I.                   Macroeconomic Environment

Robust Growth and Enormous Opportunities

1.                   Since WTO Accession in 2001, the Chinese Government has constantly persisted in the reform and opening-up policy adopted in 1979.  As a result, the systemic environment for China’s economic performance has substantially improved along with the deepening of reform.   At the same time the adoption of prudent and effective macroeconomic policy enabled China to maintain the momentum of stable and robust economic growth over the past four years.

2.                   According the latest statistics, China’s gross domestic products (GDP) rose from 10,965.5 billion Yuan (US$ 1,324.8 billion) in 2001 to 18,232.1 billion Yuan (US$ 2,225.7 billion) in 2005, scoring an annual average growth rate of 9.5% for five consecutive years.  The per capita GDP during this period has surpassed US$ 1,000 to reach US$ 1,702 in 2005 converted at current annual average exchange rate.

3.                   There have been rapid expansion of import and export trade and inflow of foreign direct investment.  Total value of import and export rose from US$ 509.6 billion in 2001 to US$ 1,422.1 billion in 2005.  For the period from 2001 to 2005, average annual actual inflow of FDI was some US$ 55 billion.

4.                   By the end of 2005, China has all together approved the establishment of 552,942 foreign invested enterprises, with a total contractual value of USD 1,285,673 million, of which USD 622,426 million was actually utilized.  The utilization of foreign investment is a significant component of China’s cardinal state policy of opening up.  Since China’s adoption of the reform and opening up policy, through absorption of FDI, China has sped up the establishment and improvement of the socialist market economy system, pushed forward the development of an open economy, introduced a large amount of foreign capital and advanced and applicable technological and managerial experience, educated a large group of technological and managerial personnel, raised the level of domestic technological innovation, brought along the optimization and upgrading of domestic industrial structure, created many job opportunities, increased the financial revenue of the state and improved china’s overall international competitive edge.

5.                   The rapid growth of the Chinese economy laid a solid foundation for alleviating poverty and raising the living standard of the people.  The annual per capita disposable income of urban residents reached 10,493 RMB Yuan in 2005, registering a 58.3% growth from that in 2000 in real terms with an annual increase rate of 9.6%.  The annual per capita disposable income of rural residents in 2005 was 3,255 RMB Yuan, increased by 29.2% in real terms from 2000 with an annual growth rate of 5.3%.

6.                   The growth also provides the rest of the world with a large and expanding market.  It brings enormous investment opportunities for investors and high quality consumer goods at attractive price for consumers.  It is a powerful stimulating force spurring world economic growth.  From 2001 to 2005, China imported goods of a cumulative value of US$ 2,172.8 billion, and the transfer of profit out of China by foreign invested enterprises totalled US$ 57.94 billions.  Over the past few years, China has always been a net importer of commercial services with great attraction to foreign services providers.  According to WTO statistics, China’s total import of commercial services in 2004 was US$ 71.6 billion with a deficit of US$ 9.6 billion.  World Bank statistical data shows that from 2000 to 2004 Chinese economic growth contributed on average 13% of world economic growth.

The Ever Deepening Reform and Opening up

7.                   Reform and opening up is China’s established national policy.  The market-oriented reform started in 1979 brought about dramatic changes in China’s economic system.  In October 1992, China officially set the objective of establishing a socialist market economy system.  Subsequently an overall economic system reform was unfolded and major breakthrough was made in the fiscal, taxation, financial, investment, foreign exchange, foreign trade and pricing system, which laid a solid foundation for a socialist market economy system.  Up to 2000, a socialist market economy system had already taken shape and China entered a new stage of improving the system.

8.                   For the four years following the WTO accession, the acceleration of economic structural reform remained the central issue on the work agenda of the Chinese Government.  The most important measures of reform adopted by the Chinese Government during this period include the following:

9.                   In respect of the non-public sector development, the Constitution of the People’s Republic of China as amended in March 1999 and March 2004 provides in Article 11 that the non-public sectors of the economy such as the individual and private sectors of the economy, operating within the limits prescribed by law, constitute an important component of the socialist market economy; the state protects the lawful rights and interests of the non-public sectors of the economy such as the individual and private sectors.  In February 2005, the State Council issued Opinions on encouraging, supporting and guiding the development of the non-public sectors of the economy such as the individual and private sectors.  It states explicitly that all market access barriers affecting non-public sectors should be removed; non-public sectors are encouraged to participate in the reorganisation, restructuring and transformation of state-owned enterprises through merger and acquisition, share holding and controlling; their status as full market players should be consolidated and they should be entitled to fully equal treatment.

10.               In China today, the non-public sector consists of foreign invested enterprises, self-employed individual industrial and commercial households and private enterprises.  As of 2004, there were approximately 280,000 registered foreign invested enterprises.  By end of September 2005, there were 24,662,000 registered self-employed individual and household business, and 4,191,000 private enterprises.  From 1992 to 2004, the number of private enterprises each year increased on average by 31.9%.  They have become the largest enterprises group both in number and in proportion.

11.               In respect of administration of state-owned assets and the reform of state-owned enterprises, the state-owned assets supervision and administration bodies were established in 2003 to assume the function of state asset investors.  State-owned enterprises in a state of default without hope to regain profitability are required to declare bankruptcy and go out of business.  Others are accelerating the process of corporate transformation with investors being diversified.  Joint stock system is propelled to be the main vehicle of public ownership.  At the meantime, corporate governance structure of the enterprises has been further improved to strengthen the governance.

12.               During the past four years, the number of state-owned enterprises substantially declined.  There were 174,000 state-owned enterprises throughout China in 2001 and the number dropped by 26% to 138,000 in 2004.  Half of the 2,903 large state-owned enterprises which account for 66.9% of the total net assets of all state-owned enterprises (including majority state holding enterprises) were transformed into corporations with multiple share holders.  80% of small and medium state-owned enterprises nation-wide were restructured and had their ownership diversified.

