While not all of these funds were being used on distorting policies or non-productive administration, much of it was. If a good part of the funds is able to be redirected into more productive areas, there is a chance that the agricultural sector can be energized by this new windfall. The policy implications of China’s WTO accession on land use and farm organization also are hotly debated. Many of the concerns have arisen over the ability of China’s small farms to be able to compete after trade liberalization. Although every farm household in China is endowed with land, the average farm size is small, and declining . Leaders are pleased with the equity effects of the nation’s distribution of land as it allays concerns about food security and poverty. Land fragmentation and the extremely small scale of farms, however, almost certainly will in some way constrain the growth of labor productivity on the farm and hold back farm income. The debate has centered on these issues: Some argue that farm size could be expanded and agricultural productivity could rise if policy makers were to advocate more secure land tenure arrangements. Others call for a continuation of policies that allow localities to periodically re-allocated land to the farmers in order to keep land in the hands of all rural residents. Although most policy makers currently seem to favor more secure rights, they still are searching for complementary measures that will not forego all of the pro-equity benefits of the current land management regime. Land ownership in rural areas, by law, is collectively owned by the village or small group and contracted to households . One of the most important changes in recent years has been that the duration of the use contract was extended from 15 to 30 years. By 2000, about 98% of villages had amended their contract with farmers to reflect the longer set of use rights .

Although some were concerned that household and village demographics and other policy pressures often induce local authorities to reallocate land prior to contract expiration,vertical farming technology it has been shown that the area of this reallocated land has been minimal and the effect on investment behavior insignificant . With the issue of use rights, resolved, the government is now searching for a mechanism that permits the remaining full-time farmers to gain access additional cultivated land and increase their income and competitiveness. One of the main efforts revolves around the development of a new Rural Land Contract Law. The Standing Committee of the National People’s Congress has drafted a law and the main body is expected to approve it in the near future. According to this law, although the property rights over the ownership of the land remains with the collective, the Law conveys almost all other rights to the contract holder that they would have under a private property system. In particular, the Law clarifies the rights for transfer and exchange of the contracted land, an element that may already be taking effect as researchers are finding increasing more land in China is rented in and out .Part of the law also allows family members to inherit the land during the contracted period. The goal of this new set of policies is to encourage farmers to use their land to increase their farms and household short and long-run productivity. Although quite controversial, the effort to increase China’s agricultural productivity under trade liberalization also is made through the promotion of large farm enterprises. Many officials in the MOA consider this effort as one of important forces that may help to restructuring China’s agriculture, expand agricultural markets, and increase farmer income. Recently fiscal authorities have supported this effort by making grants and allowing tax reductions for the infrastructure investments of the farms. They also have provided large farms with credit subsidies for input procurement and the financing of their efforts to update their technology at all levels of the food change .

As a result of China’s WTO accession, the support in this area is expected to increase. However, more effort in the future is likely to shift to supplying services that are supposed to be provided by government in areas such as farm infrastructure development, technology adoption, and extension, rather than direct intervention and subsidy. As subsidies through agricultural investment and inputs in China are subject to WTO restrictions on Aggregate Market Support , it is not expected that the extent of these subsidies will restrict such support. China will be limited to its support of large farms to levels that do not exceed its de minimis level of AMS of 8.5%. However, it is much more likely that its ability to finance agricultural subsidies will be more binding than the WTO-imposed rules. The other major attempt to increase farm productivity and agricultural competitiveness under trade liberalization is to promote the development of farmer organizations. The government has now officially cast its support for self-organized farmer groups that focus agricultural technology and marketing . At one time, the creation of farmer organization was a political sensitive issue. Leaders were concerned with the rise of any organization outside the government’s authority. Such restrictions, however, caused a dilemma in reforming the nation’s agricultural and rural economies. Policy makers also are aware that with the small scale of China’s farms there are many increases in economic efficiency that might be gained by the creation of effective rural organizations and that if they were successful in raising incomes, there might be a rise in political stability.It is on this basis, then, that leaders have now decided to allow the organization of China’s 240 million farms. Letting these millions of small farmers competing in a market with globalization requires substantial institutional reforms on farm organization and provisions of government service such as technology extension and marketing information and quality controls. It will be in these areas that farmer organizations will be encouraged. In addition, these types of farm organizations that are supported by the government fall under WTO’s “Green Box” categorization and investments to create such groups will not be counted as part of the nation’s AMS measures. Perhaps more than anything, the government is going to need these farmer organizations to lead the fight against the imposition of trade barriers on China’s agricultural exports.

