IV. China Upholds the Principle of Free Trade and Strictly Complies with WTO Rules

Since joining the WTO in 2001, China has played an active role in economic globalization, launching a new phase in its reform and opening-up efforts. Committed to the principle of free trade, China has made its trade policies more stable, transparent, and predictable, substantially opened its markets, and made a positive contribution to upholding the effectiveness and authority of the multilateral trading system.

1. China Has Comprehensively Strengthened Trade Policy Compliance

Since joining the WTO, China has fully honored its accession commitments, abided by and implemented WTO rules, strengthened its rule-based market economy laws and regulations, and established a legal framework aligned with multilateral trade principles. Following its accession, China launched major efforts to review and revise over 2,300 laws, regulations and departmental rules at central government level, and over 190,000 local regulations at sub-central government levels. These efforts spanned key areas such as trade, investment, and intellectual property protection, among others.

To implement the requirements of the Third Plenary Session of the 18th CPC Central Committee in 2013 on adhering to the rules of the world trading system and building new systems for an open economy, the General Office of the State Council issued an official document on furthering trade policy compliance with WTO rules in 2014, and the MOFCOM issued the Measures for the Implementation of the Compliance Work of Trade Policies (Trial), requiring governments at all levels to conduct compliance assessments in accordance with WTO agreements and China's accession commitments when formulating trade policies. The Third Plenary Session of the 20th CPC Central Committee proposed in 2024 to establish compliance mechanisms that are aligned with prevailing international rules, and optimize the environment for opening up and cooperation.

In March 2025, the General Office of the State Council issued the Guideline on Further Strengthening Trade Policy Compliance, which suggested that compliance assessment should be a compulsory precondition for the release of trade policies. In the process of decision-making on trade policies, the State Council departments, the people's governments at the county level and above, and the relevant departments should adhere to the principle of "who formulates, who evaluates", conducting compliance assessment of the trade policies, to ensure that they comply with the WTO rules and China's accession commitments.

2. China Has Rigorously Fulfilled the Commitments on Tax Reduction upon Accession to the WTO

Upon acceding to the WTO, China made extensive and substantial tariff reduction commitments. The Chinese government has honored its commitments, and all the tariff reduction commitments for goods were fulfilled by 2010. The overall tariff level has been reduced from 15.3 percent in 2001 to 9.8 percent. In terms of WTO-bound tariff rates, China's overall tariff level is approaching the average bound tariff rate of developed members (9.4 percent).

China pursues an opening-up strategy that emphasizes mutual benefit and win-win outcomes. In recent years, it has actively expanded imports and taken repeated and substantial steps to reduce import tariff rates at its own initiative. In July 2023, with the eighth reduction in tariffs on products under the expanded Information Technology Agreement, China's overall tariff level saw a further drop to 7.3 percent. In 2024, China further announced that it would grant zero-tariff treatment for 100 percent tariff lines to all the least developed countries that have diplomatic relations with China. This fully demonstrates China's firm commitment to promoting opening up and integrating into the global economy. China's comparatively low tariff levels create extensive market opportunities for high-quality global products, while providing a diverse range of choices for domestic consumers. Moreover, these efforts contribute to the development of global industrial and supply chains while driving progress in trade and investment liberalization as well as economic globalization.

3. China Has Provided Subsidies Within a Reasonable Range in Compliance with WTO Rules

Subsidies are significant policy instruments for developing members to advance the United Nations' Sustainable Development Goals and achieve the WTO's overarching objectives of fostering inclusive development and improving living standards. A joint report released by the WTO Secretariat and other international institutions in April 2022 pointed out that subsidies are common in all sectors, used by countries at all stages of development.

Upon joining the WTO, China pledged to refrain from maintaining or granting export subsidies for agricultural products and made commitments regarding agricultural domestic support and industrial subsidies that surpass those of the average developing members. Since its accession, China has strictly adhered to all WTO subsidy discipline and promptly submitted subsidy notifications to the WTO. In June 2023, China submitted the 2021-2022 subsidy policy notification, involving 69 central and 385 local government subsidy policies, covering all provincial-level administrative regions. In July 2024, China submitted its notifications regarding domestic support for agriculture for the year 2022, aligning its notification year with those of major developed members such as the US (market year 2022/2023) and the EU (market year 2021/2022). 

