CHAPTER3

AGRICULTURAL REFORM AND ECONOMIC CHANGES IN THE CHINESE

RURAL AREAS 1978-1992

China's agricultural policy has undergone a series of changes since the

death of Mao Zedong in 1976. The commune system was held responsible for the

stagnating standards of income and consumption in rural China. It was argued in

the previous chapter that undue thrust on local self-sufficiency under the commune

system prevented rational allocation of resources and efficient production planning,

so that productivity in agriculture was low. Excessive egalitarianism and

centralism discouraged individual initiatives and promoted idleness and a tendency

towards free ridership. High agricultural taxes and low procurement prices for

farm products contributed their share to perpetuate low levels of incomes in rural

areas, and for years, the Chinese farmer stagnated on the brink of poverty. In the

aftermath of the cultural revolution years the general mood was for wholesale

forsaking of the leftism and the commandism that marked the Mao era and

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experimentation with fresh policy initiatives that would usher m an era of

prosperity and growth. 1

A whole gamut of rural economic policy reform measures were introduced,

in the Third Plennary Session of the Eleventh Chinese Communist Party Central

Committee (CCPCC) in December 1978 which altered the face of the Chinese

countryside. 2 The immediate objective of these reform measures was to ensure

stable increases in agricultural production. Accordingly, reform policy initially

comprised a package of institutional and economic measures, designed to raise

land productivity through improvements in peasant incentives. One spectacular

aspect of this package was the accelerated decollectivization process that has taken

place since late 1981 in the rural areas.

Du Runsheng, who was one of the main officials in charge of drafting

China's agricultural policies divided the reform measures and the reform period

into two phases : the first from 1979 to 1984, and the second from 1984 to the

present.3 In the first stage, China dismantled the people's communes, introduced

Carl Riskin, China's Political Economy (New York : Oxford University Press, 1987).

The reform measures were not that new, and its precedents could be found in the late 1950s and 60s. One of the earliest decisions of the Third Plenum of the II th NPC in I978 was to endorse a revised version of the I961 document titled "Regulations on the work in Rural Peoples' Communes" which was initially released in the aftermalh of the debate of the Great Leap Forward in order to inject some enthusiasm into the demoralized rural workforce in this times.

"Du Runsheng tan nongcun di erbu gaige Wenti" ("Du Runsheng talks about problem in the second stage of reform") Xinhua Yuebao (New China monthly), No. 3, 1986, P.86. It should be pointed out that, this Chapter has also made a similar division of the reform years into two district phases

(continued ... )

73

the household responsibility system, and scrapped many governmental controls.

The emphasis in the second phase was primarily on macro-economic policy

measures such as repeal of state monopoly procurement of agricultural produce,

development of marketing and supply networks and attempts at formation of

markets in rural produce, rural money, rural labour and rural land use rights

through various fiscal, monetary and administrative devices. 4

3.1 THE FIRST PHASE OF REFORMS: 1979-1984

In December 1978, the third plennary session of the Eleventh Chinese

Communist Party Central Committee decided that the key to future economic

progress lay in the rapid development of the agricultural sector and to this end two

important documents were approved : "Directive of the Central Committee of the

Chinese Communist Party on some Questions concerning the Acceleration of

Agricultural Development"5 dated July 1979 and "Directive of the Central

Committee of the Chinese Communist Party Regarding Several issues concerning

3( ... continued)

4

5

primarily because of the fact that this demarcation would be a convenient means to highlight the major policy thrust of the period which this chapter is concerned.

Reeitsu Kojima, "Agricultural Organization, New forms and Contradictions" China Quarterly, No. I 16, Dec. 1988, p. 706.

An English translation of this document is available in two parts in Issues and Studies, August 1979, pp. 100-112; and September 1979, pp. 104-115.

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6

7

the Further Strengthening and Perfection of Production Responsibility System in

Agriculture : Document 75" dated 27 September 1980 respectively.6

The main elements of these policy documents were the dismantling of the

Commune System, steps to increase procurement prices for farm products and the

promotion of a diversified rural economy with a sharply increased role of

commodity production. The crux of the newly emerged system of production

organization is the household responsibility system, which has been adopted

t~roughout China.

3.2 PRODUCTION RESPONSIBILITY SYSTEM

The key item of rural policy in China since 1978 has been production

responsibility system. The Third Plenum decided to establish production

responsibility systems as a key measure in stimulating the rural economy. The

broad aims of these systems in agriculture are : to increase agricultural production

and income; to consolidate and expand the collective economy; to put into effect

the principle of equal pay for equal work; and to enable the broad mass of the

peasants to prosper. 7

"Guanyu Jinyibu Jiaqing he Wanshan Nongye Shengchan Zerenzhi de Jige Wenti" (Communique on several issues concerning the further strengthening and Perfection of Production responsibility System in Agriculture")ZhongguoNongyeNianjian, 1981 (Agricultural YearbookofChina, 1981) (Beijing : Nongye Chubanshe, 1982), p.409-411.

Diu Qingqi and Yu Zhan, "Study Comrade Deng Zihuis Viewpoint on the agricultural production responsibility systems", Renmin ribao (Peoples Daily), 23.2.1982 translated in FBIS/DR!PRC 5-3-1982, K 16-20.

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8

9

10

The content of the systems themselves varied from place to place. It is

argued that this is an inevitable result of the state respecting the autonomy of the

production brigades in their choice of detail, enabling them to structure production

responsibility systems to suit local conditions and needs. 8 Indeed, one advantage

claimed for such systems is that they establish a management framework within

which it is possible to avoid arbitrary decisions which had previously caused so

much dislocation in the Chinese countryside9• In essence, the production

responsibility system involves a contract entered into between the production team

and groups, individuals and households. The contract specifies a target output.

In actual practice, the contracts evolved numerous variants with regard to the

specifics concerning distribution of output and terms of availability of land. By

and large, after meeting the commitments to the state and to the team, the

households are free to dispose of the surplus produce a5 they please.

The wide variety of production responsibility systems in the Chinese

countryside has been documented by numerous authors. 10 Lin Zili, a noted

Chinese agricultural economist, distinguishes three broad categories of

Guo Ming, "A summary of discussions in the past year of the production responsibility system in agriculture" Jingji Yanjiu (Economic Research), no.3, 1982, pp.75-79.

Diu Qingqi, n.7, pp. K.l6-20.

M. Gray, "China's new agricultural revolution", in S.Feuchtwang and A. Hussein, The Chinese Economic Reforms (London : Croom Helen, 1983), p.283.

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11

12

13

contracts. 11 However, in terms of importance, two ofthese stands out, namely Bao

Chan daohu ("Contracting output to the household") and Baogan daohu

("Contracting everything to the household") (See Table 1 ). Under the Bao Chan

daohu, the land is divided among households on the basis of equal amounts of per

capita. Output quota, input targets and labour (measured in workpoints) are

specified in the contract. An agreement (implying a 100% bonus) provides for the

household's retaining any excess of the quota output or saving over targeted cost.

The opposite (100% penalty) is incurred for short falls in excess cost. The quota

outputs are collected by the teams and distributed among households according to

workpoints after deductions for welfare, accumulation and taxes. 12

The Baogan daohu type of contract represented a further retreat from

collectivization, by abolishing the system of workpoints altogether. 13 The basic

characteristic of this system is that incomes are directly determined by the

contracted output targets. Remuneration is directly linked to output without the

need to use workpoints. Another difference has in the fact that while under Bao

Chan Daohu, plans for planting, irrigation and use of draft animals and machinery

remain under team control, under Baogan Dao hu, the draft animals, tools and

Lin Zili, "On the contract System of responsibility linked to output - a new form of cooperative economy in China's socialist Agriculture" Social Sciences in China, no. I, 1983, pp. 53-104.

Wang Guichen and Wei Daonan, "Discussion of the fixing of farm output quotas for each household", Jingji Yanjiu (Economic Research) no. I, 1981, p.39.

Du Runsheng, "Good beginning for reform of rural economic system" Beijing Review, no. 48, 30 November 1981, pp. 15-20.

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equipment are divided among households. The responsibility of the team IS

confined to setting sales quotas and tax obligations.

Table 1

The Agricultural Production Responsibility System (Nongye Shen Zhao Ziren Zhi) in China : Types and Variants, 1980-1983

lYPE

Bao gong Zhi (Labour Contract System)

Lian Chanzhi (Output linked system) Bao Chan Zhi (Output contract system)

Baogan Zhi (net output delivery system)

CONTRACTOR

Zu (group of farmers) Hu (Peasant Household) or lao(individual labouror)

Same as above, hence the familiar term Baochan dao hu (contracting output down to the household in the case of hu contract.

Hu hence Baogan dao hu

'OBLIGATIONS

To fulfill certain specified farm works (sowing, seeding, transplanting, harvesting etc.) fixed in terms of quantity/quality/time limit and material costs involved under the unified management of the team.

To fulfill a specified amount of final farm output for a fixed land area, either under the unified team management (as in the case of Zu or lao contract) or separately by the individual peasant household (hu) with current inputs being fixed and provided by the team.

To fulfill the contracted output quotas for both State procurements and collective retentions with the land area being fixed for the absolute disposal by the peasant households, and drought animals and farm implements (normally small and medium size) reconverted into their possession through either direct title transfer or conditional assignment.

78

REWARDS/PENAL TIES

Agreed work point entitlements (or reduction in case of contract failure) as a basis for participating in the team-wide distribution of final output, in kind or in cash.

Agreed work point entitlements (reductions) as in the case of Bao gong Zhi plus full or partial retention of (compensation for) the overfulfilled (underfulfilled) proportion of the contracted output targets in the case of hu contract.

Entitlement to any amount of output realised in excess of the fixed delivery quotas; or compensation for any proportion under fulfilled.

14

15

16

The core of the system of contracted responsibilities with payment linked

to output is that, individual households through a contract have at their disposal

a specific parcel of responsibility land on which they may farm. In return for the

use of the land the individual household must fulfill contracted output targets for

both state procurements and collective retentions. It must also provide for

subsistence of the contracting family. Once these demands are met, the individual

household is entitled to any output from the land. Some of this output will be

contracted as ab9ve-target at the appropriate above-quota prices. Alternatively, it

can be sold privately. 14ln doing so, it encouraged rises in productivity by

promoting sales to the state at above-quota, or negotiated prices or directly to the

public at free market prices.

The system linked labour more closely with output, encouraging peasants

to work harder and produce more. 15 At the same time, this closer relationship

between labour and output has encouraged individual peasants to utilise their skills

and experience to cut production costs while increasing economic benefits. 16

Wan Li, "Further develop the new phase of agriculture which has already opened up" Renmin ribao (Peoples Daily) 23-12-1982 trans. FBIS/DRJPRC 4-1-1983, K2-K20 : See, F.W. Crook, "The Baogan Daohu incentive system : Translation and analysis of a model contract", The China Quarterly, no. I 02, 1985, pp. 291-303.

Feng Zibao, "The Integration of agriculture and output responsibility systems and production relations must suit the natural laws of production", Jingji Yanjiu (Economic Research), no. 4, 1981, p.87.

Littong Si, "Seeing production responsibility systems from the three labour forms", Shanxi ribao (Shanxi Daily), 16-9-1981.