Because China’s producers have not been organized, when foreign countries, such as Japan, Korea, and the US have levied trade barriers, typically citing dumping. Even when such cases were based on questionable bases, China had no one who had an incentive or ability to contest the cases. Since China Provisions of anti-dumping and safeguards measures against China’s products, such cases will not abate and the nation needs to have a way to protect the interest of those seeking to export.The financial sector has reformed more slowly than some other sector, and government maintains strong control . Among the commitments regarding the banking sector, the Protocol requires China to open the country’s financial markets in a step by step way. The liberalization must allow foreign competition across wider and wider regions and customer base. After a four years transition period, all regional restrictions will be removed and foreign banks will receive national non-discriminative treatment in the area of banking services. Specifically, restrictions on branch banking can not be imposed.International experience shows that in the long run, increased foreign participation in the financial sector will have a positive effect on country’s development as a whole. However, in the period immediately following its WTO accession and the removal of protective measures in the financial sector, China may face one of its biggest challenges. There is a good possibility that the nation’s banks will suffer financially. Hence, it might be expected, the leader’s policy response to reform the current banking system will be a strong one. For example, financial sector officials are already mandating the government interventions fall, state banks recapitalize themselves, and nonperforming loans be transferred to asset management companies . The implications of the above shifts of policies for agricultural development are not clear. While one might think the agricultural sector and poor regions in the rural economy could suffer from liberalization, it is not clear if things will be worse than before the reforms. In the past, agriculture in China was squeezed. Huang and Ma have shown how the financial sector has systematically shifted funds away from faming. Throughout the entire reform period, there was a net capital outflow by means of the financial system. Hence, it is hard to see how a reformed banking sector will treat agriculture any worse. Though, the experience of other countries most likely mean that in the short run small, poor farmers will be rationed out of financial markets. Tax reform also is underway. In 2001, there were three major types of taxes levied on products and services: a VAT levied on goods and services for processing,how to make vertical garden maintenance and assembling; a Consumption Tax levied on some selected consumer products; and a Business Tax on services and the sales transaction involving assets.Both the VAT and Consumption Tax are applied to imported goods.Tax laws, however, have offered producers several exemptions. In many cases, part or all of the VAT is reimbursed when the goods is exported.

All goods to be exported are not subject to the Consumption Tax. Although subject to a number of technicalities, there is some concerns are some of these tax rebates may not be consistent with the requirements of the 1994 GATT rules. Since, China has agreed that it would ensure that its laws, regulations and other measures relating to internal taxes would be in full conformity with its WTO obligations, some adjustments may have to be made. Perhaps the best example of this may be in the area of the assessment of the VAT on agricultural imports and the possibility that such an act may violate the national treatment clauses of the WTO accession agreement. Specifically, while the VAT is charged in full at the border for all imports . Although some observers in China have tried to argue that since farmers in rural areas already pay high land- and head-taxes, they can fairly be exempt, such a tax is not commodity specific and such unequal taxation of imports and domestically procured crops almost certainly violates WTO. If such a tax policy is challenged, China will have two options: assess the VAT on all domestic procurement or eliminate the VAT at the border on agricultural goods. More generally, as China attempts to make it economy more competitive in a post accession world, it has announced that in some areas it will lower taxes. The primary objective would be to lower the burden of domestic enterprises and attract new foreign investment. Tax cuts would also increase the competitiveness of its domestic products in the international markets. Moreover, tax officials also have plans to continue to push on tax reform that shift China from a system that primarily uses a production-based tax system to a more consumer oriented tax regime. While desirable, it should be noted that the timing of implementing this tax reduction necessarily will depend on the impacts that the reform would have on the government’s revenue-earning capacity. An official from the State Council recently claimed that a major move to realign China’s tax system towards a more consumer-oriented one may begin as soon as 2003. To make the rural economy more competitive and to remove a set of institutions that have historically caused a lot of frustration among rural residents, officials have also begun to experiment with rural tax reform. The most bold experiment to date is based on a movement that seeks to “convert fees into taxes.” The earlier experiments began in Anhui province in 2000. The reform was implemented to reduce the burden of various fees imposed on farmers to a maximum level of 5 percent of the income of farmers. By reducing the tax burden of the farmer, officials hope to reduce the cost of agricultural production, since many fees are collected from farmers by local government and village committee on the basis of their sown area or level of livestock production.