Grassland is multi-functional. On the basis of the different functions performed by different grassland types, and regional development demands for grassland functions, the classification management concept of grassland was designed to ensure the sustainability of grassland ecosystems. Principles, financial mechanisms, and properties of classification management are introduced in this paper. To aid management of grassland, Gansu grassland is classified into two main management sectors. One is conservation grassland, mainly devoted to ecological and social values; the other is productive grassland, where attention is focused on economic benefits through moderate or intensive production, and contributing to social value by income generated. Conservation grassland makes up 6.05 x 10(6) ha, or 38% of Gansu Province. Productive grassland is 10.02 x 10(6) ha, 62% of Gansu Province, in which 8.93 x 10(6) ha is moderately grazed grassland and 1.09 X 10(6) ha is intensively grazed grassland. Management strategies are proposed for conservation and productive grassland respectively. Absence of grazing and cropping is predominant in the management of conservation grassland, to restore degenerated areas and protect grassland with important ecological value from destruction, and further to improve the environment. Agricultural measures, such as fertiliser and irrigation, are used to enhance the productivity of intensively grazed grassland, and rotational grazing is used on moderately grazed grassland. The management of productive grassland is contracted to the managers who are given sole responsibility for its profitability. The Government finances the conservation grassland in the China West Development.