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17

Perhaps most significantly, by linking labour and output with rewards, the

principle of distribution according to work is more directly implemented. 17

Jan: 1980 Dec:l980 June: 1981 Oct:l981 Dec:l982 Dec:l983 Dec:l984

Table 2

The Evolution of Output-Linked Agricultural Production Responsibility System in China

% of Prod11ctioa Teanu Employin1 No. or Agri: As% of all No. Agri: Houte Holds in Agri: Households in output linked Households Baogan dao hu responsibility

systems

All output ljnkrd Boo Bao gan

rrsponsibility Chon dao hu 1ystem Dao hu

29.1 4.1 0.02 47.1 18.5 5.0 56 4 313 113

75.8 26.6 38 0

82.0 8.7 725

99.0 94 5 179854000 97.10 174975000 183859000 97.90 181455000

As •;. of all

ar:ri: houst:bolds

Q446

96.56

Source : Robert F. Ash, "Evolution of China's Agricultural Policy", The China Quarterly, no. 116, Dec. 1988.

At the same time, the collective continues to supply some part of the means

of production - either as part of the contract or at a price. However, households

now have a bigger responsibility to purchase producer goods themselves from

income generated by sales of their produce or skills. Households may contract

jobs to individuals who specialize in agricultural services. The collective also

continues agricultural capital construction. This is made possible by household

contributions to the collective funds and contributions from local industry.

Wang Songpei, "China's agricultural- industrial - commercial integrated enterprises", Jingj i Yarif iu (Economic Research), no. 7, 1980, pp. 42-47.

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18

19

By the end of 1983, nearly 95 per cent of all the peasant households in

China were under the Baogan dao hu system. Table 2 summarizes the evolution

of output-linked responsibility systems in China from 1980 and highlights the

rapid emergence after 1981 of Baogan dao hu as the main form of organization.

According to the above figures only 4.1 per cent of the production teams

were practicing Baochan daohu in early 1980 and Baogandaohu was almost non-

existent at 0.02 per cent. By December 1982 the respective percentages were 8. 7

per cent and 72.5 per cent and by the end of 1984, nearly 97 per cent of all

agricultural households were covered by the Bao gao dao bu. The near-universal

adoption of output-related contracts with households, must be regarded as the core

of the first stage of Chin(J.'s rural reforms. Its climax came with the publication,

at the beginning of 1983 and 1984, of two important policy documents.

"Document No. 1, 1983" insisted that the development of responsibility systems

had contributed more than anything else to agriculture's enhanced performance. 18

"Document No. 1, 1984", stipulated that the duration of contracts would be

extended to 15 years or more. 19 These two directives were explicit in its

unconditional support of the establishment of all forms of responsibility systems.

"Dangqian nongcun Jingji Zhengce de ruogan wenti" ("Various questions concerning current rural economic policies") Zhongguo Nongye Nianjian 1983 (Agricultural yearbook of China, 1983) (Beijing: Nongye Chubanshe, 1984), pp. 1-5.

"Zhong gong Zonngyang guan yu 1984 nian nongcun gongzuo de tongzhi" ("circular ofthe Central Committee of the CCP on rural work in 1984") Zhonguo Nongye Nianjian, 1984 (Agricultural yearbook of China, 1984) (Beijing: Nongye Chubanshe, 1985), pp 1-4.

81

The development of household responsibility system was the major, but not

the only force shaped policy in the first stage of reform. Other factors were

involved. Some of these were quite independent of the institutional changes;

others may be seen as the direct consequence of the institutional changes. Major

changes to the commune system may be included in the latter category.

Following in the footsteps of the spread of the household responsibility

system came reforms in the commune system which culminated in the virtual

dismantling of the communes. The Central Committee's document,. "Various

Questions concerning current rural economic polices" published in 1983 stated the

commune's position as follows :

After the adoption of the household responsibility system with

remuneration linked to output, the basic accounting unit of the

people communes - production brigades or teams - may mainly

follow unified or household operations. To put land under good

operation, these cooperative economic organizations based on areas

are necessary. Their names, scale and management organs will be

democratically decided by the masses. Whether· the communes and

production brigades which are not basic accounting units will be

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20

abolished or kept as organizations of economic combinations shall

be consulted with the masses in the light of specific conditions.20

The main thrust of the above document lay in separating administrative

functions from purely economic ones in order to ensure sufficient incentive and

autonomy in economic management at.the lower levels. The process of dissolution

of the communes, once started, was very rapid. In 1982 Sichuan province was

among the first to replace the communes by townships as the basic structure of

0 government administration in rural areas. As Table 3 shows, there were 54,352

communes were operating in 1982. By 1984, the number had come down to only

249. During the same two year span, the number of townships had swelled from

virtually nil to 91,171. Unlike the communes, the township administrations could

at best advice, but not enforce economic decisions on lower level structures.

Table 3

Disbandment of the Commune System in China

Year Rural Peoples Production Production Township (Xiang communes Brigades Teams or Zhen) govts.

1982 54352 719438 5977000 neg.

1983 40097 550484 4575000 16252

1984 249 7046 128000 91171

Source: Robert F. Ash, "The Evolution of Agricultural Policy", The China Quarterly, no. 116, 1988, p. 539.

Zhongguo Nongye Nianjian 1983 (Agricultural yearbook of China, 1983) (Beijing : Nongye Chubanshe, 1984), pp. 1-5.

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21

22

Another important development in the organizational sphere was the

emphasis laid on the role of private plots and domestic sideline occupations.

Peasants were encouraged to use private plots to engage in domestic side

occupations and thus increase their incomes. The "Decisions of the CPC Central

Committee on some Questions Concerning the Acceleration of Agricultural

Development" published in 1979, pointed out that :

The land and animals for private use by the Commune members,

domestic sidelineo occupations and rural market fairs are an

appendage and supplement to the socialist economy, and must not

be criticized as tails of capitalism. Conversely, while consolidating

and developing the collective ·economy, the peasants should be

encouraged and supported to undertake domestic sideline

occupations, increase personal incomes and enliven the rural

economy.21

Based on this decision, the maximum amount of land which may be given

over to private plots is set at 15 per cent of the total cultivated area of a

production team. 22The scope of household sidelines was widened~ The commune

members were allowed to grow almost anything and operate almost any business,

Ren Zonglin, "Development and Role of the Private Economy" Beijing Review, May 8-14, 1989, p.20.

"Small plots for Private use", Beijing Review June 22-29, 1981, pp. 3-4.

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provided they did not harm the interests of the State and the collective. Materials,

funds and technical knowledge were provided for the development of household

sidelines.

Another important change was that, specialization in rural production was

particularly emphasized, and a category of specialized household was identified.

It was defined as a household that devoted at least 60 per cent of its work time to

a single crop, product or service; sold at least 80 per cent of its products; and had

an income from sales of its products or services at least d<mble the average of

other local families. The number of such households reached its peak in 1984 -

4.3 million. 23

In 1983, "Document No. I" Singled out the emergence of the specialist

households. It welcomed their orientation towards commodity production and

praised their effectiveness in making the best possible use of limited funds and

labour.

Another important change was the growing emphasis on integration of

agriculture, industry and commerce in the rural areas. For this purpose, three

types of rural industries were promoted : (a) industries for processing materials

supplied by agriculture, forestry, animal husbandry and fisheries; (b) factories

directly in the service of the agricultural sectors, such as those engaged in

producing fertilizers and farm implements, in repairing and assembling farm

Summary of World Broadcasts, Part 3; The Far East, 14 Jan. 1985.

85

machinery and tools, and in processing fodder; (c) small factories and mines using

local materials such as small coal pits and units producing bricks and tiles, and

processing factories working in coordination with urban industries.

Alongside such changes in the institutional structure of the production and

distribution system, several policy measures of purely economic character were

implemented. These measures were undertaken to gradually reduce mandatory

planning and expand guidance planning to use economic instruments and establish

a new economic mechanism where the state regulates the markets, and markets are

expected to guide production plans. Among the first of these was in the price­

front.

3.3 PRICE REFORM

The procurement prices of farm products increased dramatically in 1979.

In this one year alone, the price of 18 major farm products increased by 24.8 per

cent on average. The price of procured grain increased by only 17.5 per cent in

the 13 years period of 1965-1978; but there was a 20 per cent increase in the

average quota price of grain in 1979 alone. The above quota premium of grain

increased even more rapidly in 1979 from 30 to 50 per cent. Simultaneously,

procurement quotas were reduced by nearly 6 per cent overall. Increases in

procurement prices effected for oil corps (24%), cotton (15.2%) sugar crops (26%)

and live hogs (26.4%) with associated increases in above quota price bonuses in

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25

each case. 24 Procurement quotas for grains were further reduced by I. 9 per cent

in 1980 and average procurement price raised for some non-food grain crops like

cotton (10%) and tobacco (20.3%). Soyabean quota prices were raised by 50 per

cent and grain procurement quota further reduced by 11.5 per cent in 1981.

Between 1978 and 1982, national grain quota levels were reduced from 37.75

million metric tons to about 30.32 million metric tons - reduction of nearly 20 per

cent.25

Along with general increases in procurement prices and reduction in quota

levels, various non-price incentive schemes were also instituted. Under these,

farmers have been allowed to sell surplus grain in the free market, after fulfilling

the state procurement. Long distance transportation and marketing by individuals

also became possible.

3.4 MARKET REFORM

Before the initiation of reforms, agricultural products in China could be

divided into three broad categories on the basis of the states perception of their

importance for national welfare and the nature of state control on their production

and distribution. Those that were deemed most vital commodities like, grain,

Zhonguo Nongye Nianjian, 1980 (Agricultural Yearbook of China, 1980) (Beijing: Nongye Chubanshe, 1981), p. 146.

Terry Sicular, "Agricultural Planning and pricing in the post-Mao period" The China Quarterly no. 116, Dec. 1988, p.679.

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edible oil and cotton, were subjected to "tonggou tongxiao" or a system of "unified

procurement and sales". Before 1979, there was no free market for these

commodities. The second category of about 40 products, like cattle, hogs, eggs,

fish, tea, tobacco, silkworm, and sugar were subjected to "paigou" or "designated

procurement" under which although procurement plans were centrally determined,

the provinces had some freedom in price fixation and plan implementation.

Limited amount of private trading in some of the commodities in this category

was also allowed. Third category of products comprised of all residual items,

mostly minor items primarily of local character for which no procurement quotas

of price were fixed and free trading was allowed.

Beginning in 1979 a process of re-adjustment of procurement quotas and

prices started which gradually reduced direct government control in agriculture.

In Feb 1983, important new regulations for rural commodity circulation were

issued.26

They stipulated that the continued development of agricultural production

had to be accompanied by an increase in marketed supplies and a gradual

contraction in the volume, and variety, of goods covered by the state monopoly

purchase system. By the same token, the scope of "negotiated" purchases should

"Guojia Jingji Tizhi Gaige Weiyuanhui, Shangye bu guanyu gaige nongcun shangpin liutong tizhi ruogan wenti de shixing guiding" (Ministry of Trade and the commission for Restructuring the Economy : trial regulations concerning certain questions on the reform of the system of rural commodity circulation")Zhongguo Nongye Nianjian 1984 (Agricultural Yearbook of China, 1984) (Beijing: Nongye Chubanshe, 1984), pp. 502-504.

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be extended, and it was proposed to open more channels for commodity

circulation. Document No. I, 1983 stated :

It is certainly necessary to adopt unified and prescribed purchases

of important farm and sideline products, but their varieties should

not be too many. The small number of important farm products

relating to the national economy and people's livelihood will be

continuously placed under unified and prescribed purchases; the

products of which the 'fUOtas of state unified or prescribed

purchases have been fulfilled by the farmers (including grain but

not cotton) and the products not placed under unified and

prescribed purchases should be allowed to be bought and sold

through many channels. State commerce will actively develop the

purchases and sales at negotiated prices and take part in market

regulation. The supply and marketing cooperatives and other mral

cooperative commercial organizations may flexibly buy and sell the

permitted farm and sideline products; individual farmers may also

take part in such dealings. 27

The underlying logic of this regulation was that the new conditions of

production emerging in the countryside demanded a move away from

ibid.

