breeding stock - RMB 20 million.82

 For introducing certain apple-packing technology to farmers - RMB 25 million.83

 For demonstration programs for mechanized rice seedling planting - RMB 5 

million.84

Local governments also have invested heavily in their own technology promotion 

programs. For example, the USDA-ERS China Lending Report stated that the Jilin provincial 

government invested USD $840 million in a High-Tech Agriculture Demonstration Park in a 

new satellite city of Changchun, the provincial capital of Jilin.85

Efforts have also been made to facilitate farmers’ access to technology and market 

information. In 2005, the MOA initiated a program to develop in rural areas an integrated 

information system, combining the functions of a telephone, a television, and an internet work 

station, that would be capable of disseminating technology and marketing information into every 

rural household. The MOA has an annual budget of RMB 30 million to support content 

development for this information dissemination system.86

vi. Maintaining Grain Production Capacity 

Historically, China’s most important agricultural policy objective has been to maintain 

grain production capacity sufficient to achieve self-reliance in the food supply. Today, this is 

 

81 See MOA, Notice on Distribution of Funds for Popularizing Advantageous New Agricultural Products, Nong 

Cai Fa [2006] No. 53. See Exhibit A-II-13. 

82 See MOA, Notice on Distribution of Funds for Subsidizing Purchasing of Improved Livestock Breeding Stocks,

Cai Nong Fa [2006] No. 84. See Exhibit A-II-7. 83 See MOA, Notice on Distribution of Funds for Apple Packing Key Technology Demonstration Program, Nong 

Cai Fa [2006] No. 56. See Exhibit A-II-18. 

84 See MOA, Notice on Distribution of Funds for Demonstration Programs for Mechanized Rice Seedling 

Planting, Nong Cai Fa [2006] No. 22. See Exhibit A-II-10. 

85 See USDA-ERS China Lending Report at 13. 

86 See MOA, Notice on the Distribution of Funds for Three-in-One Agricultural Information Service Pilot 

Program, Nong Cai Fa [2006] No. 51. See Exhibit A-II-1. 
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still China’s most important agricultural policy objective. As such, the Chinese government has 

actively supported grain production. Because the production of grain normally generates less 

income for farmers than the production of specialty crops, China has, since the 1990s, 

implemented measures subsidizing grain procurement, storage, and exportation. Initially, if the 

market price fell below the “protection price,” the government would reimburse farmers for the 

price difference.87 This measure, however, proved to be costly, with benefits going mostly to 

distributors rather than to producing farmers.88 In 2002, the government began to experiment 

with direct subsidies to producers in four provinces. By 2004, the direct subsidy program was 

introduced nationwide. After the introduction of direct subsidies, China allowed the market to 

set grain prices. The amount of the subsidy provided to farmers producing grain has been 

relatively low, maintained at roughly RMB 10 per mu (USD $7.33 per acre). The USDA-ERS 

China Subsidies Report estimated that China’s grain subsidies are equal to 2 percent of the gross 

value of grain production.89 While grain production has increased in recent years, it is unclear 

whether this increase is the result of a global grain price hike or the direct subsidy program of the 

Chinese government.90

In another grain production promotion program, China subsidizes farmers who adopt 

high-yield crop strains. This program was implemented simultaneously with the direct support 

program. Under this program, the government pays farmers for adopting improved crop strains 

 

87 See USDA-ERS China Subsidies Report at 4. 

88 Id.

89 Id. at 10. 

90 Id.
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at the rate of RMB 10-15 per mu (USD $7-10 per acre).91 Public funds have also been allocated 

to develop improved strains and for the local authority to establish demonstration programs to 

popularize the fine seeds. For example, in 2006, under its Agricultural Technology Jump Plan, 

the MOA distributed RMB 30 million to subsidize rice, wheat, and cotton farming technology 

demonstration programs.92

In addition to direct grants, policy loans are another important channel through which 

China has funneled funds to support grain production and grain farmers. The USDA-ERS China 

Subsidies Report noted that the government requires some banks, notably the CDB and the 

ADBC in particular, to support procurement of grain at a “protection” price.93 In 2003, “the 

ADBC made new loans of [USD] $11.7 billion in support of such procurement of 90 million tons 

of grain and 600,000 tons of fats and oils by state marketing enterprises; and [USD] $5.6 billion 

loans to the grain storage enterprises.”94 This type of policy loan may have contributed to the 

high level of NPLs. In February 2005, the USDA-ERS China Subsidies Report noted that the 

ADBC had outstanding loans of USD $83.3 billion, of which USD $35 billion was classified as 

nonperforming.95 

 

91 Id. at 4. 

92 MOA, Notice on Distribution of Funds for 2006 Agricultural Technology Jump Plan, Nong Cai Fa [2006] No. 

27. See Exhibit A-II-4. 

93 Commercial banks are obliged to engage in policy lending for projects included in 5-year development 

guidelines. See USDA-ERS China Subsidies Report at 12. 

94 Id. at 5. 

95 Id.
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Box 5 

Grain Production Development Guideline (2006-2020)

Under this guideline, the government states that it will follow the policy of maintaining domestic grain 

production capacity to achieve food supply self-sufficiency. The guideline reasons that because of China’s 

huge demand, the cost for relying on international markets is prohibitively high. The total volume of global 

trade in grain (240 billion tons) is equivalent to roughly half of China’s total demand. Any substantial 

grain purchase by China will raise global grain prices dramatically and will disrupt the supply and demand 

balance of the global grain market. Based on this assessment, the guideline concludes that it is advisable 

for China to maintain the capacity to produce enough food for its own population. The guideline then lays 

out a 15 year development roadmap on how for China can maintain grain production capacity at a time 

when demand continues to increase and the supply of land that could be sowed with grain is unavoidably 

diminishing. 

The guideline reveals that, in 2005, national grain production reached 968 billion Jin96 (484 million 

metric tons) and consumption was 991.4 billion Jin (495.7 million metric tons). The guideline anticipates 

that by 2020 consumption will reach 1130 billion Jin (565 million metric tons) and sets as a goal to be 

achieved a production capacity of 1000 billion Jin (500 million metric tons). To achieve this level of 

production, the guideline lays out the following 5 development plans. 

(1) Protect and scientifically use land and water resources 

The government will do the following: 

(a) Ensure that the cultivated land protection rule is implemented. 

(b) Carefully plan land use and effectively control the allocation of land among different usages. 

(c) Follow a restrictive policy with regard to non-agricultural use of farm land. 

(2) Further improve the legal framework that protects grain production 

The government will do the following: 

(a) Stabilize the basic grain production protection system. 

(b) Revise relevant laws and regulations, such as the Land Management Law, the Rural Land 

Contracting Law, and the Basic Cultivated Land Protection Regulations. 

(c) Grant farmers long-term land use rights and derivative rights such as the right to cultivate land, the 

right to the proceeds from cultivating land and the right to transfer land-use rights. 

(d) Establish step-by-step grain production subsidies and a comprehensive subsidy system. 

(e) Conduct in-depth preparatory legislative research to further clarify or adjust policy goals with the 

purpose of providing legal support for long-term grain production development. 

(3) Develop a detailed food supply plan to safeguard food security 

The government will do the following: 

(a) Set forth a detailed national food supply guideline. 

(b) Divide the nation into a number of regions for food supply purposes. 

(c) Work out a detailed plan for each region and prescribe the production goal and the measures to 

achieve this goal. 

 

96 A “Jin” is a Chinese measure of weight. One Jin is equal to 500 grams or one-half kilogram. 
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Box 5 (Continued) 

Grain Production Development Guideline (2006-2020)

(d) Specify responsibilities for each entity involved in the food supply scheme. 

(e) Encourage grain export regions to establish long-term cooperation relations with grain netconsumption regions, under which consumption regions will allocate a portion of their land use 

fee to support grain production in the net-export regions. 

(f) Provide supportive measures, such as favorable tax and loan policies, to encourage investment by 

net-consumption regions in grain storage and transportation facilities and processing enterprises. 

(4) Institutionalize government support for grain production 

The government will do the following: 

(a) Integrate various government investment or support programs for grain production. 

(b) Seek out more fiscal resources to fund this integrated supporting system. 

(c) Establish grain production capacity development funds and grain production supporting funds at 

both the central and local government level. 

(d) Explore measures to alleviate the fiscal burden on grain-production regions. 

(e) Encourage county and city authorities to invest in agricultural infrastructure. 

(f) Find ways to channel financial capital and other commercial/private capital to invest in grain 

production projects so as to enlarge and strengthen grain production areas. 

(5) Strengthen the ability to have macro-economic control of grain trade 

The government will do the following: 

(a) Further improve the grain protection purchase price supporting measure. 

(b) Include staple crops such as maize and soybeans in the protection purchase price scheme. 

(c) Set the purchase price at a level that allows farmers to recover their production costs and a 

reasonable amount of profit, so as to encourage farmers to produce staple crops. 

(d) Also, in order to stabilize the market supply and price of crops, the relevant government agencies 

will draft practical purchasing plans, in particular, purchasing plans for the national and provincial 

grain reserve centers. 

In addition, the government will do the following: 

(a) Strengthen provision of macro-guidance on grain reserve capacity building and grain trading. 

(b) Maintain a reasonable level of reserves to ensure an adequate food supply. 

(c) Establish an international grain market warning system and a research institution to effectively 

guide grain import and export. 

(d) Ensure a sufficient domestic supply of rice. 

(e) Supplement the domestic supply of wheat with purchases from the international wheat market. 

(f) Ensure that China’s southern region imports a certain amount of maize and encourage China’s 

northern region to export a certain amount of maize. 

(g) Continue to increase the domestic production capacity of soybeans and, at the same time, import a 

certain amount of soybeans from the global market. 

(h) Also, to continuously improve the ability to conduct macro guidance of the grain market, the 

government will build a national grain distribution statistics system to enable real-time tracking of 

grain production, consumption, the market situation, and reserve information. 
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b. Trade Measures 

i. Border Measures 

a. Tariff 

Since joining the WTO in December 2001, China has, consistent with the Protocol of 

Accession to the WTO and attached schedules, implemented its commitments to reduce tariff 

rates as specified in its goods schedule. In its 2006 WTO compliance report, the U.S. Trade 

Representative (USTR) concluded that “China implemented the required tariff changes on 

agricultural goods for 2006 on schedule on January 1, 2006, just as it did for industrial goods.”97 

As a result, China’s average tariff on agricultural products that are important to U.S. farmers has 

declined from 31 percent in 1997 to 14 percent as of January 1, 2006.98 In addition to lowering 

its tariff rates in accordance with its goods schedule, China has also liberalized its agricultural 

trade in other aspects.99

b. Border VAT 

Imports of agricultural products are generally subject to value-added taxes (VAT) at the 

rate of 13 percent ad valorem, which is four percentage points below the generally applicable 

VAT rate of 17 percent. The actual VAT rates that are levied on imported agricultural products, 

however, may vary depending on whether or not certain governmental policies are applicable to 

particular products. For example, in some case, China exempts certain products from the VAT 

so that downstream processors of the imported products are able to lower their own production 

costs, and thus remain competitive in the international market. On the other hand, when the 

 

97 USTR, 2006 Report to Congress on China’s WTO Compliance (December 2006) at 61. 

98 Id. 99 Id.
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domestic supply of certain products is abundant, China applies the VAT to discourage 

imports.100

c. Export Taxes 

In the 2006 Trade Policy Review (TPR) of China, the WTO Secretariat’s report noted 

that China has been applying export taxes to some agricultural products. China has applied 

export taxes ranging between 20-40 percent on bones and horn-cores, powder and waste thereof, 

and raw hides.101 An export tax has the potential of encouraging the production of domestic 

value-added products. Under its WTO accession protocol, China retains the right to impose 

export duties on some products in order to maintain a balance of supply and demand in the 

domestic market. 

ii. Export Promotion Measures 

Export promotion is a major component of China’s development strategy for the 

agriculture sector. In 2005, agricultural exports reached USD $27.18 billion, accounting for 3.6 

percent of China’s total exports. According to WTO statistics for 2004, China was the world’s 

fifth largest agricultural exporter, accounting for 3.2 percent of global trade in agriculture goods. 

China’s major export commodities are garlic, peanuts, grilled eel, canned mushrooms, cider, and 

honey. 

China’s most important export promotion measure is the VAT export rebate system. 

China notified the WTO SCM Committee that exporters of agricultural products are entitled to a 

 

100 See Trade Policy Review – People’s Republic of China; Report by the Secretariat, WT/TPR/S/161/Rev.1 (26 

June 2006) at 175. 101 Id.
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VAT rebate at the time of exportation. The VAT is treated as an indirect tax which under WTO

rules is not viewed as a subsidy, at least when the rebate does not exceed the tax actually paid. 

The WTO Secretariat’s TPR report observed that the level of VAT rebate varies for different 

commodities and appears to have been used to manage exports.102 For example, in January 1, 

2004, China raised the VAT export rebate rate for wheat and corn flour but eliminated the VAT 

rebate for eel fry.103

Another Chinese export promotion measure is a program under which the Chinese 

government exempts agricultural products destined for export from payment of the railway 

construction fee, an expense which is believed to constitute 20-50 percent of the total 

transportation costs for such products.104

The government also promotes agricultural exports through subsidizing marketing efforts. 

From 2003, MOA has been providing RMB 17 million each year to support various marketing 

activities by agricultural producers. The funds distribution report for this program reveals that 

the funds have been used for both domestic and international sales promotion purposes. Certain 

distributions have been made to cover the cost of participating in overseas business shows by 

some agricultural enterprises.105

 

102 Id. 103 See MOF & SAT, Circular on Adjustment of Certain VAT Export Rebate Rate, Cai Shui [2003] No. 222. See

Exhibit A-IV-30. 104 See Trade Policy Review – People’s Republic of China; Report by the Secretariat, WT/TPR/S/161/Rev.1 (26 

June 2006) at 175. 

105 See MOA, Notice on Distribution of 2006 Marketing Funds for Agricultural Products, Nong Cai Fa [2006] No. 

59; available at http://www.agri.gov.cn/cwgk. See Exhibit A-II-3. 
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In addition to the programs above, in August 2006, MOFCOM released a policy directive 

titled “The 11th 5-Year Development Guideline for Agricultural Products Exportation.”106 The 

guideline calls for establishing a comprehensive export promotion system encompassing such

areas as fiscal matters, taxation, commercial/policy loans and insurance. The concrete measures 

contemplated by MOFCOM for the purpose of promoting exports of agricultural commodities 

include: (1) increasing the amount of policy loans to exporters, (2) subsidizing export risk 

insurance, (3) providing tariff drawback or VAT reductions/exemptions for imported equipment 

used for processing export products, (4) adjusting the VAT export rebate structure to encourage 

exports of high value-added products, (5) reducing export inspection costs and expediting the 

customs service export clearance process.107 Box 6 below presents a detailed summary of this 

guideline. 

 

106 See MOFCOM, Agricultural Products Export Guideline for the 11th 5-Year Period (August 25, 2006); 

available at http://wms.mofcom.gov.cn/aarticle/subject/ncp/subjectguihua/200608/20060802960492.html. See 

Exhibit A-I-6. 107 Id.
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Box 6 

The Export Promotion Guideline for Agricultural Products

Unlike most agricultural implementation plans, this guideline was released by the Ministry of 

Commerce (MOFCOM). The guideline lays out six measures designed primarily to promote the 

competitiveness of China’s agricultural products in the international market. 