13.               In respect of fiscal and taxation system, an experiment was launched in North East China in 2004 to transform the value added tax from a production based to a consumption based system.  In order to support the reform of the financial system, business tax rate for financial and insurance business was reduced by one percentage point each year from 2001 to 2003.  A major reform took place in the budget management system introducing departmental budget, centralized treasury collection and payment and government procurement with a view to enhancing the efficiency in the utilisation of financial resources.  The reform on appropriate sharing of income tax revenues by central and local governments was implemented in 2002.  Fiscal transfer payment structure was optimized.  Support to underdeveloped regions increased.  Reform of the fiscal management system below the level of provincial governments was also advanced.  Interregional development became more balanced and basic public services more equalized.

14.               In respect of financial system, the monetary policy function and banking regulatory function were separated.  The establishment in 2003 of the China Banking Regulatory Commission strengthened the unified regulation and supervision of banks, financial asset management companies, trust and investment companies and other non-bank depository financial institutions.  A financial regulatory system consisting of four institutions namely the People’s Bank of China (the Central Bank), China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission was established, each with separate responsibility working in close cooperation.

15.               The joint stock reform of the state-owned commercial banks was put on track and initial success has been made.  Bank of China and China Construction Bank basically completed the joint stock transformation and the latter has gone public in Hong Kong.  Financial restructuring of the Industrial and Commercial Bank of China was implemented and the bank has been transformed into a joint stock limited company.  The reform aims to establishing a modern financial enterprise system, improving corporate governance structure, transforming operation mechanism, achieving sustainable development and enhancing the international competitiveness of the state-owned commercial banks.

16.               The reform of RMB exchange rate regime was implemented on 21 July 2005, putting in place a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies.  In deciding on modality, contents and timing of the exchange rate regime reform, the Chinese Government took full account of the impact on macro economy and financial stability, economic growth and employment as well as the impact on our neighbouring countries and regions, the world economy and finance.  Since the operation of the new exchange rate regime, RMB exchange rate has attained greater flexibility and has remained basically stable at an adaptive and equilibrium level.

17.               The long term objective of the reform of China’s foreign exchange management system is full convertibility of RMB under both the current and the capital account.  The RMB became convertible under the current account in 1996.  China has been steadily advancing capital account convertibility.  The RMB convertibility under the capital account has been increasing gradually.  The Chinese Government will steadily push forward market-based interest rate reform, improve the managed floating exchange rate regime, endeavour to gradually achieve capital account convertibility and preserve financial stability and security.

18.               The agricultural tax system has undergone fundamental reform.  Up to the end of 2005, 28 out of the 31 provinces, municipalities and autonomous regions have abolished agriculture tax.  On 29 December 2005, the Standing Committee of the Tenth National People’s Congress adopted at its 19^th session a decision to the effect that the Regulations on Agricultural Tax in force for 48 years would be abolished on 1 January 2006.  As of 2006, the Agricultural Tax has been abolished throughout the country two years ahead of the original objective of a 5-year phase out.

19.               In the reform of investment administration, the system of investment project approval by investment administration authorities in different levels of the Government according to investment scale has been changed.  With exception of those on the published catalogue requiring verification procedures, all investment projects including foreign investment projects involving no government funds need only to file for record with the investment administration authorities.  The procedure of required market access approval of foreign investment projects were also simplified with enhanced efficiency.

20.               Since 1979, the opening up policy has been implemented progressively from the coastal area to the interior, from the east to the west.  The establishment of special economic zones in Shenzhen, Zhuhai, Shantou and Xiamen in 1980 marked the launching of opening up.  In the mid and late 1980s, the opening up gradually stretched beyond the special economic zones to the coastal areas, Hainan Province, and the Pudong area of Shanghai as well as the Changjiang River (the Yangtze River) Delta cities and a series of frontier and interior cities.  With the launching of the Western Region Development Strategy in 2000, the opening up further expanded to the vast western regions.

21.               China’s accession to the WTO in December 2001 marked a new era of China’s opening up.  After WTO accession, the regional opening up approach was replaced by a nation-wide open policy; the coverage extended from the traditional trade in goods to trade in services; the level of market access further advanced, access conditions codified into laws and regulations with greater transparency and rule-based.  The WTO fundamental principles such as MFN and national treatment as well as China’s WTO accession commitments have become the norms followed by China in the opening process.

22.               Foreign direct investments have most obvious favourable impact on the development of the Chinese economy in the opening up process.  In 2004, industrial added value by foreign invested enterprises accounted for 28% of national industrial added value.  Their exports accounted for 57% of national total exports.  Foreign invested enterprises employed 24 million people accounting for 10% of the non-rural work force.

23.               With the implementation of the accession commitments, China’s foreign investment policy became more open and predictable.  The Chinese Government will further improve foreign investment laws, regulations and policy measures to encourage and guide foreign investments in high technology, modern services and modern agriculture.  The Chinese Government will continue its efforts to attract multinational enterprises to move the manufacturing process of high technology and high value-added products and their research and development to China.  The Government will also promote cooperation between domestic and foreign enterprises on technology research and development, resource procurement and market development; attach more importance to environment protection, resources conservation and sustainable development, thus enhancing the quality and raise the level of foreign investment.

Supportive Macroeconomic Policy

24.               The overall objective of the Chinese Government’s macroeconomic policy is to ensure stable and fast economic growth.  From 2001 to 2004, the Chinese Government managed to maintain consistency and stability in its macroeconomic policy, persisted in the policy adopted in the wake of the 1998 Asian financial crisis aimed at expanding domestic demand and spurring economic growth, and continued to apply the proactive fiscal policy and sound monetary policy.

25.               During the four years, the Chinese Government carried on the practice of issuing long-term Construction Treasury Bonds, which was introduced in the wake of the Asian financial crisis, and the scale of issuance each year amounted to 150 billion Yuan for 2001 and 2002.  The Treasury Bonds targeted at the central and western regions development, the rural infrastructure, urban environmental facilities, education and sanitation and health infrastructures.