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28

29

administrative orders towards a more consciOus use of prices and a

correspondingly greater reliance on market regulation.

Document No. I, 1984 went even further in its proposal for price and

market reform. It proposed further contraction in the scope of "unified and

mandatory state purchases" of agricultural commodities and suggested that quotas

which remained under this scheme should be fixed for several years at a time. For

goods outside it, and also those in the "third category", prices were to be "really

free". 28

The changes made in the pattern of sale of farm and sideline products from

1978 to 1984 were remarkable. In the total purchases, the proportion of those at

listed prices declined to 33.9 per cent in 1984 from 84.7 per cent in 1978; of those

at above- quota prices, on the other hand, rose to 33.6 per cent from 7.9 per cent.

The value of purchases under the above-quota prices registered a 11-fold rise,

from 4.42 billion yuan in 1978 to 48.39 billion yuan in 1984. The purchases at

negotiated prices rose more than 20 times in this period - from 1.02 billion yuan

to 20.7 billion- and their relative share in the total rose to 14.4 per cent from 1.8

per cent.29 The growth of free markets was also quite rapid.

Du Runsheng, "Woguo nongcun fazhan de Jige Wenti" ("Several questions relating to agricultural development in China") Zhongguo Nongye Nianjian, 1984 (Agricultural Yearbook of China, 1984) (Beijing : Nongye Chubanshe, 1984), pp. 5-9.

Robert Michael Field, "Trends in the value of agricultural output, 1976-86" The China Quarterly no. 116, Dec. 1988, p.561.

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31

The most significant decision, however came in January, 1985, with the

publication of"Document No. I, 1985". It stated that from 1985 onwards the state

would largely abandon its monopolistic procurement of agricultural products that

had been prevalent since 1954.3° Free markets would become correspondingly

more important. The State was to obtain its requirements through signed

contracts, or through purchases in markets. The clear implication of this document

was that the state monopoly purchase and market mechanism was outmoded. This

major new initiative taken in 1985 which defined and shaped the second stage of

China's rural reform.

3.5 THE SECOND PHASE OF REFORMS 1985 TO THE PRESENT

The policy initiative of 1985 was prompted by the rapid agricultural growth

after 1978 and the imbalances between aggregate demand and supply which

resulted Surplus stocks of grain and cotton emerged with the government created

the budgetary pressure to procure all the surplus that the peasants wanted to sell.

Subsidies for domestic grain increased from 3,631 million yuan in 1978 to 26,459

million yuan in 1985.31 In addition, State subsidies for imported grain rose from

550 million yuan in 1978 to 3,438 million yuan in 1982 before declining to 2,200

"Zhonggong Zhongyang, guowuyuan guanyujinyibu huoyue nongcunjingji de Shixiang Zhengce" ("Ten policies of the CCP Central Committee and the State Council for the further invigoration of the rural economy") Agricultural Yearbook of China, 1985, pp. 1-3.

Wong Yongzhi, "Grain Production, Commoditization of Grain, and Grain Prices", Jingji Kexue (Journal ofEconomics)(Beijing), no.l, 1988, pp. 46-51.

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33

34

million in 1984 and 864 million yuan in 1985.32 There were several official

pronouncements on the need to reorient supply to changing demand, to allow

markets to function according to the "law of value" and the necessity to build a

marketing that will complement the diversified need of incr~ased commodity

production. 33

Zhao Ziyang, former CCP General Secretary argued :

"the kind of planning mechanism which had held sway for so long

was no longer compatible with the structural requirements of future

social and economic development. Unless peasants were allowed

to respond to changing demand, there were bound to be structural

imbalances not only between grain and economic crops but also

between crop farming and other branches of agriculture.34

What he implied was that abandonment of the principle of self-sufficiency

m favour of commodity production guided by the dictates of comparative

advantage. A new division of rural labour would emerge too, as more and more

peasants came to engage in industrial and tertiary occupations in the countryside.

Tian Jiyun noted that the retail prices of major agricultural and sideline products

Chen Xiwen, "Improve the Urban-Rural interest Relationship and deepen the Rural Economic Reform", Nongye Jingji Wenti (Problems of Agricultural Economy) April 1988, pp. 17-21.

Ge Wu, "Prices and Economic Situation" Beijing Review, no. 10, March 7-13, 1988, p.31.

Zhao Ziyang, "Fangkai nongchanpin Jiage; Cuijin nongcun chanye jiegou de diaozheng" ("Loosen control over the prices of farm products and promote the readjustment of the structure of rural products") Hongqi (Red flag), no. 3, I February, 1985, p.5.

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36

37

had often been lower than state purchase prices and implicitly made out a case for

price reform in terms of its ability simultaneously to raise the profitability of

retailing and reduce the state's fiscal burden.35

These concerns were given a formal sanction in the Document No. 1,1985

"of January 1 1985.36 This pronounced the virtual abandonment of the practice

of state monopoly procurement under the "gong gou" and "systems which were to

be replaced by the state purchase of required amount through negotiated contracts

("hetong dinggou") and through purchases in the open market-:37 Grain and

cotton would henceforth be sold through signed contracts between peasant

producers and the commercial departments of the state whereby specified amounts

of rice, wheat and com would be sold under "dao sanqi", or the "reverse 30:70

ratios"; 30 per cent of the contracted grain would be sold at the list price or the

old procurement price (tonggou) and 70 per cent at the above-quota price

(chaogou), while any excess could be sold in the free market. These contracts

were to be voluntary. Soybean was to be contracted at existing price in 6

provinces and set free in the remaining 23 provinces. All other grains were

Summary of World Broad Casts, Part 3: The Far East, 12 Jan 1985.

Agricultural Year book of China, 1985, n.30, pp. 1-3; For English translation see FBIS/DR/PRC, 25-3-85,K.I-7.

"Xuehui Zai Shangpin Jingji de da haili Youyong" ("Learn to Swim in the ocean of commodity economy") Renmin ribao (Peoples Daily) 25 March 1985.

93

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completely exempted even from negotiated contracts.38 Other quotas, including

those for the procurement of pigs, vegetables and aquatic products, were to be

abolished and replaced by exchange through the market, with prices freely

determined by the forces of demand and supply.

The 1985 document addressed itself to a variety of other issues, of which

the most pressing was that of the structural readjustment of the agricultural and

rural economies. The guiding principle was "never to relax efforts in grain

production, while • actively promoting a diversified economy". 39 More

specifically, it was suggested that structural adjustment were needed in three areas

of the rural economy; first, within and between the grain and economic crops sub

sectors, where development should be guided by the principle of comparative

advantage, secondly, between crop farming and other branches of agriculture, such

as Forestry, fishery and animal husbandry; thirdly, in the broader rural context,

between agricultural and non-agricultural activities (mainly rural industries).

Between 1980 and 1985 township and village enterprises (TVEs) gross value

output had risen from 26to 40 per cent of the rural sectors entire gross value of

output. In 1992, it amounted to more than 50 per cent. (For details see the

section on non-agricultural sector in this Chapter).

Terry Sicular, n-25.

"Guanyu Woguo Jiage gaige wenti de tantao" ("An Investigation of Price Reform in China") Renmin ribao (Peoples Daily) 17 January 1986, p.3.

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40

The abolition of the 30-years old state monopoly purchase and marketing-

scheme created strong dis-incentives for peasants to grow grain, thus paved the

way for a serious reversal of grain production. 1985 saw a sharp fall in grain

production by some 28 million tons from its 1984 high, to 379 million tens - a

drop of 6. 9 per cent, the second largest decrease in the history of the Peoples

Republic of China. 40 Despite strenuous efforts by the state, grain production

recovered only partly over the next two years to 391 million tons in 1986 and 404

million tons in 1987 (See Table 4) The situation did not improve in 1988, as

continued problems with policy implementation contributed to a disappointing

harvest (For details see section on Impact of Reform on Agricultural Output in this

Chapter)

This reduction in grain output was seen to be a result of number of other

factors also.

(i) Declining Investment in Agriculture :

After the reform, the state began to cut investment in agriculture. During

the Fifth Five-Year Plan period (1976-80), state-investment in agricultural capital

construction totalled 24.6 billion yuan or 10 per cent of total state investment in

capital construction. During the Sixth Five-Year Plan period (1981-85), state

investment in agriculture fell almost 28 per cent to 17.8 billion yuan or 5.2 per

Zhang Zhong, "A Look Back at Grain Production since the Founding of the PRC", Nongye Jingji Wenti (Problems of Agricultural Economy), Feb. 1988, p.26.

95

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42

cent of total state investment in capital construction.41 Under the Seventh Five-

Year Plan (1986-90), agriculture received only 14.7 billion Yuan- or 3. 9 per cent

of a total of 375 billion Yuan budgeted for state investment in capital construction.

This decline in state investment has not been offset by increases in

investment by local governments, collective organizations or households. With the

breakup of the commune system, the role of the collective in accumulating and

investing funds in the agricultural infrastructure has declined sharply. According

to one survey conducted by the Chinese side, collectively owned agricultural fixed

assets have decreased in 85 per cent of the villages in China. In 13 provinces and

regions, this decline has been greater than 60 per cent. Moreover, collective

investment in agriculture varies widely from province to province. In only six

provincial-level jurisdictions-Beijing, Tianjin, Liaoning, Shandong, Shanghai and

Henan-does collective investment comprise more than 55 per cent of total

agricultural investment. In eight provinces and regions, collective investment

accounts for less than 10 per cent of total agricultural investment. 42

Implementation ofthe household responsibility system shifted much of the

burden of agricultural investment to individual households; they provide about 40

per cent of total investment in agricultural production. But peasant interest in

Chinese Academy of Agricultural Sciences, "Problems in Development of a commodity Economy in Agriculture and Policies for dealing with them," Nongye Jishu Jingji, December 1986, pp.l-5 trans in JPRS-CEA, No. 87-034, April 20, 1987.

"Comprehensive Report of a Representative Survey of Rural Society and Economy Throughout the Nation (Excerpts)", NongyeJingji Wenti (Problems of Agricultural Economy) June 1986, pp.37-38.

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44

investing in grain production has clearly declined. According to another survey,

peasant investment peaked in 1983, when the average peasant household spent 5. 7

per cent of its income on fixed assets. The following year, the figure dropped to

4. 7 per cent and in 1985, it was 3.8 per cent. In this decline, the tendency for

input into crop planting to decrease was particularly marked. 43 A survey

conducted by the Chinese government reached the conclusion that total peasant

expenditures on productive fixed assets in 1986 were 31.6 per cent lower than in

1984.44

Part of the reason for this decline is that, the comparative returns on

investment in agricultural -particularly, grain-production are low as compared to

those from other rural economic activities.

(ii) Declining Returns on Grain Production :

One of the reasons that peasant investment in agriculture has failed to

increase sufficiently to fill the void left by declining state and collective

investment is that returns on grain production have been declining sharply, due in

Lu Mai and Dai Xiaojing, "An Analysis of the Economic Activities of Peasant Households at the Present Stage", Jingji Yanjiu (Economic Research), July 1987, p.68.

Qiu You ai," Why do high consumption and low Accumulation Emerge in the countryside",Jingji ribao (Economic Daily), Aug20, 1988, translated in FBIS-CHI, Sept 8, (1988, p.43).

97

45

46

47

large part to a rise in the cost of agricultural inputs.45 Peasants were unwilling

to invest in what is an increasingly unprofitable venture.