The guideline starts with a review of the current situation for trade in agricultural products. It reveals 

that, in 2005, China exported agricultural products worth a total of USD $27.18 billion, accounting for 

3.6% of overall exports from China. Companies with foreign investment took the biggest share, accounting 

for 43% of total agricultural exports. State-owned enterprises ranked second at 32%. Domestic privatelyowned enterprises accounted for roughly 25% of exports. The guideline also lists a number of problems 

that undermine the competitiveness of China’s agricultural exports. At the top of this list are product 

quality and safety issues. It noted that China’s production pattern made it difficult to establish a national 

product quality inspection and quality records tracing system. The latter is now required by some major 

importing countries such as the EU and the U.S. Most developed countries have raised technical and safety 

standards for agricultural imports from developing countries. These measures have become a serious trade 

barrier for Chinese exporters. 

In addition, the guideline observes that the government has yet to establish a systematic export support 

measure. Difficulties in obtaining loans cripple many exporters. Some local financial institutions are 

charging interest rates as high as 9-10% for export loans, which in most cases is beyond the means of the 

exporters. Another problem arises from the current law which prohibits the creation of a security interest 

on the leasehold interest that exporters have on rural land, the forest or other production inputs. Hence, the 

guideline calls for the government to issue new measures to reduce the financial burdens on agricultural 

exporters. 

In response to the problems currently facing Chinese exporters, the guideline spells out the following 

six major measures which MOFCOM will seek to implements in the coming years. 

(1) Intensify Efforts in Product Quality and Safety Regulation to Improve the Competitiveness of 

China’s Agricultural Products 

The government will do the following: 

(a) Intensify quality and safety control through popularizing GAP (Good Agricultural Practice) 

technology. 

(b) Encourage standardized production and support producers to improve production methods. 

(c) Develop a national traceable product quality control system so as to facilitate quality control over 

the entire farming and processing structure. 

(d) Establish a strict quality and safety control system for agricultural inputs. 

(e) Intensify pesticide and fertilizer quality and safety control and management. 

(f) Prohibit production, sale and use of pesticides that are highly poisonous or contain high residues. 

(g) Put in place measures to encourage self-discipline in food quality and safety management; such as 

conditioning famous brand certification with quality and safety requirements. 

(h) Intensify inspection for agricultural products destined for export. 

(i) Encourage enterprises to obtain GAP, GMP and HACCP international quality and safety 

certificates. 
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Box 6 (Continued) 

The Export Promotion Guideline for Agricultural Products

(j) Establish agricultural products farming/processing history records, and traceable quality records, 

so as to meet the requirements of importing countries. 

(k) Make efforts to reduce export inspection costs through measures such as inspection exemptions; 

(l) Improve the effectiveness of the export inspection system. 

(m) Increase the overall investment in inspection infrastructure, purchase more technologicallyadvanced inspection equipment, and increase the training level of inspection personnel. 

(n) Guide exporters to enhance their in-house quality and safety control and inspection abilities. 

(2) Optimize the Structure of Agricultural Exports in Favor of High Value-Added Products 

The government will do the following: 

(a) Encourage domestic enterprises to develop new products for which they own intellectual property 

rights either through the domestic development or purchasing of advanced technology and 

improved seeds/breeding stocks so as to enhance their competitiveness in the international market. 

(b) Release a new policy that encourages enterprises to import internationally-advanced agricultural 

production and processing technology and equipment, as well as improved crop strains, biofertilizers, and bio-pesticides that are environmentally friendly. 

(c) Establish a product origin registration system, and exempt from the export inspection process 

certain products registered under this system when the products meet other requirements. 

(d) Provide expedited export inspection to products from enterprises with a good reputation. 

(e) Build a national product standard system. 

(f) Actively encourage trade associations to adopt industry standards and certificate marks. 

(g) Popularize standardized farming and rely on advanced technology to realize quality control for the 

entire production process so as to achieve quality consistency. 

(h) Set up product quality marking requirements under which producers will be required to disclose 

information such as the unit price, ingredients (ingredients mark), nutritional value (nutrition 

mark), and the level of freshness (date of production and shelf life). 

(i) Encourage some horticultural and livestock exporters to adopt industry standards and marks, 

which will help to introduce the enterprises to the standards and marks adopted through 

government-imposed certificate requirements. 

(j) Help promote the standards and marks in major export markets. 

(k) Help famous agricultural exporters develop overseas sales promotion plans. 

(l) Favor agricultural products over other manufactured products and use the “brand name promotion 

funds for exportation” to subsidize famous and high-quality agricultural export producers to pay 

for their IPR protection expenses, advertisement costs and other product promotional costs, for the 

costs of obtaining product quality and standard certificates requested by importing countries or 

regions, and the costs to hire consultants to map out brand name establishment plans and other 

R&D efforts. 

(m) Help famous exporters establish global commercial distribution channels, to enable them to take 

the lead in integrating into the global supply and demand chain. 

(3) Implement the Agricultural Export Promotion Plan and Strengthen Training and Information 

Services 

To help agricultural export enterprises to expand their share of the global market, the government will 

do the following: 
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Box 6 (Continued) 

The Export Promotion Guideline for Agricultural Products

 (a) Provide information, training and consulting services. 

(b) Intensify quality and safety control through popularizing GAP (Good Agricultural Practice) 

technology. 

(c) Organize international business shows. 

(d) Help enterprises to upgrade their international sales ability and to establish healthy and stable 

export channels. 

(e) Establish an authoritative trade information and export early warning system for agricultural 

products. 

(f) Government agencies and industry associations will research and follow market situations in the 

major importing markets, and collect information such as market shares and competition 

conditions. 

(g) Provide early warnings and obtain information on foreign trade remedy investigations against 

agricultural exports from China. 

(h) Construct a fast-reaction mechanism so as to fully bring into play the organizational functions of 

industry associations in response to antidumping investigations. 

(i) Provide enterprises with legal assistance and technical support to resolve overseas problems. 

(j) Establish a reaction strategy and a warning system against foreign trade measures based on 

enforcing new technical standards. 

To elevate the professional proficiency level of persons engaged in the exporting business, the 

government will do the following: 

(a) Intensify efforts in conducting agricultural export training. 

(b) Draft scientific and systematic agricultural export training plans. 

(c) Support efforts of local governments and industrial organizations in conducting training with 

regard to foreign agricultural technical standards. 

(d) Help enterprises build quality control systems, adopt industry standards, obtain international 

certificates, improve production and processing technology and in particular encourage enterprises 

to adopt GAP and HACCP standards. 

(e) Help with training for compliance with foreign technical standards. 

In addition, the government will do the following. 

(a) Continue to support the participation of exporting enterprises in international business shows and 

other promotional activities. 

(b) In particular, support the participation of enterprises and trade associations in international expo 

and other types of product promotional events. 

(c) Engage in general agricultural promotion activity to increase the name recognition of Chinese 

agricultural products. 

(d) Support enterprises and associations in conducting market surveys, advertising, market planning 

and product promotion. 

(e) Make investments to improve the agricultural export transport and storage system in order to 

facilitate exportation. 

(f) Speed up construction of frozen or low-temperature transportation systems for agricultural 

products. 

(g) Reduce or exempt agricultural products from transportation vehicle road construction and 

maintenance fees. 
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Box 6 (Continued) 

The Export Promotion Guideline for Agricultural Products

(h) Focus efforts on achieving a low-temperature transportation system for primary and western 

agricultural products, so as to reduce export costs. 

(4) Encourage the Formation of Agricultural Associations so as to Improve the Level of 

Coordination for Agricultural Exports 

The government will do the following: 

(a) Make efforts to elevate the level of organization between agricultural producers, to promote the 

formation of agricultural special cooperatives in some export bases, and to help farmers adapt to 

standardized production so as to reduce administrative costs for exporting enterprises and to 

enhance the consistency of product quality. 

(b) Help enterprises to increase the organizational level of agricultural production, lead them toward 

large-scale and commercialized production and market-oriented business operations with the 

ultimate purpose of elevating the ability of the enterprise to increase efficiency and to overcome 

technical trade barriers. 

(c) Promote the formation of export industry associations which will operate on the basis of selfmanagement, self-service and self-discipline; be engaged in coordinating operations among 

members; represent members in negotiations with the government; explore potential export 

markets; overcome technical barrier; and represent exporters in trade dispute resolution. 

(d) Foster a group of leading enterprises (Dragon Head Enterprises) that will be large, relatively hightech and competitive. These Dragon Head Enterprises will be expected to organize farmers into 

large-scale commercialized farming through such models as: Dragon HeadsÆproduction bases, 

Dragon HeadsÆproduction basesÆfarmers, or “order sheet” agriculture. Standardization will be 

realized throughout the process of production, processing, and distribution in order to establish 

specialized and large-scale regional agricultural markets. 

(5) Improve and Broaden Export Support Policies 

The government will do the following: 

(a) Organize research on WTO rules, and draw on experience from other Members in order to further 

improve the government export support system. 

(b) Make new efforts to explore the possibility of expanding fiscal, tax, finance, and insurance support 

policies for agricultural exports. 

(c) Use central foreign trade development funds to favor agricultural exports in order to improve the 

global competitiveness of agricultural products, particularly through the following: (i) programs 

that support leading enterprises in establishing agricultural product quality standards and quality 

certification systems, and obtaining international quality certificates; (ii) programs that construct 

and reform export production bases, establish crop and livestock farming records, and traceable 

quality certificate systems; and (iii) programs on R&D and technology renovation. 

(d) Study and draft concrete measures to provide agricultural exporters with more policy loans. 

(e) Develop new financial products to cater to the special needs of agricultural export enterprises. 

(f) Broaden the business scope of agricultural development banks and strengthen their supportive 

function for agricultural export after they improve their operational mechanics. 

(g) Further improve the agricultural export insurance system. 
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Box 6 (Continued) 

The Export Promotion Guideline for Agricultural Products

(h) Explore a system that integrates export credit insurance with agricultural insurance. 

(i) Broaden the coverage of export credit insurance. 

(j) Effectively increase the percentage of export transactions that are insured with the purpose of 

increasing the risk resistance ability of export enterprises. 

(k) Improve the preferential tax system and explore ways to establish a unified coding system for 

processed agriculture products. 

(l) Realign the export rebate payment system to encourage exports of processed products. 

(m) Provide tariff drawbacks for inspection equipment and other general production equipment 

purchased by exporting enterprises. 

(n) Draw upon foreign experiences to reduce export inspection fees and speed up the inspection 

process so as to reduce export costs for export enterprises. 

(o) Enterprises that have obtained quality certificates such as HACCP, GMP, GAP and ISO 014000, 

and have a good reputation, will be exempted from inspection or be allowed to conduct the 

inspection by themselves using their own inspection facilities. 

(6) Intensify Diplomatic Efforts to Create a Friendly International Environment 

MOFCOM will improve its fast reaction ability, and its ability to coordinate on the interagency level 

with regard to agricultural export matters. 

MOFCOM will intensify diplomatic efforts in the following three areas: 

(a) Active participation in WTO negotiations to push forward agricultural trade liberalization, and 

effectively address the issues of market access, domestic support and export subsidies. 

(b) Promote bilateral trade agreement negotiations with neighboring countries, such as the 

negotiations between China and ASEAN countries, China and Australia, and negotiations aimed at 

establishing a regional economic and trade union; engage in negotiations with the aim to establish 

bilateral trade dialogue mechanisms with EU, Japan, U.S., and South East Asia countries. 

(c) Strengthen the negotiating abilities of agencies to facilitate effective trade dispute resolutions and 

to foster a friendly international environment. 

c. Environmental Protection Measures 

The 11th 5-Year Guideline devoted one chapter to the environmental protection issue. It 

acknowledged that China’s economic development has resulted in considerable harm to the 

environment, and called for transforming the economy into one that is environmentally 

friendly.108 In its “development strategy” section, the 11th 5-Year Guideline for Agriculture

 

108 See 11th 5-Year Guideline for National Economic and Social Development at Chapter 2. See Exhibit A-I-2. 
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states that the government will endeavor to transform the current wasteful development pattern 

into a sustainable development model, and will establish an early warning system for agricultural 

environmental protections. Specifically, the government will reduce the agricultural production 

level in the areas surrounding Beijing and Tianjin, as well as “the three northern regions,” and 

will reduce the number of livestock in order to preserve the grasslands.109 

Among the 27 programs listed on MOA’s website for 2006, 3 of them are directly 

relevant to environmental protection issues. In the first program, MOA provides funds of RMB 

30 million annually for popularizing environmentally-friendly cultivation methods.110 In the 

second program, RMB 90 million is allocated each year for establishing a national inspection 

system that will certify non-hazard and green agricultural products, and thus encourage adoption 

of environmentally-friendly methods of production.111 In the third program, MOA distributes 

RMB 20 million each year to popularize water-saving farming technology.112

The OECD’s review of China’s agricultural policies similarly noted that the 

government’s agricultural policy priority has recently shifted from food supply to environmental 

concerns. 113 Sustainable use of land and water resources has been given a high profile, 

especially since the late 1990s, with significant levels of funding being made available to 

 

109 See 11th Five-Year Guideline for National Agriculture and Rural Economy Development (August 8, 2006) at 

Chapter 3, Section 3.6. See Exhibit A-I-3. 

110 See MOA, Notice on Distribution of Funds for (Environmentally) Protective Cultivation Program, Nong Cai 

Fa [2006] No. 15. See Exhibit A-II-11. 

111 See MOA, Notice on Distribution of Funds for Non-Hazard Agricultural Products Quality and Safety 

Supervision Program, Nong Cai Fa [2006] No. 66. See Exhibit A-II-16. 112 See MOA, Notice on Distribution of Funds for Advantageous Agricultural Products and Key Technology 

Popularizations (Water Saving Technology for Farming in Dye Areas), Nong Cai Fa [2006] No. 30. See

Exhibit A-II-9. 113 See OECD Review of Agricultural Policies: China (2005) at 29. 
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projects such as the so called “grain for green” project.114 Public funds were also allocated to 

construct ecosystem protection zones, national natural reserve parks, agricultural ecological 

demonstration projects, and a generic resources bank.115

The OECD reported that during 1998-2002, MOA invested RMB 126.3 billion in water 

conservancy works, with another RMB 44.3 billion invested in forestry and ecological 

preservation works, including the “grain for green” program.116 The “grain for green” is an 

environmental protection program launched in 1999, under which the government compensates 

farmers for retiring cultivated land back to forest or grassland. RMB 25.17 billion was 

distributed to farmers for this purpose alone in 2005.117

d. Other Support Programs 

As noted by the OECD, the largest portion of China’s agricultural support went to 

infrastructure, normally for irrigation projects and transportation facilities, but also including 

projects like agriculture high-technology parks. 118 The USDA-ERS China Subsidy Report 

estimated that RMB 150 billion was spent for infrastructure investments in 2004.119 China’s 

official fiscal report disclosed that the central government spent RMB 81.28 billion on 

production infrastructure projects in 2005.120 Information about local government expenditure 

on infrastructure projects, however, was not available. 

 

114 Id. at 76. 115 Id. at 108. 

116 Id. at 103. 117 See MOF, 2006 Budget Report to the National People’s Congress (March 17, 2006). See Exhibit A-I-18. 

118 OECD Review of Agricultural Policies: China (2005) at 84, 104. 

119 See USDA-ERS China Subsidies Report at 8. 120 See MOF, 2006 Budget Report to the National People’s Congress (March 17, 2006). See Exhibit A-I-18. 
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Another important portion of the central government’s agricultural expenditure was for 

income support programs. As previously noted, China introduced direct support for grain 

producers in 2004. A total of RMB 11.6 billion was distributed to farmers directly in 2004. This 

expenditure increased 13.8 percent in 2005, reaching a total of RMB 13.2 billion.121 

In addition, according to newly-released information, the government is allocating RMB 

223.5 billion to provide free education in rural areas in 2007.122

C. ADMINISTRATION OF AGRICULTURAL PROGRAMS AT THE CENTRAL 

GOVERNMENT LEVEL

At the central government level, general policy objectives are set by the Chinese 

Communist Party Central Committee (CCPCC) and the State Council. The National Reform and 

Development Commission (NRDC), a ministerial level organ within the State Council, has a 

great influence over the policy-making process. The Ministry of Agriculture (MOA) is primarily 

responsible for policy recommendations and drafting implementation measures once the CCPCC 

and State Council have made their policy decisions. Other ministries and commissions of the 

State Council also enjoy a certain level of influence over some supporting measures. For 

example, all of the supporting programs that require fiscal allocation will need approval by the 

Ministry of Finance, which manages the national treasury. 

