China is the most populous country in the world. Of its 1.3 billion people, 22% of the world population, about 67% are living in rural areas. Although China is the third largest country in terms of area, the arable land is only 7% of the global amount. With relatively meager endowment, it is undoubtedly a daunting task for the agricultural sector to provide adequate supply to fulfil huge needs for food and other agricultural products. In addition, agriculture development in China confronts with challenges to raise the average income and standard of living of the rural population in the long run. Since China's economic reform was launched in 1978, the "People's Commune" system was dismantled and replaced by the "Household Responsibility" system. Agricultural production has achieved rapid growth and income per capita in the rural area has risen 10 times in 20 years. During this transformation process, a number of serious problems have been emerging in the agricultural sector. They include the diminishing size of the arable land, enlarging of income disparity and stagnating of productivity growth, which have been exacerbated by the population growth and increasing demands for agricultural products. The agricultural sector is also plagued by environmental degradation and confronted by township enterprise development. Furthermore, China's recent accession into the World Trade Organization (WTO) brings more tremendous challenges to its agriculture. This paper is intended to provide a concise analysis of the problems and possible policy options associated with current agriculture development. It reveals that the main problems are market partition, inefficiency in government administration in supply and distribution, and price distortions of agricultural products, originating from China's development strategy of preferred industrialization in the industry sector and urban development. This paper also explores and assesses a few government policy options for the alleviation of these problems. Policy options focus on deepening market-oriented reforms, including price deregulation, market integration and property (land) reforms, which also reflect the requirements of the Agriculture Agreement of WTO. Policy options also focus on improvement of government supported programs in investment and subsidies aimed at boosting productivity, narrowing the inequality of income distribution and easing the barriers for mobility of surplus labor into the industry and service sectors in urban areas.