How China’s Agricultural Reform Contributed to Its Success on Economic Growth

Introduction

A country can realize an overall economic development by linking all or the major sectors of its economy. Because some sectors may have more potential for growth and render desired results than the others, countries may concentrate in the exploitation of some sectors more than others. It is necessary that although some sectors hold such potential, distribution of the benefits and growth opportunities from these sectors to others is provided for so as equal or at least fairly equal growth will be realized. However, the linkage can occur unpredictably as will be seen in the case of total or expanded institutional reforms in the agricultural sector in China that occurred as a result of economic force (although the government had been opposed to its initial stage).

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Economic reforms in China have largely been influenced by growth in its agricultural sector. The need to improve the economic status of the agricultural sector has led to initially predicted or unpredicted changes in other sectors. The team-based system of labor usage in the farms was changed in favor of individual household system that came with improved productivity. Growth in the industrial sector resulted in movement of labor from the rural areas. The need to develop the agricultural sector resulted in the opening of the market operations to the private sectors, development in trade through abolishment of quota systems, and reduced governmental financial burdens through interventions to control agricultural systems. The government allowed the market to influence the agricultural systems following the challenges arising from the need for its intervention after increased quotas led to increased retail prices for some commodities like eggs, pork and fish while prices for commodities like grain remained the same. The country has also involved farmers in the elimination of poverty by the CDD (Community Driven Development) project. Entry into the World Trade Organization may lead to improved trade relations the country will have with trade partners. This paper discus the agricultural reforms in China and related issues.

Agricultural Reforms and impacts

Agricultural reforms launched in 1978 in China have accelerated Industrialization and urbanization, particularly leading to development of the rural economy (Zong, 1983). The growth in the agricultural outputs was as a result of, or influence of more than one factor, namely; the shift from grain to non-grain crops influenced the growth positively; a shift to the HRS system from the production-team arrangement led to a positive output growth realized in 1978-1984; a decline in cropping intensity influenced the growth negatively during 1978-1984 and changing procurement prices through influencing crop pattern, crop intensity and the input application levels. There was a shift in the production management unit from collective farms to individual households, flow of surplus rural-based labor to urban centers, and commodities were sold to private parties. In 1993, the China’s Growth Domestic Product realized a growth of 3,138 billion Yuan from 447 billion Yuan and a real annual growth rate of about 7% according to Koo & Jianqiang (1997). During the same year, imports grew with a factor of about 20, while the exports grew from 27 billion Yuan in 1980 to 528 billion Yuan in 1993. This indicates that trade for China experienced a growth. According to Wang, Wailes, & Cramer, the reforms resulted in the production of most major commodities (1996; qtd. in Koo & Jianqiang 1997). In the year 2003, about 45% of the country’s exports came from foreign funds and enterprises and its export and imports accounted for 5.8% and 5.3% of the world’s respective export and imports. In 2004, china realized a total of about 609.9 billion US Dollars according to the IMF 2004 report (cited in Hu, 2005). As the third biggest trading body after United States and European Union then, China contributed more than 20% of the world’s increase in trade. During 2004, the private businesses became one of the pillars of the economy, and contributed more than 82% of non-service industries. They realized a growth rate of employment of 1.5% which was 0.8% of the overall employment growth rate. The China’s agricultural sector consists of the urban-based industrial sector and the rural-based agricultural sector. China realized a GDP per capita of 1267 US dollars in 2004 and 6671 US Dollars in Shanghai.

The government realized sufficient profits and capital investment for its industrial development through maintenance of low cost of raw materials and labor for its major industries. This was realized through a policy adopted by China, to have a monopolized system of agricultural products and selling them at a low prize. The need to solve the problem of underemployment arising in the agricultural sector following the economic reform called for faster expansion of the industrial sector so that the surplus labor in the agricultural sector would be transferred to the industrial sector. The government was encouraged to carry out similar reforms in the industrial sector in 1985 following successful reformation in the agricultural reforms. The government formed market mechanisms mainly comprising pricing and macro-economic management systems and strengthening the vigor of enterprises. There were established 14 coastal port cities which formed the economic cities from where experimental industrial reforms would spread to the rest of the areas.