In practice, MOF normally defers to the decisions of MOA on the specific allocation of 

funds among the agricultural supporting programs, maintaining control only on the overall level 

of agricultural spending. Similarly, consent from the People’s Bank of China (PBC) is necessary 

 

121 Id.

122 Wen Jiabao, PRC Premier Report to the National People’s Congress on the Work of the Central Government, 

XINHUA NEWS AGENCY (March 5, 2007). 
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when funds are provided through the banking system. 123 The Ministry of Science and 

Technology also administers a substantial number of agricultural technology programs. In 2004, 

it oversaw agricultural technology support programs with an annual expenditure of more than 

RMB 194 million.124 

1. Programs Administered by the Ministry of Agriculture 

a. MOA Transparency and Disclosure Practice 

As is true for all WTO Members, transparency is an important obligation for China under 

its Protocol of Accession to the WTO. In 2003, as an internal anticorruption measure, the 

Ministry of Agriculture adopted a rule that required the agencies within the Ministry to publicize 

on the Ministry’s website those programs that the agency has discretionary authority in the 

distribution of public funds. Since the adoption of this rule, MOA has been consistently 

publishing information on all the agricultural promotion programs it administers. The disclosure 

has been prompt; the 2006 distribution reports are now available on its website, as well as the 

2007 application instructions and standardized application forms. The website provides a decent 

level of detail about each program, makes available information such as the name of the program, 

the administering authority, the recipient of the funds, the purpose for which the funds would be 

applied, and the amount of each distribution. Box 7 below provides a translation of a sample 

distribution report. 

 

123 For example, the PBC provided RMB 160 billion for the reform of rural credit cooperatives. See Wuyun 

Qimuge, Agricultural loans increase markedly, XINHUA NEWS AGENCY (December 27, 2006). 

124 See Ministry of Science and Technology, 2005 Annual Report (November 2005); available at 

www.most.gov.cn/ndbg/2005ndbg/. 
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Box 7 

Sample Distribution Report125

Ministry of Agricultural Notice on Distribution of Funds for 

2006 Agricultural Technology Jump Plan 

Attn: Provincial and Autonomous Region Agricultural and Livestock Bureaus, Xinjiang Production Corps 

Agricultural Bureau 

In accordance to the requests laid out in the “Ministry of Finance Notice on Response to Ministry of 

Agriculture 2006 Budget Plan” (Cai Yu [2006] 167), and after review by this Ministry, we hereby 

distribute to you the funds you applied for under the program Agricultural Technology Jump Plan, to be 

used for rice, wheat and cotton production technology development and demonstration as well as other 

relevant purposes. Please use 070101 (designated for popularization and training expenditures) to identify 

this fund in all accounting records. The funds shall be used strictly for the purpose specified in this notice. 

The funds will be distributed directly from the Ministry of Finance to the primary recipients. The 

recipients shall maintain detailed accounting records which shall include a ledger for “agricultural 

technology jump guideline.” This account shall be separate from the other ledgers. The recipients shall 

record each drawing from this account in accordance with the program purpose and the applicable 

accounting rules; the supervising agency shall conduct good organizational and co-ordination work, and 

shall submit to the financial bureau and technological bureau of this Ministry an audit report on the 

development of the program and the use of the funds. 

Attachment: funds distribution table [only sample entries provided below] 

No. Managing Agency Program Name Recipient Principal 

Scientist 

Amount 

(RMB) 

1 The Ministry of 

Agriculture 

N2Y6 super seeds breeding and farming 

technology experiment and 

demonstration program 

China Rice Research Center Cai Liyong 

Cheng Shihua 1,400,000 

2 

Jiangsu Provincial 

Agricultural 

Bureau 

NG 1 non-hazard high quality rice key 

farming technology integration and 

commercialization demonstration 

Jiangsu Province Crops 

Farming Technology 

Consulting Station 

Zhang 

Hongcheng 1,200,000 

Hei Longjiang Agricultural 

Science Center Zhang fenming 1,200,000 

3 

Hei Longjiang 

Agricultural 

Committee 

New high yield rice strain for low 

temperature area breeding research and 

farming technology demonstration Hei Longjiang Bayi-Nongken 

University Wang Chun 600,000 

Fujian Province Agricultural 

Science Center Rice Research 

House 

Wang Wuqi 800,000 

4 

Fujian Province 

Agricultural 

Bureau 

High quality rice strain Youhang 2, 

Yiyou 673, Jiafuzhan culvary 

improvement and commercialization Xiameng University Wang 

Houchong 600,000 

5 et 

seq.

* * * * * * * * * * * * * * * 

TOTAL 30,000,000 

 

125 For the original report in Chinese, see Exhibit A-II-4. 
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b. List of Distribution Reports 

The MOA programs listed are discretionary budget programs, since approval does not 

appear to be automatic. The total amount involved in these programs is quite small. The listed 

programs for 2006 involve a total expenditure of RMB 605 million; which was less then 2 

percent of the total agricultural support budget for the 2006 fiscal year (RMB 339.7 billion).126 

The percentage for 2004 is similarly small. 

In 2003, MOA listed 25 programs. The number increased to 32 in 2004 and to 40 in 

2005. In 2006, the number of listed programs declined to 27 due to consolidation of some of the 

programs. Table 4 below lists all of the programs for which fund distribution reports have been 

disclosed. 

Table 4 

List of MOA Programs With Itemized Distribution Reports127

RMB ‘000s 

Budget Items 

2004 2006 

1 Funds for fishing administration in Exclusive Economic Zone 12,000 0

2 Marketing funds for agricultural products 17,000 17,000

3 Funds for industry standard setting or updating 30,000 30,000

4 Funds to develop the agricultural products quality certificate system 10,000 10,000

5 Fishery resources survey program 3,000 0

6 Agricultural inputs quality control program 15,000 0

7 Funds for fishery disease prevention and counter measure 1,000 0

8 Fishery resources protection program 10,000 15,000

9 Marine rescue support funds 3,000 0

10 Domestic water fishing administration funds 3,000 5,000

 

126 See MOF, 2006 Budget Report to the National People’s Congress (March 17, 2006). See Exhibit A-I-18. 127 MOA programs for 2005 are not listed because documents for that year could not be downloaded. 
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RMB ‘000s 

Budget Items 

2004 2006 

11 Funds for lighthouse maintenance 2,000 0

12 Funds for tier one fishing ports public facilities construction and maintenance 8,000 10,000

13 Funds for agricultural products market information tracking and disseminating 

system 24,000 0

14 Funds for super seeds selection and demonstration project 10,000 30,000

15 Agricultural technology development funds 30,000 30,000

16 Livestock species resources protection project 16,000 20,000

17 Crops species resources protection program 15,000 15,000

18 Demonstration program for rural special co-ops 20,000 20,000

19 Grass species resources protection funds 4,000 0

20 Funds for popularizing important technology for advantageous agricultural 

products 12,900 0

21 Funds for popularizing important technology: Mechanized rice seedling 

planting 0 5,000

22 Funds for popularizing important technology: apple packaging technology 0 25,000

23 Funds for agricultural technology demonstration program 30,000 30,000

24 Funds for model farmer technology training 5,000 0

25 Rural comprehensive energy project construction funds 12,500 0

26 Funds for agricultural industrialization 30,000 30,000

27 Funds for conducting the national cultivated land fertility level survey 10,000 0

28 Funds for popularizing important technology that reduces crop water 

consumption in dry area 10,000 20,000

29 Funds for fine seeds research and cultivation projects 20,000 

30 Funds for subsidizing farmers to purchase improved crop strains 10,000 

31,000

31 Funds to support farmer co-ops to purchase agricultural machinery 8,550 0

32 Funds for constructing test field 20,000 0

33 Funds for adopting (environmentally) protective cultivation methods 30,000 30,000

34 Funds to support farmer co-ops to purchase agricultural machinery 31,450 0

35 Funds for disseminating technology information into each household 0 50,000

36 Funds to increase the fertility level of the cultivated land 0 17,000

37 Funds for (constructing) the integrated rural information system 0 10,000
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RMB ‘000s 

Budget Items 

2004 2006 

38 Funds for agricultural products safety inspection 0 90,000

39 Funds for mice countermeasure 0 10,000

40 Funds for highly poisonous insecticide substitutes research and popularization 0 10,000

41 Funds for subsidizing purchasing fine livestock breeding stocks 0 20,000

42 Funds for popularizing standardized livestock farm technology 0 15,000

43 Funds for blue sea fishery resources exploration 0 10,000

TOTAL 463,400 605,000

Source: Ministry of Agriculture Website -- http://www.agri.gov.cn/cwgk/. 

D. AGRICULTURAL SUPPORT PROGRAMS AT THE LOCAL LEVEL

Local governments at each administrative level are delegated with broad authority to 

promote agricultural and rural development. Provincial governments in more developed areas, 

such as Shanghai, Beijing, Jiangsu, Zhejiang and Guangdong, normally will draft their own local 

5-year development guidelines, which cover the agricultural sector and rural areas in a general 

fashion.128 In most cases, support programs at the sub-national level are focused on industries 

that have particular local significance.129

The OECD Agricultural Policy Review noted that livestock promotion in China is 

primarily delegated to the provincial governments in the several provinces having significant 

livestock farming operations. These sub-national governments, particularly in Inner Mongolia, 

Heilongjiang, Henan, Anhui, Shandong and Jilin, have provided support to their livestock

industries through discounted loans, supplying government-secured feed grains, and subsidies for 

 

128 See, e.g., 11th Five-Year Plan of Beijing Municipal Government. See Exhibit A-I-15. 

129 See, e.g., Shanghai Municipal Government Notice on Livestock Industry Development Guideline for the 10th 5-

Year Period, Hu Fu [2002] No. 53. See Exhibit A-I-16. 
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purchasing equipment and breeding stock.130 The vegetable basket project, launched in 1988 and 

currently still operational, also is funded at the provincial level. This program supports 

production of livestock and vegetables through “provision of preferential loans to producers, 

extension of new technologies, and preferential tax rates for the feed industry.”131 The Zhejiang 

provincial government operates a farmer support program that provides subsidies for lessdeveloped area at a much higher level of support than the national program. Specialty crop 

farmers in those areas are entitled to RMB 200 for each mu planted in tea; and RMB 100 per mu 

for vegetable farming.132

The USDA-ERS China Lending Report listed the following local agricultural programs. 

(1) The Shenyang local government invested USD $120 million to develop the 

Shenyang Agricultural Development Zone. It was designed to be a “dairy 

town” concentrating on dairy production and cow breeding operations. 

(2) The Liaoning local government has invested in a project called the “123 

Agricultural Industrialization Project.” It will include 10 pollution-free 

agricultural production bases, 20 modern agricultural parks, and 30 

agricultural enterprises. 

(3) The Hunan provincial government plans to invest USD $568 million to foster 

20 key agricultural enterprises. 

(4) The Changchun local government invested USD $840 million in building a 

High-Tech Agriculture Demonstration Park in a new satellite city of 

Changchun. It will provide subsidized facilities to enterprises engaged in 

agricultural technology development and dissemination. 

(5) The China Development Bank has loaned USD $2.7 million to the Zhejiang 

provincial government to be used to reclaim 1,540 acres of swampland. Half 

of the reclaimed land will be allocated to local farmers.133

 

130 OECD Review of Agricultural Policies: China (2005) at 210. 

131 Id. 132 The central government provides direct subsidies to grain farmers at a rate of RMB 10 per mu. 

133 See USDA-ERS China Lending Report at 13. 
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E. TRANSPARENCY AND THE GOLDEN FISCAL MANAGEMENT SYSTEM

So far, the MOA’s practice of publicly disclosing its discretionary programs has not been 

widely followed by other government agencies; and China has yet to develop an information 

system that allows the tracking of its budgetary spending at the itemized level. This makes the 

task of measuring the overall scope of agricultural support extremely difficult. The task is 

further complicated by the fact that government agencies at each level have the authority to 

initiate their own agricultural or rural area support programs; and there is no systematic way of 

tracking those expenditures under the current governmental budgetary management system. 

This situation might soon change, at least for the central government. Recently, the 

Ministry of Finance has made efforts to develop an integrated national budget management 

system. A working group was established in 2000, and delegations have been sent overseas to 

draw upon the experience of other countries. Experimental operation of this system was 

conducted in 2001. In 2002, the project was officially elevated to be one of the 12 top-priority 

E-government projects and was given the official name “Golden Fiscal Management System.” 

This system is expected to be fully operational by the end of 2008. By that time, it 

should be capable of performing budget planning, revenue collection and public funds 

distribution management, treasury debt management, government employee salary management,

and state-owned fixed assets management, as well as conducting economic analysis. It is 

expected that that the system will manage the transfer of funds equivalent to 20 percent of the 

GDP, and that it will contribute to increasing the ability of the Chinese central government to 

track both budget planning and public funds distribution. The system will enhance the 
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government’s ability to conduct macro-economic guidance, and, it is hoped, lead to greater 

transparency for the public and for China’s trading partners. 

II. CHINA’S WTO COMMITMENTS ON TRADE IN AGRICULTURAL PRODUCTS 

AND ITS COMPLIANCE WITH RESPECT TO ITS SUBSIDY OBLIGATIONS

Part II of this report reviews China’s WTO commitments on trade in agricultural goods, 

with an emphasis on domestic support and export subsidies. First, Section A provides a brief 

introduction to China’s WTO commitments that are relevant to the agricultural sector, including 

commitments made under the WTO Agreement on Agriculture and other relevant agreements 

such as the SCM, TBT and SPS agreements. Pursuant to its WTO obligation under the SCM 

Agreement, China, in April 2006, submitted its first subsidies notification to the WTO SCM 

Committee in which it listed the subsidy programs that China currently maintains. Section B 

identifies China’s subsidy programs that are either expressly- or potentially-applicable to the 

agricultural sector. Finally, Section C summarizes possible Chinese subsidy programs that have 

been identified by other WTO Members over the first five years of China’s Transitional Review 

Mechanism (TRM) and the WTO’s 2006 Trade Policy Review (TPR) of China. 

A. CHINA’S AGRICULTURAL COMMITMENTS

China’s agricultural commitments under the WTO regime are spelled out primarily in 

China’s WTO Accession Protocol, the Working Party Report, China’s Goods Schedule, and the 

WTO Agreements. The Agreement on Agriculture contains general obligations for WTO 

Members with regard to market access, domestic support and export subsidies in trade in 
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agricultural goods.134 China’s Goods Schedule lists China’s binding tariff rates, tariff-rate quotas 

(TRQs), and its Aggregated Measurement of Support (AMS) reduction obligations. China’s 

other WTO obligations are also applicable to trade in agricultural goods to the extent that they do 

not conflict with the Agreement on Agriculture. 

