China's Tariff Reform: Struggling on the Balance of Revenue raising and Efficiency Promotion

Tariffs are a more transparent form of protection and frequently have a revenueraising function as well. But tariffs on finished products are usually higher than on intermediates and raw materials, and exemptions are common, causing effective protection to vary greatly across industries. One of the goals of reform is to reduce this dispersion to spur efficiency in the allocation of resources. This paper focuses on analyzing China's Tariff System. To begin with, it will deal with China's tariff structure: what are the most striking characteristics in China's tariff system? How rapidly China's tariff system has been changed recently? what are the problems of China's tariff structure? Secondly, the paper will turn to the revenue-raising function and the exemptions problems in China's tariff regime. Like many developing countries, China has a relatively high nominal tariff rate, but at same time, has too many tariff exemption provisions, leading to the erosion of the tariff revenues and making the effective protection analysis more complicated. On the other hand, with ever increasing demand to the fiscal system, the revenue-raising function of the tariff regime become more and more important to the Chinese government. Thirdly, based on one of the effective protection estimation of China's tariff system, the paper argues that under current China's tariff system, some industries have been overprotected, and some industries has been underprotected, even negatively protected. China's tariff system is struggling on the balance of revenue-raising function and efficiency promotion function. A relatively low and uniform tariff structure is preferred on grounds of efficiency and political economy, even though it is impossible to predict with certainty that resource allocation will become more efficient. The reform headed to this direction will most probably happen in China's tariff reform in near future.