26.               In the year 2001 to 2005, 350,000 kilometers of highway had been constructed in China, 24000 kilometers among which are freeways which exceeded the total length of all freeways built by the year 2000.  There are 7063 kilometers of railway has been build and put into operation.  The Qinghai-Tibet railway was also completely constructed.  China launched a large scale of construction and renovation of the electricity networks of rural areas, increased the total areas of farmland which are irrigated in a water-saving way, speeded up the construction of the projects, such as medium and small water conservancy facilities, drinking water supplies for human and livestock, and highways in the rural areas, as well as to consolidate the dikes of major rivers and lakes. 

27.               China also launches a comprehensive administration on environmental protection in certain stressed areas, the protection of virgin forest and natural grassland resources, the pilot projects in returning hillside farmland to forests and grassland in the Central and Western Regions, water pollution control projects in the basins of the Huai River, Hai River, Liao River, Tai Lake, Chao Lake and Dian Lake, and projects on urban water supply, road, household refuse and sewage disposal.

28.               Taking the establishment of a national disease prevention and control system and a medical care mechanism for sanitary emergency as the priority, the Chinese government fastens the paces to establish a set of public health-care system.  As a result, a number of disease prevention and control center, emergency aid center and medical institutions for contagious disease have been established on the provincial, municipal and county level.  The Chinese government invests more funds in education infrastructure and gives more education subsidies to rural and western hinterland, thus much improving the teaching, experiment and school-life facilities of various schools and mid-schools of the area.

29.                The proactive fiscal policy has effectively spurred investments by enterprises and by the society at large, stimulated effective demand, created employments, and therefore played an important role in maintaining the momentum of stable and robust economic growth.  Under the combined cumulative impact of the proactive fiscal policy and sound monetary policy, the Chinese economy began in 2003 to enter a new cycle of upward trend.From the latter half of 2003, there were signals of overheat in certain sectors and regions including excess growth of capital investment, rising prices of raw materials and energy.  The Chinese Government while continuing maintaining the stability and continuity of the macroeconomic policy, adopted a series of targeted macroeconomic measures including adjustment to optimize the fiscal expenditure structure, increasing input on support to agriculture, rural areas and farmers, and public services such as education, sciences and technology and public health.  Adjustment measures were also targeted at rationalisation of fiscal investment particularly on the direction, scope and intensity of the long-term Construction Treasury Bonds.  The measures also include raising the ratio of deposit reserves of commercial banks, expanding the floating range of loan interest rates by financial institutions, setting strict industrial standards to prevent projects of high energy consumption, high pollution and high emission.  These measures have effectively arrested the trend of excess growth of capital investment and excess expansion of production capacity of some industries, facilitated the economic structural adjustment and stopped the partial overheat from evolving into a nation-wide problem.

30.               In 2005 the Chinese Government modified its macroeconomic policy in light of the new situation of economic development.  The expansionary proactive fiscal policy adopted in the wake of the 1998 Asian Financial Crisis began to return to a neutral and prudent fiscal policy.  The scale of the long-term Construction Treasury Bonds was adjusted downward and the central government’s fiscal deficits moderately reduced to an appropriate level.  The emphasis is to give a guiding signal that it is necessary to prevent the signs of possible inflation from looming larger, but also to avoid the re-emergence of deflation.  Attention was paid to the adjustment of fiscal expenditure structure and the investment direction of the Treasury Bond projects, to strengthen the weak links in economic and social development, to expand consumption demand and to promote harmony in economic and social development.  Measures will continue to optimize the taxation system, to support the institutional reform of income distribution, education, social security, public health and the financial system.  Efforts will be made to increase revenues and economise expenditures, and enhance fiscal strength and expenditure efficiency.

31.               China has implemented a sound monetary policy since 2002, and has flexibly adjusted the strength and stance of monetary policy in different stages of the economic cycle.  More market-oriented measures including a mix of price-based and quantity-based monetary policy instruments have been used to achieve appropriate growth of money and credit.  Attention was also given to the coordination of the monetary policy with other macroeconomic policies, and they in combination have been instrumental in maintaining the favourable momentum of high growth, low price of the national economy.

32.               Against the background of persistently low Consumer Price Index (CPI) and weak domestic demand following the Asian financial crisis, the People’s Bank of China (the Central Bank) further reduced the RMB deposit and lending interest rates in 2002.  This was the eighth rate cut since 1996.  After 2003, the Chinese economy began to pick up with faster growth and increased dynamics, but at the same time there were also signs of partial overheating and build-up of inflationary pressure.  The People’s Bank of China promptly adjusted the operation of monetary policy, raised required reserve ratio twice, increased benchmark rates for deposit and lending, and adopted differentiated structural credit policy to control overheated sectors such as the real estate sector.  In view of considerable increase of RMB equivalent of foreign exchange holdings and base money in recent years, the People’s Bank of China continuously intensified open market operation to absorb the excess liquidity and to control the excess expansion of money and credits.

33.               In 2005, the People’s Bank of China continued to implement a sound monetary policy, slightly lowered the interest rate of the excess reserve, liberalized inter-bank deposit rates, and strengthened the coordination between domestic and foreign currency interest rate policies.  The People’s Bank of China also increased the intensity of open market operations and adjusted the liquidity in the banking system.  The money market operated in a stable manner.

Difficulties and Challenges Confronting Development

34.               China has made significant progress in its economic development over the past 20 years.  As a developing country with a population of 1.3 billion, however, it still faces great challenges and arduous tasks in its development.

35.               According to World Bank statistical data and its computing methodology, the aggregate volume of the Chinese economy in 2004 was equivalent to 16.6% of that of the United States.  China’s per capita GDP was equivalent to 3.6% of the United States, 4% of Japan and only one fifth of the global average, and ranked 129^th of the world.

36.               By the end of 2005, there was still a population of 23.65 million in the rural areas of China living below the absolute poverty line of 683 RMB Yuan, and the low-income poor population living between the lines of 684 and 944 RMB Yuan was 40.67 million.  In China nearly 200 million people are living below the standard of one dollar per day.  Every year China has to find jobs for 24 million people in the urban area.  More than 100 million of surplus rural work force needs to migrate for other jobs.

