China's Rural Economy: Transformation, Challenges and Prospects

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China's Rural Economy: Transformation, Challenges and Prospects. Dr Charles C L Kwong Associate Professor School of Arts and Social Sciences The Open University of Hong Kong. 1. Chinas Rural Economy during the Pre-reform Era 1949-1978 : A Brief Overview. - PowerPoint PPT Presentation

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  • *Dr Charles C L KwongAssociate ProfessorSchool of Arts and Social SciencesThe Open University of Hong Kong

  • *1.1 Evolution of Chinas Agricultural System

    1.1.1 Land Reform (1949-52)

    Redistribute 45% of farmland to 60-70% of peasant household (Eckstein 1977: 68)

    Transfer of ownership right from rich peasants to poor and landless peasants (labourers)

  • *1.1 Evolution of Chinas Agricultural System

    1.1.1 Land Reform (1949-52)

    Consolidate support from peasants

    Stimulate food production: growth rate of food production was 16.7%, 8.7% and 14.1% in 1950, 1951 and 1952 respectively (ZGTJNT 1990: 363)

  • *1.1 Evolution of Chinas Agricultural System

    1.1.2 Mutual Aid Teams (MATs) 1950-1954

    A programme of producer cooperative

    Pooling of land, labour and tools, but remain private property

    1954: 58.3% rural households had joined MATs

    Agricultural income growth remained slow

  • *1.1 Evolution of Chinas Agricultural System

    1.1.3 Elementary Agricultural Producers Cooperatives (EAPCs) 1955

    Amalgamation of MATs, consisting about 30 to 50 households

    Pooling of land, labour and tools, but remain private property

    Distribution according to land and labour share

  • *1.1 Evolution of Chinas Agricultural System

    1.1.3 Elementary Agricultural Producers Cooperatives (EAPCs) 1955

    Reward was still linked to individual households land and labour supply

    1955: 63.3% of rural households had joined EAPCs

    Considerable growth in agricultural income in 1955 (8%) and 1956 (4.4%)

  • *1.1 Evolution of Chinas Agricultural System

    1.1.4 Advanced Agricultural Producers Cooperatives (AAPCs) 1955

    The Communist Party of China (CPC) felt uncomfortable of private ownership in the EAPCs. It feared that the rich peasants might get rich again.

    Enlargement of EAPCs to AAPCs, consisting of 200-300 households

  • *1.1 Evolution of Chinas Agricultural System

    1.1.4 Advanced Agricultural Producers Cooperatives (AAPCs) 1955

    Private ownership was abolished with no compensation. A small private plot, not more than 5% of the arable land in the village, was allowed.

    Distribution according to a fixed point-fixed record () or fixed point-flexible evaluation () system

  • *1.1 Evolution of Chinas Agricultural System

    1.1.5 Rural Peoples Commune (RPCs)-Great Leap Forward 1958

    RPC became the basic organization form in the countryside, which was a combination of production, government administration, education and social life.

    1957-58: 99.1% of peasant households had joined the RPCs. Each RPC consisted of about 4500 households.

  • *1.1 Evolution of Chinas Agricultural System

    1.1.5 Rural Peoples Commune (RPCs)-Great Leap Forward 1958

    1958-1960: centralized system-public ownership and distribution according to need and distribution according to work

    1961-65: Readjustment Period-decentralization of decision-making to production brigades and teams

    1966-76: Recentralization-In agriculture learn from Dazhai (hign degree of collectivization)

  • *1.1 Evolution of Chinas Agricultural System

    1.1.6 Evaluation of Agricultural Collectivization

    Disincentive effects of collective farming

    Slow growth in agricultural income and consumption (Table 1 & 2)

  • *Note: *1952 constant price (last year index = 100. AII includes income from crop cultivation, forestry, animal husbandry, fishery and sideline production.

