Contemporary Chinese Rural Reform

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With the year of as the reference point of , the crop output increased from As the total crop output increased, there was an excess of grains. This excess decreased the market price of the products. Consequently, the government encouraged farmers in grain-sufficient areas to invest in cash crops such as cotton and sugarcane. The area devoted to cash crops increased from 9. Villages and towns discovered their advantages and focused on specialization in producing specific products. The increase in capital and the use of chemical fertilizers indicated the prevalence of commercialization and agricultural mechanization, which also explains the gradual decrease in farm labor after As the agricultural production line was increasingly automated, the excess farming labor was released from the rural area into the city to aid in urban development.

The pragmatic modernists reformed the Chinese economy to guarantee an outflow of surplus value from agriculture to finance the modernization of industry and expansion and modernization of infrastructure mostly in urban areas.

Calum Turvey looks into China's comprehensive agricultural and rural reform

According to Fang Gang, writing in the China Rural Survey , "If agriculture's share of national investment were to be brought in line with its share of national income, farm investment would have to rise to over billion yuan at prices , or to ten times its current level. Trade related competition will take its toll, either in agriculture or industry or both. From Wikipedia, the free encyclopedia.

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Most importantly, the impact depends on how effective public policies are in response to the adjustment associated with trade liberalisation. Gains from trade liberalisation are more likely to be shared equally in countries that use trade reforms to advance the domestic development agenda. The favourable initial conditions, in terms of a relatively equal asset distribution, potentially permit the gains from greater specialisation associated with WTO accession to be shared more broadly compared with the gains from similar liberalisation in other countries.

As noted above, the household registration system impeded the free circulation of labour and kept rural residents from migrating into cities for many decades; while these flows have now increased dramatically, they occur within the context of continued forms of exclusion for migrant workers. As a result, the share of farm employment and the share of the rural population in China are relatively high compared to other countries at a similar level of development.

There are also large disparities in access to human and physical infrastructures between the coastal and the western regions Wan and Zhou The difficulty in switching between activities would, ceteris paribus , contribute to rising income inequality among households and between regions and worsen rural poverty. Even commentators in favour of greater liberalisation through WTO accession accepted that accession would likely create problems for the agricultural sector Lin The inter-regional inequalities and rural-urban disparities that were a legacy of the liberalisation policies of the s threatened to be further exacerbated by exposure to global market forces in the s through WTO membership.

The commitment to expanding market forces in the rural economy is common to both periods but, since the early s, the further integration of the rural economy into the global market has brought forth responses from the central leadership attempting to manage this integration to counter the potential adverse effects on rural labour.

Examples of the policy shift under the Hu-Wen leadership are provided below. The outcomes associated with this shift are the subject of the next section. The 16th National Congress of the CPC in announced that one of the main goals of the next decade was to increase the income of rural households, continue to shift massive amounts of labour out of farming as a way of doing this, and to ensure a more balanced growth between city and countryside and between the east and west regions. This document is the first policy document the Chinese government issues each year and indicates the policy priority for that year.

The remaining ten, however, were all issued after WTO entry, that is, from to All ten of the recent policy documents intended to address problems concerning agriculture, farmers, and rural areas. The ten Number 1 documents from the s stipulate that governments at all levels adopt measures to raise rural income and reduce rural-urban income disparities. Included in the policy initiatives are: improving infrastructure of poor villages in less-developed central and western regions; providing subsidies for grain production; reducing and eventually abolishing agricultural taxes and rural levies; increasing off-farm employment; enforcing 9-year compulsory education; and developing rural social programs such as the rural health cooperative scheme, rural pension programme, and rural minimum income guarantee programme dibao.

This represents an extensive set of policy measures designed to both enable rural labourers to engage in the market economy on better terms and to increase levels of social protection when they are unable to do so. To sum up, the security of the previously collectivised sector is now but a distant memory for residents in rural China. However, as the inequalities arising from this process, combined with rising levels of economic insecurity, intensified, the central leadership sought to manage the distributional consequences of the market-led reallocation of labour within the rural economy.

These policies have been prominent since the WTO accession, as indicated by the designation of rural development as a Number 1 policy, and have included policies on rural infrastructure spending, tax abolition, grain subsidies, tenure security, education, health, pensions, and minimum income allowance. All of these policies were intended to mitigate the effects of market liberalisation on the poorest and to equip them with the tools to participate in the new market-driven economy, rather than be submerged beneath it.

In the next section, we discuss the extent to which this objective has been realised. The preceding discussion has provided an analysis of the rural economy, which, in broad-brush strokes, can be summarised as the consistent expansion of the market through liberalisation, first domestically and then internationally through WTO accession, aimed at reallocating rural labour.

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In the last decade, government policy also paid greater attention to the distributional consequences of market expansion. In this section, we examine the evidence and analyse the extent of labour reallocation and the trends in intra-rural income inequality.

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These provinces are geographically dispersed and contain both coastal and inland areas and areas from the north and the south. The average GDP per capita of the nine provinces was 37, yuan in , slightly lower than the average of 39, yuan for all provinces in China. A multistage, random cluster process was used to draw the sample surveyed in each province; the sample is therefore representative of households in their respective provincial populations. In terms of the sample make-up, two cities and four counties were selected from each province; two communities in urban neighbourhoods and two communities in suburban areas were selected from each city; one community in the county centre and three village communities were selected from each county; and around 20 households were drawn from each community.

