Abstract: Representative villages of the practice and problems of animal husbandry in the agro-pastoral transitional zone of North China, were selected and the external economic effects of their animal husbandry were determined by surveys and analysed. The existing animal husbandry in the area was based on quantity and the agricultural industry was characterized as a residue-foodchain, value-added that externalized environmental costs by utilizing agricultural byproducts and freely grazing public grassland. Livestock numbers were increased by about 40% with reduced diet feeding. The negative externality of the existing animal husbandry was expressed as grassland overgrazing and farmland over-harvesting, with grassland as the main sufferer for this external diseconomy. The overgrazing condition was further aggravated by the artificial forage input represented by silage maize. The development of low-profit animal husbandry was the basis of this external diseconomy. This illusive, superficial representation of quantity-scale-type animal husbandry, suggested it was not feasible to develop animal husbandry as a dominant industry. Further study is required to establish an eco-compensation system based on an alternative agricultural system to resolve the problem of the external diseconomy.