The rising input costs have largely reversed the economic gains registered

by the peasants in the late 1970s and early 1980s when procurement prices were

raised. According to an investigation conducted, more than half the benefit that

peasants had received from increased procurement prices has been dissipated by

the rising costs of agricultural inputs.46 According to the state statistical Bureau,

Peasant income increased 290 Yuatl' per capita from 1979 to 1985, reportedly due

to increases in procurement prices for agricultural and sideline production. But

in the same period, peasants spent an additional 146 yuan per capita because of

the rising costs of the means of production. Because of this, the economic returns

per unit of land have reportedly declined 30-40 per ~ent.47

(iii) Increased Opportunity Costs :

Another reason for declining peasant interest in grain cultivation has been

that the economic returns from other ventUres are greater than those from raising

grain. For most peasants, it does not make economic sense to devote more than-

Chinese Academy of Agricultural Sciences, "Problems in Development of a Commodity Economy in Agriculture and Policies for dealing with them", Nongye Jishu Jingji, Dec 1986, pp.l-5. trans in JPRS- CEA, No. 87-034, April 20,1987.

Shi Bing, "An Exploration of the Need to Increase Agricultural Inputs" Nongye Jingji Wenti, (Problems of Agricultural Economy), Jan 1987, trans in JPRS-CAR N0.87-007, June 16, 1987

Jingji Yanjiu (Economic Research), no.9, 1987, p.97.

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49

minimal resources to grain production. One of the main reasons for the failure

of cultivators to increase grain yields per mu was that the comparative benefits of

grain cultivation are low.48

This aspects of agricultural reform has been confirmed by a survey of

agricultural returns conducted by the Jiangsu Price Bureau in 1985. The average

per mu net profits for various agricultural products were: grain, 55.71 yuan; oil

crops, 64.59 yuan; hemp and similar crops, 231.94 yuan, and vegetables, 323.4

yuan. Moreover, on average, a peasant doing industrial work could earn I ,000.

yuan a year, while one engaged solely in agricultural production could earn only

400 yuan.49 Such income disparities have almost certainly increased since 1985,

given the declining returns from grain production and the increase in the number

of rural enterprises. (This is the main focus of chapter 3, chapter 4 and chapter

5 of this study)

Nevertheless, official response to continuing uncertainties in the production

and supply of grains has continued to be re-affirmation of the need to strengthen

the general direction of reforms towards less of direct governmental controls on

agricultural production and pricing and increased elbow room for markets to,

develop. Guidance has been provided through indirect methods of incentives and

Zhou Binbin, "An Analysis of the grain situation", Jingjixue Zhoubao (Review of Economic Studies) Beijing, March I, 1987, trans. in JPRS-CAR, no.87-012, June 30, 1987, p. 91-92.

Duan Yingbi, "There must be major Reforms in the Grain Marketing System" NongyeJingji Wenti (Problems of Agricultural Economy) Nov.l986, pp.37-40.

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51

subsidies given selectively. The "Document No.1, 1986" reiterated this position

in this regard. 50 This Document highlighted the use of what came to be known

as the "three link policy", as expounded in the state council circular of autumn

1986.51 This consisted of providing scarce agricultural resources like chemical

fertilizer and diesel oil on a priority basis as well as cash advances to farmers in

exchange of voluntary sale of grain to the state.

Thus, 1986 saw more incentives in the nature of non-price benefits rather

than outright price increases. The major thrust was by way of trying to revive the •

fledgling grain economy through indirect methods of the "three link polic:y" and

the "double tract system" of pricing. The major reason for adopting these two

policies rather than price increases was that, the latter would create inflationary

pressures in the system.

However, by the end of 1986, it was clear that such non-price measures

have not been very successful in restoring stability and adequate grain supplies.

The basic problem with the "three link policy" was that the peasants were either

not been able to purchase the quantity of inputs to which they were entitled or,

when they were able to purchase them, to get them in time to meet their seasonal

Document No.I 1986 titled. "Plan of the Chinese Communist Party central committee and the State Council for Rural Work in 1986", trans in Summary of World Broadcasts, Part 3; The Far East 26 Feb 1986

Summary of World Broadcasts, Part 3, The Far East, 22nd October 1986.

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53

needs. 52 The system also lent itself to corruption, as various departments took

advantage of their power to resell production inputs for large profits. In 1987,

several commentator article appeared in the Party Daily (Renmin ribao) which

complained of the serious, adverse effects that the corruption engendered by the

"three link policy" was having in the countryside. One such article stated:

Many people with real power have taken advantage of chemical fertilizer and

diesel fuel to establish personal relationships and seek personal gains, thus

undermining relations between .the party and the masses and between the cadres

and the masses. Some departments purchased chemical fertilizer and diesel fuel

at the original price and sold them, without authorization, to peasants at a higher

price, which increased the burden of the peasants. Even worse, some lawless

elements obtained chemical fertilizer and diesel fuel purchased at the original price

and used this as 'capital' to exploit the peasants and seek exorbitant profits. 53

Based on such considerations, an emergency circular issued in June 1987,

by the agricultural ministry calling for a thorough inspection of implementation

of the "three links policy". By January 1988, He Kang, in his capacity of the

Minister of Agriculture pronounced the inefficiency of 30:70 System in raising

Sun Enjian and Liu Wenbao, "Distortion is not permitted in the Implementation of the system of contract purchase" Renmin ribao (Peoples Daily) 25 March 1987. Translated in FBIS-CHI, June 19,1987, pp. K 26-27.

Commentator Article, "No withholding of the Party's concern for peasants" Renmin ribao (Peoples Daily) June 17, 1987 trans in FBIS- CHI, June 19, 1987, pp. k 26-27; "Cheating Peasants Impermissible", Renmin ribao, (Peoples Daily) April 30, 1987, translated in FBIS-CHI, May 7, 1987, pp. k 23-24.

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55

farmers income. It was argued that the scarcity of chemical fertilizers and diesel

oil had made the "three links policy" virtually ineffective and that the poor

performance of agriculture could be directly linked to the low purchase price paid

by the state for grain and cotton. 54 Thus in 1987, contract prices for some of the

grain produce were raised selectively in different regions of the country and in

1988 wheat contract price was raised by 7 per cent all over the state, while rice

and com prices for rapeseed, Sunflower and seasame prices were also raised. In

the draft economic plan for 1988-89, further price increases for a number of

commodities have been announced. 55

As a result of these price increases, in 1989, farm production once again

turned upward. As is clear from Table 5, Production of all crops in the cultivation

sector reached certain levels in 1984 and 1985, then stagnated, but once again

grew by record-breaking amounts around 1989. In 1993, historical heights in

production were recorded for the majority of crops.

Thus, the year 1993 may be said to have been another epoch-making

turning point for agriculture. The reasons for this favorable upturn were the

hiking official purchasing prices and increased government input into the

agricultural sector.

Summary of World Broadcasts, Part 3; The Far East, 22 January 1988

Beijing Review, No. 46, November 14-20, 1988, p.6.

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3.6 IMPACT OF AGRICULTURAL REFORMS ON OUTPUT

Chinese agriculture experienced tremendous growth after 1978. Looking

at the Table 4 we gets an overall picture about grain crops and industrial crops.

In the first stage of agricultural and rural reforms from 1978-84, production of

grain, as shown in the Table 4, grew rapidly. In 1978, the total output of grain

production was 304.8 million metric tons (mmt) and in 1984, it reached a record

of 407.3 mmt. Which meant a 33.6 per cent increase in only six years, or a 4.95

per cent increase per year. Since 1984, however, growth of the agricultural

economy has slowed significantly; with declining grain production a principal

factor. In 1985, the total grain output was only 379.1 mmt. There was recovery

in 1986 to 391.1 mmt, and 404 million tons in 1987.56 The situation did not

improve in 1988.

In 1989, however, farm production once again turned upward. Here let us

look at the trends in production of key farm products in Table 4. As is clear from

this table, production of all crops in the cultivation sector reached certain levels

in 1984 and 1985, then stagnated, but once again grew by record-breaking

amounts around 1990. The situation again did not improve in 1991 and 1992. In

1993, historical highs in production were recorded for the majority of crops. The

per capita grain output reached its peak in 1990 to 393 kg, but in the following

Chen Xiwen,"China's Rural Economy: The change from super normal growth to normal growth", Jingji Yanjiu (Economic Research) Beijing, December 1987, p.24.

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years it slumped to 385 kg in 1992 (See Table 4). Growth of the most important

crop, rice was 36 per cent. Wheat registered on increase of 88 per cent:.57

Table 4

China : Major Indicators of Rural Economic Performance

(Unit : 10,000 Metric Tons)

Grain Crops Industrial Crops

Year Total Rice Wheat Cotton Oil bearing Sugar Fruits crops Cane

1978 30477(288) 13693 5384 217(2.3) 522(5.5) 2112 657 1979 33212(319) 14375 6273 221(2.3) 643(6.7) 2151 701 1980 33056(343) 13991 5521 271(2.8) 769(7.9) 2281 679 1981 32502(327) 14396 6964 297(3.0) 1025(10.3) 2967 780 1982 35450(327) 16160 6847 360(3.6) 1182(11.7) 3688 771 1983 38728(352) 16887 8139 464(4.6) 1055(10.4) 3114 949 1984 40731(380) 17826 8782 626(6.1) 1191(11.6) 3952 984 1985 37911(396) 16857 8581 415(4.0) 1578( 15.2) 5155 1164 1986 39151(365) 17222 9004 354(3.4) 1472(14.0) 5027 1348 1987 40473(372) 17442 8777 425(4.0) 1528(14.3) 4739 1668 1988 39408(378) 16991 8543 379(3.3) 1291(11.1) 4857 1837 1989 40755(362) 18013 9081 447(3.9) 1615(13.9) 5727 1876 1990 44624(393) 18933 9823 450(4.0) 1613(14.2) - -1991 43524 18381 9595 567(4.9) 1638(14.2) 6630 2158 1992 44266(385) 18622 10159 450(3.9) 1641(14.1) - -1993 45644 - - 376 1761 6413 2918

Note : Figures in Brackets are per capita output in kgs.

Source: China : A Statistical Survey in 1988, pp. 29-31, 35; Agricultural Yearbook of China 1990, pp. 214-271 Statistical Communique of the State Statistical Bureau of the PRC, 1991 and 1993.

In industrial crops, on the whole the picture was very much better.

Between 1978 and 1992, production of cotton registered a growth of 106 per cent,

oil bearing crops 209 per cent, sugarcane 171 per cent and fruits 185 per cent.

Beijing review March 23-29, 1992, p.36.

104

The trend in per capita output also, on the whole was impressive in the reform era.

For oil-bearing crops, there was a growth. of I 53 per cent between I 978 and I 992

as against a negative 26 per cent in the Mao era.

As evident from Table 5, the value of total agricultural output rose from

139.7 billion yuan in I978 to 908.4 billion yuan in 1992. Growth rate was as

much as roughly six times between 1978 and 1992. The composition of the

aggregate output also changed significantly over the years. The relative share of

crop farming declined to 55.4 per cent in 1992 from 76.7 per cent in I 978; as the

output increased from 107. I billion yuan to 504 billion yuan. The position of all

other categories correspondingly improved. For sideline production, the proportion

rose to 6 per cent in I 992 from only 3.2 per cent in 1978 with a growth in output

from 4.5 billion yuan to 55 billion yuan. The growth of animal husbandry, second

in importance, also showed a similar trend. The output rose from 20.9 billion

yuan in 1978 to 245.7 billion yuan in 1992 - and its relative share rose to 27 per

cent from 15 per cent (See Table 5). The output of fishery also rose from 2.2

billion yuan to 61.3 billion yuan and its relative share rose to 6. 7 per cent from

1.5 per cent.