In the latest wave, the survey covers about 4, households and 16, individuals from more than communities. The survey provides rich socioeconomic information on individuals, households, and communities in the sample. In order to focus sharply on rural conditions and rural dynamics, we exclude villages in suburban areas and communities around the county centres. Our sample is strictly a rural sample and its coverage is therefore reduced to about 2, households in the villages from the nine provinces for the period from to The data from the survey demonstrate the extent to which the structural transformation of the rural economy has taken place over the past two decades, and the acceleration of this process in the s.

Column 1 of Table 1 shows that, in the early s, 87 per cent of rural households had members engaged in agricultural activities; by , this had fallen to 69 per cent. In , 71 per cent of rural households had members who worked only on-farm. By this was the case for only 40 per cent of households. As farm employment decreased, wage employment rose dramatically, fuelled by rising levels of migration.

By , 46 per cent of rural households had at least one member working as a waged worker whether in rural agribusiness, rural industry or urban industry. Table 1 Members of the rural population aged between 16 and 64 in specific categories of activity as a proportion of all persons in the age group, rural China, in per cent.

These patterns are also evident if we look, in Table 2, at the allocation of work hours by rural households. Table 2 Allocation of work between different types of work by rural households in hours per year per household.

China’s rural reform and poverty alleviation: a crusade for prosperity

These labour reallocations have been a rational response by households to differential returns calculated for the various forms of labour shown in Table 3. The dramatic shift of labour out of agriculture and into waged labour and, to a lesser extent, into self-employment is rational given the much lower returns to farm labour than to employment in the other two activities. Even so, the return to agricultural labour has increased over time, especially after , although the extent to which this is due to rising labour productivity as a result of increased physical investments in infrastructure in the sector or price effects associated with increased farm subsidies cannot be determined from this data.

Strikingly, the returns to all three types of activity went up sharply between and — the period after the global financial crisis. This suggests that the massive infrastructure spending programme introduced by the central government in the wake of the crisis had an immediate and significant effect on rural incomes, despite the expansion of the rural labour force caused by returning migrant workers who had lost their urban export sector manufacturing jobs during the crisis.

Table 3 Estimated rates of returns to farm labour, non-farm self employment, and wage labour in yuan per hour. Notes : Rates of returns are the OLS estimates of the respective labour hours of the household earnings function. Earnings are measured in constant price.

In the earnings function we control for average years of schooling and age of the labor force, land, assets, region and time. Heteroscedasticity-robust standard errors are reported in parentheses. A rise in the returns to labour activities and a reallocation of labour to activities that yield higher returns have been behind the growth of rural incomes shown in Table 4. In real terms, average household total earnings in the survey have increased five-fold over the period , with the annual rate of growth for the period exceeding that for the period by 4.

Interestingly, in contrast to its near-stagnation between and , farm income grew at 9. This increase in farm income undoubtedly reflects, in part, the increased rural infrastructure spending designed to increase rural productivity. The higher rates of return offered in waged work in conjunction with the reallocation of labour into that sector has meant that wage income has gone from contributing 23 per cent of total household earnings in to contributing 52 per cent in Table 4 Household annual earnings in rural China.

Note : All earnings are measured in constant price with CPI as the deflator. This dramatic structural transformation of the rural economy has raised average real earnings, as Table 4 showed. With massive rural-urban migration and the resultant decline of the labour force in the rural sector, combined with infrastructure investment, the annual average growth rate in earnings per worker nearly doubled from 6. We can also construct per capita income measures from data provided in the survey to analyse poverty rates. As might be expected both from national trends and from the data on earnings provided above, poverty rates in the sample show a substantial decline.

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During the period, however, the poverty rate was relatively stable and a large reduction came after Table 5 Per capita income and poverty rate in rural China. Notes : Per capita income is the sum of labour earnings plus assets income, various subsidies, and gifts and remittances of relatives and friends divided by the number of people in the household. It is deflated by CPI with as base year. Adjusting for purchasing power parity, the poverty line was about 1, yuan per year per person in prices. The picture so far is one of a large change in labour allocation, increasing average real incomes, and declining poverty.

We now turn our attention to various dimensions of income inequality. Measuring income inequality in China is fraught with methodological issues see Knight for an overview. In reporting our results, we therefore note where they are consistent with, or differ from, results reported in selected other studies.

To start with, consider the inequality of earnings. The Gini coefficients reported in Table 6 suggest that earnings inequality increased from 0. Table 6 Earnings inequality in rural China. Note : Inequality indices are calculated based on earnings per worker in constant price. To examine this point further, we decompose the Gini coefficient by earnings source. This indicates, as shown in Table 7, that inequality was positively correlated with incomes from non-farm self-employment and wage employment over the period and negatively with farm incomes.

Non-farm household income, typically derived from self-employment in the retail and service sectors, remained very unequal and an income source available mainly to those rural households with considerable assets that they could invest in these activities. In contrast, the de-equalising effects declined over time as wage employment became more accessible.

Table 7 Decomposition of Gini coefficient by source of earnings in rural China. The share of each type of earnings in this Table is different from that in Table 4, where the earnings composition is based on total household earnings. The Gini coefficient and its decomposition reported in Tables 6 and 7 provide insights into the changing dynamics of rural income inequality and its sources.