With regard to market access, the Agriculture Agreement obliges China, as well as other 

Members, to undertake two basic commitments. The first commitment is adoption of a tariffonly system as provided under Article 4.2 of the Agriculture Agreement.135 China is required to 

eliminate all non-tariff border measures. China was permitted, however, to convert its non-tariff 

border measures into equivalent tariff protections, as long as the final applicable rate did not 

exceed the binding rate listed in China’s Goods Schedule. The second commitment is that China 

will not apply a tariff rate that exceeds the applicable binding rate listed in its Good Schedule.136

With respect to domestic support, the Agriculture Agreement imposes certain restrictions 

on government support programs and WTO Members are obliged to reduce their support 

programs in accordance with the Agreement. However, domestic support programs that fall 

within the “green box” category are exempt from such restrictions. “Green box” subsidies are 

those domestic support programs that have no or, at most, minimal trade-distorting effects on 

 

134 See Agreement on Agriculture, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 

LEGAL TEXTS, RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS (Cambridge, 

2004) [hereinafter “Agriculture Agreement”]. 135 Agriculture Agreement at Article 4.2. 136 Agriculture Agreement at Article 2.1. WTO general exceptions apply to this limitation. Non-tariff measures 

are allowed if they are consistent with GATT Articles XII and XVIII (balance of payments provisions), Article 

XIX (general safeguard provisions), Article XX (general exceptions), and the WTO Agreement on the 

Application of Sanitary and Phytosanitary Measures and the WTO Agreement on Technical Barriers to Trade. 
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production.137 In any given year, the maximum level of non-exempt support is bound as set forth 

in each Member’s WTO goods schedule. If a Member has no scheduled reduction commitments, 

any domestic support program not falling within the “green box” must be maintained within the 

relevant product-specific and non-product-specific de minimis levels. Upon WTO accession, 

China’s base total AMS was zero and its product specific support was negative.138 Hence, 

China’s total AMS commitment level at accession was zero. 

Provisions in China’s Working Party Report allow China recourse to a de minimis 

exemption for product-specific support equivalent to 8.5 percent of the total value of production 

of a basic agricultural product, and recourse to a de minimis exemption for non-product-specific 

support of 8.5 percent of the value of China’s total agricultural production.139 In addition, the 

Agriculture Agreement requires all Members to notify the Committee on Agriculture regarding 

the extent of their export and domestic support measures.140

In general, for most WTO Members who do not have a reduction schedule, the 

Agriculture Agreement does not allow export subsidies.141 China did not report export subsidies 

for its base period or make any export subsidy reservations in its Goods Schedule. In fact, as 

 

137 Agriculture Agreement at Annex 2, para. 1. 138 See Protocol on the Accession of the People's Republic of China, WT/L/432 (23 November 2001) at Annex 8 

(Schedule CLII). Schedule CLII is contained in the Working Party Report. See Report of the Working Party 

on the Accession of China; Schedule CLII – People’s Republic of China, WT/MIN(01)/3/Add.1 (10 November 

2001) at Part IV, Section I (referencing document WT/ACC/CHN/38/Rev.3 (19 July 2001)). China’s 

aggregate AMS commitments are contained in WT/ACC/Chn/38/Rev.3 (19 July 2001) at Tables DS: 4 and 

DS:5. 

139 Report of the Working Party on the Accession of China, WT/MIN(01)/3 (10 November 2001) at para. 235. 

140 Agriculture Agreement at Article 18.2. 141 Following the Agriculture Agreement’s implementation period, agricultural export subsidies are allowed in 

two situations: (1) for Members with product-specific reduction commitments, export subsidies are allowed as 

long as they are within the limits specified in their schedule; (2) export subsidies that are not subject to the 

reduction obligation under Article 9.1 are allowed provided they are in conformity with Article 10. 
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recorded in the Working Party Report, China committed that, by the date of accession, it would 

not maintain or introduce any export subsidies on agricultural products.142

The Working Party Report records other commitments by China that are relevant to trade 

in agricultural goods. In response to concerns from Members that China might use import 

polices, including TRQ allocations, to achieve certain domestic industrial policy objectives, 

China confirmed that it would base import policies for agriculture on commercial considerations 

only.143 In Annex 4 of the Protocol of Accession, China made reservations with regard to pricing 

of certain agricultural products. It retained the right to impose price controls over tobacco 

products and to implement a guidance pricing system for grain, vegetable oil, processed oil, 

fertilizer, silkworm cocoons, and cotton.144 In the Working Party Report, with respect to those 

goods and services on which China intended to maintain price controls pursuant to Annex 4, 

some Members noted that China’s pricing control or guidance pricing should be maintained in a 

manner consistent with Annex 2, paragraphs 3 and 4, of the Agreement on Agriculture (i.e., 

public stockholding for food security purpose, and domestic food aid exceptions) and Article III 

of the GATT 1994 (i.e., national treatment), and should not be extended to any goods or services 

beyond those listed in Annex 4.145 In response, China noted that “national treatment was applied 

in the areas of government pricing for all imported goods” and that “products and services 

subject to government pricing were those having a direct bearing on the national economy and 

 

142 Report of the Working Party on the Accession of China, WT/MIN (01)/3 (10 November 2001) at para. 234. 

143 Id. at para. 231. 144 See Protocol on the Accession of the People's Republic of China, WT/L/432 (23 November 2001) at Annex 4. 145 Report of the Working Party on the Accession of China, WT/MIN (01)/3 (10 November 2001) at para. 50-51.
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the basic needs of the people's livelihood, including those products that were scarce in China.146 

Further, China stated that “price controls would not be used for purposes of affording protection 

to domestic industries or service providers,” that “China would apply its current price controls 

and any other price controls upon accession in a WTO-consistent fashion,” and that “price 

controls would not have the effect of limiting or otherwise impairing China’s market-access 

commitments on goods and services.”147

Other WTO commitments that bear significantly on trade in agricultural goods include 

those under the SPS and the TBT agreements. These commitments basically impose 

transparency requirements in the administration of SPS and TBT measures, and that substantive 

standards have a scientific basis. 

Table 5, below, briefly identifies China’s agricultural commitments and notes the 

compliance assessment of the U.S. government. 

 

146 Id. at para. 52. 147 Id. at paras. 62, 64. 
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Table 5 

China WTO Agricultural Commitments and Compliance Assessments 

China Agricultural 

Commitment Compliance Assessment by the U.S. 

Binding tariff 

schedule 

“China implemented the required tariff changes on agricultural goods for 

2006 on schedule on January 1, 2006, just as it did for industrial goods.” 

USTR, 2006 WTO Compliance Report at 61. 

“The full market access potential of China’s tariff cuts was not realized for 

some products....A variety of non-tariff barriers continue to impede 

market access for U.S. agricultural exports to China, particularly exports 

of consumer-ready and value-added products.” USTR, 2006 WTO 

Compliance Report at 61. 

Elimination of nontariff barriers 

AQSIQ requires importers to obtain a Quarantine Inspection Permit prior 

to signing purchase contracts for nearly all traded agricultural 

commodities. USTR, 2006 WTO Compliance Report at 68. 

Market 

Access 

TRQ Lack of transparency. USTR, 2006 WTO Compliance Report at 63. 

Domestic 

Subsidies 

8.5% de minimis

threshold for 

product-specific and 

non-product-specific 

subsidies 

 “Subsidies and tax reductions provide benefits equal to 2-4% of the value 

of agricultural production.” USDA-ERS China Subsidies Report at 14. 

Export 

Subsidies No exceptions 

Agricultural product exports are exempted from payment of the railway 

construction fee (equal to about 20-50% of transportation costs). USTR, 

China TRM 2006 - Questions from the U.S. at para. 13. 

SPS 

China was unable to provide a scientific-based rationale for maintaining 

import restrictions on U.S. beef products and some U.S. poultry and pork 

products. USTR, 2006 WTO Compliance Report at 64. 

TBT 

China has overly restrictive food additive standards as laid out in China’s 

proposed hygienic standard for uses of food additives. USTR, 2006 WTO 

Compliance Report at 67. 

Sources: USTR, 2006 Report to Congress on China’s WTO Compliance (December 2006); Fred Gale, et al., 

China’s New Farm Subsidies (USDA, Economic Research Service Outlook Report WRS-05-01, 

February 2005); Questions from the United States to China, G/SCM/Q2/CHN/23 (16 October 2006). 

B. AGRICULTURAL SUBSIDIES IDENTIFIED IN CHINA’S SCM

NOTIFICATION

In April 2006, pursuant to Article 25.2 of the SCM Agreement,148 China submitted its 

first subsidies notification to the WTO SCM Committee (“SCM Notification”).149 Among the 78 

 

148 Article 25.2 of the WTO Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) requires 

Members to notify all of their all export and specific subsidies to the SCM Committee. 
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subsidy programs identified in that notification, 36 programs are specifically applicable either to 

the agricultural sector or to rural areas (see Table 6, below, for a list of these programs). Another 

31 programs are potentially applicable to the agriculture sector as well as to other sectors. Of the 

agriculture-specific subsidy programs, 9 programs are dedicated to public facilities or 

environmental protection purposes, 150 5 programs are for poverty alleviation or 

underdevelopment support purposes,151 5 programs are for technology development, including 

popularization of improved crop strains or animal breeds,152 3 programs are for agricultural 

industrialization,153 3 programs are for disaster relief or prevention,154 2 programs are for grain 

production capacity preservation, 155 1 program is for training rural migrant workers, 156 and 

another program supports the replacement of the planting of poppies.157

On the following pages, two tables are presented. The first, Table 6, lists in detail the 

programs identified in China’s Notification which are applicable to the agricultural sector and to 

rural areas. The second table, Table 7, lists those programs identified in China’s Notification 

which are potentially applicable to the agricultural sector. 

 149 People's Republic of China – New and Full Notification Pursuant to Article XVI:1 of the GATT 1994 and 

Article 25 of the SCM Agreement, G/SCM/N/123/CHN (13 April 2006). 

150 See id. at subsidy programs XLVI, XLVII, XLVIII, XLIX, L, LI, LII, LIII, and LIV. 151 See id. at subsidy programs III, XV, XVI, XVII, and XVIII. 152 See id. at subsidy programs XXXVI, XXXVIII, XXXIX, XLI, and LXXVI. 

153 See id. at subsidy programs XXIX, XL, and XLII. 154 See id. at subsidy programs XLIII, XLIV, and XLV. 

155 See id. at subsidy programs LXI and LXII. 156 See id. at subsidy program XXXV. 157 See id. at subsidy program LXV. 
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Table 6 

List of Subsidies in China’s SCM Notification Applicable to the Agricultural Sector or to 

Legal authorities 

ID SCM No. Subsidy Program Benefits 

Legislation Title in English Tit

1 III 

Preferential tax policies for 

foreign-invested enterprises 

engaged in agriculture, 

forestry or animal 

husbandry and foreigninvested enterprises 

established in remote 

underdeveloped areas 

Preferential tax 

benefit 

(15-30% reduction 

of the original rate) 

N/A 

Income Tax Law of the People's 

Republic of China for Enterprises 

with Foreign Investment and 

Foreign Enterprises 

中华商投企业

2 XV 

Preferential tax policies for 

enterprises established in 

the poverty stricken areas 

Preferential tax 

benefit 

(3 year tax 

exemption or 

reduction) 

MOF Circular, 

Cai Shui Zi 

[1994] No. 001 

MOF & SAT Circular on Several 

Preferential Corporate Income 

Tax Policies 

财政总局得税的通

3 XVI Fiscal funds to alleviate poverty Discretionary grants MOF Circular, Cai Nong [2000] No. 18 

Circular on the Distribution of 

“Interim Administrative Rules of 

the Fiscal Funds for Poverty 

Alleviation” and “Interim 

Administrative Rules of the 

Administration Fee for the 

Poverty Alleviation Projects” 

关于贫资(试行

项目法》
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Table 6 

List of Subsidies in China’s SCM Notification Applicable to the Agricultural Sector or to 

Legal authorities 

ID SCM No. Subsidy Program Benefits 

Legislation Title in English Tit

4 XVII 

Specific subsidy on 

agricultural production and 

construction in the poverty 

stricken areas of Hexi and 

Dingxi of Gansu Province 

and Xihaigu of Ningxia Hui 

Autonomous Region 

Discretionary 

grants 

MOF Circular, 

Cai Nong [2001] 

No. 67 

Circular of MOF and the Leading 

Group on Poverty Alleviation and Development of the State Council 

on the Distribution of 

“Administrative Rules of the 

Special Subsidies to the ‘Three 

West’ Agricultural Construction” 

财政贫开于印农业资金法》01

5 XVIII Interest discount on poverty alleviation loans 

Subsidized loan 

(loan provided at 

3% annual rate, up 

to 3 years) 

People’s Bank of 

China Circular, 

Yin Fa [2001] 

No. 185 

Administrative Rules of 

Subsidized Loans for Poverty 

Alleviation 

中国政部开发室、关于息贷法》

6 XXIII Preferential tax policies for township enterprises 

Preferential tax 

treatment 

(10% reduction of 

income tax) 

MOF Circular, 

Cai Shui Zi 

[1994] No. 001 

MOF & SAT Circular on Several 

Preferential Corporate Income 

Tax Policies 

财政总局得税的通

7 XXIX 

Preferential tax policies for 

the key leading enterprises 

engaged in agricultural 

industrialization 

Preferential tax 

treatment 

(income tax 

exemption) 

MOA Circular, 

Nong Jing Fa 

[2000] No. 8 

Circular on Opinions Regarding 

Supporting Leading Enterprises 

Engaged in Agricultural 

Industrialization 

关于化经业的
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Table 6 

List of Subsidies in China’s SCM Notification Applicable to the Agricultural Sector or to 

Legal authorities 

ID SCM No. Subsidy Program Benefits 

Legislation Title in English Tit

7 XXIX Same as above Same as above 

MOA Circular, 

Nong Jing Fa 

[2000] No. 10 

MOA Circular on Publication of 

the List of the Leading 

Enterprises Engaged in 

Agricultural Industrialization 

《关业化企业(农号)

7 XXIX Same as above Same as above 

SAT Circular, 

Guo Shui Fa 

[2001] No. 124 

Circular on Publication of the List 

of the Leading Enterprises 

Engaged in Agricultural 

Industrialization 

农业委、财政公布家重单的

8 XXX 

Preferential tax policies for 

the enterprises engaged in 

forestry 

Tax preferential 

treatment 

(income tax 

exemption) 

MOF Circular, 

Cai Shui [2001] 

No. 171 

MOF & SAT Circular on Tax 

Policies on the Forestry Industry 

财政总局政策

8 XXX Same as above Same as above 

MOF Circular, 

Cai Shui [1997] 

No. 49 

MOF & SAT Circular on Income 

Tax Collection for State-Owned 

Agriculture Entities 

财政总局企事业所知
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Table 6 

List of Subsidies in China’s SCM Notification Applicable to the Agricultural Sector or to 

Legal authorities 

ID SCM No. Subsidy Program Benefits 

Legislation Title in English Tit

8 XXX Same as above Same as above 

MOF Circular, 

Cai Jian [2004] 

No. 124 

Interim Administrative Measures 

of the Special Fund for 

Establishment of the Service 

System for Small- and Mediumsized Enterprises 

中小专项管理

9 XXXV 

Fund for subsidizing the 

training of the rural migrant 

labor force 

Grants 

(RMB 100 

per trainee) 

MOF Circular, 

Cai Nong [2004] 

No. 38 

MOF and MOA Circular on 

Administrative Measures of the 

Fund for Subsidizing the Training 

of the Rural Migrant Labor Force 

财政于印力转助资

行)》[2004

10 XXXVI 

Outlay for training of 

youngster farmers on 

science and technology 

Discretionary 

grants 

MOA Circular, 

Nong Ke Jiao Fa 

[1999] No. 8 

Comments on Development of 

Trial-Point for the Training of 

Cross-Century Youngster 

Farmers on Science and 

Technology 

关于年农程试

11 XXXVII Fund for specialized cooperatives of farmers Discretionary grants MOF Circular, Cai Nong [2004] No. 87 MOF Circular on the Interim Administrative Measures of the Fund for Specialized Cooperatives of Farmers 

