Part I
Transformation of land tenure system
1
Agricultural reforms during the 1980s
At the end of 1978, the economic reform in agriculture in the Peopleās Republic of China began. As the sector at that time involved 80 per cent of the population and provided more than one-third of net national income, the changes had a strong impact on the development of China as a whole. This article will, first, give an overview of the operating mechanisms in agriculture prior to the reform. Second, the effects of the reform in agriculture on production, resource allocation and income distribution will be briefly discussed. Third, present problems which substantially impair the further development of agriculture will be examined and finally possible countermeasures will also be referred to.
1.1 The operating mechanisms of agriculture during the period of the Peopleās Communes
The Peopleās Communes were set up during the 1950s with the aim of helping to establish a centrally planned economy in China through a forced collectivisation in rural areas where agriculture always played a predominant role in the economy.
The communes consisted of three levels in terms of ownership as well as economic and administrative management: communes, general production brigades and production brigades. The production brigade was a basic economic unit and each included approximately 24 peasant households (OECD, 1985). By means of the communesā organisational structure, a hierarchical pyramidal system was formed for implementing national agricultural plans. Plans were drawn up to determine the choice of products, the volume of production, the amount of area planted and the quota of Central government procurement and were administered through different levels down to the production brigades.
Purchasing and marketing of farm products were basically monopolized by the state. In accordance with the collectivisation process, the state monopoly tended to cover the whole agricultural trading sector. The monopoly at one time included as many as 180 kinds of farm products. Farmers were required to sell products to the state commercial agencies and were paid prices fixed by the government. However, the purchasing prices of farm products were set so low that there was no incentive for farm people to produce more. Being restricted by such a planning and implementation framework, the brigades were not able to make their own management decisions in such a way as to use existing resources efficiently and to obtain maximum profits.
The low pricing policy for farm products was used as a means of transferring resources intersectorally from agriculture to industry. Consistent with this strategy, a system of food subsidies was introduced to cover only the urban population, who were to participate directly in industrialisation. The strategy of developing industry at the expense of agriculture has been adopted by most developing countries. However, only the Chinese government virtually ruled the rural population out of the industrialisation and urbanisation process by prohibiting labour migration from the rural areas to the cities. In connection with a system of registration of people and their places of residence, the government directly controlled a rationing system for daily necessities with subsidies exclusively for urban residents. The hierarchical commune organisations were also used to prevent the ruralāurban labour migration since farmers had to ask brigade leaders for permission whenever they wanted to travel. The government not only distributed national income between agriculture and other sectors but also directly allocated labour resources between them.
Furthermore, the government has always been the major investor in agricultural capital construction. Prior to the reform, investment in large and medium-sized projects for land infrastructure (irrigation, drainage and land improvement) was composed of public funds derived from the state budget and unpaid farm labour input while small projects were mainly financed by communes and brigades. Private investment was restricted to small farm implements for the farmersā personal use and small amounts of supplementary family production. During the period 1953 to 1978, the central government investment in agriculture amounted to 66,548 million yuan (Statistical Yearbook of China, 1986). (N.B. The current exchange rate in 1986 for yuan is 3.71 yuan: 1 US$; the 1978 rate being approximately 1.66 yuan: 1 US$.) This investment played a significant part in the formation and improvement of land infrastructure which basically determined the physical capacity of Chinese agriculture. Nevertheless, it was a far from adequate basis on which to modernise agriculture. Moreover, because of the extremely limited output of agriculture and the undervaluation of farm products, most communes and brigades were too poor to undertake investment. Chinese farm production thus retained a traditional character ā despite the fact that under the commune system farm units were large. Personal income distribution within brigades was carried out in a way which was also stipulated by the government. The essence of the stipulations was egalitarianism which resulted in a vicious circle: the working incentive of brigade members diminished steadily, thus lowering average work efficiency, lessening the return to the brigades as well as personal income, and reducing incentives still further. In 1976 the nationwide average per capita income of the communes amounted to 62.8 yuan, which was lower than that of 1956 at constant prices. At that time, more than one-third of peasant households were in debt and about 100 million farming people suffered from a shortage of food (Lu, 1986). By 1978 China was no longer self-sufficient in grain and had to import grain to supply about 40 per cent of the total urban population (The World Bank, 1986).