The government did not intend to adopt individual household operation-based agricultural system because it was viewed as being against socialism. In fact, the government prohibited the practice even though it was acknowledged in 1978 that solving managerial difficulties in the team systems would improve incentives to farmers. However, the collective work based program that involved teams of about 10-20 neighboring households was encountering problems because it was difficult to monitor the work in a team and the incentives weren’t tied to the farmers’ efforts. The beginning of a different turn that would bring revolution in this sector arose when a small number of production team first contracted land, output quotas and other resources secretly to individual households, and then with the support from the local authorities. These teams beat the rest in terms of the yields brought in, after one year, which made the central authority to consider the new approach but required that it be practiced only in poor regions. The requirement was rejected by most of the teams, and in the late 1978, with 45% of the production teams having been destroyed, full acceptance was granted for the HRS system. The system had been adopted by 98% of the production teams by the end of 1983. In this case, the economic pressure became the force behind the institutional reforms.

In order to establish the market economy in the country, further reforms which were taken included the price reforms through abandoning control of the production of major crops like grain and oilseeds and which allowed competition between the corporations run by the state and the private groups in the grain and other agricultural commodity market. In addition, due to price reforms, liberalization of prices for over 95% of industrial consumer goods, over 85% and 80% of agricultural and capital goods respectively was realized. Price reforms were realized by raising the above-quota prices for delivery of grain and oil crops by 20% to 50% of the quota prices while a 30% bonus was instituted for cotton; and the quota prices for pork, sugar crops, cotton, oil crops and grains raised an average of 17.1%. The above-quota prices applied to those goods which were sold in excess of the procurement obligations quota prices applied to goods that were sold in fulfillment of the obligations aforementioned. Although there was an increase in retail prices for eggs, pork and fish by one-third, the prices of grain and edible oil remained unchanged. Urban residents received 5-8 Yuan per month to compensate on the changes (State Statistical Bureau, 1988; qtd. in Lin, 1992). The mandatory quotas were abolished for cotton (1984) and grain (1985) in favor of the procurement contracts supposed to be negotiated between the farmers and the government. The abolishment came as an effort to reduce government expenditure on price subsidies which had rose to 8.4 % to 24.6% of the state budget in 1984. In addition, the action would pave way for increased role of market. An unexpected output growth had begun to emerge in 1982 and had increased the financial burden. The contract price was the weighted average of the above-quota and the quota prices, and the change in the system caused a reduction of the price margin paid to farmers by a 9.2% drop. The contracts however were made compulsory in 1986 as a result of declining production of cotton and grain in 1985.

The annual growth rate rose from 2% realized in the 1953 to 1978 to 6.1 during 1979 to 1993, with significant growth in agriculture being realized in 1979 and 1985. However, the growth rate fell to 4.1 % per year after 1985 and production of grain crops stagnated; while after the same year, the industrial sector has had a strong growth. The national economy has been positively affected by the export of labor intensive manufactured goods, and the import of improved technology and management skills has improved technology in industrial and the agricultural sector. China’s open door policy has played a significant part in attracting more technology, more investment and the international trade. China implemented the Contract Responsibilities System in Agriculture and opened trade to the outside world in the late 1970s and early 1980s as the first reforms in its economy according to Hu (2005). More reforms were undertaken in 1990s to close unprofitable firms and deal with insolvency in the banking system and the bridging of the gap between the poor and the rich during the beginning of the twenty-first century.

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Higher cropping intensity which was at the expense of cash crops and the grain acreage imposed by the local authority to make sure that grain output in their regions met state procurement quotas or local demands. The increased crop intensity and grain acreage was raised to a level that led to net losses to farmers. The mandatory targets for acreage for each crop, yields and level of input and others were outlined in the self-sufficiency policy. Areas that had comparative advantage under grain procurement price system became reluctant to increase the levels of their grain output because the more an area sold to the state by the procurement prices, the larger the contribution to the tax payment because the procurement prices were taken below the prevailing market prices. Because of this, those areas with grain deficiency needed to increase the production of grain if the local demand went higher due to an increase in income or population.