财政《中业合金管的通
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Table 6 

List of Subsidies in China’s SCM Notification Applicable to the Agricultural Sector or to 

Legal authorities 

ID SCM No. Subsidy Program Benefits 

Legislation Title in English Tit

12 XXXVIII Subsidy for popularization of agricultural technologies Discretionary grants MOF Circular, Cai Nong [2004] No. 81 MOF Circular on the Administrative Measures of the Fund for Popularization of Agricultural Technologies 财政

《农范项法》

13 XXXIX Subsidy for growing superior grain cultivars Grants (RMB 10 per mu) MOF Circular, Cai Nong [2004] No. 16 MOF & MOA Circular on the Interim Administrative Measures of the Fund for Popularization of Superior Grain Cultivars 

财政于印种推理暂知

13 XXXIX Same as above 

Grants 

(up to 30% of the 

purchase price) 

MOF Circular, 

Cai Nong [2004] 

No. 17 

MOF & MOA Circular on the 

Interim Administrative Measures of the Subsidy for Popularization 

of Superior Rice Cultivars 

财政于印推广暂行

14 XL 

Subsidy for purchasing 

agricultural machinery and 

tools 

Grants 

(up to 30% of the 

purchase price) 

MOA Circular, 

Nong Cai Fa 

[2004] No. 6 

MOA Circular on the Interim 

Administrative Measures of the 

Subsidy for Purchasing 

Agricultural Machinery and Tools 

农业《农贴资法(试
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June 2007

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Table 6 

List of Subsidies in China’s SCM Notification Applicable to the Agricultural Sector or to 

Legal authorities 

ID SCM No. Subsidy Program Benefits 

Legislation Title in English Tit

15 XLI Subsidy for actualizing agricultural technology Grants (up to RMB 3 million per project) MOST Circular, Guo Ke Ban Cai Zi [2001] No. 417 

Interim Measures on the 

Management of Projects of Funds 

Earmarked for Actualizing the 

Agricultural Scientific and 

Technological Achievements 

农业资金办法

16 XLII Fund provided for agricultural industrialization Grants MOF Circular, Cai Nong [2004] No. 88 MOF Circular on the Administrative Measures on the Fund for Agricultural Industrialization 财政

《中业产暂行

17 XLIII Fund for agricultural disaster relief Grants MOF Circular, Cai Nong [2001] No. 232 MOF Circular on the Administrative Measures of the Fund for Agricultural Disaster Prevention and Relief 财政

《农金管知 

18 XLIV 

Fund provided to exempt 

from or reduce agriculture 

tax on farmers suffering 

from poor harvest after 

disasters 

Preferential tax 

treatment N/A 

Regulation of the People’s 

Republic of China on Agricultural 

Tax 

中华业税
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June 2007

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Table 6 

List of Subsidies in China’s SCM Notification Applicable to the Agricultural Sector or to 

Legal authorities 

ID SCM No. Subsidy Program Benefits 

Legislation Title in English Tit

18 XLIV Same as above Grants 

MOF Circular, 

Cai Nong [2001] 

No. 132 

MOF Circular on the 

Administrative Measures of the 

Fund for the Exemption from or 

Reduction of Agricultural Tax on 

Farmers Suffering from Poor 

Harvest After Disasters 

中华政部业税专项办法

19 XLV 

Subsidy for major flood 

control and drought 

resistance 

Non-discretionary 

grants 

MOF Circular, 

Cai Nong [2001] 

No. 30 

MOF and MWR Circular on the 

Interim Rules of the Distribution 

of Subsidy for Major Flood 

Control and Drought Resistance 

财政于印抗旱行规

20 XLVI 

Fund for construction of 

small irrigation facilities in 

rural areas 

Discretionary 

grants 

MOF Circular, 

Cai Ban Nong 

[2001] No. 74 

Circular from the General Office 

of MOF on the Pilot 

Administrative Rules of the 

Subsidy for Construction of Small 

Irrigation Facilities in Rural 

Areas 

财政印发益设金管的通

21 XLVII 

Fund for construction of 

small ecological facilities in 

rural areas 

Discretionary 

grants 

MOF Circular, 

Cai Ban Nong 

[2001] No. 74 

Circular from the General Office 

of MOF on the Pilot 

Administrative Rules of the 

Subsidy for Construction of Small 

Irrigation Facilities in Rural 

Areas 

财政印发益设金管的通
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

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June 2007

75 

Table 6 

List of Subsidies in China’s SCM Notification Applicable to the Agricultural Sector or to 

Legal authorities 

ID SCM No. Subsidy Program Benefits 

Legislation Title in English Tit

22 XLVIII 

Fund for projects on 

collection, reservation and 

utilization of rainfall 

Grants 

MOF Circular, 

Cai Nong [2004] 

No. 138 

 MOF & MWR Circular on the 

Interim Administrative Rules of 

the Fund for Collection, 

Reservation and Utilization of 

Rainfall 

财政于印雨水资金法》

23 XLIX 

Fund for interest discount 

on loans for the purpose of 

agricultural water-saving 

irrigation 

Loan interest 

subsidy 

(actual interest 

paid, normally not 

exceeding 3%) 

MOF Circular, 

Cai Yu [2001] 

No. 388 

Interim Administrative Rules of 

the Fund for Interest Discount on 

Loans for Water-Saving Irrigation 

节水财政暂行

24 L 

Subsidies for national key 

construction projects on 

water and soil conservation 

Grants 

MOF Circular, 

Cai Nong [1987] 

No. 402 

Administrative Rules of the 

Subsidies for Small-Scale 

Irrigation and Soil Conservation 

小型土保的规

25 LI 

Special fund for projects on 

protection of natural 

forestry 

Grants 

MOF Circular, 

Cai Nong [2000] 

No. 151 

MOF Circular on the 

Administrative Rules of the Fund 

for Protection of Natural Forestry 

财政《天财政定》

26 LII Cash subsidy for returning cultivated land to forests 

Grants 

(RMB 5-20 & 

grain 100-150 kg 

per mu) 

State Council 

Circular, Guo Fa 

[2000] No. 10 

Opinions of the State Council on 

Further Improving the Policies 

and Measures on Returning 

Cultivated Land to Forests 

国务完善措施
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

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June 2007

76 

Table 6 

List of Subsidies in China’s SCM Notification Applicable to the Agricultural Sector or to 

Legal authorities 

ID SCM No. Subsidy Program Benefits 

Legislation Title in English Tit

27 LIII Compensation fund for forestry ecological benefits Grants (RMB5 per mu) MOF Circular, Cai Nong [2004] No. 169 MOF & SFB Circular on Administrative Measures of the Compensation Fund for Forestry Ecological Benefits 

财政局关森林基金通知

28 LIV 

Interest discount on loans 

for the purpose of 

desertification prevention in 

forestry 

Loan interest 

subsidy 

(RMB 2-4% of the 

qualified loan, up 

to 3 years) 

MOF Circular, 

Cai Nong [2002] 

No. 137 

MOF Circular on Administrative 

Measures of the Fund for Loan 

Interest Subsidy for 

Desertification Prevention in 

Forestry 

财政《林政贴定》

29 LV 

Subsidy for prevention from 

and control of pest and 

disease in forestry 

Grants 

MOF Circular, 

Cai Nong [2002] 

No. 69 

MOF Circular on Administrative 

Measures of the Subsidy for 

Prevention from and Control of 

Pest and Disease in Forestry 

财政《林补助的通

30 LVI Subsidy for grass seed sowing by airplanes Grants MOF Circular, Cai Nong [2004] No. 139 MOF & MOA Circular on the Subsidy for Grass Seed Sowing by Airplanes 

财政于印飞播理暂知
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

Trade Lawyers Advisory Group 

June 2007

77 

Table 6 

List of Subsidies in China’s SCM Notification Applicable to the Agricultural Sector or to 

Legal authorities 

ID SCM No. Subsidy Program Benefits 

Legislation Title in English Tit

31 LXI 

Preferential tax policies for 

enterprises of grain or oil 

reserves 

Preferential tax 

treatment 

(VAT exemption) 

MOF Circular, 

Cai Shui Zi 

[1999] No. 198 

MOF & SAT Circular on VAT 

Exemption for Staple Crops 

Enterprises 

财政总局增值通知

32 LXII 

Preferential tax policies for 

the imports of China Grain 

Reserves Corporation for 

the purpose of rotation of 

grain reserves 

Preferential tax 

treatment 

(income tax 

exemption for 

certain income) 

MOF Circular, 

Cai Shui [2001] 

No. 13 

MOF & SAT Circular on Tax 

Policy Regarding China Grain 

Reserves Corporation 

财政总局粮管税收2001 

32 LXII Same as above 

Preferential tax 

treatment 

(income and other 

tax exemption) 

MOF Circular, 

Cai Shui [2004] 

No. 74 

MOF & SAT Circular on Tax 

Policy Regarding China Grain 

Reserves Corporation 

财政总局粮管税收2004 

33 LXIII 

Preferential tax policies for 

the relief grain and disaster 

relief grain, compensation 

grain for returning 

cultivated land to forests 

and to grass land, and the 

grain rations for the 

migrants from the reservoir 

areas 

Preferential tax 

treatment 

(VAT exemption) 

MOF Circular, 

Cai Shui Zi 

[1999] No. 198 

MOF & SAT Circular on VAT 

Exemption for Staple Crops 

Enterprises 

财政总局增值通知
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

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June 2007

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Table 6 

List of Subsidies in China’s SCM Notification Applicable to the Agricultural Sector or to 

Legal authorities 

ID SCM No. Subsidy Program Benefits 

Legislation Title in English Tit

33 LXIII Same as above 

Preferential tax 

treatment 

(VAT exemption) 

SAT Circular, 

Guo Shui Fa 

[2001] No. 131 

SAT Circular on VAT Exemption 

for the Relief Grain and Disaster 

Relief Grain, Compensation 

Grain for Returning Cultivated 

Land to Forests and to Grassland 

国家退耕粮免的通

34 LXIV 

Preferential tax treatment 

for tea sold in the border 

areas 

Preferential tax 

treatment 

(VAT exemption) 

MOF Circular, 

Cai Shui Zi 

[1994] No. 60 

MOF & SAT Circular on Certain 

Policy Issues on VAT 

财政总局个税通知

34 LXIV Same as above 

Preferential tax 

treatment 

(VAT exemption) 

MOF Circular, 

Cai Shui [2001] 

No. 71 

MOF & SAT Circular on 

Continuing VAT Exemption for 

Tea Sold in the Border Area by 

State-Designated Producers and 

Retailers 

财政总局家定经销销茶通知

35 LXV 

Preferential tax treatment 

for imported products for 

the purpose of replacing the 

planting of poppies 

Preferential tax 

treatment 

(VAT exemption) 

MOF Circular, 

Cai Shui [2000] 

No. 63 

MOF, SAT and CC Circular on 

Tax Polices Related to Border 

Trade in Yunnan Province 

财政总局于云发展策的
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

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June 2007

79 

Table 6 

List of Subsidies in China’s SCM Notification Applicable to the Agricultural Sector or to 

Legal authorities 

ID SCM No. Subsidy Program Benefits 

Legislation Title in English Tit

36 LXVI 

Preferential tax policies on 

imports of seeds (seedlings), 

breeding stock (fowl), fish 

fry (breeds) and non profitmaking wild animals and 

plants kept as breeds during 

the period of the “Tenth 

Five-Year Plan” 

Preferential tax 

treatment 

(VAT exemption) 

MOF Circular, 

Cai Shui [2001] 

No. 130 

MOF & SAT Circular on Tax 

Policies on Imports of Seeds, 

Breeding Stock, Fish Fry and Non 

Profit-making Wild Animals and 

Plants Kept as Breeds During the 

Period of the “10th Five-Year 

Plan” 

财政总局期间(苗鱼种利性物种通知

SCM No.: This column identifies the number of the subsidy program listed in China’s SCM Notification. See People’s Republic 

Notification Pursuant to Article XVI:1 of the GATT 1994 and Article 25 of the SCM Agreement, G/SCM/N/123/CHN (13 Ap
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

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Table 7 

List of Subsidy Programs in China’s SCM Notification Potentially Applicable to the Agricu

Legal authorities 

ID SCM No. Subsidy Program 

Legislation Title in English T

1 I 

Preferential tax policies 

for foreign-invested 

enterprises 

N/A 

Income Tax Law of the People's 

Republic of China for Enterprises with 

Foreign Investment and Foreign 

Enterprises 

中华人业和外

1 I Same as above N/A 

Rules for the Implementation of the 

Income Tax Law of the People's 

Republic of China for Enterprises with 

Foreign Investment and Foreign 

Enterprise 

中华人业和外细则

2 II 

Preferential tax policies 

for foreign-invested 

export enterprises 

N/A 

Income Tax Law of the People's 

Republic of China for Enterprises with 

Foreign Investment and Foreign 

Enterprises 

中华人业和外

2 II Same as above N/A 

Rules for the Implementation of the 

Income Tax Law of the People's 

Republic of China for Enterprises with 

Foreign Investment and Foreign 

Enterprise 

中华人业和外细则
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

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June 2007

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Table 7 

List of Subsidy Programs in China’s SCM Notification Potentially Applicable to the Agricu

Legal authorities 

ID SCM No. Subsidy Program 

Legislation Title in English T

3 IV 

Preferential tax policies 

for foreign-invested 

enterprises engaged in 

energy, transportation, 

and infrastructure 

projects 

N/A 

Income Tax Law of the People's 

Republic of China for Enterprises with 

Foreign Investment and Foreign 

Enterprises 

中华人业和外

3 IV Same as above N/A 

Rules for the Implementation of the 

Income Tax Law of the People's 

Republic of China for Enterprises with 

Foreign Investment and Foreign 

Enterprises 

中华人业和外细则

3 IV Same as above State Council Circular, Guo Fa [1999] No. 13 

Circular of the State Council on 

Expanding Preferential Tax Treatment 

to Foreign-Invested Companies 

Involved in Energy, Transportation 

and Infrastructure 

国务院业从事目税收优通知

4 VI 

Preferential tax policies 

for enterprises with 

foreign investment which 

are technology-intensive 

and knowledge-intensive 

SAT Circular, Guo Shui 

Fa [1995] No. 139 

Circular on the Preferential Tax 

Treatment to Foreign-Invested 

Companies that are Technology-and 

Knowledge-Intensive 

关于外

密集型题的通
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

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June 2007

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Table 7 

List of Subsidy Programs in China’s SCM Notification Potentially Applicable to the Agricu

Legal authorities 

ID SCM No. Subsidy Program 

Legislation Title in English T

4 VI Same as above SAT Circular, Guo Shui Fa [2003] No. 135 

SAT Circular on the Preferential Tax 

Treatment to Foreign-Invested 

Companies that are Technology-and 

Knowledge-Intensive 

国家税企业享受

优惠政策2003 

5 VII 

Preferential tax policies 

for enterprises with 

foreign investment in the 

border cities 

SAT Circular, Guo Shui 

Han Fa [1992] No. 1412 

SAT Circular on Granting Preferential 

Tax Treatment to Foreign-Invested 

Companies in 12 Border Cities 

国家税十二个边资企业税

6 VIII 

Preferential tax policies 

for enterprises with 

foreign investment 

recognized as high- or 

new-technology 

enterprises established in 

the State high-or newtechnology industrial 

development zones, and 

for advanced technology 

enterprises invested in 

and operated by foreign 

businesses 

N/A 

Rules for the Implementation of the 

Income Tax Law of the People's 

Republic of China for Enterprises with 

Foreign Investment and Foreign 

Enterprises 

中华人业和外细则
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

Trade Lawyers Advisory Group 

June 2007

83 

Table 7 

List of Subsidy Programs in China’s SCM Notification Potentially Applicable to the Agricu