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Table 5

Trend in Gross Agricultural Output Value and its Composition

(Unit : 10,000 Yuan)

Yea Total Value Crop Forestry Animal Sideline Fishery r farming Husbandry Production

1978 1397.0(100.0) 1071.6(76.7) 48.0(3.4) 2092(14.9) 45.9(3.2) 22.0(1.5) 1979 1697 .6( I 00.0) 1267.3(74.6) 60.7(3.5) 285.6(16.8) 58.0(3.4) 26.0(1.5) 1980 1922.6( I 00.0) 1378.1 (71.6) 81.3(4.2) 354.2(18.4) 75.9(3.9) 32.8(1.7) 1981 2180.6(100.0) 1537.3(70.5) 98.8(4.5) 402.1(18.4) 98.5(4.5) 43.6(2.0) 1982 2483.2(100.0) 1750.2(70.4) 110.0(4.4) 455.8(18.3) 115.9(4.6) 51.2(2.0) 1983 2750.0(1 00.0) 1941.4(70.6) 127.2(4.6) 489.1(17.6) 134.0(4.8) 63.2(2.3) 1984 3214.0(100.0) 2195.1(68.3) 161.6(5.0) 586.1 (18.2) 186.1(5.7) 85.0(2.6) 1985 3619.4(100.0) 2279.8(62.9) 188.6(5.2) 796.9(22.0) 227.9(6.3) 126.1(3.4) 1986 4013.0(100.0) 2498.3(62.2) 201.1(5.0) 873.5(21.7) 275.6(6.8) 164.3(4.1) 1987 4675. 7( I 00.0) 2837.9(60.7) 221.9(4.7) 1065.7(22.7) 325.1 (6.9) 224.8(4.8) 1988 5865.2(100.0) 3276.8(55.8) 275.3(4.6) 1597 .5(27 .2) 393.0(6.7) 322.9(5.5) 1989 6534. 7( I 00.0) 3674.4(56.2) 284.9(4.3) 1797.4(27.5) 429.0(6.5) 348.8(5.3) 1990 7662.0( I 00.0) 4481.7(58.4) 330.2(4.3) 1964.0(25.6) 475.4(6.2) 41 0.5(5.3) 1991 8157.0(100.0) 4662.7(57.1) 367.9(4.5) 2156.3(26.4) 486.5(5.9) 484.3(5.9) 1992 9084.7(100.0) 5040.2(55.4) 422.6(4.6) 2457.3(27.0) 550.9(6.0) 613.5(6.7)

Source : State Statistical Bureau, Statistical Yearbook of China. /993, (Beijing : China Statistical Publishing House, 1993), p.325.

3.7 PROVINCE -WISE VARIATION IN AGRICULTURAL OUTPUT

As for the province wise growth, between 1984 and 1992, while the growth

in national total of agricultural output value was 47.0 per cent, for Guangdong it

was as much as 100 per cent and for Tianjin 94.1 per cent. There were 16

provinces with a growth rate of les_s than the national average - for Shanxi it was

a negative 0.1 per cent and for Heilongjiang 13.2 per cent.58

The structural transformation of agriculture province-wise was also very

unevenly distributed. In 1992, as evident from Table 6, the relative share of crop

Beijing Review, March 23- 29, 1992, p.36.

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farming in the respective states aggregate of agricultural output varied between the

maximum of 71 per cent in Xinjiang and a minimum of 36 per cent in Tibet.

There were 16 provinces with crop farmings share at less than the national average

of 55.4 per cent. The proportion for other activities varied more widely. For

animal husbandry, the maximum and minimum were respectively, 54 per cent in

Tibet and 19.5 per cent in Hainan. In sideline production, the maximum

proportion was 11.3 per cent in Zhejiang and the minimum at 0.5 per cent in

Shanghai. In forestry, the maximum level stood at 22.9 per cent in Hainan and

the minimum at 0.5 per cent in shanghai. The highest province-wise variation was

in the area of fishery. Whereas in Fujian it was at as mush as 17.6 per cent, for

Tibet the proportion was Zero and for Qinghai and Gansu only 0.1 and 0.3

respectively. There were 9 provinces where fishery accounted for 0.1 per cent or

less of the aggregate output.

The average grain output per head of total population was as much as 443

kgs in the central region - comprising Anhui Hubei, Hunan, Jiangsu, Jiangxi,

Shanghai, and Zhejiang - during 1985-86 and in the north eastern region -

comprising Heilongjiang, Jilin and Liaoning - 430 Kgs, as against 279 Kgs in the

southern region- covering Fujian, Guangdong and Guangxi- and 299 kgs. in the

north-west - covering Gansu, Inner Mongolia, Ningxia, Qinghai and Xinjiang. 59

Kenneth R Walker", Trends in Crop Production, 1978-1986", The China Quarter(v, no.ll8, December 1988, p.606.

107

Table 6

Province-Wise Composition of Gross Agricultural Output Value 1992

Province Total Crop Forestry Animal Sideline Fisheries Output Farming Husbandry Production Value

Total 9084.7 5040.2(55.4) 422.6(4.6) 2457.3(27.0) 551.0(6.0) 613.6(6.7)

Beijing 84.5 41.6(48) 1.6(1.9) 36.3(42.8) 1.6(1.9) 3.9(3.5)

Tianjin 62.2 39.0(54) 0.5(0.8) 17.1(27.4) 5.3(8.0) 5.4(8.0)

Hebei 419.8 262.3(62) 13.9(3.1) I 08.4(25. 7) 20.2(4.7) 14.9(3.3)

Shanxi 131.4 86.4(65) 8.8(6.1) 33.1(25.1) 2.4(1.5) 0.6(0.4)

Inner Mongolia 180.3 100.5(55) 7.8(3.8) 55.3(30.5) 15.1 (8.3) 1.5(0.5)

Liaoning 340.8 176.1(51) 7.5(2.0) 97.8(28.5) 19.1(5.5) 40.7(11.7)

Jilin 204.3 138.9(67) 5.1(2.4) 50.0(24.5) 7.1(3.4) 3.3(1.4)

Heilongjiang 285.2 199.6(69) I 0.3(3.5) 64.3(22.4) 4.4(1.4) 6.3(2.1)

Shanghai 80.0 32.8(40) 0.4(0.5) 37.2(46.2) 0.4(0.5) 9.2(11.2)

Jiangsu 673.5 356.8(52) 9.9(1.3) 188.4(27 .9) 54.5(8.0) 63.9(9.3)

Zhejiang 404.9 179.9(44) 21.0(5.1) 93.0(23.0) 46.6(11.3) 64.2(15.8)

Anhui 390.1 242.4(62) 20.8(5.1) 92.9(23.5) 20.0(5.1) 14.0(3.5)

Fujian 300.7 133.0(44) 29.2(9.6) 67.0(22.3) 17.9(5.6) 53.6(17.6)

Jiangxi 298.4 148.5(49) 23.4(7.7) 82.9(27.5) 28.2(9.3) 15 4(5.0)

Shan dong 840.7 437.0(52) 23.7(2.7) 240.8(28.5) 25.6(2.9) I 13.6(13.4)

Henan 573.7 357.7(62) 25.1(4.3) 139.8(24.2) 46.2(8.0) 4.9(0.6)

Hubei 435.4 265.5(60) 17.4(3.9) II 0.4(25.2) 14.6(3.2) 27.6(6.2)

Hunan 471.2 248.1 (52) 28.1(5.9) 146.0(30.9) 25.3(5.3) 23.7(9.8)

Guangdong 737.1 360.8(48) 32.9(4.3) 174.8(23.6) 68.8(9.2) 99.9(13.4)

Guangxi 333.1 172.8(51) 26.8(7.8) I 00.5(30.0) 16.1(4.8) 17.0(5.1)

Hainan 87.2 33.3(37) 20.5(22.9) 17.3(19.5) 4.7(4.5) 11.2(12.6)

Sichuan 744.9 417.7(56) 29.2(3.8) 251.7(33.7) 33.2(4.4) 13.0(1.7)

Guizhou 176.7 96.6(54) 12.2(6.8) 47.2(26.7) 19.5(1 0.7) 1.3(0.5)

Yunnan 25D.4 146.7(58) 22.8(8.8) 61.5(24.4) 17.3(6.8) 2.0(0.8)

Tibet 22.5 8.5(36) 0.4(1.7) 12.0(54.5) 1.6(4.5) 0.0(0)

Shaanxi 205.3 127.5(61) 13.0(6.3) 45.3(21.9) 18.2(8.7) 1.3(0.48)

Gansu 122.7 79.5(64) 4.1(3.2) 31.1(25.4) 7.6(5.7) 0.1 (0.3)

Qinghai 27.3 12.1(44) 0.7(2.5) 13.0(48.1) 1.5(3.7) 0.1(0.2)

Ningxia 28.4 19.5(67) 1.0(3.5) 6.6(21.4) 0.5(1.7) 0.6(2.1)

Xinjiang 172.4 123.8(71) 4.2(2.3) 35.8(20.3) 7.5(4.0) 1.2(0.5)

Note : Figures in Brackets are percentage composition.

Source : State Statistical Bureau, Statistical Yearbook of China, 1993, (Beijing : China Statistical Publishing House,

1993), p.338.

As evident from Table 7, the highest grain output per head in 1989 was

574 kgs in Jilin as against the minimum of 185 kgs in Shanghai. The growth

between 1987 and 1989 was negative for as many as 11 provinces, which included

108

Jilin, Jiangsu, Zhejiang, Heilongjiang, Anhui, Hunan etc. The yield rate was low

in most of the provinces that showed negative growth in per capita output. This

province wise, wide variation in the composition of agricultural output is mainly

due to the differences in natural endowment.

Table 7

Grain Output Per Capita of Total Population in Provinces

Province 1978 1987 1989 Yield Per mu of Grain Annual Growth rate of in 1980 (Kglmu) yield during 1980-89(%) .

Total 329 380 376 182 3.43

Beijing 219 231 233 226 4.46 Tianjin 163 203 211 163 4.52 Hebei 334 339 351 136 5.14 Shanxi 289 267 336 130 3.41 Inner Mongolia 274 297 326 58 8.97 Liaoning 329 340 250 253 1.33 Jilin 426 721 574 163 9.24 Heilongjiang 472 519 485 133 2.24 Shanghai 238 187 185 252 5.08 Jiangsu 412 516 502 247 3.92 Zhejiang 391 388 374 280 1.79 Anhui 315 462 443 161 5.60 Fujian 304 302 315 246 1.56 Jiangxi 353 442 430 219 3.20 Shandong 320 433 397 188 3.67 Henan 297 375 393 162 2.44 Hubei 377 462 463 191 5.60 Hunan 404 452 445 260 2.77 Guangdong 290 289 304 227 2.34 Guangxi 318 304 314 201 -0.13 Sichuan 329 377 382 219 2.45 Guizhou 240 222 211 179 0.05 Yunnan 280 268 274 161 1.67 Tibet 283 227 254 169 0.67 Shaanxi 286 322 339 117 3.84 Gansu 263 254 294 112 2.96 Qinghai 247 251 259 155 2.12 Ningxia 329 324 390 108 4.49 Xinjiang 302 421 431 119 8.26

Source: Kenneth R. Waker. "Trends in Crop Production", 1he China Quarterly no. 118, Dec. 1988, p.608, Zhongguo Nongye Nianjian, 1990 (Agricultural Yearbook of China, 1990) (Beijing : Agricultural Publishing House. 1990), p.260.

109

60

3.8 RURAL NON-AGRICULTURAL SECTORS

This section looks at the rapid growth shown by the rural non agricultural

sectors, which are playing an important role in the reform of the rural economy.

Table 8 shows the trends in the total output of rural society as well as breakdown.