    ** 1952 constant price

    Source: ZGTJNJ (1984: 454; 1990:35-36)

  • *

  • *1.1 Evolution of Chinas Agricultural System

    1.1.6 Evaluation of Agricultural CollectivizationPositive effects of collective farming

    Conducive to large construction projects (e.g. irrigation project)

    Development of different kinds of cooperatives (e.g. rural credit cooperatives, supply and marketing cooperatives)

  • *2.1 Agricultural Production Responsibility System

    Labour-contract system (Baogong zhi)

    Output-contract system (Baochan zhi: Baozhan daozu and Baochan daohu): certain work points were given to a team (zu) or individual household (hu)

  • *2.1 Agricultural Production Responsibility System

    All-round household contract-output responsibility system (Baogan daohu)-after fulfilling output quota, households were free to derive income from the remaining output.

    It provided a strong effort-reward link for farmers. In 1984, 99% of households worked under the Baogan daohu.

    Rapid rise in household income (Table 3)

  • *Table 3 Per Capita Annual Net Income of Rural Households 1980-2008Source: ZGTJNJ various issues

  • *2.2 Dismantling of Commune System 1985

    Reinstituted town and township government (())

    Established village committees ()

  • * 2.3 Development of Rural Industry (Township-village Enterprises, TVEs)

    To absorb surplus labour released from farming resulted from enhanced efficiency in agriculture (Table 4)

    Process the increased agricultural products to produce consumer goods for the countryside

  • * 2.3 Development of Rural Industry (Township-village Enterprises, TVEs)

    Local government guaranteed bank loans for TVEs. Growth of rural industry is one of the important criteria to assess the performance of local government officials.

    Rapid growth from mid-1980s to mid-1990s: TVE contributed 6% of GDP in 1978 and soared to 26% in 1996 (Naughton 2007: 274)

  • *Table 4: Workers Employed in TVEs 1985-2002 Source: ZGTJNJ (2003: 448); Kwong (2007: 398)

  • *

  • *Three Rural Problems/Issues (Sannong Wenti: Nongcun, Nongye, Nongmin) : the core issue is the sustained income growth and improved livelihood

  • *Causes of Sannong Wenti:Sluggish Growth of Nonfarm ActivitiesTVEs growth is constrained by capital shortage due to 1994 banking reform. Local government was not allowed to guarantee loans for TVEs. About 44,000 branches of state bank ceased to operate at county level or below in 1998 - 2002 in order to enhance the efficiency of the state-owned commercial banks. Labour absorption by TVEs has been slowed down after the mid-1990s (Table 4 & 5).

  • *Causes of Sannong Wenti:Sluggish Growth of Nonfarm ActivitiesKeen competition from state-owned enterprises, which have more access to bank loans for improving their product design and quality

  • *Causes of Sannong Wenti:Unsolved Land Issues1994 Tax Assignment Reform (fenshuizhi: Local government had shouldered a major share of expenditure in public service in their jurisdiction since 1994. Local governments expropriate farmland for commercial use, through which derive substantial fiscal revenue.

  • *Causes of Sannong Wenti:Unsolved Land IssuesProperty rights (i.e. land rights) has not been effectively enforced.

  • *Causes of Sannong Wenti:Unsolved Land IssuesA 2005 survey revealed that 63 percent of the farmers received very brief documentation for their contracted land. Only about 10 percent of these farmers receive legally compliant documentation containing the details, such as names of households, contract duration and land description) of the contracted farmland (Zhu and Li 2007: 24). Worse still, the remaining 37 percent of households did not possess any form of documentation or contract confirming their land use rights.

  • *Causes of Sannong Wenti:Unsolved Land IssuesThe loose implementation of the Rural Land Contracting Law (RLCL) largely explains the rampant land expropriations by local governments with partial and/or delayed compensation. By 2006, 29 percent of farm households had experienced land readjustments and expropriations which cut short their 30 - year contract (Zhu and Riedinger 2009: 53).

  • *Causes of Sannong Wenti:Unsolved Land IssuesLoosely enforced property rights on farmland generate two negative impacts on farmers. First, farmers are reluctant to make long-term investment in their contracted land which in turn adversely affected productivity. Second, land expropriations deprive farmers rights to lease their land to capture the market rental.

  • *Since the implementation of the 11th Five Year Programme, the central government has earmarked increasing funding for rural development in various dimensions. 339.7 billion yuan was budgeted in 2006, which was 42.2 billion yuan more than the figure in 2005, to lift the livelihood in the countryside.