China is committed to establishing and improving a fiscal subsidy system in line with international practice, and promoting the transformation of industrial policies from differentiated and selective to inclusive and functional. The Chinese government prioritizes market-oriented and indirect guiding measures, such as public services, technical standards, and skills training to support areas of market failure, including technological research and innovation, the development of small and medium-sized enterprises, green energy efficiency, and the establishment of public service systems. By offering inclusive support across industries, these measures aim to stimulate the vitality of market entities, promote fair competition, and reinforce the socialist market economy system. For instance, it implements preferential policies in personal income tax, corporate income tax, resource tax, property tax, and urban land use tax for eligible self-employed businesses and small enterprises with slim profit margins.

To better leverage the role of subsidies in promoting development, China is open to discussions on industrial subsidies within the framework of the WTO. However, such discussions should define their focus, objectives, format, and boundaries in order to prevent them from devolving into sweeping discussions on state intervention or industrial policy, and, most importantly, to ensure they respect the economic systems and development paradigms of member states.

Some persons have accused China of abusing its "overcapacity", asserting that macroeconomic imbalances and "non-market economic behaviors" such as subsidies have resulted in "overcapacity" in China, thereby disrupting international markets and undermining employment and supply chain resilience in other countries. China maintains that such accusations are both unreasonable and factually incorrect. From the perspective of market economy principles, supply and demand are fundamental and intrinsically linked components of market dynamics. While equilibrium between supply and demand is a transient and relative state, disequilibrium is pervasive and dynamic. International trade emerges and progresses based on the comparative advantages of countries, fostering international specialization and cooperation and thereby increasing global economic efficiency and benefits. The imposition of restrictions on Chinese goods exports and investment cooperation, citing "overcapacity" and other pretexts, constitutes overt trade protectionism. This artificial intervention and fragmentation of the global market will inevitably destabilize global industrial and supply chains, leading to redundant development and genuine overcapacity. The employment of restrictive measures predicated on unsubstantiated allegations and labeling will only impede cooperation, and it will ultimately prove ineffectual.

4. China Has Continued to Improve the Business Environment

The Third Plenary Session of the 20th CPC Central Committee emphasized that the market plays the decisive role in resource allocation and the government better fulfills its role, that economic entities under all forms of ownership have equal access to factors of production as required by law, that they compete in the market on an equal footing, that they are protected by the law as equals, thus enabling them to complement each other and develop side by side, and that the regulations and practices impeding the development of a unified national market and fair competition will be reviewed and abolished. The Chinese government has aligned itself with international rules through a series of systematic reforms and progressively optimized the business environment, providing a more transparent, fair, and predictable environment for global enterprises.

Continuously expanding access for foreign investment. In July 2017, the negative list management system for foreign investment was implemented nationwide. In 2019, the Foreign Investment Law was enacted, introducing a system of pre-establishment national treatment plus negative list for foreign investment. This legislation formally established the principle of "equal treatment for domestic and foreign investment", prohibited forced technology transfer, and strengthened intellectual property protection, providing legal certainty for foreign-funded enterprises. To attract more foreign investment, China has further improved the business environment by ensuring foreign-funded enterprises' participation in government procurement activities, supporting their equal involvement in the formation of standards, and granting them equal access to support policies, to provide a further boost to foreign investment confidence. From 2017 to 2024, China reduced the number of items on the national negative list for foreign investment from 93 to 29, and all restrictions on foreign investment in the manufacturing sector were lifted. In 2024, China launched more pilot programs to expand opening up in the value-added telecommunications and medical sectors, further expanding foreign investment access to the service industry. The Action Plan for Stabilizing Foreign Investment came into effect in 2025, sending a strong signal of further opening up. Meanwhile, efforts were actively made to promote foreign investment and effectively address the concerns of foreign-funded enterprises.