Legal authorities 

ID SCM No. Subsidy Program 

Legislation Title in English T

7 IX 

Preferential tax policies 

for enterprises 

recognized as high- or 

new-technology 

enterprises established in 

the State high- or newtechnology industrial 

development zones 

MOF Circular, Cai Shui 

Zi [1994] No. 001 

MOF & SAT Circular on Several 

Preferential Corporate Income Tax 

Policies 

财政部于企业所的通知

8 X 

Preferential tax policies 

for enterprises with 

foreign investment 

established in special 

economic zones 

(excluding Shanghai 

Pudong area) 

N/A 

Income Tax Law of the People's 

Republic of China for Enterprises with 

Foreign Investment and Foreign 

Enterprises 

中华人业和外

8 X Same as above N/A 

Rules for the Implementation of the 

Income Tax Law of the People's 

Republic of China for Enterprises with 

Foreign Investment and Foreign 

Enterprises 

中华人业和外细则
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

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June 2007

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Table 7 

List of Subsidy Programs in China’s SCM Notification Potentially Applicable to the Agricu

Legal authorities 

ID SCM No. Subsidy Program 

Legislation Title in English T

9 XI 

Preferential tax policies 

for enterprises with 

foreign investment 

established in the costal 

economic open areas and 

in the economic and 

technological 

development zones 

N/A 

Income Tax Law of the People's 

Republic of China for Enterprises with 

Foreign Investment and Foreign 

Enterprises 

中华人业和外

9 XI Same as above N/A 

Rules for the Implementation of the 

Income Tax Law of the People's 

Republic of China for Enterprises with 

Foreign Investment and Foreign 

Enterprises 

中华人业和外细则

10 XII 

Preferential tax policies 

for enterprises with 

foreign investment 

established in Pudong 

area of Shanghai 

N/A 

Income Tax Law of the People's 

Republic of China for Enterprises with 

Foreign Investment and Foreign 

Enterprises 

中华人业和外
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

Trade Lawyers Advisory Group 

June 2007

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Table 7 

List of Subsidy Programs in China’s SCM Notification Potentially Applicable to the Agricu

Legal authorities 

ID SCM No. Subsidy Program 

Legislation Title in English T

10 XII Same as above N/A 

Rules for the Implementation of the 

Income Tax Law of the People's 

Republic of China for Enterprises with 

Foreign Investment and Foreign 

Enterprises 

中华人业和外细则

11 XIV Preferential tax policies in the western regions State Council Circular, Guo Fa [2000] No. 33 Circular of the State Council on Several Policies on the Development of Western Regions 国务院

若干政策

11 XIV Same as above 

General Office of State 

Council Circular, Guo 

Ban Fa [2001] No. 73 

The General Office of the State 

Council to Circulate the Circular of the 

State Council on the Implementation 

of New Policies for the Development 

of Western Regions 

国务院部开发干政策措

11 XIV Same as above MOF Circular, Cai Shui [2001] No. 202 Circular on Preferential Tax Treatment for Western Regions Development Program 财政部

关总署优惠政策

11 XIV Same as above SAT Circular, Guo Shui Fa [1999] No. 172 

SAT Circular on Extending 15% 

Preferential Income Tax Rate for 

Three Years to Foreign-Invested 

Companies in Central and Western 

Regions 

国家税在中西部业给予三收企业所
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

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June 2007

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Table 7 

List of Subsidy Programs in China’s SCM Notification Potentially Applicable to the Agricu

Legal authorities 

ID SCM No. Subsidy Program 

Legislation Title in English T

12 XIX 

Preferential tax policies 

for enterprises which 

utilize the waste 

materials 

MOF Circular, Cai Shui 

Zi [1994] No. 001 

MOF & SAT Circular on Several 

Preferential Corporate Income Tax 

Policies 

财政部于企业所的通知

13 XX 

Preferential tax policies 

for enterprises suffering 

from natural disasters 

MOF Circular, Cai Shui 

Zi [1994] No. 001 

MOF & SAT Circular on Several 

Preferential Corporate Income Tax 

Policies 

财政部于企业所的通知

14 XXI Preferential tax policies for welfare enterprises SAT Circular, Guo Shui Fa [1994] No. 155 SAT Circular on Preferential Turnover Tax Treatment for Social Welfare Enterprises 国家税

企业征

15 XXII 

Preferential tax policies 

for enterprises making 

little profits 

MOF Circular, Cai Shui 

Zi [1994] No. 009 

MOF & SAT Circular on Certain 

Decisions Related to Corporate 

Income Tax Policies 

财政部印发《问题的规

16 XXIV 

Preferential tax policies 

for enterprises which 

provide employment for 

unemployed people 

MOF Circular, Cai Shui 

Zi [1994] No. 001 

MOF & SAT Circular on Several 

Preferential Corporate Income Tax 

Policies 

财政部于企业所的通知
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

Trade Lawyers Advisory Group 

June 2007

87 

Table 7 

List of Subsidy Programs in China’s SCM Notification Potentially Applicable to the Agricu

Legal authorities 

ID SCM No. Subsidy Program 

Legislation Title in English T

17 XXV 

Preferential tax policies 

for scientific research 

institutions under 

transformation 

MOF Circular, Cai Shui 

[2003] No. 137 

MOF & SAT Circular on the Tax 

Policy Regarding Research Institutions 

Undergoing Restructuring 

财政部转制科研问题的通

18 XXVI 

Preferential tax policies 

for the research and 

development of 

enterprises 

MOF Circular, Cai Shui 

[2003] No. 244 

MOF & SAT Circular on Expanding 

the Application of Tax Deduction for 

Technology Development Expenditure 

by Enterprises 

财政部扩大企业除政策适

19 XXVII 

Preferential tax policies 

for the research and 

development of foreigninvested enterprises 

SAT Circular, Guo Shui 

Fa [1999] No. 173 

SAT Circular on Granting Income Tax 

Deduction to FIEs for Technology 

Development Expenditure 

国家税企业技术所得额有

20 XXVIII 

Preferential tax policies 

for enterprises 

transferring technology 

MOF Circular, Cai Shui 

Zi [1994] No. 001 

MOF & SAT Circular on Several 

Preferential Corporate Income Tax 

Policies 

财政部于企业所的通知

21 XXXI 

Funds for supporting 

technological innovation 

for the technological 

small- and medium-sized 

enterprises (SMEs) 

General Office of State 

Council Circular, Guo 

Ban Fa [1999] No. 47 

Circular on the Interim Administrative 

Rules of the Technological Innovation 

Fund for the Technological Small- and 

Medium-sized Enterprises 

国务院部财政部业技术创的通知9〕4月21
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

Trade Lawyers Advisory Group 

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Table 7 

List of Subsidy Programs in China’s SCM Notification Potentially Applicable to the Agricu

Legal authorities 

ID SCM No. Subsidy Program 

Legislation Title in English T

22 XXXII Development funds for SMEs N/A Law of the People’s Republic of China on Promotion of Small- and Medium- sized Enterprises 中华人

进法

23 XXXIII 

Fund for international 

market exploration by 

SMEs 

MOF Circular, Cai Qi 

[2000] No. 467 

Administrative Measures on Funds 

Earmarked for International Market 

Exploitation of Small- and Mediumsized Enterprises 

财政部部关于市场开拓

法》的通

23 XXXIII Same as above 

MOFTEC (MOFCOM) 

Circular, Ji Cai Fa [2001] 

No. 270 

Implementing Rules of the 

Administrative Measures on Funds 

Earmarked for International Market 

Exploitation of Small- and Mediumsized Enterprises 

中小企业管理办法

24 XXXIV 

Special fund for 

establishment of service 

system for SMEs 

N/A 

Law of the People’s Republic of China 

on Promotion of Small- and Mediumsized Enterprises 中华人

进法

24 XXXIV Same as above MOF Circular, Cai Jian [2004] No. 124 

Interim Administrative Measures of 

the Special Fund for Establishment of 

the Service System for Small- and 

Medium-sized Enterprises 

中小企业资金使用
CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: AGRICULTURE

Trade Lawyers Advisory Group 

June 2007

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Table 7 

List of Subsidy Programs in China’s SCM Notification Potentially Applicable to the Agricu

Legal authorities 

ID SCM No. Subsidy Program 

Legislation Title in English T

25 LVIII 

Preferential tax policies 

for foreign-invested 

enterprises and foreign enterprises which have 

establishments or place 

in China and are engaged 

in production or business 

operations purchasing 

domestically-produced 

equipment 

MOF Circular, Cai Shui 

[2000] No. 49 

MOF & SAT Circular on Granting 

Income Tax Deduction for 

Domestically-Produced Equipment 

Purchased by Foreign InvestedEnterprises and Foreign Enterprises 

财政部外商投买国产得税有

25 LVIII Same as above SAT Circular, Guo Shui Fa [2000] No. 90 

SAT Circular on Administrative 

Measures of Income Tax Deduction 

for Domestically-Produced Equipment 

Purchased by Foreign-Invested 

Enterprises and Foreign Enterprises 

国家税商投资国产设备税管理

26 LIX 

Preferential tax policies 

for domestic enterprises 

purchasing domesticallyproduced equipment for 

technology-upgrading 

purpose 

MOF Circular, Cai Shui 

[1999] No. 290 

MOF & SAT Circular on the Interim 

Measures of Income Tax Deduction 

for Domestically-Produced Equipment 

Purchased for Technology-Upgrading 

Purpose 

财政部印发《技资抵免法》的通
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Trade Lawyers Advisory Group 

June 2007

90 

Table 7 

List of Subsidy Programs in China’s SCM Notification Potentially Applicable to the Agricu

Legal authorities 

ID SCM No. Subsidy Program 

Legislation Title in English T

27 LX 

Exemption of tariff and 

import VAT for imported 

technologies and 

equipment 

State Council Circular, 

Guo Fa [1997] No. 37 

Circular of the State Council on 

Adjusting Tax Policy on Imported 

Equipment 

国务院收政策

28 LXIX 

Preferential tax treatment 

for building material 

products produced with 

integrated utilization of 

resources 

MOF Circular, Cai Shui 

Zi [1995] No. 44 

MOF & SAT Circular on VAT 

Exemption for Products Produced with 

Integrated Utilization of Resources 

财政部对部分征增值税

28 LXIX Same as above MOF Circular, Cai Shui Zi [1996] No. 20 

MOF & SAT Circular on Continuing 

with the Preferential VAT Treatment 

for Products Produced with Integrated 

Utilization of Resources 

财政部继续对部品等实行通知

29 LXX 

Preferential tax treatment 

for other products 

produced with integrated 

utilization of resources 

MOF Circular, Cai Shui 

[2001] No. 198 

MOF & SAT Circular on VAT 

Treatment for Products Produced with 

Integrated Utilization of Resources 

财政部部分资源品增值税

29 LXX Same as above MOF Circular, Cai Shui [2004] No. 25 

MOF & SAT Supplementary Circular 

on VAT Treatment for Products 

Produced with Integrated Utilization of 

Resources 

财政部 分资源综

政策的补
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Table 7 

List of Subsidy Programs in China’s SCM Notification Potentially Applicable to the Agricu

Legal authorities 

ID SCM No. Subsidy Program 

Legislation Title in English T

30 LXXVI 

Preferential tax treatment 

for casting and forging 

products 

MOF Circular, Cai Shui 

[2003] No. 96 

MOF & SAT Circular on VAT Refund 

for Casting and Forging Products 

财政部铸锻件产问题的通

31 LXXVII Preferential tax treatment for dies products MOF Circular, Cai Shui [1998] No. 139 MOF & SAT Circular on Continuing VAT Refund for Dies Products 财政部

继续对模先征后返

31 LXXVII Same as above MOF Circular, Cai Shui [2003] No. 95 MOF & SAT Circular on VAT Refund for Dies Products 财政部

模具产题的通

SCM No.: This column identifies the number of the subsidy program listed in China’s SCM Notification. See People’s Republic 

Full Notification Pursuant to Article XVI:1 of the GATT 1994 and Article 25 of the SCM Agreement, G/SCM/N/123/C
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C. AGRICULTURAL SUPPORT PROGRAMS IDENTIFIED BY OTHER WTO

MEMBERS

In addition to the programs listed in China’s SCM notification, other WTO Members 

have identified a number of Chinese support programs. In addition, some U.S. industry groups 

have raised concerns about some of China’s governmental support programs that are potentially 

applicable to the agricultural sector. 

1. Industry-Specific Subsidies 

To promote exports, the Chinese government has been providing support to the cut 

flower industry and to dehydrated garlic producers. The producers of agricultural inputs, 

particularly fertilizer and agricultural machinery, are also receiving government support, and the 

support programs for these two products has an influence on the competitiveness of many other 

agricultural industries that are significant buyers of fertilizer and agricultural machinery. 

a. Cut Flower Industry 

“In a bid to narrow the income gap between rich city dwellers and unemployed farmers,” 

the Chinese government has undertaken to develop a cut flower export base in remote Yunnan 

Province.158 To further this end, the government has invested in “building 12 lane roads, sturdy 

bridges and international airports” in the province, and is offering “interest-free loans for 

greenhouse construction” and “refrigerated trucks ... free or at deep discounts” to the flower 

farmers.159 However, because flower production costs account for only a small fraction of the

 

158 See Keith Bradsher, Bouquet of Roses May Have Note: “Made in China,” THE NEW YORK TIMES (September 

25, 2006) at A1. 

159 Id.
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retail price, the impact of the government subsidy on the competitiveness of the industry is 

limited in the cut flower market.160

b. Dehydrated Garlic 

China is the largest exporter of garlic.161 In the 2004 China TRM, the United States 

reported that “the Chinese government provided financial support to the dehydrated garlic 

industry in the form of a three-year tax waiver for exporting interests and a three per cent export 

tax rebate.”162

c. Agricultural Machinery Industry 

In the 2006 China TRM, the United States, relying upon data released by the China 

International Agricultural Machinery Industry Association, stated that “the large increase in the 

rate of growth for the agricultural machinery industry in 2005 was due to subsidies from the 

central government to this industry worth over RMB300 million ($37.5 million) during that 

period. Furthermore, local governments gave an additional RMB800 million in subsidies to the 

agricultural machinery industry.”163

 

160 Id. The report noted that the costs incurred after the flowers land in the U.S. or Europe account for as much as 

90 percent of the retail price. 

161 See MOFCOM, 11th 5-Year Development Guideline for Agricultural Products Exportation (August 25, 2006). 

See Exhibit A-I-6. 162 See Request from the United States to China Pursuant to Article 25.8 of the Agreement on Subsidies and 

Countervailing Measures, G/SCM/Q2/CHN/9 (6 October 2004) at para. 10. 