The total output value of rural society rose to 2, 538.6 billion yuan in 1992 from

279.3 billion yuan in 1980, that is, a rise of nine times over the thirteen -year

period. The composition of the. output value also changed remarkably. From the

Table 8 it can be understood that the trend in the 1980's was for a relative decline

in the weight of the agricultural sector. In 1980, agriculture accounted for as

much as 68.9 per cent of the total, rural industry 19.5 per cent, rural construction

6.4 per cent, rural domestic trade 3.5 per cent and the balance of 1.7 per cent by

rural transportation. In 1992, the proportion of agriculture declined to 35.8 per

cent whereas for rural industry it rose to 50.1 per cent. The share of other

activities also rose for rural construction to 6.2 per cent, trade to 4.3 per cent and

transportation to 3.6 per cent.

As for the rural enterprises60, producing a wide range of products, their

growth was indeed very rapid. The total output value of the enterprises was only

170.9 billion yuan in 1984, but within two years it was more than doubled to

The tenn rural enterprises include all enterprises owned by townships, villages, groups of households and individuals. They cover all economic sectors, e.g. manufacturing, mining, construction, trade, transport, services etc. and are often referred to as Township and Village Enterprises (TVEs).

110

61

62

63

reach 354.0 billion yuan. The growth rates were truly phenomenal during 1984-

1990 with a growth rate of 33.99 per cent. In 1992, the output reached 1,768.5

billion yuan, and constituted 60 per cent of the gross product of rural society. (See

Table 9). The growth rates of total products of township enterprises were 21.3 per

cent in 1991 and 51.3 per cent in 1992. Rural industries registered growth rates

of 22.7 per cent and 51.5 per cent 1991 and 1992 respectively. 61 The number

of enterprises reached 20 million in 1992 as against 12 million in 1985.

Employment by rural enterprises reached 1 05 million in 1992 as against 52 million

in 1989.62

Sectorally although data for all the rural enterprises are not available, in the

case of township and village-run enterprises the number engaged in agriculture

declined drastically, from 4.56 million in 1980 to 2.41 million in 1992, while

construction and industrial enterprises registered rapid growth. The number of

construction enterprises stood at 8.07 million in 1992 as against 3.35 million in

1980. Among other sectors, enterprises in transport and communications and in

commerce, catering and service trades showed a substantial fall in recent years. 63

Department of Township Enterprises, Ministry of Agriculture, Statistical Survey of Township Enterprises in 1993 (Zhongguo Xiang Zhen giye Tongji Zhailiyao, 1993) (Beijing: Reform press, 1993).

Beijing Review, May 11-17, 1993, p.26.

State statistical Bureau, Statistical Yearbook of China, 1993, pp. 395-399.

111

Table 8

Trends in Total Rural Social Output

(Unit Billion Yuan)

Year Total Rural Total Total Total Total Total Social Alritullllral Rural Rural Raral Raral

Output Output ladustrial Coutradioa Trauportatioa Commercial Outpat Output Output aud

Rataunat Output

1980 279.3 192.3 54.4 18.0 4.8 9.9 1987 943.2 467.6 328.5 72.3 33.4 41.3 1988 1207.8 561.9 465.9 86.0 41.8 52.4 1989 1448.0 653.5 588.6 91.9 51.6 62.5 1990 1661.9 766.2 672.0 97.9 58.0 67.9 1991 1900.4 815.7 826.7 114.2 66.1 77.7 1992 2538.6 908.5 1271.7 157.0 90.6o 110.8

SHARE(%)

1980 100.0 68.9 19.5 6.4 I 7 3.5 1987 100.0 49.6 34.8 7.7 3.5 4.4 1988 100.0 46.5 38.6 7.1 3.5 4.3 1989 100.0 45.1 40.7 6.3 3.6 4.3 1990 100.0 46.1 40.4 5.9 3.5 4.1 1991 100.0 42.9 43.5 6.0 3.5 4.1

1992 100.0 35.8 50.1 6.2 36 4.3

ANNUAL GROWTII RATES

1980-84 1607 13.71 20.88 19.79 29.49 17 71 1984-90 21.89 13.56 33.99 17.56 27.88 23.77 1980-92 20 20 13.82 30.82 19.78 27.92 22 36

Source : State Statistical Bureau, Zhongguo Tongji Nianjian. 1993 (Statistical Yearbook of China, 1993). (Beijing: China Statistical Publishing House, 1993), p.58.

When policy restrictions against farmers involvement in non-agricultural

production were abolished, private enterprises started emerging in large numbers.

While initially they took the form of sideline production of farm households, such

enterprises gradually moved into simple manufacturing. Some collective

enterprises were also handed over to individuals either through outright sale or

contract. Further encouragement was given to private enterprises through a

circular on Agricultural work in January 1984. Thus, private enterprises

112

experienced a truly phenomenal and unprecedented growth during 1984-1988 (See

Table 10). In 1989, the number ofrural enterprises declined 196,000 (1.0%) and

the number of workers employed by 1.787 million (1.9%). In 1990, the share of

the rural industrial sector in the total output of rural society fell some what (1

point), the number of enterprises declined by a further 182,000 (1.0%) and the

number of workers dropped 1.22 million (1.1%) (See Table 9). It can be said that

the situation surrounding rural enterprises was quite serious in 1989 and 1990.

Table 9

Spread of Rural Enterprises (Including Private Enterprises)

year No. of Enterprises No. of Employees Total Output Total Profit (10,000) (10,000) (100 million Yuan) (100 mil.

Yuan)

1984 6065( I 00.0) 5208.1 (I 00.0) 1709.9(1 00.0) 128.7 1985 12255(201.6) 6979.0(134.0) 2728.4( 159.6) 171.3 1986 1515.3(249.8) 7937.1(152.4) 3540.9(207.1) 161.0 1987 1744.6(287.7) 8776.4( 168.5) 4793.1(277.4) 187.8 1988 1888 .2(311.3) 9545.5(183.3) 6495.7(379.9) 259.2 1989 1868.6(308.1) 9366.8(179.9) 7428.4(434.4) 240.1 1990 1850.4(305.1) 9264.8(177.9) 8461.6(494.9) 232.7 1991 1907.9(314.6) 9609.1 ( 184.5) 11621.7(679.7) 284.7 1992 2077.9(342.6) I 0581.0(203.2) 17685.5(1034.3) 477.6

Source : General Planning Department, Ministry of Agriculture, ed. Zhongguo Nongcun, Jingji Tongji Daquan (China Agricultural Economic Statistics Compendium), (Beijing : Nongcun Chubanshe, 1989), p.l 04.

In 1991, however, signs ofrecovery gradually began to appear. Since then,

the controls over the Chinese economy have been relaxed and rural enterprises

have demonstrated improved performance. In 1992, Private enterprises accounted

for 87.2 per cent of the total number of enterprises but in total output value it was

113

i4

only 27.1 per cent and in gross income 28.8 per cent. The same holds for jointly

owned enterprises, although their weight in total output is not very high. As a

result of this fast rate of growth of private enterprises, output as a whole has been

very high particularly in certain years like 1984-88 and 1991-1992. It is thus, the

emergence of individual, private and joint enterprises and the high growth

achieved by them that has led to another overheating of the economy in 1993.

The government in 1993 put brakes on the economy to slow it down. However,

the growth of township enterprises in 1993 exceeded that of 1992.

These industries played an important role in fostering the growth of

agriculture by providing funds for social investment in irrigation, facilitating farm

mechanization and the use of fertilizers etc., and thus made a valuable indirect

contribution to the income of peasants. 64 Therefore, in 1992, the government of

China began to implement a package of policies to promote development of rural

enterprises in central and western regions, as a result of which growth of rural

enterprises in those regions accelerated. Prevailing views from within China

indicate that sustained growth of rural enterprises is likely to continue in 1994.

Rizwanul Islam and Jin Hehui, Rural Industrialization: An Engine of Prosperity in Post-Reform Rural China, (New Delhi: ILO-ARTEP, 1992); Ashwani Saith, From collectives to markets: Restructured Agriculture-Industry Linkages in Rural China, (New Delhi: ILO-ARTEP, 1993).

114

Table 10

Growth of Township and Village Enterprises in China 1978-1988

(Annual Growth Rate in Per Cent)

Period All Township-run Village-run Joint Individual and Enterprises Private

NUMBER OF ENTERPRISES

1978-80 -3.95 2.73 -4.99 n.a. n.a. 1980-84 43.64 4.44 7.68 n.a. n.a. 1985 101.55 4.48 -2.13 23.70 180.83 1986 23.96 1.43 -8.96 -2.47 33.23 1987 15.49 -1.27 -10.71 8.61 19.45 1988 7.89 0.81 0.33 1.04 9.24 1978-88 28.45 2.85 -0.32 0 7.27 48.65

NUMBER OF EMPLOYEES

1978-80 3.02 5.28 1.17 n.a. n.a. 1980-84 14.79 7.76 6.98 n.a. n.a. 1985 34.00 12.36 5.36 47.24 167.87 1986 13.73 7.74 2.29 8.13 36.22 1987 10.94 5.39 2.40 10.73 23.48 1988 8.41 3.88 3.57 5.77 16.16 1978-88 12.94 7.04 4.36 16.86 51.25

VALUE OF OUTPUT

1978-80 15.42 14.64 16.46 n.a. n.a. 1980-84 27.02 21.97 22.55 n.a. n.a. 1985 59.57 39.32 40.43 93.61 269.37 1986 29.78 24.14 21.09 26.56 64.65 1987 34.55 29.14 28.02 37.01 54.26 1988 36.34 33.55 36.02 32.05 42.64 1978-88 29.41 24.11 24.68 45.10 91.26

Source: Rizwanulls1am, Growlh ofRural/ndus/ries in Posi-Reform China. (New Delhi: ILO-ARTEP, 1991), p.S.

3.9 GROWTH OF INCOME AND CONSUMPTION EXPENDITURE IN RURAL CHINA

There has been a phenomenal increase in average peasant incomes and

peasant consumption during the reform era. According to the Table 11, during

1978-92, the rate of growth of annual per capita income of peasant households

appears to have been nearly 8.0 per cent; the rates for the agricultural and non-

115

agricultural components were 5.1 and 19.4 respectively. In fact, 1978-84 seems

to have been the period of very high growth rate. During the next four years,

growth rate tapered off to. less than 3 per cent per annum. Non-agricultural

income, however continued to grow at nearly 13 per cent per annum during 1984-

88; and those households who could benefit from this source of income continued

to prosper. Income growth plummeted further during 1988-90 when non­

agricultural income actually recorded a negative growth rate. Growth of non­

agricultural income achieved a remarkable recovery during 1990-92, indicating a

renewed surge in rural industries. Despite this, overall growth of income declined

further due to the poor performance of agriculture during those two years. Thus,

although the average growth of peasant incomes appears to be very high for all of

1978-92, the peasant households of China really prospered during the first half of

the 1980s.

Table 12, gives a breakdown of the net income at current prices for peasant

households by source of income. The sudden increase in the share of family self­

management around 1981-82 reflects the rapid consolidation of the household

responsibility system around this time and the corresponding decline in the share

of income coming from the collectives. The interesting feature that emerges from

Table 11 and Table 12 is not merely that per capita peasant income.has increased

8.0 per cent at current prices between 1978 and 1992, but that its structure has

undergone a drastic change. Whereas in 1978, before the reforms actually got

116

65

going, two-thirds of the income came from the collectives and only about a fourth

from family self-management. By 1989, the percentages stood at 9.4 and 82.2

respectively. 65 This drastic shift in the source of peasant incomes is due

primarily to the rapid spread of the household responsibility system in rural China

and decollectivization of agriculture.