37.               In economic and social development there is a widening east-west regional disparity, as well as rural-urban disparity.  In 1980 the per capita GDP in the eastern region was 1.53 times and 1.89 times that of the central and western regions respectively.  The gap rose to 1.64 and 1.92 respectively in 1990, increased by 7.2% and 1.6%, and in 2002 further widened to 2.03 and 2.57, increased further by 23.8% and 33.9% as compared to 1990.  The ratio between per capita personal disposable income of urban citizens and per capita net income of rural citizens in 2005 was 3.2:1.  In 2003 and 2004 the figure was 3.23:1 and 3.209:1 respectively.  The issue of resolving regional and urban-rural disparity has been taken as the most important element of the Eleventh 5-year Development Programme (2006 to 2010), and requires long term hard work.

38.               China is a large agricultural country with a large rural population.  Income for the farmers is very low, and the basis for agricultural development is vulnerable and weak.  There is downward pressure on grain prices and upward pressure on the prices of agricultural supplies, making it difficult for farmers to further increase grain production and their earnings, and discouraging them from growing grains.  Moreover, the total area of useable farmland continues to decrease, and the overall agricultural production capacity is weak.  This poses a threat to the nation's food security.  The development of the rural area remains an arduous task for China.  China is also under tremendous population, resource and environmental pressure in the course of its development.

39.               There is an urgent need to raise the average education level of its citizens, and to enhance the quality and skill of the labour force.  Currently the economic growth depends largely on method of high input and high consumption, and there has been no fundamental change in this crude and inefficient manner of growth, which is leading to the increasingly serious constraints of resource supply and eco-balance sustainability.  Meanwhile, the long term trend of rising prices for oils and mineral resources in the international market has an adverse impact on China’s economic development that can not be overlooked.  The Chinese Government will therefore intensify its efforts to save resources and protect the environment and build a resource-saving and environment-friendly society.

40.               The acceleration of globalisation is an objective international environment for China’s development.  In recent years, protectionist pressure builds up.  Restrictive and protective measures of non-tariff barriers, standards, anti-dumping and safeguards taken by some countries and economies against Chinese products constitute an obstacle to China’s development.  For 2005 alone, 18 countries took antidumping, special safeguard measures and textile restrictive measures affecting Chinese export of US$ 12 billion.

II.                Trade Policy Development

41.               Opening up is China’s long term basic national policy.  The Chinese Government adheres to the “mutually beneficial win-for-all” opening strategy, and takes the pursuance of national interests and promotion of common development as the basic principles in handling economic and trade relations with all countries and economies.

Support and Defend the Multilateral Trading System

42.               China has always been supporting the strengthening of the multilateral trading system represented by the WTO and advocate the preservation and dissemination of the WTO sponsored fundamental principles guiding international trading relations.  Not withstanding WTO’s inadequacy in balancing the trading interests of different countries and different regions, its lack of attention to the interests of developing countries, the fair, open and non-discrimination principles sponsored by WTO are conducive to the stability of international trade orders and the predictability of international trade development.  It embodies the spirit of multilateralism in favour of joint participation in international affairs.

43.               China’s objective in building a socialist market economy system and its fundamental policies of reform and opening-up match with the basic principles of the multilateral trading system based on market economy.  China needs a fair, more open and dynamic multilateral trading system.  This is an imperative external condition for China’s economic development.

Faithfully Implement the WTO Accession Commitments

44.               Ever since WTO accession China has abided by WTO rules, lived up to the extensive commitments made in the accession and made comprehensive adjustment of its trade regime and trade policy.

Rule of Law and Transparency

45.               Before and after the accession, China systematically overhauled existing laws, administrative regulations and department rules to comply with WTO rules and accession commitments.  From the end of 1999 to end of 2005, the Central Government adopted, revised or abolished more than 2,000 pieces of laws, administrative regulations and department rules.  They cover trade in goods, trade in services, trade-related intellectual property rights protection, transparency and uniform application of trade measures.  The adoption, revision and abolishment of laws, administrative regulations and department rules in this overhaul ensure the consistency of China’s trade regime with the WTO rules and the accession commitments.  All the principles, rules and requirements embodied in the WTO Agreement and the Protocol on the Accession of the People’s Republic of China are implemented in a comprehensive and effective manner.

46.               Since its WTO accession, China has significantly enhanced government transparency.  The new Legislation Law and Regulations on Procedures for the Formulation of Administrative Regulations etc. institutionalized legislation transparency and establish it as a basic principle to be observed in China’s legislation formulation process.  The laws and regulations specifically require that in the formulation of legislation, public opinions must be sought and the general public and stakeholders must be given full opportunities to comment in the forms of forums, seminars, public hearings and written communications or through INTERNET and news media.  There are also specific provisions on procedures concerning publishing of legislation.  The new Administrative Permission Law adopted in 2003 set more strict and explicit transparency requirement concerning Government behaviour.  The Central Government has also in recent years intensified the efforts to promote publicity of the administrative information in governments at all levels.  To provide technology guarantee for this end, 96% of Central Government institutions and most of the local governments have launched their respective official websites.  The Central Government website www.gov.cn went online on 1 January 2006.  Legislation transparency is now a general practice in China.  Administrative information publication is also implemented throughout the governments at all levels.

47.               The Chinese Government has also established China WTO Notification and Enquiry Centre in the Ministry of Commerce in accordance with the accession commitments to provide information concerning China’s trade policy, and to fulfil the obligation of notification of China’s trade policies and measures as specifically required by the WTO Agreement.  The general public has free access to information concerning trade-related laws, regulation and rules through China Foreign Trade and Economic Cooperation Gazette, which is also available at the website of the Ministry of Commerce (www.mofcom.gov.cn).

Trade in Goods

48.               In accordance with the WTO accession commitments, the average tariff level has been slashed from 15.3% at the time of accession to 9.9% in 2005.  The average tariff rate of 14.8% for industrial goods prior to WTO accession was reduced to 9.0% in 2005.  The average rate of 23.2% at the time of accession for agricultural products was reduced to 15.3% in 2005.  Up to 1 January 2005, China had, in accordance with the Information Technology Agreement (ITA), eliminated tariffs for all ITA products.  It should be particularly pointed out that 100% of China’s tariffs are bound.  Applied rates and bound rates are exactly the same.

