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Dr Charles C L KwongAssociate Professor

School of Arts and Social SciencesThe Open University of Hong Kong

China's Rural Economy:

Transformation, Challenges and Prospects

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1. China’s Rural Economy during the Pre-reform Era 1949-1978 : A Brief Overview

1.1 Evolution of China’s 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)

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1. China’s Rural Economy during the Pre-reform Era 1949-1978 : A Brief Overview

1.1 Evolution of China’s Agricultural System

1.1.1 Land Reform (1949-52)

Consolidate support from peasants

Stimulate food production: growth rate of food pro-duction

was 16.7%, 8.7% and 14.1% in 1950, 1951 and 1952 respectively (ZGTJNT 1990: 363)

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1. China’s Rural Economy during the Pre-reform Era 1949-1978 : A Brief Overview

1.1 Evolution of China’s 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

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1. China’s Rural Economy during the Pre-reform Era 1949-1978 : A Brief Overview

1.1 Evolution of China’s 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

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1. China’s Rural Economy during the Pre-reform Era 1949-1978 : A Brief Overview

1.1 Evolution of China’s Agricultural System

1.1.3 Elementary Agricultural Producers’ Cooperatives (EAPCs) 1955

Reward was still linked to individual household’s 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%)

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1. China’s Rural Economy during the Pre-reform Era 1949-1978 : A Brief Overview

1.1 Evolution of China’s Agricultural System

1.1.4 Advanced Agricultural Producers’ Cooperatives (AAPCs) 1955

The Communist Party of China (CPC) felt uncomfort-able 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

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1. China’s Rural Economy during the Pre-reform Era 1949-1978 : A Brief Overview

1.1 Evolution of China’s Agricultural System

1.1.4 Advanced Agricultural Producers’ Cooperatives (AAPCs) 1955

Private ownership was abolished with no compensa-tion. 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” (死分死記 ) or “fixed point-flexible evaluation” (死分活記 ) system

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1. China’s Rural Economy during the Pre-reform Era 1949-1978 : A Brief Overview

1.1 Evolution of China’s Agricultural System

1.1.5 Rural People’s Commune (RPCs)-Great Leap For-ward 1958

RPC became the basic organization form in the coun-tryside, 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.

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1. China’s Rural Economy during the Pre-reform Era 1949-1978 : A Brief Overview

1.1 Evolution of China’s Agricultural System

1.1.5 Rural People’s Commune (RPCs)-Great Leap For-ward 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)

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1. China’s Rural Economy during the Pre-reform Era 1949-1978 : A Brief Overview

1.1 Evolution of China’s Agricultural System

1.1.6 Evaluation of Agricultural Collectivization

Disincentive effects of collective farming

Slow growth in agricultural income and con-sumption

(Table 1 & 2)

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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)

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1. China’s Rural Economy during the Pre-reform Era 1949-1978 : A Brief

Overview

1.1 Evolution of China’s Agricultural System

1.1.6 Evaluation of Agricultural Collectivization Positive effects of collective farming Conducive to large construction projects (e.g. irri-

gation project)

Development of different kinds of cooperatives (e.g. rural credit cooperatives, supply and market-ing cooperatives)

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2. China’s Rural Economic Reform : 1978 onwards

2.1 Agricultural Production Responsibility Sys-tem

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)

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2. China’s Rural Economic Reform : 1978 onwards

2.1 Agricultural Production Responsibility Sys-tem

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)

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Table 3 Per Capita Annual Net Income of Rural Households 1980-2008

Source: ZGTJNJ various issues

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2. China’s Rural Economic Reform : 1978 onwards

2.2 Dismantling of Commune System 1985

Reinstituted town and township government (鄉 (鎮 )人民政府 )

Established village committees (村民委員會 )

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2. China’s Rural Economic Reform : 1978 onwards

2.3 Development of Rural Industry (Township-village En-terprises, TVEs)

To absorb surplus labour released from farming re-sulted from enhanced efficiency in agriculture (Table 4)

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

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2. China’s Rural Economic Reform : 1978 onwards

2.3 Development of Rural Industry (Township-village En-terprises, TVEs)

Local government guaranteed bank loans for TVEs. Growth of rural industry is one of the important crite-ria to assess the performance of local government of-ficials.