163 See Questions from the United States Regarding the New and Full Notification of China, G/SCM/Q2/CHN/19 

(July 26, 2006) at para. 53. 
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d. Fertilizer 

It has been alleged that China subsidizes fertilizer production. For example, in several of 

its compliance reports, USTR has maintained that China has used VAT policies to benefit 

domestic fertilizer production. In the 2006 compliance report, USTR said: 

In July 2001, the Ministry of Finance (MOF) and the State 

Administration of Taxation (SAT) issued a circular exempting all 

phosphate fertilizers except DAP from a 13 percent VAT.... The 

circular also allowed a partial VAT rebate for domestic producers 

of urea, a nitrogen fertilizer, through the end of 2002. The United 

States raised this issue bilaterally with China soon after it acceded 

to the WTO and in many subsequent bilateral meetings, including 

high-level meetings. The United States has also raised this issue at 

the WTO, both in regular meetings of the Committee on Market 

Access and during the annual transitional reviews, including in 

2006. So far, however, China has refused to make any changes, 

although it did allow the special tax treatment for domestic urea to 

expire at the end of 2002.”164

The OECD Review corroborated the U.S. claim. It found that “fertilizer is generally 

exempted from VAT,” 165 and concluded that “[c]hemical fertilizer production ... receives 

subsidized electricity, in an attempt to suppress agricultural input prices.”166 Another WTO 

Member, Taiwan, also noted that compounded fertilizer, diammonium phosphate, ammonium 

nitrate and potassium chloride are subject to price guidance.167

 

164 See USTR, 2006 Report to Congress on China’s WTO Compliance (December 11, 2006) at 40. See also

USTR, 2006 National Trade Estimate Report on Foreign Trade Barriers (2006) at 99. 

165 See OECD Review of Agricultural Policies: China (2005) at 91. The OECD observed that “VAT has generally 

not been collected on essential farm inputs such as fertilizers, seeds and water.” Id. 

166 Id.

167 See Questions from the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu to China 

Concerning Subsidies and Price Controls, G/SCM/Q2/CHN/11 (22 October 2004) at para 6. 
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2. Subsidy Programs Applicable to Multiple Industries 

China’s trading partners and private parties have raised concerns regarding a number of 

Chinese government measures that are not strictly limited to agriculture. 

a. Policy Loans 

The United States has raised questions about China’s bail out of its Big Four commercial 

banks. In the 2005 TRM, the United States noted that China injected USD $45 billion into the 

Bank of China and the China Construction Bank in 2003 and voiced concern about the lending 

policies of China’s state banks, claiming that the loans are carried out on a non-commercial 

basis.168 The United States said: 

It appears that state-owned banks continue to make policy-driven 

loans that are not commercially justified, and when those loans fail, 

the loans are written-off and passed to the asset management 

companies to be dealt with. The recent inauguration of Huida 

Asset Management Ltd., set up to specifically deal with the nonperforming loans of the state-owned People’s Bank of China is one 

such example.169

 

168 See Questions from the United States to China Concerning Subsidies and Price Controls, G/SCM/Q2/CHN/14 

(29 September 2005) at para. 6. 

Historically, state banks have made loans based on political directives from the national 

government in Beijing, not on which companies had the best prospects or which economic 

sectors were thriving, . . . . These so-called ‘policy loans’ typically went to state-owned 

enterprises.

Reform of China's Banks, Burdened by Bad Loans, Is Priority for Government, Knowledge@Wharton (June 1, 

2005); available at http://209.85.165.104/search?q=cache:LxjJRat0DSEJ:knowledge.wharton.upenn.edu/ 

article.cfm%3Farticleid%3D1202+china+%22policy+loans%22&hl=en&ct=clnk&cd=7&gl=us. 

169 See Questions from the United States to China Concerning Subsidies and Price Controls, G/SCM/Q2/CHN/14 

(29 September 2005) at para. 6. 
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In the 2006 TRM, the United States asked China to explain why China’s state banks did not 

charge a premium for risky investments and why the state banks are required to give due 

consideration for government industrial policy in making loan decisions.170

Some U.S. industries have raised similar questions. In its 2005 Report on China’s 

Compliance with its WTO Commitments, the National Association of Manufacturers (NAM)

stated that “lending to un-creditworthy enterprises continues on a large scale as evidenced by the 

high levels of nonperforming loans on the books of the Chinese banks and the extremely low 

rates of return on equity they have compared with other Asian banks.”171 NAM’s 2006 report 

noted that “Chinese enterprises have access to: subsidized State Policy Bank loans; the automatic 

roll-over of unpaid principal and interest; loan forgiveness; continued borrowing despite having 

nonperforming loans; and below-market interest rates.”172

The United States has identified several local subsidy programs in the form of policy 

loans. For example, in the 2004 TRM, the United States noted: 

The Henan provincial government has set up a special purpose 

fund for foreign exchange-earning agriculture products in a 

program designed to improve the quality of the province's 

agricultural products and to increase exports. The fund will 

provide low interest loans for processors of agricultural products 

whose direct export volumes are valued at more than $500,000.”173 

 

170 See Questions from the United States to China, G/SCM/Q2/CHN/23 (16 October 2006) at para. 18. 

171 See National Association of Manufacturers, Review of China’s Compliance with its WTO Commitments

(September 6, 2005) at 9. 

172 Id. 

173 See Request from the United States to China Pursuant to Article 25.8 of the Agreement on Subsidies and 

Countervailing Measures, G/SCM/Q2/CHN/9 (6 October 2004) at para. 12. 
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In a hearing before the U.S.-China Economic and Security Review Commission (USCC), 

Dr. Usha C.V. Haley, Director of the Global Business Center at the University of New Haven, 

asserted: 

The [Chinese] government exercises a vice-like grip on banks, 

stock markets and bond issuance and these translate to the ability 

to make grandiose loans. The most extreme statistics in the 

financial sector deal with loans outstanding. In three years from 

2002 to 2004, loans increased by 58 per cent, or $785 billion. In 

2003, new lending equaled almost one quarter of gross domestic

product (GDP). A credit binge fueled this latest boom. Half of all 

bank loans go to SOEs. Most of these loans will never be 

repaid.”174

The OECD Review similarly pointed out that “[t]he ADBC provided a wide range of 

preferential loans in line with government policies programmes.... Preferential loan rates were 

below the prevailing commercial rate.”175

b. Tax Breaks 

China’s trading partners have, on several occasions, taken notice that China uses various 

tax breaks to achieve its industrial policy ends. In May 2007, the United States requested further 

consultations with China regarding 9 Chinese measures which the U.S. believes are inconsistent 

 

174 See Hearing Before the U.S.-China Economic and Security Review Commission on China’s WTO Compliance 

and Industrial Subsidies (April 4, 2006), Statement by Dr. Usha C.V. Haley, Associate Professor, University of 

New Haven, West Haven, CT; available at http://www.uscc.gov/hearings/2006hearings/written_testimonies/ 

06_04_04wrts/06_04_04_haley.php. 

Similar views were stated by other witnesses at the same hearing. See, e.g., Prepared Statement of Robert 

Baugh, Executive Director, Industrial Union Council, AFL-CIO; available at http://www.uscc.gov/ 

hearings/2006hearings/transcripts/april_4/06_04_04_trans.pdf. 175 OECD Review of Agricultural Policies: China (2005) at 94. 
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with the WTO SCM and TRIMS Agreements.176 Of the 9 measures identified by the United 

States, 8 are tax measures, as listed below. 

Summary of Tax Measure 

Measures granting refunds, reductions, or exemptions from 

taxes or other payments identified in U.S. consultation 

request177

VAT Refunds for FIEs that Purchase Domestic 

Equipment 

Circular of the State Administration of Taxation Concerning Transmitting the 

Interim Measure for the Administration of Tax Refunds to Enterprises with 

Foreign Investment for Their Domestic Equipment Purchases

Income Tax Credits for FIEs that Purchase Domestic 

Equipment 

Circular of the Ministry of Finance and the State Administration of Taxation 

Concerning the Issue of Tax Credit for Business Income Tax for Homemade 

Equipment Purchased by Enterprises with Foreign Investment and Foreign 

Enterprises, read in conjunction with Circular of the State Administration of 

Taxation on Printing and Distributing the Measures Concerning Business Income 

Tax Credit on the Investment of Enterprises with Foreign Investment and Foreign 

Enterprises by Way of Purchasing Homemade Equipment

Income Tax Reduction and Exemption for Domestic 

Enterprises that Purchase Domestic Equipment for 

Technology-Renovation Purposes 

Circular on Distribution of Interim Measures Concerning Reduction and 

Exemption of Enterprise Income Tax for Investment in Domestically Made 

Equipment for Technological Renovation

Income Tax Reduction or Exemption for Export or 

High-Tech FIEs 

Articles 75(7) and 75(8) of the Rules for Implementation of the Income Tax Law 

of the People’s Republic of China on Enterprises with Foreign Investment and 

Foreign Enterprises, read in conjunction with Articles 8 and 9 of the Provisions 

of the State Council on the Encouragement of Foreign Investment and Articles 6 

and 8 of the Income Tax Law of the People’s Republic of China on Enterprises 

with Foreign Investment and Foreign Enterprises

Income Tax Reduction for FIEs in Industries where 

Foreign Investment is Encouraged 

Article 73(6) of the Rules for Implementation of the Income Tax Law of the 

People’s Republic of China on Enterprises with Foreign Investment and Foreign 

Enterprises, read in conjunction with Articles 6 and 7 of the Income Tax Law of 

the People’s Republic of China on Enterprises with Foreign Investment and 

Foreign Enterprises and Section XIII of the Catalogue for the Guidance of 

Foreign Investment Industries 

Income Tax Refunds for Foreign Investors Who 

Reinvest After-Tax Profits in Export-Oriented or HighTech FIEs and For Foreign Investors Who Reinvest 

Profits from FIEs located in Hainan Special Economic 

Zone (the HSEZ) into Infrastructural and Agricultural 

Projects in the HSEZ 

Article 81 of the Rules for Implementation of the Income Tax Law of the People’s 

Republic of China on Enterprises with Foreign Investment and Foreign 

Enterprises, read in conjunction with Articles 6 and 10 of the Income Tax Law of 

the People’s Republic of China on Enterprises with Foreign Investment and 

Foreign Enterprises and Article 10 of the Provisions of the State Council on the 

Encouragement of Foreign Investment

Preferential Income Tax Treatment for Enterprises or 

Projects Whose Development is Supported and 

Encouraged by the State; and the 5-Year Grace Period 

for Existing Tax Benefits that is Believed to be WTOinconsistent 

Parts IV and VIII of the Enterprise Income Tax Law of the People’s Republic of 

China

Import Tariff and VAT Exemption for Imported 

Equipment to be used in Encouraged Projects or 

Projects with Foreign Investments 

Circular of the State Council Concerning the Adjustment in the Taxation Policy 

of Imported Equipment, read in conjunction with Section XIII of the Catalogue 

for the Guidance of Foreign Investment Industries

 

176 China – Certain Measures Granting Refunds, Reductions or Exemptions from Taxes and Other Payments, 

Request for Further Consultations by the United States, WT/DS358/1/Add.1 (2 May 2007). 177 Id. at 2-3. 
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In the 2004 TRM, the United States noted that China provided refunds of income taxes to 

induce FIEs to reinvest profits in their production operations in China. Foreign investors who 

reinvest in production projects that are scheduled to be operational for more than 5 years qualify 

for a 40 per cent refund of income taxes paid on the profits reinvested.178 The United States also 

noted that the Chinese government has provided income tax refunds contingent upon export 

performance, citing Article 75.7 of the Detailed Implementation Rules of the Income Tax Law of 

the People's Republic of China of Foreign Investment Enterprises and Foreign Enterprises,

which states that an FIE exporting at least 70 per cent of its output in a given year may receive a 

50 per cent income tax reduction.179

China’s trading partners have noted that China has used the VAT as a tool to achieve its 

industry policy objectives.180 For example, the United States noted that in September 2004 the 

MOF and SAT jointly issued Circular 156 (Cai Shui [2004] 156) titled Provisions on Expanding 

the Qualifications of Fixed Asset Input VAT Deductions in the Northeast Region. Essentially, the 

Circular allowed the equipment, manufacturing, petrochemical, metallurgy, shipbuilding, auto 

manufacturing, and agricultural processing industries to deduct the VAT paid on qualified fixed 

asset purchases from the VAT payable increase from 2003 to 2004.181 The OECD Review 

similarly found that “while the same VAT rate is applied to import and domestically produced 

 

178 See Request from the United States to China Pursuant to Article 25.8 of the Agreement on Subsidies and 

Countervailing Measures, G/SCM/Q2/CHN/9 (6 October 2004) at para. 4, citing Article 81 of the Detailed 

Implementation Rules of the Income Tax Law of the People's Republic of China of Foreign Investment 

Enterprises and Foreign Enterprises, promulgated by Decree No. 85 of the State Council on June 30, 1991 

(effective July 1, 1991). 

179 See Request from the United States to China Pursuant to Article 25.8 of the Agreement on Subsidies and 

Countervailing Measures, G/SCM/Q2/CHN/9 (6 October 2004) at para. 6. 

180 See, e.g., id. at para. 3-4. 

181 See Questions from the United States Regarding the New and Full Notification of China, G/SCM/Q2/CHN/19 

(26 July 2006) at para 50. 
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agricultural products, differences in the method of calculating the VAT to be levied on imports 

and on domestic agricultural products, may provide additional protection to China’s agriculture 

sector.”182

The United States has noted that China maintains a preferential border trade policy with 

Russia. Pursuant to an order issued in 1996, the VAT is reduced by one-half for a number of 

products imported from Russia. Although China removed 20 products from the list of eligible 

products on June 1, 2003, it appears that the preferential VAT policy is still in effect for other 

products.183

The United States has noted that China provides VAT refunds for imported capital 

equipment used to produce products for export. 

Enterprises that import capital equipment used exclusively to 

produce export products are eligible to receive a full refund of 

customs duties and VAT on the imported capital equipment. 

Enterprises receive 20 per cent of the tax refund each year the 

equipment is used exclusively for export production, resulting in a 

full tax refund at the end of a five-year period. Enterprises receive 

a 20 per cent VAT refund each year if the imported equipment is 

used exclusively for export production, resulting in a full tax 

refund at the end of a five-year period.184

 

182 See OECD Review of Agricultural Policies: China (2005) at 117. The report claims that while VAT is levied 

on the Customs Clearance Price for imported goods, VAT is only levied on the dealer’s margins for domestic 

goods. The value added at the producer level is exempted from VAT. 

183 See Request from the United States to China Pursuant to Article 25.8 of the Agreement on Subsidies and 

Countervailing Measures, G/SCM/Q2/CHN/9 (6 October 2004) at para. 22. 184 Id. at para. 8. 
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In addition, the European Communities has asserted that China offers a special VAT refund 

scheme to encourage the export of silk.185

In its 2005 China WTO Implementation Report, the U.S. Chamber of Commerce stated 

that “[t]he application of the VAT to agricultural products, both domestically and at the border, 

is neither consistent nor transparent, resulting in a barrier to trade for importers and unfair 

advantages to Chinese exporters.” 186 It found that the actual VAT rate assessed on domestic 

agricultural products is much lower than the VAT rate applied to imports of equivalent products. 

For example, the VAT rate applied to domestic grain is much lower than the VAT rate assessed 

on imported grains. Thus, the Chamber noted, the VAT “effectively functions as an additional 

import duty.”187

The Chamber’s report also claimed that China uses the VAT to encourage exports. It 

noted that “[t]here are persistent rumors that the rebates exceed the actual VAT paid, again 

functioning as an export subsidy. This case is well known with China’s corn exports. The VAT 

has constrained imports and supported exports and may violate a key principle of the WTO by 

acting as a hidden export subsidy.”188

c. Export-Related Subsidies 

Over the last several years, the United States has pointed out that China uses certain 

support measures that encourage exports. In its 2005 compliance report, USTR observed that it 

 

185 See Questions from the European Communities to China with regard to China's Transitional Review 

Mechanism on Subsidy Practices, G/SCM/Q2/CHN/24 (20 October 2006) at Q.1. 186 U.S. Chamber of Commerce, China’s WTO Implementation and Other Issues of Importance to American 

Business in the U.S.-China Commercial Relationship (September 2005) at 36. 