YEAR

1978 1979 1980

1981 1982 1983 1984

1985 1986 1987 1988

1989 1990

1991 1992

Table 11

Nominal Per Capita Net Income, Consumption Expenditure and Cost of Living

Index of Peasant Households (Unit: Yuan Per Capita:)

PRODUCTIVE INCOME

NET TOTAL AGRICUL: NON- NON· CONSUMPTIO INCOME INCOME AGRICULTURAL PRODUCTIVE N

INCOME INCOME EXPENDITURE

IJJ 57 122 86 112 05 10 81 10.71 116 06 160 17 142.24 126 61 15 63 17.93 134.51 19133 166.39 146.75 19.64 24.94 162.21

223.44 194.51 166.83 27.68 28.93 190.81 270 II 237.15 199.22 37.93 32.96 220.83 309.77 272.91 216.06 56.85 36.86 248.29

355 33 315 06 24406 7100 40.27 273.80 397.60 350 07 255.70 94.37 47 53 317 42

423.76 374.68 270.68 104 40 49.08 356.95

462.55 418.35 291.05 127 30 44.20 398.29 544.94 494 02 33503 158.99 50.92 476.66

601.51 540.29 360.93 179.36 61.22 535.37 686.31 623.17 456.04 167.10 63.17 584.63

708.55 638 89 46055 178 34 69.66 619.79 783.99 703 42 486.86 216.56 80.57 659 01

ENJ>..POINT GROWTH RATES(% PER ANNUM)

1978-82 14.71 13.38 11.08 31.65 27.41 12.90 1982-84 13 01 13.57 9.06 34.81 8.91 9.87 1984-88 2.60 3.17 -0 20 12.78 -2.23 5.90

1988-90 1.43 0.92 2.85 -3.28 6.26 0.24

1990-92 4.14 3.49 0.36 10.58 9.70 5.19 1978-90 8.01 7.79 5.49 19.24 10.25 7.89 1978-92 7.45 7.16 4.74 17.97 0.17 7.47

COST OF INDEX OF

PEASANTS

100.0 107.6 Ill 7

115 0 116.8 118.3 120.3

129.1 136.6 145.3 166.5

182.3 100.0 101.9

106.0

Source: State Statistical Bureau, Zhongguo Tongji Nianjian (Statistical Yearbook of China, 1993). (Beijing : China Statistical Publishing House, 1993), p.364.

while interpreting this set of data, one has to keep in mind the fact that the percentage share of peasant incomes from collectives is evaluated at procurement prices which could have been very different from free market prices had there been no state monopoly on procurement of grain as there was until the end of 1984.

117

Table 12

Peasant Household Income and its Distribution by Source, 1978-89 (Unit: Yuan Per Head)

YEAR AVERAGE FROM THE FROM FROM THE OTHER NON-NET COLLECTIVES HOUSEHOLD UNITED PRODUCING

INCOME MANAGEMENT ECONOMY INCOME

1978 133.57(100.0) 88.5(66.3) 35.79(26.7) - 7.9(6.9) 1979 160.17(100.0) 101.9(63.6) 44.00(27.5) - 12.8(8.8) 1980 191.17(100.0) 108.5(56.6) 62.55(32.4) - 19.1(10.7) 1981 233.44(1 00.0) 116.2(52.0) 84.52(37.8) - 22.7(10.2) 1982 270.11(100.0) 58.1(21.5) 187.5(69.4) - 24.5(9.1) 1983 309.71(100.0) 36.1(11.6) 244.7(79.0) 0.88(0.3) 28.2(9.1) 1984 355.33(100.0) 35.3(10.0) 285.4(80.3) 2.85(0.8) 31.7(8.9) 1985 397.60(100.0) 33.4(8.4) 322.5(81.1) 3.69(0.9) 38.0(9.6) 1986 423.76(100.0) 36.1(8.5) 345.3(81.5) 2.92(0.7) 39.4(9.3) 1987 462.55( I 00.0) 42.1(9.1) 383.6(82.9) 3.49(0.8) 33.4(7.2) 1988 544.94(IOO:b) 49.7(9.1) 453.4(83.2) 3.62(0.7) 38.2(7.0) 1989 601.51(100.0) 56.6(9.4) 494.2(82.2) 3.45(0.6) 47.2(7.8)

Sources: Zhongguo Nongye Nianjian, 1990 (Agricultural Yearbook of China, 1990) (Beijing : Agricultural Publishing House, 1990), p. 424; Y.Y. Kueh, "Food Consumption and Peasant incomes in the Post-Mao era The China Quarterly, 116, Dec. 1988, p. 639.

Table 13

Percentage Distribution of Real Net Income of Peasant Households

PERCENTAGE SHARE OF PRODUCTIVE INCOME

YEAR PER CAPITA TOTAL AGRICULTURE NON- NON-NET AGRICULTURE PRODUCTIVE

INCOME (YUAN) INCOME

1978 133.57 91.98 83.89 8.09 8.02 1979 148.86 88.81 79.05 9.76 11.19 1980 171.29 86.96 76.70 10.26 13.04 1981 194.30 87.05 74.66 12.39 12.95 1982 231.26 87.80 73.76 14.04 12.20 1983 261.85 88.10 69.75 18.35 11.90 1984 295.37 88.67 68.69 19.98 11.30 1985 307.98 88.05 64.31 23.73 11.95 1986 310.22 88.42 63.79 24.64 11.58

1987 318.34 90.44 62.92 27.52 9.56 1988 327.29 90.66 61.48 29.18 9.34 1989 330.07 89.82 60.00 29.82 10.18 1990 366.95 89.74 63.21 26.53 10.26 1991 371.79 89.07 61.70 27.37 10.93 1992 395.50 88.62 58.71 29.91 11.38

Source: State Statistical Bureau, Zhongguo Tongji Nianjian, /993 (Statistical Yearbook of China, 1993) (Beijing: China Statistical Press, 1993), p.367.

118

Substantial changes have also taken place in the sectoral contribution of

income to peasant households. As is clear from the Table 13, while the

contribution of agriculture came down from nearly 84 per cent in 1978 to 58.7 per

cent in 1992, that of non-agricultural sources increased from 8.09 per cent to

29.92 per cent. This is quite consistent with the fact that the growth-rate of non­

agricultural income has been almost four times that of agricultural income during

this period. . The setback suffered by rural industries during 1990 and the

subsequent recovery (in 1991-92) are also shown by the figures of Table 13.

What is striking from the Table 13 is that, while agriculture played its due

role in augmenting the incomes of peasant households in an economy which was

predominantly agrarian, the real significance lies in the structural shifts that took

place in the rural economy of China and the very important contributions made

by the non-agricultural sectors in raising incomes. Thus, employment of workers

in collectively owned township enterprises constitutes an important means of

augmenting incomes of peasant households in post reform rural China. The

individual and private enterprises also grew at very high rates in post 1985 rural

China, and by the end of the 1980s half of the workforce in township enterprises

was in the private sector. The wages in private enterprises were much higher

compared to those in collectively owned enterprises. Thus, in addition to the

owners of such enterprises, workers engaged in them also could augment their.

household incomes.

119

There is a corresponding explosion in consumption expenditure. Between

1978 and 1992, per capita consumption for peasant households registered an

annual compound growth rate of 8. 7 per cent per annum (nearly the same rate as

that of income during 1978-92). Year-to year growth in consumption, however

followed a somewhat different pattern compared to income ( See Table 11 ).

Following the very high growth of 12.90 per cent during 1978-82, the growth rate

fell to 9.87 per cent during 1982-84, although income continued to grow at over

13 per cent.

This implies that much of pent up consumption demand might have been

already met by 1982 so that consumption expenditure no longer need to grow at

the same rate as income. Growth in consumption expenditure during 1984-88,

5.90 per cent per annum was, however, substantially higher than that of income.

The reason was that, the growth in income dropped so sharply during this period

that the peasants found it difficult to make such a large adjustment in their

consumption expenditure. The peasants brought down the growth in their

consumption expenditure very sharply during the following years (1988-92).

During this period the growth in consumption was again slightly less than that of

mcome.

More direct indicators of rural prosperity in China are the changes in the

quantities of various items consumed and the number of consumer durables owned.

Data presented in Table 14 indicate very high rates of growth in the consumption

120

66

of certain food items and consumer durables. Consumption of protein-rich items,

. e.g., meat, poultry, eggs and fish, has registered very impressive· growth during

1978-90. This stands in sharp contrast to modest increase in the consumption of

such items during 1957-78.66 Ownership of consumer durables has also grown

at equally impressive rates. Indeed, the growth rate for items such a-; television

sets has been quite spectacular; and in 1990 over 44 per cent of the rural

households owned a set. The high growth rate of consumption of non-grain food

items and in the ownershipo of consumer durables are clear indicators of

improvement in living standards in rural China.

Rural industries played an important role in bringing about such rural

prosperity in rural China. As income from agriculture started increasing at a rapid

rate and the disposable income of peasant households registered sharp increases

in the early years of reform, peasants demand for non agricultural consumer goods

also increased considerably. In addition, there was a pent-up demand for such

goods because peasants had low levels of consumption for a long period.. Rural

industries, by moving into the production of light consumer goods, served the very

useful purpose of meeting the demand for such goods.

Y.Y. Kueh, "Food Consumption and peasant incomes in the post- Mao era", The China Quarterly, no.ll6, December 1988, pp. 634-670.

121

Table 14

Per Capita Consumption of Selected Consumer Goods by Rural Households and Ownership of Durable Consumer Goods

Per 100 Rural Households

ITEM UNIT 1978 1990 ANNUAL GROWTHS RATE(%)

Grain Kg. 248.00 262.08 0.46 Meat Kg. 5.76 11.34 5.81 Poultty Kg. 0.25 1.26 14.43 Eggs Kg. 0.80 2.41 9.63 Fish and Shrimp Kg. 0.84 2.13 8.06 Cloth( Cotton) metres 5.63 0.90 -Cloth (others) - 0.45 1.86 12.55 Shoes Pair 0.32 0.67 0 6.35

DURABLES

Bicylces number 30.73 118.33 11.89 Sewing Machines number 19.80 55.19 8.92 Radios number 17.44 45.15 8.25 Clocks number 24.33 49.01 6.01

Wrist Watches number 27.42 172.22 16.55 Televisions number 0.39 44.44 60.57

Source : State Statistical Bureau, Zhongguo Tongji 7ianjian, 199/ (Statistical Yearbook of China, 1991) (Beijing: China Statistical Press, 1991), p.453.

Figures in Table 15 are taken as indicative of broad direction, shifts in the

pattern of consumer expenditure that have taken place in rural China after 1978

becomes clear. The share of food in total expenditure declined from nearly 68 per

cent in 1978 to about 56 per cent in 1992. More spectacular is the quadrupling

of the share of housing. The share of consumer expenditure on housing leaps

from 3.2 per cent in 1978 to 14.3 per cent in 1989. Also noteworthy are the very

large increases in the shares of services (nearly three-fold) and "others" (from 6.57

per cent in 1978 to nearly 12 per cent in 1992)- two groups which include less

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67

essential and probably some luxury items.67 Such shifts in consumption

expenditure are clearly indicative of some prosperity among peasant households

in China.