49.               With regard to the commitments under Annex 3 to the Protocol of Accession concerning the elimination of non-tariff measures including import quota, import license and import tendering, all these measures had been eliminated on schedule by 1 January 2005.  The administration of the tariff rate quota system has been further improved and quota level gradually increased in line with the commitments made.  Tariff rate quota administration for vegetable oils was abolished on 1 January 2006, as committed.

50.               In line with the Foreign Trade Law as amended in April 2004, the Chinese Government implemented the commitment on liberalisation of trading right on 1 July 2004, six months ahead of schedule.  On 1 January 2005, state trading for silk was abolished.  Designate trading was also eliminated on schedule.      

Trade in Services

51.               All the market access commitments in the field of trade in services have been implemented through the revision and adoption of sector-specific laws, administrative regulations and department rules.  The level of market access for foreign services suppliers has been significantly increased.  Of the 160 services sectors and sub-sectors under the WTO classification, China has opened more than 100, accounting for 62.5%, close to the level of commitments made by developed Members.

52.               Take banking services for example, up to end of 2005, 72 foreign banks from 21 countries and regions have established 254 operational institutions in China, and 177 foreign banks from 40 countries and regions have established 240 representative offices.  Total assets of foreign banks increased from US$ 11.84 billion by end of 1994 to US$ 87.657 billion by the end of 2005, representing a 7.4-fold increase within 11 years.

53.               In insurance services, there were 82 insurance companies in China by the end of 2005, 40 of them are foreign invested insurance companies.  The premium revenues of foreign invested insurance companies have experienced a rapid expansion, 29 times faster than domestic insurance companies.  For the first ten months of 2005, premium revenues of foreign property insurance companies increased by 27.8% over the correspondent period of the previous year while that of foreign life insurance companies increased by 356.1%.

54.               In distribution services, the Chinese government has implemented a market opening for foreign invested enterprises by eliminating the restrictions on the number of business units, geographical location and the foreign ownership.  Since 1992, China has cumulatively approved 1,341 foreign invested distribution enterprises, which have opened a total number of 5,657 retail shops.  In 2005 alone, newly established foreign invested distribution enterprises outnumber the total approvals from 1992 to 2004.  Market share of large foreign invested supermarket chains in the Chinese market continued to expand.  By 2005, they have accounted for more than a quarter, even over 50% in a few cities.

55.               China has also faithfully implemented the commitments in telecom services, accounting services, education services and others, thus having offered enormous market access opportunities.

Intellectual Property Rights

56.               The Chinese Government attaches great importance to the protection of intellectual property rights (IPRs).  Before and after its WTO accession, China took actions to amend almost all IPR-related laws, regulations and judicial interpretations to ensure consistency with the WTO Agreement on Trade-related Aspects of Intellectual Property Rights and other international rules on protection of intellectual property rights.

57.               In the meantime, the Chinese Government set as its priority work to strengthen enforcement of laws to combat IPR infringements.  In recent years, patent administration departments at all levels have strengthened administrative enforcement of the law in this respect.  In particular, they have launched special enforcement actions on infringements of patent rights of food and medicines, which are closely connected with people’s health and lives.  Great efforts have also been paid to investigate and deal with cases that infringe upon the patent rights of key technologies and cases that had widespread repercussions.  4,767 cases in total have been investigated and dealt with in 2005.

58.               Administrative organs of industry and commerce at all levels across China have fully exploited their advantages in trademark administrative law enforcement –complete networks, simple procedures and high efficiency.  Focusing on the protection of the right to exclusive use of registered trademarks, and dutifully carrying out their responsibilities, they have investigated and dealt with a large number of trademark infringement and counterfeiting cases.  7 concentrated special actions have been launched with 49,412 trademark violation cases being investigated and tacked with across the country through the year of 2005.  Among all the cases, 39,107 are trademark infringement and counterfeit cases and 6,607 are foreigner-related cases.

59.               China’s copyright administrative management departments at all levels have strengthened their administrative enforcement of the copyright law.  They have increased cooperation with other government departments, such as the departments of public security, industry and commerce, the Customs, press and publications and cultural departments.  As a result, a mechanism of law enforcement whereby different departments are coordinated in combating copyright infringement and piracy has gradually taken shape.  They have launched a series of campaigns to crack down pirated discs, textbooks, reference books, software, illegal duplication and selling of audio-video products, selling of smuggled audio-video products and internet infringement practices.  A total of 8,060 cases have been investigated and dealt with in 2005.

60.               At present, the Customs has established a complete system of IPR-related laws enforcement measures.  It has established a central filing system for IPR Customs protection.  As long as the IPR proprietors have filed their IPR with the General Administration of Customs, the port Customs have the power to detain imported and exported goods that infringe on the filed IPR.  Law enforcement organization have also been founded and improved.  Besides detaining import or export goods suspected of IPR infringement, the Customs can also investigate and deal with illegal import and export of right-infringing goods within the scope of its power and duty.  In 2005, 1,208 cases have been dealt with.  In addition, the Chinese Customs have signed agreements of mutual assistance in administrative law enforcement with the Customs of the European Union member countries, the United States and etc.

61.               The Chinese public security organs have adopted a series of measures to crack down on all kinds of criminal IPR infringement.  They also attach great importance to international law enforcement cooperation in the fight against IPR infringements and have conducted cooperation with law enforcement organizations of other members.  As of December, 2005, the public security authorities have investigated and dealt with, under the Campaign named “ShanYing” or “Mountain Eagle”, a total of 3,534 IPR infringement cases and resolved 3,149, which are respectively 198.5% and 213.6% rise to that of 2004.