187 Id. 188 Id.
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“continued to raise questions about potentially prohibited subsidies maintained by China, 

including tax incentives and preferential bank financing provided to producers of agricultural and 

industrial goods that are contingent upon export or the use of domestic over imported goods.”189 

For example, in a 2004 submission to the WTO SCM Committee, USTR had noted that 

Foreign-invested enterprises (FIEs) located within Special 

Economic Zones, Economic Technological Development Zones, 

Open Coastal Economic Zones and Old Urban Areas that export at 

least 70 per cent of their production are assessed the lowest rate of 

the national income tax, i.e., 10 per cent. FIEs which do not meet 

the 70 per cent export requirement are taxed at rates of 12, 15 or 24 

per cent.190

In the same submission, the USTR also observed that enterprises that meet certain criteria may 

achieve the designation of an "honourable enterprise for foreign exchange receipts".191 One of 

these criteria is an annual export volume exceeding USD $200 million. An "honourable 

enterprise for foreign exchange receipts" enjoys various benefits including “preferential access to 

foreign trade funds” and commercial bank lending rates that are up to 10 percent lower than 

lending rates fixed by the People's Bank of China.192

 

189 USTR, 2005 Report to Congress on China’s WTO Compliance (December 11, 2005) at 39. 

190 See Request from the United States to China Pursuant to Article 25.8 of the Agreement on Subsidies and 

Countervailing Measures, G/SCM/Q2/CHN/9 (6 October 2004) at para. 3, citing Article 75.7 of the Detailed 

Implementation Rules of the Income Tax Law of the People's Republic of China of Foreign Investment 

Enterprises and Foreign Enterprises, promulgated by Decree No. 85 of the State Council on June 30, 1991 

(effective July 1, 1991). The European Communities cited the same law in the 2005 TRM. See Questions 

from the European Communities to China with regards to China's Transitional Review Mechanism on Subsidy 

Practices, G/SCM/Q2/CHN/12 (22 September 2005) at 2. 

191 See Request from the United States to China Pursuant to Article 25.8 of the Agreement on Subsidies and 

Countervailing Measures, G/SCM/Q2/CHN/9 (6 October 2004) at para. 2, citing Article 3 of the Detailed 

Rules for Reward and Punishment for the Trial Implementation Measures for Appraising Foreign Exchange 

Receipts for Exports, jointly issued by the People's Bank of China, the Ministry of Foreign Trade and 

Economic Cooperation and the State Administration of Taxation (effective 1 April 2000). 

192 See Request from the United States to China Pursuant to Article 25.8 of the Agreement on Subsidies and 

Countervailing Measures, G/SCM/Q2/CHN/9 (6 October 2004) at para. 2, citing Articles 5 and 6 of the 
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In the 2006 TRM, the United States noted that the “NDRC issued a notice that became 

effective on 20 August 2006, announcing an exemption from the railway construction fund levy 

for all grains bound for overseas markets”, and asked China to “explain how this support is 

consistent with China’s WTO obligations, including those under Article 3 of the Subsidies 

Agreement and paragraph 12.1 of China’s Protocol of Accession.”193

The United States and European Communities have also noted that local authorities in 

China have maintained export supporting programs. In the 2005 TRM, the United States noted 

that although China had agreed, in its Protocol of Accession, that it would not maintain or 

introduce any export subsidies on agricultural products, China still appeared to “maintain several 

export subsidy programmes for agricultural products.” 194 As examples, the United States 

identified policies and programs maintained by Jiangxi Province and Henan Province. 

For example, Jiangxi Province has issued policies to encourage 

exports of agricultural products. Under these policies, according to 

the Ministry of Commerce (MOFCOM) website, the province 

provides capital support for exporting bases and leading exporting 

enterprises; grants discount loans for exporters; assists 

small/medium sized enterprises in attending international 

exhibitions and new product promotional activities; grants cash 

rewards for exporters with annual export revenue of US$5 million 

(growth of the export revenue should exceed 30%); reimburses 

20% to 30% export credit insurance fees for exporters. The 

province provides capital support for export-oriented projects and 

technological upgrading projects and provides loans to enterprises 

presenting export orders or export letters of credit. The province 

also guides enterprises in avoiding export credit risks and assists 

them in reducing export costs. In another example, Henan 

 Detailed Rules for Reward and Punishment for the Trial Implementation Measures for Appraising Foreign 

Exchange Receipts for Exports.

193 Questions from the United States to China, G/SCM/Q2/CHN/23 (16 October 2006) at para. 13. 

194 Questions from the United States to China Concerning Subsidies and Price Controls, G/SCM/Q2/CHN/14 (29 

September 2005) at para. 3. 
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Province set up a special purpose fund to encourage the export of 

foreign exchange-earning agricultural products. The special 

purpose fund reportedly provides low-interest loans for processors 

of agricultural products which met specific direct export volume 

levels. The support provided pursuant to these and other 

provincial and central government policies appear to be 

inconsistent with the commitments contained in China’s Protocol 

of Accession and with its obligations under Article 3 of the SCM 

Agreement not to maintain export subsidies.195

In its 2004 submission to the WTO SCM Committee, the United States stated that “The 

Guangdong provincial government has introduced a programme to provide RMB 25 million in 

grants over five years to export-oriented companies. These grants will be provided to companies 

meeting specific export targets as an incentive to increase export sales.”196

In the 2006 TRM, the European Communities raised questions regarding a number of 

local support programs maintained by Guangdong Province, Shenzen and Zhejiang Province. 

According to www.tdctrade.com, (as of 01.03.2004) the 

Guangdong Provincial Government supports private enterprises to 

"expand outward". Eligible private enterprises may apply for 

special funds conceived for developing foreign trade activities. 

These funds include: market exploration, export credit insurance, 

offshore processing trade project loan interest subsidy, export 

research and development fund, anti-dumping proceedings fund, 

export rebate account loan interest subsidy fund and outwardlooking enterprises development fund.197

* * * 

According to www.tdctrade.com, (as of 01.05.2004) the Export 

Interest Subsidy for Shenzhen Enterprises has been raised from 20 

per cent to 40 per cent. The policy of subsidising US$0.03 for 

every US$1 export of general merchandise is only applicable to 

 

195 Id.

196 See Request from the United States to China Pursuant to Article 25.8 of the Agreement on Subsidies and 

Countervailing Measures, G/SCM/Q2/CHN/9 (6 October 2004) at para. 11. 

197 See Questions from the European Communities to China with regard to China's Transitional Review 

Mechanism on Subsidy Practices, G/SCM/Q2/CHN/24 (20 October 2006) at Q4.2. 
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merchandise procured in Shenzhen. SMEs with export value 

below US$15 million are eligible for application. Fund allocation 

is on a first-come-first-served basis. This year the fund would 

provide RMB 800 million.198

* * * 

Similar information was reported from Zhejiang Province. 

According to these resources, an Export Subsidy Fund based on a 

federal programme enables regional authorities to provide all 

exporting companies exporting for more than US$3 million with a 

subsidy of 0.01 RMB per each US$ exceeding this threshold.199

In the 2004 TRM, the European Communities cited certain benefits provided to export 

oriented-enterprises by the Shanghai Foreign Investment Center, including cheap public utilities, 

easy access to loans, and cheap land. 

At the last TRM . . . China stated that the purpose of its regional 

programmes was to promote regional, social and economic 

development and absorbing foreign investment, and they were by 

no means contingent upon export performance or on use of 

domestic products. However it has come to our attention that the 

“Shanghai Foreign Investment Center” provides the following 

information on its official website: 

 Export oriented enterprises, defined as “enterprise whose 

product export volume accounts for over 50 per cent of its annual 

sales volume and who has a surplus of foreign exchange and has 

made a profit during the year”, examined and verified by 

government authorities every year, enjoy various preferential 

policies, inter alia: 

• priority in the supply of water, electricity, transport and 

telecommunication charged at the same price as state owned 

companies 

• priority for short term funds or other necessary loans 

• exemption from local income tax after expiration of normal 

income tax exemption if more than 70 per cent of production 

is exported and a 10% reduction on the reduced tax rate of 

15 per cent with the same requirement 

 

198 Id. at Q4.3. 

199 Id. at Q4.4. 
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• preferential charge for land use (maximum of 3 

Yuan/m2/year)200

d. Currency Policy 

The U.S. government has not officially determined that China’s currency policy is 

equivalent to an export subsidy, but the U.S.-China Economic and Security Review Commission 

(USCC) — a Congressional advisory commission — and some industry representatives have 

charged that the Renminbi has been purposely undervalued to give Chinese industries a 

competitive edge. In its 2006 annual report to Congress, the USCC stated: 

China’s government undervalues the renminbi relative to the dollar 

at a level estimated by most economists to be between 15 percent 

and 40 percent. ... The failure to address this problem is 

increasingly a factor in U.S. companies relocating production to 

China. The overall result is a growing U.S. current account deficit 

and increasing ownership of U.S. debt instruments by the 

Chinese.201

The Northwest Horticultural Council, in a submission to USTR regarding the annual 

National Trade Estimate Report on Foreign Trade Barriers, asserted: 

China’s policy of maintaining its currency undervalued relative to 

the U.S. dollar, provides the Chinese apple industry a de facto 

export subsidy and import barrier. The impact of this policy is 

contributing to market share losses U.S. apple exporters have 

experienced in Southeast Asian markets over the past five years.202

 

200 Questions Posed by the European Communities to the People’s Republic of China, G/SCM/Q2/CHN/5 (2 

October 2003) at Q2 (bold in original). 201 2006 Report to Congress of the U.S.-China Economic and Security Review Commission, 109th Cong., 2d Sess. 

26 (November 2006). 

202 See Northwest Horticultural Council, Submission Regarding the Annual National Trade Estimate Report on 

Foreign Trade Barriers (NTE) 2007 (November 2006) at 8. 
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In the first U.S. countervailing duty investigation concerning China, the U.S. paper 

industry argued that China’s currency policy is tantamount to an export subsidy. However, 

although the U.S. Department of Commerce initiated an investigation concerning various 

Chinese subsidies, it did not initiate an investigation of China’s exchange rate policies.203

e. Preferential Policy Toward SOEs 

State-owned enterprises (SOEs) are important participants in the agricultural market, 

particularly in the distribution and processing industries. In the Working Party Report 

accompanying China’s Protocol of Accession, China stated that its “objective was that stateowned enterprises, including banks, should be run on a commercial basis and be responsible for 

their own profits and losses.”204 Despite China’s stated objective, in the 2005 TRM, the United 

States pointed out that China has been extending favorable policies toward SOEs which have the 

same effect as a government subsidy. The United States noted: 

According to MOFCOM’s website, “China needs to find ways to 

support certain state-owned enterprises (SOEs) to help them 

remain competitive in the retail distribution market. MOFCOM 

will seek to address problems such as the need to consolidate tax 

tables and tax payments made by chain stores and other policy 

obstacles, will reduce or exempt certain SOE distribution firms 

from re-payment of non-performing loans, and provide a debt-toequity swap policy. The policies will support firms’ trans-regional 

development, make good use of domestic and foreign trade 

 

203 See NewPage Corporation’s Petition for the Imposition of Countervailing Duties in the Matter of Coated Free 

Sheet Paper from China, Indonesia and South Korea (October 30, 2006) at 33; see also Notice of Initiation of 

Countervailing Duty Investigations: Coated Free Sheet Paper From the People's Republic of China, Indonesia, 

and the Republic of Korea, 71 Fed. Reg. 68546, 68548 (November 27, 2006). 204 Report of the Working Party on the Accession of China, WT/MIN(01)/3 (10 November 2001) at para. 172. 
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development funds, provide subsidized interest for technical 

innovation loans, and accelerate infrastructure development.205

The United States concluded that MOFCOM’s “statements indicate that China’s state-owned 

enterprises have benefited and will continue to benefit from preferential government treatment,” 

and asked China to explain how this treatment was consistent with statements made by China in 

the Working Party Report.206 Similarly, with respect to the operations of state-owned banks, the 

United States noted: 

In one recent example, state-owned banks supported the efforts of 

a state-owned company in the energy sector to acquire the assets of 

a US firm. This support reportedly included approximately $13 

billion in loans that appeared to be on terms that were inconsistent 

with commercial considerations.207

The United States asked China to “explain how this type of support to a state-owned enterprise is 

consistent with China’s Working Party Report statements regarding the operation of state-owned 

enterprises and the role of state-owned banks.”208

f. Subsidies for Energy, Land and Other Utilities 

Some commentators have argued that energy and land have been used by the Chinese 

government as means of subsidizing industries. For example, at a hearing held by the U.S.-

China Economic and Security Review Commission, Dr. Usha C.V. Haley noted: 

Currently, Beijing tightly controls the price of both gasoline and 

electricity at well below their true economic levels. The state also 

 

205 Questions from the United States to China Concerning Subsidies and Price Controls, G/SCM/Q2/CHN/14 (19 

September 2005) at para. 10. 

206 Id. 207 Id. at para. 9. 208 Id.
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offers free land and utilities to SOEs and companies in key 

strategic sectors.209

g. Industrial Parks 

The National Association of Manufacturers (NAM) has claimed that Chinese 

government-invested industrial parks constitute a type of subsidy for the companies located 

within the park. Specifically, NAM claims that subsidies in China 

take the form of local governments that construct entire industrial 

parks with complete infrastructure and donate buildings and 

factory space to induce investment. It has been noted that U.S. 

state governments also provide some of the same kinds of 

investment incentives. However, those provided by local 

governments in China are exceptionally generous.210

h. Legal Fees Subsidies 

In one instance, a local government-related entity was found to have been reimbursing 

Chinese exporter legal fees paid for participating in antidumping investigations. In the 2006 

China Trade Review Mechanism (TRM), the EC noted that “the Shenzhen World Trade 

Organization Affairs Office sponsors a fund of more than 10 million Yuan in order to reimburse 

up to 30 per cent of legal fees to local export companies facing anti-dumping lawsuits. The fund 

 

209 Hearing Before the U.S.-China Economic and Security Review Commission on China’s WTO Compliance and 

Industrial Subsidies (April 4, 2006), Statement by Dr. Usha C.V. Haley, Associate Professor, University of 

New Haven, West Haven, CT; available at http://www.uscc.gov/hearings/2006hearings/written_testimonies/ 

06_04_04wrts/06_04_04_haley.php. See also Sinopec Receives Another Infusion of Chinese Cash, THE WALL 

STREET JOURNAL (December 28, 2006) at A12, reporting that the Chinese government compensated Sinopec 

for maintaining low gas prices at a time when the price of crude oil shot up. 

210 National Association of Manufacturers, Review of China’s Compliance with its WTO Commitments (September 

6, 2005) at 5. 
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aims to ‘encourage local export companies to aggressively strive for their legal rights in the antidumping cases through legal action.’”211

i. Brand Name Building 

The efforts of the Chinese government to help promote name recognition of leading 

enterprises have raised concerns that such efforts may be equivalent to subsidizing these 

enterprises. For example, in the 2006 TRM, the United States noted that “earlier in 2006, 

[MOFCOM] issued a notice on ‘Sell Well’ brands and a notice on a programme entitled ‘Ten 

Thousand Miles March for Brand Building,’ which involves brand appraisal, brand promotion, 

brand marketing and brand protection for 45 types of products.”212 The United States also noted 

that “The China Development Bank has reportedly expanded its focus to support ... Chinese 

‘brand name’ companies.”213

 

211 Questions from the European Communities to China with regard to China's Transitional Review Mechanism 

on Subsidy Practices, G/SCM/Q2/CHN/24 (20 October 2006) at Q4.1, citing information from 

www.tdctrade.com (as of February 16, 2004) and www.chinadaily.com.cn (as of February 14, 2004). 

212 Questions from the United States to China, G/SCM/Q2/CHN/23 (16 October 2006) at para. 7. 213 Id. at para. 21.