China's agricultural and rural policy is evolving rapidly.
Strict central planning and taxation of agriculture (1950s to
1970s) has been replaced by reliance on markets and agricultural
subsidies in the 21st century. China has an ambitious and
challenging set of objectives. The government is using an array of
subsidies, tax cuts, and infrastructure spending policies to boost
lagging rural incomes, preserve social and political stability,
encourage grain production, improve food safety, prevent
environmental degradation, and increase agricultural
The following table provides a brief overview of the main
agricultural policy measures used by the Chinese government. The
measures are used by the national government unless otherwise
Summary of China's Agricultural policy measures:
- Direct subsidies: Provide small payments to
grain farmers based on grain acreage; introduced in 2004. Subsidize
purchase of high-quality seeds and agricultural machinery. Payments
to compensate farmers for costs of fertilizer, fuel, and other
inputs. Subsidies for breeding sows and large-scale breeding farms
for hogs, dairy cattle, and poultry.
- Agricultural tax cuts: Phased out the
"agricultural tax" on farmers from 2004 to 2006. (A number of fees
and levies are still assessed by local officials).
- Procurement at minimum prices:
Government-designated companies procure and stockpile rice, wheat,
corn, soybeans, cotton, rapeseed, sugar, and rubber when the market
price falls below a minimum set by the government.
- Reserve management: Central, provincial, and
local governments maintain reserves of grains, vegetable oils,
cotton, and pork. Government intervenes in markets by purchasing or
- Improved market infrastructure: Establish and
support wholesale markets, commodity exchanges, and futures
markets. Promote e-commerce and improve cold storage and
- Rural infrastructure investment: Fund
water-efficient irrigation, drinking water, electrification
projects, methane pits, a rural road network, antipoverty efforts,
and develop "production bases" for grain or other commodities.
- Loans for farmers and agribusinesses: Direct
rural credit cooperatives and banks to extend more loans to farm
households. Give preferential bank loans to selected agribusinesses
that contract with farmers.
- Land protection: Strictly enforce rules
regarding conversion or sale of cropland for nonagricultural
- Research: Consolidate and increase funding for
research institutes developing crop and livestock varieties with
improved quality and yields.
- Food safety standards: Establish and enforce
standards for chemical residues and other harmful substances in
food. Establish animal disease monitoring and control systems and
safe livestock feed production. Promote organic and "green"
China now allows most agricultural prices to be set by market
forces, but the government intervenes in various ways to stabilize
The following table provides a brief overview of the main
agricultural market stabilization policy measures used by the
Chinese government. The measures are used by the national
government unless otherwise specified.
Summary of China's market stabilization measures:
- Reserve management: Central and local
authorities maintain large reserves of grains, vegetable oils,
cotton, and pork to ensure food security and intervene in markets.
Authorities try to stabilize markets via auctions or additional
- Value added tax (VAT) refunds or waivers: At
times, refunds of VAT payments are given for exports of specified
commodities. Authorities also can grant a waiver of VAT on imports
of commodities in short supply.
- Transportation tax waivers: Taxes on rail
shipments may be waived to reduce the cost of grain shipments.
Authorities also can order railways to set aside cars for grain
- Minimum prices: Support prices may be
established for selected grains, oilseeds, and cotton in important
- Administrative guidance: Farmers are generally
free to make their own planting decisions, but local government
authorities sometimes issue directives or plans to increase
production of certain crops.
- Governors' responsibility system: Provincial
governors are charged with ensuring that grain supply and demand is
balanced within their province.
Policies Affecting Factors of
Production and Inputs
Institutional constraints on agricultural production are an
important feature of the Chinese rural economy that restrict the
mobility of productive resources and influence the structure of
The following table provides a brief overview of the Chinese
government's main policies that affect agricultural land, labor,
and input use.
Summary of policies affecting China's agricultural inputs and
factors of production:
- Collective land ownership: Agricultural land
is owned collectively by villages. Each household in a village is
allocated a share of the village's land to cultivate. At present,
households cannot sell their land but they are allowed to rent it
to be cultivated by other farmers. Local authorities can sell
farmland or convert it to nonagricultural uses. In such cases,
compensation is paid to villagers.
- Migration restrictions: China's national
household registration system has historically limited rural-urban
migration by preventing rural residents from legally residing in
cities. In addition, cities often exclude migrants from social
services and may have local regulations, taxes, or fees that
discourage rural migrants. Cities are gradually relaxing these
restrictions and the national government is encouraging migration
to small towns and "satellite cities" on the outskirts of large
- "Grain for green": Farmers cease cultivation
of environmentally fragile land in exchange for in-kind payment of
- Seed subsidies: In 2004, the national
government began giving subsidies for purchase of grain and soybean
seeds that are considered "high quality." These include soybeans
with high oil content, corn for industrial use, and wheat with high
protein. Other commodities, such as cotton and rapeseed, are now
eligible for seed subsidies. In most cases, the subsidy is a cash
payment to farmers based on the area planted in the crop. In some
areas subsidies are paid to seed companies, which should pass the
savings on to farmers.
- Machinery subsidies: In 2004, China began
giving subsidies for purchase of farm machinery. Subsidies are paid
to machinery dealers, which should pass the savings on to
- Improved breeding stock subsidy: In 2005, the
national government announced subsidies for purchase of dairy
breeding stock. Discounted artificial insemination is available to
promote improved breeds of swine, beef cattle and (in western
regions) yaks and sheep.
- Breeding sow subsidy: In some areas, farms can
receive a fixed payment for each breeding sow.