Within the framework of the centrally planned economy, the government directly administered agriculture and took an entrepreneurial role in almost all links in the agricultural production chain during the period of the Peopleās Communes. However, it was inefficient, as was indicated by the stagnation of farm production and the chronic poverty of the farm population.
1.2 The impact of the policy changes on agricultural development
The beginning of economic reform arose from the farmersā attempts to change the egalitarian income distribution system. The attempts finally led to the establishment of the āHousehold Responsibility Systemā. It can be considered as a kind of tenant-farming system in which public ownership of land is combined with private ownership of capital. Individual peasant households as independent producers have freedom to manage their allocated plots of land and make their own decisions regarding economic activities. In this sense, family farms are now the basic agricultural production units.
In comparison with those in West European and North American countries, family farms in China have two marked characteristics: first, they generally use simple equipment and techniques, as well as continuing to use traditional methods of farm management; second, the farms are small in size (average: 0.5 ha of farmland) and they operate a mainly subsistence economy. With the emergence of family farms, the system of Peopleās Communes was inevitably abolished. Those political and social functions which the communes had undertaken were then taken over by the local government in a community (āXiangā in Chinese). Instead of the former general production brigade, a village management committee was put in charge of social affairs within an administrative village. Production brigades were replaced by village groups which formed mainly administrative management units at a grass-roots level in rural regions.
These institutional and organisational changes made it possible for market mechanisms to gradually be introduced and the instruments of state management of agriculture at the macro level to be partly modified. The tendency of the modifications seems to be that instead of undertaking entrepreneurial functions, the state conducts agricultural development mainly by means of making public policies to influence farmersā behaviour. During the reform the following significant measures were taken:
Price and marketing policies were changed by abolishing the state monopoly on purchasing and marketing of farm products, opening up a free market, introducing the state contract purchase system and raising prices. A comparison of the general state purchasing price index of farm and sideline products for 1986 and 1978 shows an increase of 77.5 per cent;
Structural policies were introduced for stimulating diversification of agriculture whereas, prior to the reform, only grain production had been promoted. A structural readjustment can be seen from changes in the composition of gross agricultural output value (in per cent):
Rural non-agricultural economic development policies were designed in favour of shifting the surplus labour from agriculture to other sectors where there was a labour demand within the rural areas. In 1987 more than 80 million surplus farm labourers, which constitutes 20 per cent of the total rural labour force, were either employed by village or township-owned industrial enterprises or worked as specialists in businesses outside the realms of traditional farming. The output value of rural industry amounted to 450 billion yuan constituting 50.8 per cent of total gross value of output of the rural economy.
An unprecedented growth in agricultural production and an increase in the income of farmersā families in recent years indicates that these policies have been successful. The gross value of output of agriculture, which increased at an average rate of three per cent yearly during 1957ā78, rose to eight per cent in 1979ā84.1 Grain output grew from 305 million tons in 1978 to 402 million tons in 1987. The output of cotton, oilseeds, tobacco, tea and sugar-cane etc., doubled or tripled in the same period. The growing dependence on imported grains and cotton was reversed. Production of pork, beef and mutton exceeded 19 million tons in 1987, showing an increase of about 124 per cent over that of 1978. In the same period the output of aquatic production reached 9.4 million tons, an increase of 102 per cent.
The accelerated growth of agriculture and the development of the rural non-agricultural economy have greatly benefited the farmers. Per capita net income of peasant households increased at an average rate of 13.1 per cent a year between 1979 and 1987, compared only to three per cent in the period 1954ā78, at constant prices. Although income inequality has grown, it is not very pronounced. This is shown by the changes in value of the Gini coefficients for peasant households in China as a whole (State Statistical Bureau, 1986):
These achievements have basically resulted from an improvement in this economic system. As the government has gradually withdrawn from entrepreneurial activities with a view to transforming the centrally planned economy to a market oriented economy, initiative and entrepreneurship of farmers have been released. Since farmers won the right to manage the family farms ā the prosp...