Fostering a level playing field in the market. In 2022, China released the Guideline on Accelerating the Construction of a Unified National Market, explicitly requiring the comprehensive removal of preferential policies that discriminate against foreign-funded enterprises and enterprises from other regions, as well as those that enforce local protectionism. In June 2024, the State Council released the Regulations on Fair Competition Review, stipulating that policy measures shall not contain provisions affecting production and operational costs without prior authorization, which includes the prohibition of granting to specific operators tax preferences, special fiscal rewards or subsidies, or preferential treatment in terms of factor acquisition, administrative and public service charges, government-managed funds, and social insurance fees. The Chinese government is working on the cleanup of relevant preferential policies, such as special fiscal rewards or subsidies, while accelerating the establishment of a system aligned with international rules to promote high-quality economic and social development.

Treating domestic and foreign-funded enterprises equally in taxation. In recent years, China has implemented orderly reforms of its tax system. It has optimized the tax structure and accelerated the implementation of the principle of statutory taxation, with the aim of capitalizing on taxation's crucial role in boosting high-quality development and promoting social fairness and justice. 

- Equal treatment for domestic and foreign-funded companies in tax policy. Regardless of ownership type, all enterprises within China's territory now operate under the same tax laws and tax rates. Meanwhile, eligible foreign-invested companies and projects can all enjoy tax incentive policies in accordance with relevant regulations. 

- Equal treatment for domestic and imported goods. China imposes tariffs on imported goods in accordance with relevant WTO rules as well as domestic laws and regulations. In addition, as a move to embody the principle of tax fairness, imported goods are subject to value-added tax (VAT), and consumption tax is imposed on specific consumer goods. However, VAT can be credited in subsequent transactions, with the tax burden being passed down the supply chains. For domestically produced goods, VAT is levied at production, circulation, and other stages, while consumption tax applies to certain goods at the specific stage of production and circulation. Both the scope of taxation and applicable tax rates are entirely consistent for imported and domestic goods, ensuring no discriminatory treatment. 

Many economies, including China, Japan, the ROK, and the EU, implement a turnover tax system and levy VAT or consumption tax at the import stage. This practice is a conventional approach widely implemented in many countries, which aligns with both taxation principles and international norms. In contrast to economies with turnover taxes, the US employs a direct tax system such as sales tax, which is imposed directly on end consumers rather than importers. This distinction stems from the contrasting tax systems of different countries, and VAT or consumption tax should not be misinterpreted as an additional "discriminatory" or "extraterritorial" tax on imported goods imposed by economies with a turnover tax system such as China, Japan, the ROK, the EU, and others. Therefore, there are no grounds for the US to cite such distinctions as justification for imposing additional tariffs on imports from such countries.

- Equal treatment for Chinese and foreign nationals in terms of individual income tax. It is a common international practice for a country to levy individual income tax on foreign nationals working within its territory. According to China's individual income tax law, resident individuals are required to pay tax on their income earned from both within and outside China, while non-resident individuals only need to pay tax on their income earned within China. Regardless of nationality, the distinction between resident and non-resident individuals is whether they have a residence in China or whether they have resided in China for 183 days or more in a tax year. Meanwhile, foreign nationals working in China can enjoy preferential policies, such as tax-exempt fringe benefits. 

Actively promoting the development of digital trade. China has established 12 national digital service export bases nationwide, and introduced policies and measures to support the innovative development of these bases. Since 2015, China has set up 165 cross-border e-commerce comprehensive pilot zones in 31 provincial-level administrative units, achieving integrated development of industrial digitalization and trade digitalization. In addition, China upholds law-based cyberspace governance and welcomes international internet companies to develop in China, provided they comply with China's laws and regulations and offer secure, reliable products and services. 

In 2024, China issued the Guideline on the Reform and Innovative Development of Digital Trade, further advancing institutional opening up in digital trade. Key measures include relaxing market access in the digital sector, facilitating and regulating cross-border flows of data, and building platforms for the high-standard opening up of digital trade.

Regarding data cross-border transfer, China, in 2024, based on the realities of cross-border data transfer security management, issued the Provisions on Facilitating and Regulating Cross-border Data Flow, which further optimizes the regulatory environment for cross-border data flows while authorizing pilot free trade zones around the country to formulate their own negative lists for cross-border data flows. The pilot free trade zones in Tianjin, Shanghai and Beijing have taken the lead in piloting the formulation of negative lists for cross-border data flows, which clarifies the boundaries of restricted data, reduces corporate compliance costs, and strengthens policy predictability.