  • *Agricultural tax throughout the country has been eliminated since 2006. The reform of rural taxes and fees has greatly benefited farmers by eliminating 33.6 billion yuan of agricultural tax and over 70 billion yuan of various sorts of fees and charges.

  • *Starting from 2006, the central government has channeled over 103 billion yuan annually to ensure the normal operation of town and township governments and meet the needs of rural compulsory education. This figure is comprised of more than 78 billion yuan in transfer payments from the central government budget and over 25 billion yuan from local government budgets.

  • *By the end of 2008, tuition and miscellaneous fees for all rural students was eliminated. The central government has budgeted 218.2 billion yuan for compulsory education over the next five years.

  • *More than 20 billion yuan of central fund has been spent on renovating hospital buildings in towns and townships and in some counties and upgrading their equipment over the next five years.

  • *The central government budget has allocated 4.2 billion yuan to subsidize the speeding up the establishment of a new type of rural cooperative medical care system by extending the scope of current trials to 40 percent of the counties in China. Under the new scheme, when farmer contributes 10 yuan a year to his personal medical care account and a matching fund of another 40 yuan will be added by the government to this account

  • * Rural-urban disparity remainsTable 3 Urban-Rural Income Ratio 2005-2008Source: Calculated based on the data from ZGTJNJ 2005, p. 335; ZGTJNJ 2008 (CD-ROM); China Rural-urban Income Gap Up As Economy Slows, CBS News.com http://www.cbsnews.com/stories/2009/01/16/ap/business/main4726425.shtml (accessed on 5 Jan 2010); USDA (United States Department of Agriculture) Economic Research Service Data Set http://www.ers.usda.gov/data/china/NationalResults.aspx?DataType=1&DataItem=158&StrDatatype=Rural+per+capita+consumption&ReportType=2 (accessed on 4 Jan 2010)

    YearUrban-Rural Income RatioUrban-Rural Consumption Ratio20053.223.1120063.273.0720073.323.1020083.363.07

  • *The long term solutions to Chinas rural problems rest on effective enforcement of property rights in the and prompt development of rural financial market.

  • *The protection of property rights requires concerted effort to implement the relevant land laws and regulations, which calls for a sound and impartial legal system that is the weakest link in China. The implementation of land law is also in conflict with the interest of local governments, which constitutes a force of resistance.

  • *Regarding the provision of rural financial services, government initiatives are needed to offer incentives, such as tax exemption or concessionary land rent, to motivate local and foreign banks to invest in rural areas, which is especially important in remote regions.

  • *Eckstein, A. (1977), Chinas Economic Revolution, Cambridge University Press, Cambridge.

    Kwong, Charles C L (2007), Where is China's Rural Economy Heading for: A Brighter Future or Problems Unsolved? in Y. S. Cheng (ed.), Challenges and Policy Programmes of Chinas New Leadership. Hong Kong: City University of Hong Kong Press, pp. 389-412.

    Liu, Pengning (1991), Agricultural Price Reform: Problems and Suggestions, Chinese Economic Studies, Spring Issue.

  • *National Bureau of Statistics of China , Zhongguo Tongji Nianjian (ZGTJNJ, China Statistical Yearbook ), (Beijing: Zhongguo Tongji Chubanshe), various issues

    National Bureau of Statistics of China , Zhongguo Tongji Nianjian CD-ROM 2009 (ZGTJNJ CD-ROM hereafter, China Statistical Yearbook 1985), (Beijing: Zhongguo Tongji Chubanshe)

    Naughton, Barry (2007) The Chinese Economy: Transition and Growth, Cambridge: MIT Press, pp. 379-92.

  • *Zhu Keliang and Li Ping (2007), Rural Land Rights under the PRC Property Law, China Law & Practice, November, pp. 23-26

    Zhu Keliang and Riedinger, Jeffrey M. (2009), Rural Chinas Nascent Land Market, China Business Review, September-October, pp. 50-53.Zhu Keliang, Prosterman, Roy, Ye Jianping, Riedinger, Jeffrey, and Ouyang Yiwen (2007), The Rural land Question in China: Analysis and Recommendations Based on a Seventeen-Province Survey, International Law and Politics, Vol. 38, January, pp. 761-839.

  • *

    Thank You