The effort to increase the role of markets in guiding agricultural productions other than state interventions was reflected achieved through a number of ways; reduction of the number of products included in the agricultural planning, cutting down grain procurement quotas, loosening private interregional trade in agricultural products and increasing grain imports. This led to a change in the cropping intensity and the cropping patterns between 1978 and 1984. The farmers were influenced by the profit margins to adjust production activities. Increase in freedom in farming activities may have contributed to a rise in the percentage of land allocated for production of cash crops and the growth in the subsidiary production, fishery, and animal husbandry sectors, while the production of grain declined. Although the crop sector stagnated, the agricultural sector in total grew at 4.1% annually during 1984-1987. However, the government control returned after grain outputs declined in 1985 and growth rates deteriorated in terms of making mandatory the procurement contract that was voluntary. The interventions were increased through 1985-1991.

China’s fast economic development, poverty population policies benefiting farmers, support from the international community including the Asian Development Bank and the pro-poverty stricken areas have led to the reduction of poverty incidence from 30.7% to less than 2%, and the reduction of poverty population from 250 million in 1978 to 14.79 million in 2007. China has therefore become the first country to meet the Millennium Development Goals set by the United Nations to make sure that there is reduction of poverty by a half.

The government of China has shown interest in the using people or masses like the farmers, to solve their own problems and drive poverty. The local people would have a say in these projects. In 2006, the Community Driven Development Pilot (CDD) was started. The government has also shown interest in the need for farmers’ specialized cooperatives and linked rural and urban developments. The people were meant to be made aware of the CDD pilots in terms of its activities, funding resources, and prevailing practices. A target was set up at 80% for the awareness of the project among the community members about the project (Wenkai, 2008). Farmers have been empowered through this project by letting them manage affairs such as the project funds, supervision, management, decision-making on the type of project to be implemented, who will and how it will be implemented. In this project the government plays crucial roles like providing of information dissemination materials, providing for project implementation and management, project selection and screening, and helping in solving the problems encountered in the implementation of the project.

The CDD has been reported to lead to increase in the income of farmers and address the difficulties faced by the communities stricken by poverty. Because the communities have a say in the project, they have had a chance to solve or help in sorting out the problems they had desired to end. There has been realized self-organization and management amongst the farmers as well as improvement in the self-development capacity. The project has received a sense of ownership and responsibility from the farmers because of encouraged participation from them and has reduced their reliance on external help. It has also eliminated or helped avoid the situation of individual isolated efforts in production (Wenkai, 2008).

The initiative has also brought other benefits or changes such as the shift of the role of the government from leading to providing of service at the grassroots and social harmony amongst the local residents. The effort to achieve development and reduce poverty in China has received support from the experts of Asian Development Bank (Wenkai, 2008).

The developments in China’s agricultural system have been contributed partly by the use of modern methods of farming. Although Huang et al.(2003) have argued that the growth in agricultural productivity realized during 1978-1984 was because of institutional innovation when rural household responsibility system was first adopted. Technological growth has been indicated as the major driver of China’s growth in the sector, realized since the mid 1980s. There have been upgrading of the country’s irrigation system, increased use of fertilizer and pesticides, and expanded cultivation of land (Xu, n.d.).

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The role of research and challenges in the agricultural and economic sectors

Education holds a very important position in such innovations. Last year (2008), study was identified to hold an important point in strengthening the existing CDD pilot project. This is through identifying the gaps and problems which can be used to improve the original situation. Because there was the need to extend and expand the program to other areas, study would hold an important position to identify the most effective procedures and beneficial means of application. In addition, study would help to understand the best means of applying the project on the local settings because it would be expected that the project may face localized challenges that may differ depending on the scenarios.

Since there was need for planning to expand the pilot areas by phases. There is need to identify and study the solutions to the difficulties involved in larger scope extension of the project aimed at reducing poverty. In addition, study holds an important position to formulation of policies of reducing poverty. Therefore, it can be argued here that development of the locals has led to the development of education in one way or the other.

It is difficult to ignore the role of knowledge in the world that is dynamic, with changes occurring in the technology and informational sectors and also leading in innovation for better practice in agriculture, business and economic methods among others. Specifically, education can help people develop better methods of economic farming and the related business through the research. Investing in education is important therefore to empower the locals to understand the needs for poverty reduction projects, agricultural improvements and help determine the best ways to solving the countries difficulties already realized in the implementation of changes and projects in the agricultural sector of the economy.

