Since 1998, the national policies on chemical fertilizer in China have been concentrated in limiting price plus subsidizing, abolishing agricultural tax, giving direct subsidies to farmers, and other aspects. In order to analyze the impact of national policies on the consumption of chemical fertilizer, this article selects the consumption of chemical fertilizer per unit, chemical fertilizer price index and farmers' net income in different provinces during the period 1998-2007 as variables, to conduct regression analysis of chemical fertilizer expenditure function, and calculate the price elasticity and income elasticity of chemical fertilizer demand in different provinces over the decade based on the regression results. The results show that at present the basic consumption of chemical fertilizer for agricultural development in China is 0.35 t/hm2, and the consumption of chemical fertilizer is excessive in some provinces; the chemical fertilizer market has not been really established, and the price has little impact on demand. This indicates that the chemical fertilizer is essential for agricultural economic development, and it increases along with the increase of farmers' income; the intervention of the national policy in chemical fertilizer price is a fundamental reason for the rising demand for chemical fertilizer. This also to some extent indicates that the policy effect of merely using environmental taxes to change farmers' consumption of chemical fertilizer is limited; there is a need to transform the existing policies purely promoting agricultural economic development, toward giving different subsidies in accordance with whether the farmers' fertilization pattern is beneficial to the environment.