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

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Table 4: Workers Employed in TVEs 1985-2002

Source: ZGTJNJ (2003: 448); Kwong (2007: 398)

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3. Rural Economic Reform: Bottlenecks and Challenges

“Three Rural Problems/Issues” (Sannong Wenti: Nongcun, Nongye, Nong-min) : the core issue is the sustained income growth and improved livelihood

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3. Rural Economic Reform: Bottlenecks and Challenges

Causes of Sannong Wenti:Sluggish Growth of Nonfarm Activities

TVEs growth is constrained by capital shortage due to 1994 banking reform. Local gov-ernment 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 effi-ciency of the state-owned commercial banks. Labour absorption by TVEs has been slowed down after the mid-1990s (Table 4 & 5).

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3. Rural Economic Reform: Bottlenecks and Challenges

Causes of Sannong Wenti:Sluggish Growth of Nonfarm Activities

Keen competition from state-owned enter-prises, which have more access to bank loans for improving their product design and quality

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3. Rural Economic Reform: Bottlenecks and Challenges

Causes of Sannong Wenti:Unsolved Land Issues

1994 Tax Assignment Reform (fenshuizhi: Local government had shouldered a major share of expenditure in public service in their jurisdiction since 1994. Local governments expropriate farm-land for commercial use, through which derive substantial fiscal revenue.

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3. Rural Economic Reform: Bottlenecks and Challenges

Causes of Sannong Wenti:Unsolved Land Issues

Property rights (i.e. land rights) has not been ef-fectively enforced.

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3. Rural Economic Reform: Bottlenecks and Challenges

Causes of Sannong Wenti:Unsolved Land Issues

A 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 per-cent of households did not possess any form of documentation or contract confirming their land use rights.

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3. Rural Economic Reform: Bottlenecks and Challenges

Causes of Sannong Wenti:Unsolved Land Issues

The loose implementation of the Rural Land Con-tracting 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).

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3. Rural Economic Reform: Bottlenecks and Challenges

Causes of Sannong Wenti:Unsolved Land Issues

Loosely enforced property rights on farmland generate two negative impacts on farmers. First, farmers are reluctant to make long-term in-vestment 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.

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4. China’s “New Socialist Countryside”: More Concrete Policy Initiatives

Since the implementation of the 11th Five Year Programme, the central government has ear-marked increasing funding for rural develop-ment 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.

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4. China’s “New Socialist Countryside”: More Concrete Policy Initiatives

Agricultural tax throughout the country has been eliminated since 2006. The re-form of rural taxes and fees has greatly benefited farmers by eliminating 33.6 bil-lion yuan of agricultural tax and over 70 billion yuan of various sorts of fees and charges.

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4. China’s “New Socialist Countryside”: More Concrete Policy Initiatives

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 com-prised of more than 78 billion yuan in transfer payments from the central government budget and over 25 billion yuan from local govern-ment budgets.

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4. China’s “New Socialist Countryside”: More Concrete Policy Initiatives

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

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4. China’s “New Socialist Countryside”: More Concrete Policy Initiatives

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.

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4. China’s “New Socialist Countryside”: More Concrete Policy Initiatives

The central government budget has allocated 4.2 billion yuan to subsidize the speeding up the establishment of a new type of rural co-operative 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

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5. Concluding Remarks

• Rural-urban disparity remains

Table 3 Urban-Rural Income Ratio 2005-2008

YearUrban-Rural Income Ratio

Urban-Rural Consumption Ratio

2005 3.22 3.112006 3.27 3.072007 3.32 3.102008 3.36 3.07

Source: 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)

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5. Concluding Remarks

The long term solutions to China’s rural prob-lems rest on effective enforcement of prop-erty rights in the and prompt development of rural financial market.

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5. Concluding Remarks

The protection of property rights requires con-certed 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.

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5. Concluding Remarks

Regarding the provision of rural financial ser-vices, 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.

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References

Eckstein, A. (1977), China’s 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.), Chal-lenges and Policy Programmes of China’s 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.

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References

National Bureau of Statistics of China , Zhongguo Tongji Nianjian (ZGTJNJ, China Statistical Yearbook ), (Beijing: Zhongguo Tongji Chuban-she), various issues

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

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

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References

Zhu Keliang and Li Ping (2007), ‘Rural Land Rights un-der the PRC Property Law,’ China Law & Practice, No-vember, pp. 23-26

Zhu Keliang and Riedinger, Jeffrey M. (2009), ‘Rural China’s 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.

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Thank You