Development and application of an economic model for agricultural policy simulation in China

China is in the process of growing its integration into the international trading system. At the same time, Chinese government is changing its agricultural policy from taxing agriculture to subsidizing it and paying more attention to increasing the farmers’ income. There is increasing demand for the information of the possible impacts of policy proposals. In this context a Chinese agricultural sector model has been developed in the present study. There are several distinguished features of the present model from other similar models. The model consists of 31 provinces with each province as a market. Inter-provincial trade is analysed. The mixed complementarity programming (MCP) formulation is used to solve the spatial equilibrium problem. The production analysis is based on the positive mathematical programming approach combined with the maximum entropy estimation methods and incorporated into the MCP structure. The model is used to simulated different policy scenarios including shocks from demand, production, trade and regional transportation costs. The model applications show its aptitude and usefulness as a policy analysis tool to support the decision making process in agricultural sector in China.