- Fertilizer and input subsidy: The national
government attempts to control increases in fertilizer prices and
pays a subsidy to grain farmers to compensate them for rising costs
of fertilizer, fuel, and other inputs.
- Water and irrigation policies: The national
government provides preferential loans for construction of
water-saving irrigation and water control projects, field
irrigation, drainage works, and rural drinking water projects.
Irrigation use of water is metered and controlled by quotas. The
national government subsidizes purchase of water-saving equipment
by farmers in selected areas.
China has done much to liberalize foreign trade since the early
1990s. The government has cut tariffs sharply and eliminated many
state-trading monopolies, import licensing requirements, and export
subsidies. However, value-added taxes raise the effective cost of
imports and introduction or selective enforcement of regulations
disrupts imports from time to time.
Summary of China's agricultural trade policies:
- Tariffs: China cut most tariffs in the years
preceding its accession to the World Trade Organization (WTO) in
December 2001. The average agricultural tariff was cut from 31
percent to 15 percent.
- Tariff-rate quotas (TRQs): As part of its WTO
commitments, China established import quotas for key commodities
(see table below). Imports up to the quota amount are subject to
low tariffs, while over-quota imports are subject to much higher
tariffs. A variable levy ranging from 5 to 40 percent is assessed
on over-quota imports of cotton.
- State-trading: For most commodities, China has
reduced or eliminated import and export monopolies by state-owned
trading companies. However, state-trading is still important for
grains, sugar, and fertilizers. A share of each tariff rate quota
is reserved for use by China's state-trading companies.
- Value-added tax: Imported commodities are
assessed the value-added tax (VAT) of 13 percent for agricultural
commodities or 17 percent for processed foods or industrial
products. The VAT is assessed on the value of the imported shipment
when it arrives in China, including transportation costs and
tariffs, thus raising the cost of imports. At times, policymakers
exempt certain strategic imports from the VAT. China gives a rebate
of VAT payments on exported products when policymakers want to
- Nontariff barriers: As a WTO member, China
committed to apply science-based sanitary and phytosanitary
standards that apply equally to domestic and imported agricultural
commodities. However, China's imports are at times disrupted by
regulations with unclear details about implementation, testing, and
certification requirements, and selective enforcement of
regulations. It is not clear whether stringent standards applied to
imports must also be met by domestic products.
- Export subsidies: As a WTO member, China
agreed to eliminate export subsidies.
- Export taxes: In 2008, China introduced
temporary taxes on exports of wheat, rice, corn, other grains,
soybeans, seeds, flour and other milled grain products. Tax rates
range from 5 percent to 25 percent.
- Export quotas: Exports of corn and selected
strategic commodities are limited by annual export quotas set by
the national government. Quotas are not typically made public and
the system for determining and awarding the quotas is not
China Tariff Rate Quotas for
After joining the WTO in December 2001, China phased in tariff
rate quotas (TRQs) for certain key commodities during the years
2001-04. The TRQ levels for 2004 remain in force for subsequent
years. TRQs for vegetable oils expired after 2005. For most
commodities, a share of the TRQ is reserved for state-owned trading
companies. The remaining quota is distributed by government
authorities to other end-user applicants who must meet certain
criteria that include history of imports and minimum production
China tariff-rate quotas
(1,000 metric tons)
State-trading share of
Rice, short/medium grain
Rice, long grain
|NA=not applicable. *Most Favored Nation tariff.
**Variable levy based on domestic and imported cotton prices.
Source: ERS analysis.
History of Agricultural
Historically, taxes on farmers were an important source of
government revenue. During the 1950s, China pursued a collective
approach to agriculture and taxed farmers implicitly by paying
artificially low prices for commodities. The Household
Responsibility System returned control of land to farmers in the
1980s, markets were gradually liberalized, and agricultural taxes
Concerns about shrinking grain production and price inflation
led to a sharp increase in grain procurement prices during 1994-96
and the introduction of the Governors' Responsibility System (also
known as the Governors' Grain Bag policy). These policies
contributed to record grain production and a build-up of grain
stocks in the late 1990s. Grain surpluses led to falling prices and
authorities introduced price supports and subsidies for grain
storage, marketing, and exports. These subsidies were paid to grain
marketing bureaus and were very costly.
In the 21st century, Chinese policymakers began seeking ways to
extend direct benefits to farmers. In 2004, China introduced the
first national direct subsidies to farmers and announced
elimination of agricultural taxes.
Brief history of China's agricultural policy:
- Pre-1949: Taxes on agricultural land, often
collected in grain, plus a variety of other excise taxes
- 1950s-1970s: Socialized agriculture. Farmers
organized into communes; government monopolized agricultural
marketing. Implicit taxation through artificially low prices paid
- 1980s-1990s: Household Responsibility System
implemented. Land leased to individual farmers; prices allowed to
rise; agricultural land taxes restored; implicit taxation
diminished; government monopolies and urban food rationing
gradually eliminated. State grain-reserve system introduced.
- Mid-1990s: Sharp increase in grain and cotton
procurement prices and introduction of Governors' Responsibility
System, requiring each governor to ensure balance between grain
supply and demand within his province.
- Late 1990s: "Protection prices" introduced to
support agricultural prices. Subsidies paid to grain marketing
bureaus for grain procurement, storage, and export.
- 2000-03: Increased reliance on markets;
privatization of grain and cotton marketing. Experimentation with
rural tax reform and direct subsidies.
- 2004: Nationwide direct subsidies and
agricultural tax elimination initiated.