YEAR

1978 1980 1983 1984

1985 1986

1987 1988

1989

1990 1991 1992

Table 15

Percentage Distribution of Consumption Expenditure of Peasant Households by Broad Categories, 1978-1992

(Unit : Yuan)

TOTAL CONSUMPTION FOOD CLOTHING FUEL HOUSING SERVICES OTHI:RS EXPENDITURE PER

CAPITA (YUAN)

116.06 67.71 12.70 7 13 3.16 2.72 6.57 162.21 61.77 12.32 5.96 7.89 2.63 9.44 248.29 59.30 11.14 5.43 11.10 2.21 10.83 273.80 58.99 10.35 5.49 11.73 2 38 11.05 317.42 57.76 9.87 5.72 12.43 2 86 11.35 356.95 56.36 9.45 5.20 14.35 3 15 11.49 398.29 55.15 8.59 4.84 14.50 5 06 11.85 476.66 53.41 8.69 4.55 14.92 5.67 1281

535.37 54.09 8.29 4.39 14.39 6.59 12.25 584.63 58.04 7.76 4.53 11.85 691 10.92 619.79 56.84 8.23 4.33 11.12 7 84 II 65 659.01 56.81 7.96 4.38 10.34 8 67 II 84

Source : State Statistical Bureau, Zhongguo Tongji Nianjian. 1993 (Statistical Yearbook of China, 1993) (Beijing: China Statistical Press, 1993), p.464.

From the above discussion, it is clear that reform policies succeeded in

stimulating economic activity and raising overall income levels during this period.

However, it also raised questions regarding the impact of these measures on

income inequality among different sectors in the economy.

ibid.

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68

3.10 INCOME INEQUALITY IN RURAL CHINA

As already mentioned in detail in the previous sections of this chapter, after

China reverted to farmily farming under the contract responsibility system, the rate

of growth of annual per capita income of peasant households have been 8 per cent

during 1978-92. Agricultural output grew at an annual rate of 6.2 per cent

between 1979 and 1992; in contrast to the 2. 7 per cent rate of 1953-78. Non-

agricultural income, continued to grown at nearly 13 per cent per annum during

1984-92. The reforms also were followed by a striking growth in Township and

Village Enterprises (TVEs), which by 1992 employed more than 100 million

workers (about 12 per cent of the rural labour force).

Despite the increases in the average output and income of Chinese Citizens

since the reforms, the gains have not been evenly distributed, and urban residents

without rations and rural net consumers were hurt by the price increases. In

addition, disparities in rural areas, which have always existed,68 have been

exacerbated as a result of the reform with the coastal areas benefitting relatively

more than others.

The Peoples Daily in its issue of 9 April, 1980 quotes a poverty line of 50

yuan per person per year and reported that as of 1980, some 200 million Chinese

Ehtisham Ahmad and Gang Zou, "Deprivation and Prosperity in Chinese History" World Development Report Washington, D.C.: WDR Unit, World Bank, 1990), p.27.

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69

70

71

peasants were living below the poverty line.69 While in 1982, Vice-Premier Wan

Li commented that 150 million Chinese peasants did not have enough to eat,

which puts the level of absolute poverty to 15 per cent of the population in

1982.70 Whatever the magnitude of the poverty population, one thing appears to

be reasonably clear from these two reports that, the trend in poverty population in

terms of the head-count ratio appears to have discernible downward bias

immediately after the reforms. This meant that, the pro-agricultural policies of the

early reform period made income more equally distributed. Using data based on

China's annual household income and expenditure survey for 13 provinces,

Chinese researchers showed that inequality fell or at least was stagnant in the early

years after the initial reforms in all of the provinces71 All poverty lines also

shows a decline in poverty during 1978-83 (See Table 16 and 17).

Since 1985 rurai poverty appears to have increased. In urban areas, the

sharp increase in inflation after 1987 - reversed the decline in poverty from 1978

to 1983. One state council report suggested that, by the end of 1985, there were

102 million rural residents with per capita income below 200 yuan, equal to about

Quoted in David Zweig, "Prosperity and Conflict in Post-Mao rural china", The China Quarterly, no. 105, March 1986, pp.1-18.

Renmin ribao (Peoples Daily), 23, December, 1982. Also quoted in Zweig ibid.

Zhu Xiangdong and Wenjianwu, "A study of Differentials in Peasant income", ("Nongmin Shouru Chayi Yanjiu"), Statistical Research (Tongji Yanjiu) no.4, Jan 1990, pp. 48-52.

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12.2 per cent of the rural population.72 Among them, the 38.4 million poorest,

lived in 664 out of the 1,936 counties. According to this report, these poor are

concentrated in 18 regions in middle and western China.

A second official statistical communique on National Social and Economic

Development during 1989 estimate that, while the income and living standard of

urban and rural inhabitants continued to rise during 1989, 8.2 per cent of farmers

households still had an income of less than 200 yuan. In addition to it, in many

areas, the social safety mechanisms that had been built on a collective basis are

no longer operative. It increased destitution and poverty not only in the poorer

regions, but also within relatively prosperous areas. Under the pre-1978 system,

although income was low, inequality was also very low, especially at the local

level (but regional differences existed). Basic consumption needs were generally

met through considerable public provision. But under the post-1978 system,

poverty reduction programme provided transfers to poorer regions, not to poor

households through individual entitlement. This exacerbated the situation during

the reform period.

State Council, Office of the Leading Group of Economic Development in Poor Areas, Outline of Economic Development in China's Poor Areas (Beijing: Agricultural Publishing House, 1989).

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Table 16

Percentage of Peasant Households in China by Nominal Net Income, 1978-88

YUAN 1971 1979 1910 1911 1911 1913 19 .. 1915 1916 1917 PER CAPITA

0-100 33.8 19.3 9.8 4.7 2.7 1.4 0.8 1.0 1.1 0.9 100-150 31.7 24.2 24.7 14.9 8.1 6.2 3.8 3.4 }.2 2.4 150-200 17.6 29.0 27.2 23.0 16.0 13.1 9.9 7.9 7.0 5.0 200-300 15.0 20.4 25.3 39.8 37.0 32.9 29.2 25.6 21.8 17.5 300-400 S.O 8.6 14.4 20.8 22.9 24.S 24.0 21.7 21.3 400-500 2.4 I.S 2.9 S.O 8.7 11.6 14.1 15.8 16.5 17.2

OVER SOO - 0.6 1.6 3.2 6.7 11.9 18.2 22.3 28 7 35.7

Average Annual 134 160 191 223 270 310 JS5 398 4Z4 463 net Income

1911

0.5 I.S 3.3

13.S 17.5 16.7 47.0

S4S

Source: State Statistical Bureau, Zhongguo Tongji Nianjian, 1988 (Statistical Yearbook of China, 1988) 'Beijing:

YUAN

Statistical publishing House, 1988), p.564.

Table 17

Peasant's Income Distribution and Household Size in China, 1985, 1987 and 1988

.... ,, .... Pl.R CAPITA

%0P NO. or ""' %0P NO.OP' %OF %0P' NO. OP' %0P

HOU.!W.HOLJ) HOtJ~OU. POPUlATION 1100,.._ HOWiVfot.D roruunoN HOtJSE.. HOl'JW.. rorm.AnON MP.Maut.• HOUIO MDfaF..b HOI.Dfl HULD

M~tal.L'i

Below 100 1.0 6.09 1.13 087 6.09 0.98 0.5 6.09 0.6

100-150 3.4 6.09 3.83 2.38 6.09 2.69 I.S 6.09 1.7 I 50-200 7.9 5.90 8.63 4.99 5.90 5.45 3.3 .5.90 36

200-300 25.6 5.82 27.5 17.51 5.82 18.8 13.5 5.82 14.6

300-400 24.0 5.83 24.5 21.34 5.53 22.0 17.5 S.SJ 18.0 400-500 15.8 5.08 14.8 17.21 5.10 16.3 16.7 5.20 16.1 Over 500 22.3 4.91 20.2 35.7 5.10 33.7 47.0 5.20 45.3

Source : Ge Sheng, Zi Zhi Qu, Zhixiashi Nongmin Shouru, Xiao Fei Diaocha Yanjiu Ziliao Huibian (compilation of Data from a Survey on farmers income and expenditure of all provinces, Autonomous Regions and Municipalities directly under the Central Government) (Beijing: Statistical publishing House), p.20; Zhongguo Tongji Nianjian. 1988, 1989 (Statistical yearbook of China, 1988, 1989) (Beijing: Statistical Publishing House), p.732, p.742.

To examine overall changes in living standards and poverty there are not

too many information from the statistical year book and other government reports.

We have used the data from sample survey conducted by the state statistical

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bureau and data from a survey on farmers income and expenditure of all

provinces, autonomous regions, and municipalities directly under the central

government (See Table 16 and Table 17). These tables outlines the distribution

of peasant households in different income groups at current prices between 1978

and 1988. It shows a decline in poverty during 1978-83 and an increase in

poverty and destitution after 1983-84. During 1985-88 the share of rural

households and the rural population in poverty increased substantially according

to both these tables and various State Council reports mentioNed previously. This

is mainly because, in the rural areas, the pro agricultural policies of the early

reform period made income more equally distributed, while the pro-rural industrial

policies that characterize the later period contributed to increased inequality. In

rural China, compared to farming income non-farming incomes are more

unequally distributed, and, in general, their contribution to total income inequality

is greater.

Two recent studies have made an attempt to explicitly look at these linkage

between the structure of income and its distribution.73 They also have reached

the conclusion that, in 1988, non-farming activities accounted for over a half of

inequality in 6 of their 1 0 sample provinces, and wages from rural industries were

Athar Hussain, Peter Lanjouw and Nicholas Stem", Income Inequalities in China: Evidence from Household Survey Data", World Development, Vol.22, no.l2, 1994, pp. 1947-57; AR. Khan, Keith Griffin, Carl Ris~in and Zhao Renwei, "Household Income and Its Distribution in China, The China Quarterly, December 1992.

128

'4

the most disequalising component of rural household income. The implication is

that rural inequality would rise with shift in labour from farming to non-farming

activities.

However, in the latter half of 1992, new trends totally different from the

past appeared. These led to several ne~ problems in 1993. First, the authorities

made an important change in policy by freeing prices of grain due to the surpluses

existing since the spring of 1992. They abolished the old official price of grain

for sale to urban residents and basically allowed prices to be determined by the

market according to supply and demand. Since prices were freed while supplies

were excessive the natural result was that the market price of rice fell. In some

regions, prices reportedly dropped 20 to 30 per cent in a short period. With these

prices, many· fanners found themselves operating close to the cost level.

In addition to the problems caused by the freeing of food prices, another

major problem was the trend toward stagnation of the real income of the farmers

since 1989, when crops became bountiful and local surpluses surfaced.74

Specially, from 1989 to 1992, the per capita annual income of farmers increased

nominally from 544.94 yuan to 783.99 yuan rising 238 yuan, but during that

period prices rose 27.1 per cent as well, so the real growth in income of the

farmers over that four year period was only 2.2 per cent. This figure is

Lu Xueyi, "Yao Jingji Nongye Zaizou niu Yange de laolu"(we have to be watchful over agriculture and once again take the old path of fanning) Zhongguo Jingji Tizhi Gaige (Refonns in China's Economic System), no.2, 1993, pp.72-78.

129

particularly low compared with the average annual 15.1 per cent increase from

1978 to 1984 and the average annual 5 per cent increase from 1985 to 1988, when

agricultural production was stagnant.

This slowdown of growth has been particularly pronounced in the inland

regions where rural enterprises and other parts of the non-agricultural sector have

always been slow to develop and where farming income amounts for the majority

of the farm incomes. The farm incomes in Anhui, Henan, Hebei, Inner Mongolia,

Hubei, Guizhou and Ningxia have fallen in real terms. This decline is causing a

widening gap between the coastal rural regions where rural enterprises are

relatively developed and the inland rural regions which rely mostly on agriculture.

To examine this trends of inequality during the reform period, we have selected

two provinces, Jiangsu in East China and Henan in Central China. These two

provinces are selected because of the divergent rate of development between these

two provinces. The Next Chapter (chapter 3) will focus on Jiangsu province, one

of China's most industrialized provinces, and it is a leader in the Township and

Village Enterprise (TVEs) movement.

130