62.               The procuratorial organs have earnestly exercised their duties of examination of arrests and prosecutions in cases of criminal IPR infringement, as well as legal supervision over relevant criminal lawsuits in accordance with law, handled a large number of cases of suspected IPR infringement.  In 2005, 4,143 IPR criminal cases (increased by 15.86%) have been accepted upon applications for arrest, while 4645 cases (increased by 24.63%) accepted upon prosecution initiatives transferred by public security organs.

63.               The Chinese people’s courts at all levels have continuously strengthened work in IPR-related civil and criminal trials under the principle of “justice and efficiency.” The Supreme People’s Court of China has formulated a series of relevant judicial interpretations in accordance with the law, and improved a series of important IPR-related law application principles.  Throughout the year of 2005, 3,567 (increased by 27.9%) criminal cases of IPR infringement have been accepted, while 13,424 (increased by 44.1%) first instance civil cases being accepted.

64.                With regular oversight and specific cases resolution combined, the intensity of IPR protection has been substantially enhanced on both administrative and judicial fronts.  In 2004, a National Working Group on IPR Protection headed by Vice Premier was established to assume the responsibility of overseeing and coordinating national work on IPR protection.  Between September 2004 and end of 2005, the Chinese Government launched a nation wide special campaign on IPR protection.

65.               The Chinese Government also attaches great attention to the education of intellectual property rights protection with the aim of raising awareness of the whole society.  In 2004, the Chinese Government set the week of 20 to 26 April each year as “IPR Protection Education Week” to enhance regular public education throughout the country on IPR protection, to create a favourable social environment which respects other people’s work, respects knowledge and talents, respects creation and innovation, and in a nutshell to raise the general public awareness and consciousness of the issues of intellectual property right and its protection.

66.               China has made significant progress in IPR protection particularly in building the IPR-related legal system and raising the consciousness of the general public for IPR protection.  However, the Chinese Government is fully aware that like in all other countries the protection of intellectual property rights is constrained by the level of economic development and other conditions in reality.  IPR protection in China cannot be perfected overnight.  The Chinese Government is determined to continue its persistent and strenuous efforts to achieve that goal.

Active Participation in the “Doha Round” Negotiations

67.               The Doha Round negotiation has a strong bearing on the future development of international trade, the possibility of balanced and orderly development of the world economy and the immediate interests of the people of the world.  The early conclusion of the Doha Round with balanced results upholds the multilateral trading system, and will promote further the liberalisation of international trade.  Generally this will be in the interests of all WTO Members including China.  Up to now, China has submitted more than 30 proposals and position papers in the negotiations, which had played a positive and constructive role in advancing the negotiations, bridging understanding among WTO Members and narrowing differences. 

68.               The Chinese Government is of the view that the Doha Round is a development round.  The round should effectively ensure that developing Members benefit from the outcome of the negotiations.  The negotiations on each and every specific subject should take full account of the level of development and capacity of developing embers; should put special and differential treatment into effect to allow them to implement development strategy that suits their own conditions within their territories.  China supports the outcome of the Hong Kong Ministerial Conference on cotton and duty-free, quota-free market access in favour of the least-developed countries (LDCs) and other relevant developing Members.

69.               On agriculture, China is of the view that there is a fundamental difference in the pressure faced by developed and developing Members.  Being a developing Member with a rural population of 740 million, China maintains low tariffs for agricultural products, has eliminated export subsidy and provides domestic support only at de minimis level.  China supports the elimination of all kinds of export subsidies provided by developed Members, substantial reduction of trade-distorting domestic support, and significant reduction of tariff peaks and tariff escalation in developed Members.  Meanwhile, there should be effective solution of the specific concerns of developing Members relating to special products and special safeguard mechanism.

70.               In respect of non-agricultural market access (NAMA), the Chinese Government supports the consensus reached at the Hong Kong Ministerial Conference on the Swiss Formula with coefficients, which will serve to reduce high tariffs.  In the meantime, there should be sufficient difference in the coefficients applied to developing and developed Members to reflect the difference in the level of development and the tariff structures.

71.               In trade in services, China hopes that the negotiations will reflect more the export interests of developing Members, and will strengthen their capacity to participate in world trade in services.

72.               The negotiations on rules should contribute to further clarify and improve WTO rules, promote trade facilitation and reduce the abuse of trade remedy measures, particularly antidumping measures against developing Members.

73.               In this new round of negotiations, special concerns of newly acceded Members including China should be recognized and respected.  The transition period for these Members has generally not expired.  The market opening pressures from the accession remain to be absorbed.  Quite a number of industries are under heavy adjustment pressure when the extensive accession commitments are implemented.  Therefore, there should be effective solutions for the special concerns of newly acceded Members in accordance with the Doha Declaration, the July Framework of 2004 and the relevant provisions of the Hong Kong Ministerial Declaration.

74.               The multilateral trading system is in a critical stage.  In spite of the tough negotiation task before us, the Chinese Government aspires to work hard with all other Members in order to conclude the Round before the end of 2006.

Regional Trade Liberalisation

75.               Regional economic and trade cooperation is an objective trend in world economy and trade as well as a natural choice for countries and regions throughout the world to adapt to the accelerating process of globalisation of the world economy.  Regional trade liberalisation helps bring down barriers to intra-region trade and investment.  It could become a useful supplement to the multilateral trading system and help push forward the global trade liberalisation and investment facilitation.

76.               At the same time, regional trade liberalisation should not be done at the expense of the multilateral trading system.  WTO Members participating in regional trade liberalisation have obligations to pursue proper balance between the policy objectives of regional trade liberalisation and the defence of the basic disciplines of the multilateral trading system.

77.               China steadily participates in regional trade liberalisation on the basis of the above mentioned principles.  Currently China has concluded or in the process of negotiating nine free trade area agreements involving 27 countries and regions.  For 2005, China’s trade volume with these countries and regions was US$ 344.5 billion accounting for one forth of China’s total trade for that year.

78.               The China-ASEAN Framework Agreement on Comprehensive Economic Cooperation signed in November 2002 marked the entry into force of the China-ASEAN Free Trade Area.  This is the first free trade area agreement China joined.  In November 2004, China and ASEAN concluded China-ASEAN Framework Agreement on Comprehensive Economic Cooperation - Agreement on Trade in Goods.  In line with the agreement, China and ASEAN started full implementation of tariff concessions as from 20 July 2005.  Currently the negotiations on trade in service and investment are accelerating.