The strength points of the China’s agricultural system before entry into the World Trade Organization which included strong competition at areas of competitive advantages over other nations, was expected to wane following entry into the trade body because the country would face more competition. In addition, the methods used in boosting agricultural output, for example, increased use of fertilizer and pesticides, expansion of cultivated land, upgraded irrigation system, price and market reforms, were already indicated to wane as methods of increasing production in the new millennium (Xu, n.d.). Xu argues that there is need to invest in agricultural research and more technological dissemination. In this scenario, education will play an important position in searching for better and new methods to improve the situation.

Before entering the WTO in 2001, there were fears that China would be negatively affected through unfair competition in favor of the international supplier, for those crops demanding large areas of land. There were anticipations that exports for labor intensive agricultural products would increase after entry into the world body. However, this did not happen after two years; i.e. no increment for land intensive imports (e.g. cotton, oil, and sugar did not increase) and no increase for the exports of labor intensive products. Although the entry was feared, it has helped the agricultural producers in China to adapt to changing international competition. China had experienced reduction in price protection rates unlike many developing countries (Huang et al., 2003), and the reduced protection enhanced the producers to adjust to the international competition.

Although there has been reported success in China’s agricultural sector, there have also been handles even to the locals. There has been a slow down of rural income growth, and the tax burden being biased not in favor of the rural people as compared to urban people (37 Yuan per year compared with 146 Yuan). China began the tax reform in the year 2002, and this has been termed as the third revolution in China’s rural areas. Because the reforms would result in increase of incomes for rural people through reducing tax by eliminating all unreasonable fees on farmers and integrating all reasonable rural taxes into a single agricultural tax, the project would reduce poverty.

Conclusion

Development in various sectors of the economy need be linked if a country will have to realize an overall development in all sectors. A country may realize the sector that carries the highest potential for growth for its development of economy and concentrate there, but need transfer the benefits to other sectors. All sectors may however grow at different rates.

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Agricultural reforms in China have not only resulted in growth of the country’s agricultural output and development in the agricultural sector, but that the reforms have influenced other sectors leading to an expansion of growth. Some of the areas that have been affected by agricultural reforms include the market and trade for its goods. Increased production of its agricultural products has opened more market through exports, whereas its increased demand for technology and management practice has increased imports for expertise and the technology. Increased imports and exports may link to, either indirectly or directly, trade relationship between China and other countries. China has finally joined the World Trade Organization. As seen earlier, a country may fear market conditions like competition at its weakest points, at the expense of expansion of its market. This has been outlined by China’s fear that it would face unfair competition on crops requiring extensive land yet this has not been reported for two years in the trade body. However, over expectations may also not help much as seen in the case of China where there have been no improved exports for the labor intensive products after entry into WTO in 2002, as was expected. China’s reduced price protection has resulted in the farmers being in a position to adjust to the international market system.

There is need for extensive research in developing future and present systems in the agricultural sector to replace the traditional methods that may not help much in the face of international competition, in order to continue experiencing growth of the agricultural outputs. The need for research has led to development of the usage of education in the agricultural sector. The need to improve the agricultural sector has also resulted in the use of technology and usage of fertilizers and pesticides.

References

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Hu Vicky (2005). The Chinese Economic Reform and Chinese Entrepreneurship. A Lecture. Caixa Manresa and FUOC. Web.

Koo, W., Lou J., and Johnson R., (1996). Increases in Demand for Food in China and Implications for World Agricultural Trade. Ag. Econ. Rpt. No. 351, Dept. of Ag. Econ., North Dakota State University, Fargo.

Koo & Jianqiang. (1997). The relationship between the Agricultural and Industrial Sectors in Chinese Economic Development. Agricultural Economics Report No. 368.

Lin Justin. (1992). Rural Reforms and Agricultural Growth in China. The American Economic Review. Vol.82. No. 1.pp. 34-51. Web.

Rabushka, Alvin. (1987). The New China. Westview Press, Boulder, CO.

Wang, E., Wailes, and Gramer G. (1996). A shadow-price frontier measurement of profit efficiency in Chinese agriculture. American Journal of Agricultural Economics 78. 146-156.

Wenkai Zheng. Piloting Community Development Driven Approach and Exploring New Mechanism for Poverty Reduction and Development. December 3, 2008. Manila. Web.

World Bank. (1985). China Long Term Development Issues and Options. The Johns Hopkins University Press, Baltimore, MD.

Zong L. (1993). Agricultural Reform and Its Impact on Chinese Rural Families, 1978-1989 Journal of Comparative Family Studies. Vol. 24.

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