Non-point pollution (NPP) has become a major issue of environmental degradation in China. Uncertainty, moral hazard, and incomplete knowledge of NPPP make conventional policy instruments applied to point source pollution problems difficult addressing NPP problems. NPP regulatory policies should be designed to induce agricultural producers to change their production practices in ways that improve the environmental. The economic literature on NPP has not considered the possible use of both voluntary and mandatory approaches as complementary parts of a policy package. Factors influencing farmers’ cooperative action to conserve environmental public goods are critical in regulatory policy formation in transitional China with huge amount of small subsistence farmers. Under a changed political environment, a joint effort between government and farmers is the approach most favored to address NPP issues, under which relationships between environmental outcomes and agricultural production must be accounted for.