79.               The mainland of China concluded the Closer Economic Partnership Arrangement (CEPA) with Hong Kong, China and Macao, China in June and October 2003 respectively.  Both arrangements entered into force on 1 January 2004.  Subsequently supplementary agreements were signed in 2004 and 2005 respectively expanding the coverage of CEPA.  The implementation of CEPA and their supplements spurred the liberalisation of trade in goods and services and the facilitation of trade and investment between the mainland and Hong Kong, China and Macao, China.  It also promotes the economic integration of the two Special Administrative Regions with the mainland.

80.               The Chinese Government and the Chilean Government signed China-Chile Free Trade Agreement on 18 November 2005.  This is the first free trade area agreement China signed with a Latin American country.  The two countries will set in motion the full-fledged tariff reduction process for trade in goods in the latter half of 2006.

81.               In April 2005, the Governments of China and Pakistan launched the free trade area negotiations and signed the Agreement on the Early Harvest Programme for the Free Trade Agreement, which entered into force on 1 January, 2006.

82.               Currently, China is negotiating on free trade area agreements with the Gulf Cooperation Council, New Zealand, Australia and etc.

Proper Handling of Trade Disputes

83.               With the rapid growth of global trade, the emergence of trade disputes among trading partners is a normal phenomenon.  China has constantly sought to resolve trade disputes properly in accordance with WTO principles and rules, through dialogues and consultations on equal footing and in the spirit of reaching compromise acceptable to both parties.

84.               China is a responsible member of the international trade community.  In the formulation and implementation of domestic economic and trade policy, China always gives due consideration to international factors and the impacts on other WTO Members.  This constant attitude of the Chinese Government has been manifested in maintaining the stability of the RMB during the Asian Financial Crisis, the reform of RMB exchange rate regime, the restraints exercised over the issue of textiles exports, the reinforced efforts to strengthen the protection of intellectual property rights and etc.

85.               China attaches great importance to bilateral consultations and exchange of views with all countries and regions on economic and trade issues.  China has established institutionalised mechanism of Mixed (Joint) Economic and Trade Committee with 146 countries and regions to conduct regular consultations, review the state of bilateral trade and economic relations, resolve disputes and outstanding issues and ultimately promote the harmonious and healthy development of economic and trade relations.

86.               China applies an open trade policy.  China has no intention to pursue trade surplus and wish to maintain a general balance of imports and exports.  Countries and regions are mutually complementary with each other in their economy and trade.  Such complementary relationship should not be subject to undue harsh interference with trade policies such as export restrictions of technology. 

87.               Currently, China has been subject to the greatest number of anti-dumping actions among all WTO Members.  According to WTO statistics, there were 2,743 anti-dumping measures reported during the period from 1995 to first half of 2005, of which 434 were against Chinese products, accounting for 16%.  Chinese enterprises and exporters also have grave concern over all kinds of technical barriers and their adverse impact on trade.  Interests of a lot of them were also seriously damaged by the restrictive measures against Chinese textiles and clothing. 

88.               The Chinese Government holds the view that discriminatory measures against a particular member is contrary to the spirit of free trade and the principle of non-discrimination enshrined in the multilateral trading system.  The abuse of such measures damages the creditability of the multilateral trading system and is harmful for its further development.

Promoting Economic Cooperation with Developing Members

89.               The Chinese economy is to a high degree mutually complementary with other developing countries, and there are huge potentials for cooperation.  Therefore the Chinese Government attaches great importance to promoting South-South cooperation.

90.               China has granted preferential tariff treatment to more than 30 least developed countries.  President HU Jintao announced at the Meeting on Financing for Development of the United Nations Summit in September 2005 that China would further open its market to the LDCs and accord zero tariffs for most China-bound exports from the 39 LDCs having diplomatic relations with China.  From 2002 to 2005, import from the 39 LDCs, which China offered special treatment on tariff and market access, is almost quintupled from USD 3.336 billion to USD 15.523 billion.

91.               In respect of investment, China is currently applying the “Go abroad” strategy, encouraging Chinese enterprises to invest and engage in economic and trade cooperation abroad.  Developing countries are the primary destinations in this drive.  The “Go abroad” strategy has promoted economic cooperation and trade exchange between China and developing countries.  It is also conducive to job creation, tax revenue increase and economic development in the host countries.

92.               China is making greatest efforts to provide development assistance to fellow developing countries.  Up to now China has provided assistance to more than 110 countries and regional organisations for more than 2,000 projects, written off 198 batches of debts of a total amount of 16.6 billion Yuan owed to it by 44 developing countries.  President HU Jintao announced in September 2005 that China would further expand the aid programme for the heavily-indebted poor countries and LDCs and, working through bilateral channels, write off or give up in other ways, within the next two years, all the overdue parts as of the end of 2004 of the interest-free and low-interest governmental loans owed by the HIPCs having diplomatic relations with China.  In the coming 3 years, China will provide US$ 10 billion in concessionary loans and preferential export buyer's credit to developing countries, increase medical aid to them, particularly African countries, and help train for them 30,000 qualified personnel of various professions.

93.               On 12 January 2006, the Chinese Government issued the African Policy Paper, setting the direction and priority areas for strengthening China-Africa friendship and cooperation.  In the economic related field, the paper expressed China’s intent for cooperation in 10 areas including trade, investment, finance, agriculture, infrastructure, natural resources, tourism, debt release, economic assistance and multilateral cooperation.

III.             Outlook

Build a Harmonious Society and a Harmonious World

94.               China’s development goal for the first two decades of this century is to build a well-off society of a higher standard in an all-round way to the benefit of the whole population of 1.3 billion people.  China will further develop the economy, improve democracy, advance science and education, enrich culture, foster social harmony and upgrade the texture of life for the people.

95.               In order to achieve this goal, the Chinese Government will guide the overall economic and social development with a people-oriented and scientific approach of comprehensive, coordinated and sustainable development.  GDP for the next five years is expected to reach at an annual average growth of 7.5 percent in the Eleventh 5-year Development Programme.  The priority work is to maintain steady and rapid economic growth free from erratic ups and downs.  High priority will be given to the issues of “agriculture, rural areas and farmers”, to steadfastly advancing the building of new socialist rural areas, and resolving the dual structure of rural-urban economy. 

96.               China needs to increase overall agricultural capacity, promote agricultural restructuring, intensify development of rural infrastructure, and increase farmers' incomes.  China will focus on implementing key projects to establish large production bases for grain, cotton and edible oil, industrialize production of superior quality grain varieties, build water conservancy facilities and safe drinking water supplies, build roads and methane production facilities, and develop education, culture and health in rural areas.  China must also comprehensively promote overall rural reform and basically complete reform of town and township government bodies, rural compulsory education, and fiscal management in counties and townships.  China needs to create a new type of farmer who has a good basic education and understands both agricultural techniques and business operations. 

97.               Over the next two years, China will completely eliminate tuition and miscellaneous fees for all rural students receiving compulsory education.  Expenditure for rural compulsory education will be fully incorporated into the central and local government budgets.  China will improve the system of rural credit cooperatives, carry out reform of the Agricultural Bank of China and the Agricultural Development Bank of China and increase the pace of innovation in banking and finance in rural areas to improve the banking system and financial services there.  China will continue to follow the policy of expanding employment and do everything possible to create more jobs for rural laborers coming to cities to find jobs.  China will work out social security measures suitable for rural migrant workers.  China will improve the system for providing food, clothing, medical care, housing and burial expenses for childless and infirm rural residents, the system for providing assistance to families in extreme poverty and the system for providing relief to disaster victims by increasing financial support and appropriately raising the level of assistance.  Governments in localities where conditions permit need to look for ways to set up a system of subsistence allowances for rural residents.  China will launch the Program for Establishing and Developing a Rural Health Care Service System to improve the system and network of medical and health care that spans the three levels of county, township and village.  China will speed up the establishment of a new type of rural cooperative medical care system.  By 2008, this new system and a rural medical assistance system should be basically in place in all rural areas.

98.               In order to promote domestic consumption, the MOFCOM initiated “Market Development Project Covering Thousands of Villages and Towns” in February, 2005.  It aims at gradually popularizing chain-store operations in rural areas; making standardized farmer shops cover 50% of villages and 70% of towns across the country within 3 years; building a modern retail distribution network in rural areas thus making shops in urban areas play a leading role, shops in towns play a major role and shops in villages play a fundamental role.  There are 1,150 retail and wholesale enterprises which have started pilot projects in 777 cities and counties nationwide.  71,000 standardized farmer shops have been newly established and renovated within the year.

99.               New model of industrialisation will be followed.  Different regions will be categorized as suitable for optimal development, or priority development, or restricted development or development prohibition according to their respective resources and environmental constrains and local potential advantages with the aim of promoting coordinated regional development.  The basic national policy of resource-saving and environmental protection will be implemented more effectively to facilitate the building of a resources-efficient and environment-friendly society and to ensure the harmony of economic development, resource availability and environment sustainability.  Efforts will also be made to strengthen scientific and technological innovation capability and enhance the quality of the labour force.

100.            The Chinese Government will persist in the “mutually beneficial win-for-all” open strategy, and is of the view that all countries of the world should join hands to build a harmonious world embracing all civilisations.  Countries should aim to create a healthy and orderly trading environment and a stable and efficient financial environment conducive to world economic growth through establishing and improving an open, fair and non-discriminatory multilateral trading system and perfecting the international financial regime.  Countries should step up worldwide energy dialogues and co-operation and make joint efforts to maintain energy security and energy market stability.  Joint efforts should be made to push the economic globalisation in the direction of balanced, universally beneficial and win-for-all development.  The developed countries should undertake more responsibility to further open their market, transfer technology, increase assistances and release debts in favour of developing countries, particularly the HIPCs and the LDCs.

Deepen the Reform and Raise Further the Level of Opening

101.            All the achievements that have been made in China’s economic and social development are closely linked with the reform and open policy.  In the process of future development, the Chinese Government will persist in the reform and open policy, continue to improve the market economy system and further raise the level of opening up.

102.            The Chinese Government will push forward the reform of the administrative system to strengthen the government’s function of social governance and public service; accelerate the transformation of state-owned enterprises into joint stock companies, promote the joint stock system to be the main vehicle of public ownership, and push forcefully the development of the non-public sectors.  Efforts will be made to further the reform of the fiscal and taxation system to accelerate the construction of the public finance system, accomplish the transformation of value-added tax system from production-oriented to consumption-oriented, and unify the taxation system to be applied uniformly to all enterprises.  The Government will also accelerate the reform of the financial system to complete the restructuring of state-owned financial enterprises into joint stock companies, and to gradually develop small and medium financial enterprises of multiple ownerships.  The Government will further the development of the nation-wide unified market, continue to develop land, technology and labour markets and let the market to play the fundamental role in resources allocation.  Building of a credibility and trust system in China will also be accelerated.

103.            The Chinese Government will combine as a whole the domestic development and the opening up, with a view to achieving fast and favourable economic development under more open conditions.  China will continue to develop foreign trade, make effort to achieve import and export balance and optimise the structure of import and export products.  China will continue to pursue active utilisation of foreign capital while strengthening the guidance on industrial and regional priority for foreign investment, to improve the quality of utilising foreign capital.  Chinese enterprises will continue to be encouraged to invest and open up business in foreign countries in accordance with the principles of mutual benefits, win-for-all and mutual complementarity, to improve their understanding and knowledge of international economic, trade and investment environment and abide by international practices in doing business.  China will also continue to pursue at multilateral, regional and bilateral level liberalisation of global trade and investment, make effort to stabilise international trade environment, and join in the concerted efforts with all trading partners to achieve the goal of a win-for-all situation.

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